Memorial Day 4-day week, Markets rise on lockdown, US-China sabre-rattling
MY CALL THIS WEEK : SELL EURAUD
Markets were buoyant this week as the lockdown release proceeded, despite Trump’s sabre-rattling with China over the resumed crackdown on Hong Kong, with a new security law, widely seen as removing the territory’s independence. There was a distinct rotation out of tech into companies seen to benefit from the reopening, which suggests a rare week where value stocks outperform momentum stocks.
However, USD continued to fall, presumably assessing the government cost of the lockdown, and notably, haven assets Gold, bonds and JPY did not pull back, ending the week flat.
Sell in May on did not really happen this year, and next week is a new month, traditionally also weak. The NFP estimate is already dire (as are Canadian and German jobs estimates). There is a lot of other data in the week. However, it seems the US-China war of words has started again, and this, along with coronavirus statistics will probably be the driving force. Watch out, though for any surprises from the ECB, and possibly Canada and Australia, all of whom have rate set meetings.
Mon May 25
With exchanges closed, futures markets in equities and Oil took their cue from the continuing end of the lockdown, and rose throughout the day. With London also closed there was very forex volatility and the dollar was flat, as was Gold. Bond markets are were closed, although bond futures were slightly up.
Tuesday May 26
Having effectively gapped up over the long weekend, the initial cash rallies faded, and markets were flat on the day. Chinese markets recovered on potential new stimulus from the PBoC, and there was a recovery in Hong Kong after the sharp politically-related falls last week. The dollar was generally down, but although JPY was up, the other haven assets Gold and bonds were not, and Oil continued to rally.
Wednesday May 27
The US declaration that they no longer considered Hong Kong to be independent of China (and therefore sanctions and tariffs were applicable) was not, and caused a sharp fall after the US open, although markets recovered later with SPX closing 1.5% up. The riskier NDX was only 0.55% up, showing the mixed message.
The Eurozone pandemic plan was well received, and EUR was 0.32% in contrast to Brexit-troubled GBP down 0.56%. USD was generally down, with only JPY weaker. Bonds and Gold had a roller-coaster day, but ended roughly flat. Oil was sharply down. All in all, a mixed messages day where natural correlations failed.
Thursday May 28
Markets were down today as China enacted the Hong King security bill, but only at the end, leaving European indices in the green. The US GDP print was bad, at -5%, but no worse than expected. Again USD was down across the board. Gold and JPY were up, but bonds were slightly down. Gold and Oil rose on the weaker dollar.
Friday May 29
Markets fell all day on Friday, waiting to see if President Trump would restart the trade war. He held a press conference late in the day, and although he said he would eliminate special treatment for Hong Kong, crucially, he did not say he would pull out of the Phase 1 trade agreement. Markets shot up, to close up, on the day, especially for tech stocks. The dollar was still down, but JPY retreated sharply after the Trump announcement. Oil was up in line with equities, and so surprisingly were Gold and Bonds.
WEEKLY PRICE MOVEMENT
The biggest riser this week was NKY, up a very strong 7.3%. AUDJPY was the strongest pair up 2.16%. Cryptos were up slightly, and once again FANGS were variable, generally underperforming NDX
My call to sell EURJPY was my worst for weeks, the pair rose by 2.02%, wiping out nearly a third of accumulated profit. 17 weeks, 7 wins and a profit of 4.43%. This week I am selling EURAUD.
Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on DXY. The equity and index prices are now based on the cash close each day. Recoveries in line were seen in most FANGs, but not NFLX, which has not really fallen like the others.
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)
- New month
- NFP Week
- ECB/Aus/Canada rate decisions
- US-China tension
Monday June 1
New months sometime herald changes in sentiment. Today’s data is pretty much all manufacturing PMIs. All are expecting slight rebounds.
23:00 AUD Aus Commonwealth Bank Manuf PMI (Sunday)
01:00 AUD Aus TD Securities Inflation (YoY)(May)
01:45 CNY China Caixin Manuf PMI( May) (e49.6 p49.4)
07:55 EUR Germany Markit Manuf PMI(May)
08:30 GBP UK Markit Manuf PMI(May)
13:30 CAD Canada Markit Manuf PMI(May)
13:45 USD US Markit Manuf PMI(May)
14:00 USD ISM Manuf PMI(May) (42.5 p41.5)
Tuesday June 2
No European or US news today. Watch out for Hong Kong headlines, and also Brexit matters ahead of the Jun 18 EU Summit.
01:00 AUD Aus HIA New Home Sales (MoM)(Apr)
04:30 AUD RBA Rate Decision/Statement (e0.25% hold)
14:30 NZD NZ GDT Milk Index (time approx.)
Wednesday June 3
The jobs prints from Germany and US (ADP) are the main events today, together of course with the Canadian rate decision.
01:10 AUD RBA Bullock speech
01:30 AUD Aus Q1 GDP (QoQ e-0.3% p0.5%)
01:45 CNY China Caixin Services PMI (May)
07:55 EUR Germany Unemployment Rate/Change (Rate e200k p373k)
07:55 EUR Germany Markit PMI Composite( May)
08:30 GBP UK Markit Services PMI (May)
09:00 EUR Eurozone Unemployment Rate (Apr) (e8.2% p7.4%)
12:15 USD US ADP Employment Change(May) (e-9.5M p-20.2M)
13:45 USD US Markit Composite/Services PMIs
14:00 USD ISM Non-Manufacturing PMI (Apr) (e43.0 p41.8)
14:00 CAD BoC Rate Decision/Statement (e0.25% hold)
14:30 WTI EIA Oil Stocks
Thursday June 4
The first ECB after the €750 billion COVID-19 support package should be interesting. Traders will be watching for further stimulus.
01:30 AUD Aus Imports/Exports/TB(Apr)
09:00 EUR Eurozone Retail Sales (YoY)(Apr)
11:45 EUR ECB Rate Decision/Statement (e0% hold)
12:30 USD US Initial Jobless Claims (May 29) (p2.6M)
12:30 EUR ECB President Lagarde Presser
12:30 CAD International Merchandise Trade(Apr)
18:00 CAD BoC's Gravelle speech
Friday June 5
The NFP estimate is enormous, but still half the figure from last month. Anything positive may well be seized on by bulls.
06:00 EUR Germany Factory Orders s.a. (MoM)(Apr)
12:30 USD US NFP/AHE/UnEmp (NFP e-10M p-20.5M)
12:30 CAD Canada NFP/AHE/UnEmp (NFP e-4M, p-2M)
15:00 CAD Canada Ivey PMI