Week to May 15th

Markets turn down, Worst Retail Sales ever, Earnings season pause and Opex

MY CALL THIS WEEK : BUY NZDCAD

In a week that saw reality bite, with WHO reporting a (so far small) second wave in countries which are furthest in lockdown release, and Fauci’s gloomy Senate testimony, the sharp move down for markets came when Fed Powell said that more needs to be done to support the economy. SPX was down 5.46% at its lowest point in the week, although some relief came in the last couple of days. There was notable sector divergence, with NDX managing to break even for the week, whereas lockdown-affected sectors like aviation fell heavily, AAL down 10.85% for example. Oil rose all week, but of course from a very low base, but a clear and constant move up in yen, gold and bonds, and to an extent the dollar, showed how any equity rallies are being driven by cheap or free money, rather than solid earnings hopes.

Next week has plenty of events, the retail phase of earnings season, led by giant WMT, Senate testimony on Tuesday and a Thursday speech by Fed Chair Powell, both on COVID-19 and the FOMC minutes, a Chinese interest rate decision, inflation from Japan, the UK and Canada, and another weekly set of no doubt depressing PMIs from Europe. But the patchwork reopenings, and arguments against will probably take centre stage, as traders continue to try and work out the endgame.

Mon May 11

A mixed day today with DJIA down but NDX up, as comments about reopening from New York governor Cuomo were balanced by general concern about the cost of the lockdown. The mood was positive overall, with Gold, bonds and JPY clearly down. USD was up across the board. Oil was flat on the day.

Tuesday May 12

US health official Dr Fauci warned today that a vaccine is still a while off, and it was a Turnaround Tuesday, as stocks fell around 2%, although AAPL outperformed, up 1.14% on the day. The turnaround was reflected in Gold, Bonds and JPY all up. The dollar was also down after the US CPI miss. Oil was surprisingly up, although this was not reflecting in the USO ETF which has failed to fully track the price of Oil recently.

Wednesday May 13

The downward trend continued today after Fed Chair Powell said that more needs to be done to support the economy, with airlines and banks falling particularly hard. Again the triple haven set (Gold, Bonds, JPY) were up, the latter being the only currency to gain against the dollar. Oil had a flat day, with reaction to the equity market being balance by a strong trend up from this historic low.

Thursday May 14

Despite another shocking Initial Jobless Claims figure of nearly 3 million, markets rallied today after an initial drop, as markets tested but ultimately were supported by the May 4 SPX 2780 low, and closed over 1% up. Oil was up in line, and CAD followed it. However, Gold and bonds were also up, showing that sentiment had not necessarily changed. However, JPY was down on what was otherwise a flat day for USD.

Friday May 15

Markets dipped today and then recovered, ending up marginally green on the day (SPX was up 0.39%), as Thursday’s recovery rally continued despite the worst Retail Sales print in history. In fact, there was a element of sell the rumour buy the news as the XRT Retail ETF was up nearly 2%. There were also rumblings of the trade war reopening as China threatened to “restrict or investigate” certain US chipmakers if the US continues to block Huawei’s supply chain. Oil was up again and bonds and JPY were down in line with the market, although Gold carried on rising. The dollar was fairly flat overall.

Just to show you how this is still a sentiment-driven market, look how well the Google Trends search terms for a second wave (fear) and a vaccine (hope) correlate with the SPX price over the last few weeks. The trends are of course inverted on the left-hand chart.

WEEKLY PRICE MOVEMENT

All indices were down this week, with DAX the largest faller at 4.03%. The weakest currency was NZD and the strongest was the dollar, with NZDUSD down 3.32% the worst performer. Cryptos pulled back sharply in the line with the equity markets, and with Bitcoin finding $10,000 to be a barrier. FANGS generally followed the market, except for NFLX which outperformed.

My call to buy EURUSD initially paid off, but eventually failed, losing 1.37%. Fifteen weeks, six wins, net profit 4.41%. I think NZD should recover a little, and CAD may fall with Oil next week, so I am buying NZDCAD.

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)

• More lockdown release
• UK, Japan, Canada inflation
• Chinese rate decision
• Powell Senate Testimony

Monday May 18

Like Mondays often are, today is quiet. The German BuBa monthly report is released. ‘BAT’ stock BIDU reports after the bell.  Markets are closed in Canada.

23:50 JPY Japan 20Q1 Prelim GDP (e-1.2% p-1.8%) (Sunday)

Tuesday May 19

Chair Powell’s Senate Health Committee testimony today is the star event. The retail phase of earnings season opens with DJIA components WMT and HD reporting before the bell. There is a rate decision in Indonesia. Markets are closed in Turkey.

01:30 AUD RBA Meeting Minutes

06:00 GBP UK Claimant Count/UnEmp/AHE (UnEmp e4.4% p4.0%)

09:00 EUR Germany ZEW Economic Sentiment Survey (e33.5 p28.2)

12:30 USD US Building Permits/Housing Starts

14:00 USD Fed Chair Powell testifies

14:30 NZD NZ GDT Milk Index

Wednesday May 20

The Chinese rate decision is probably the most important print of the day. The FOMC minutes may move things, but are foreshadowed by the Powell testimony on Tuesday. Retails earnings continue with TGT and LOW before the bell. As well as China, there are rate decisions in Thailand and Iceland.

01:30 CNY PBoC Rate Decision/Statement (e3.85% hold)

06:00 GBP UK CPI (YoY e0.9% p1.5%)

09:00 EUR Eurozone CPI

12:30 CAD Canada CPI (p1.6%)

14:30 WTI EIA Oil Stocks (May 15)

18:00 USD FOMC Minutes

18:00 CAD BoC Lane speech

23:00 AUD Aus Commonwealth Bank Manuf Prelim PMI

23:50 JPY Japan Imports/Exports/PB

Thursday May 21

Todays retail earnings reports before the bell are BBY, TJX and ROST. After the bell is NVDA. There are rate decisions in South Africa, Turkey and the Phillippines. Banks are closed the Nordic countries, Germany and France for Ascension Day, although markets are open.

02:30 AUD RBA Governor Lowe speech

07:30 EUR Germany Markit Manuf Prelim PMI (e40.0 p34.5)

08:00 EUR Eurozone Markit Composite Prelim PMI (e24.0 p13.6)

08:30 GBP UK Markit Services Prelim PMI (e22.1 p13.4)

12:30 USD Philly Fed Manuf Survey (May)

12:30 USD US Initial Jobless Claims (May 15) (p2981k)

13:45 USD US Markit Markit Prelim PMIs

14:00 USD US Existing Home Sales (MoM)(Apr)

17:00 USD Fed Clarida speech

18:30 USD Fed Chair Powell speech

22:45 NZD NZ Retail Sales (QoQ p0.7%)

23:30 JPY Japan National CPI (ex Food YoY e-0.1% p0.4%)

Friday May 22

A quieter day on releases. The third and largest of the ‘BAT’ stocks, BABA, reports today before the bell.

06:00 GBP UK PSBR

06:00 GBP UK Retail Sales

11:30 EUR ECB MPC Minutes

12:30 CAD Canada Retail Sales (MoM p0.3%)

14:30 EUR ECB Lane speech