Sunday 28 June 2020

Week to Jun 26th

COVID-19 second wave in places, Changes in bank rules, Inside week for stocks

This week, markets rallied for the first couple of days, partly on positive PMIs, but then fell sharply as a second wave became clear from case reports, reflected in inter-state arrival quarantines, the ‘re-opening rollback’. Volatility was, however down, with SPX, DJIA and Oil all posting inside weeks.

Risk currencies broadly followed equities and Oil, giving a V-shaped week to the dollar chart. Nevertheless the underlying fragility was once again shown by Gold which hit a new 7-year high.

Next week, Fed Chair Powell and TreasSec Mnuchin both testify to Congress on coronavirus on Tuesday, and there are a raft of manufacturing releases, but due to the foreshortened week, the big event is NFP day on Thursday, giving the strange spectacle of millions of new jobs at the same time as millions of Initial Jobless Claims.

The week also sees us move into July, H2 and Q3 of the year, with the next batch of earnings less than two weeks away.

Mon Jun 22
Markets rose on Monday, as always on stimulus hopes, although with less enthusiasm than in previous weeks as volatility dissipates, but the move was mainly led by (virus-immune) tech, and although bonds and JPY managed to stay flat, Gold was up in line with the noticeably weaker dollar.

Tuesday June 23
After a brief but sharp dip in the Asian session after trade advisor Peter Navarro said the US-China trade deal was ‘over’, a statement that was quickly retracted, markets again advanced cautiously, and ended less than 1% up on the day, and Oil was flat (down -0.9%, which is flat for Oil). The dollar continued to fall down against all currencies except CAD, with a sharp appreciation in JPY Bonds were also flat again, although Gold advanced for a second day.

Wednesday June 24
The fear of the second wave of COVID-19 finally broke today, as Governors in New York, New Jersey and Connecticut enacted quarantine rules for intra-state visitors from high infection rate states. Global markets fell, with SPX down 2.6% and Oil over 5%. Notably, there was no reaction from the haven trio, which were all down, however the dollar reversed up, exactly in line with the top in equities and Oil.

Thursday June 25
Equities and Oil recovered about half of Wednesday’s drop today, on news of changes to FDIC rules to allow banks to invest in VC funds. Although banking stocks rose (XLF +2.65%, BAC +3.28%). However, an uptick in the number of COVID-19 cases in the US capped enthusiasm. The dollar rose again, although less vigorously, and JPY, Gold and bonds were flat.

Friday June 26
Today the Fed said it would cap buybacks and dividends from America’s biggest banks, prompting XLF to pull back 4.5% (WFC fell 7.42%). A further increase in new cases, coupled with re-opening rollbacks in Texas and Florida. Overall SPX fell by nearly 2.5%. All other indices and Oil followed suit, although for most markets it was an inside week.

The dollar was up, but mainly because of a sharp fall in GBP to a four-week low, as concerns about the government’s COVID-19 management were raised. The UK has one of the highest case/fatality ratios in the world. Bonds and Gold were notably up, but not JPY which, like most currencies was flat against USD.

All indices were down this week with bank-heavy DJIA the weakest. The biggest forex mover was AUDCAD, up 1.09%. Yet another week of crypto flatness, and a variable result in FANGs, with FB hit hard, down 9.51% after an advertiser backlash against its perceived refusal to police hate speech.

It’s a good job I didn’t follow my instinct last week to short AUDCAD. It’s unfortunate that despite markets falling materially, for some reason JPY did not follow this week, so my AUDJPY short actually lost 0.13%. 21 weeks, 10 wins and a total of 7.83% to date. This week I will try and dollar pair, and sell NZDUSD.

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.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

  • New month, quarter, half year
  • Foreshortened for Independence Day
  • Non-Farm Payrolls
  • Heavy on CB speeches

Monday June 29
As often is the case, a quiet start to the week. Plenty of data, but not very significant. Markets are closed in Malta and many South American countries from the Feast of St Peter and St Paul.
22:45 NZ Total Filled Jobs(Sunday)
23:50 Japan Retail Sales (Sunday)
09:00 Eurozone Business Climate (Jun)
12:00 Germany CPI (e0.6% p0.5%)
12:30 BoE Vlieghe speech
14:00 US Pending Home Sales(MoM)(May)
14:30 Dallas Fed Mfg Business Index (Jun)
19:00 Fed Williams speech
23:30 Japan Jobs/Unemployment (May)
23:50 Japan Industrial Production(YoY)(May) Prelim

Tuesday June 30
Fed Chair Powell and TreasSec Mnuchin both testify today before the House Financial Services Committee on the COVID-19 crisis, and the government’s response. The month, second quarter and half year ends today, which may heighten volatility as fund managers rotate.

01:00 China PMIs
02:30 RBA Debelle speech
06:00 UK 20Q1 Final GDP (e-2.0% p-2.0%)
09:00 Eurozone CPI (Core YoY e0.8% p0.9%)
12:30 Canada GDP (MoM e-12.3% p-7.2%)
13:00 US Home Price Indices (YoY)(Apr)
13:45 Chicago PMI (Jun)
14:00 Fed Chair Powell testifies (time approx.)
14:00 Treasury Sec Mnuchin testifies (time approx.)
14:00 US Consumer Confidence
15:05 Fed Brainard speech
22:30 Aus AiG Performance of Mfg Index(Jun)
23:00 Aus Commonwealth Bank Mfg PMI(Jun)
23:50 Japan Tankan Large Mfg Index (Q2)

Wednesday July 1
The new month, quarter and half year starts today. There is a rate decision in Colombia. Markets are closed in Canada and Hong Kong. There is a rate decision in Sweden. SEK is 4.2% of the DXY dollar basket

01:45 China Caixin Mfg PMI(Jun)(e50.5 p50.7)
06:00 Germany Retail Sales(MoM)(May)
07:55 Germany Unemployment Rate/Change (Jun Change e120k p238k)
07:55 Germany Markit Mfg PMI (Jun)
08:30 UK Markit Mfg PMI(Jun)
11:00 BoE Haskel speech
12:15 US ADP Employment Change (e+3.5M p-2.76M)
13:45 US Markit Mfg PMI (Jun)
14:00 ISM Mfg PMI (e49.0 p43.1)
18:00 FOMC Minutes

Thursday July 2
Due to the holiday on Friday, NFP is released today, only one day after the ADP figure and at the same time as the Initial Jobless Claims figure. Both are expected to be large positive numbers, which is unusual, to say the least. Given new quarter positioning as well, and the ongoing re-opening rollback, volatility seems likely.

01:30 Aus Imports/Exports/TB
09:00 Eurozone Unemployment Rate (May)
12:30 US NFP/AHE/UnEmp (NFP e3M p2.5M)
12:30 US Initial Jobless Claims (Jun 26) (p1.48M)
12:30 US Trade Balance (May)
12:30 Canada International Merchandise Trade (May)
13:30 Canada Markit Mfg PMI(Jun)
14:00 US Factory Orders (May)

Friday July 3
Markets are closed in the US today for observed Independence Day, so expected everything to be very quiet. Italy releases its budget.

00:30 Aus Retail Sales
01:45 China Caixin Services PMI
07:55 Germany Markit PMI Composite
08:00 Eurozone Markit PMI Composite
08:30 UK Markit Services PMI

Sunday 21 June 2020

Week to Jun 19th

Fed Corporate Bond buying, More good COVID drug data, Second spike fears

News of the Fed's corporate bond buying programme, a surprise strong beat on Retail Sales, and positive results on COVID-19 drug dexamethasone gave a strong push for equity and Oil markets early in the week, but these gains stalled and faded on news of a small resurgence in cases in China, and some spikes in hospitalisation in states which have re-opened, and a slight miss ('only' 208k) in the Initial Jobless Claims figure. This accelerated on Friday on news that Apple will close some US stores only just re-opened. Noticeably Gold also spiked on Friday, after positively correlating with equities until then.

After stumbling initially, the dollar had a relatively good week, recovering smoothly after weeks of fading, unlike yields which tracked equities, and faded after Fed Chair Powell's Humphrey-Hawkins testimony.

The net result for the week was a SPX +1.86%, Gold +0.78%, and DXY +0.59%, which by recent standards was fairly flat, reflecting the opposing sentiments of some genuine economic activity overshadowed by the fear of a second wave, which, given the almost complete recovery of some markets, cannot be said to be priced in.

Next week has little scheduled news other than European PMIs, and given that Chair Powell has said his piece, and the Initial Jobs figure is becoming less volatile, risk attitude in markets (with the consequential effects on other asset classes) are vulnerable to second wave/resurgence data. The continuing strength of Gold is an indicator of the disconnect between the damage and equity pricing, which will not resolve itself until the next batch of earnings reports in about three or four weeks time.

Mon Jun 15
On Monday, last week’s end-of-week slump was reversed on new that the Fed would start buying individual corporate bonds on the secondary market, with tech and financials leading. Oil was up in line. The dollar, however, which had rallied on Friday, slumped on the news. The haven trio (Gold, JPY and bonds) were all down in line

Tue Jun 16
The rally continued today, on trial results showing that a steroid, dexamethasone (off-patent) helped critically ill COVID-19 patients. It faltered slightly on new that Beijing had re-closed schools after a new outbreak. (This then became the theme for the rest of the week) Again Oil was up and the haven trio down, but otherwise USD recovered yesterday’s losses after a stellar beat (17.7% vs 8%) on Retail Sales. There was little reaction to Chair Powell’s Humphrey-Hawkins testimony as he didn’t really say anything we have not heard before.

Wednesday June 17
The mood changed today as Beijing cancelled several domestic flights, and a resurgence was seen in the US with Arizona and Texas reporting spikes in new cases. It is unfortunate for Chair Powell that these things often happen after major speeches, where the market seems to pout, if no new gifts are brought to the table, even if last ones were only days ago. The slip was not large, only 0.4% on SPX, and outperforming NDX actually advanced, on half the usual volume, but notably Gold and bonds were up, Oil was down, and the yen was the only currency that rose faster than the dollar.

Thursday June 18
Today’s indices were roughly flat, (SPX+0.06%) a rare occurrence these days on a slight miss on Initial Jobless Claims (1508k vs 1300k), as traders took a hands-off approach. European indices were more decisively down. Volumes in SPY were again half the usual level. Intermarket assets were indecisive—in line you might say—as Oil and bonds were up, Gold slipped slightly, as did JPY, but less so that other currencies.

The dollar was up firmly, helped by a 1% fall in GBP after the Bank of England rate meeting. Curiously, Gov Bailey announced a reduction in the pace of bond buying (QE) although the level was confirmed at an extra £100 billion, on top of the £645 billion static and in place since 2008.

Friday June 19
The indecision was resolved today to the downside, after morning gains were erased and markets faded in the afternoon after Apple (ironically after an all-time high) announced it would close some recently re-opened stores, along with further daily case increases from CA, FL, AZ and SC. All markets except NDX (flat) and FTSE (up on further GBP weakness) posted red candles.

USD was up again, except against JPY which was up along with Gold and Bonds. Although Oil dipped on the Apple news, it managed to recover and end up on the day.

The strongest index this week was NDX, reflecting investors long-term love affair with tech beating the negative sentiment. In a quieter week for forex, GBPJPY was the biggest mover down 1.99%. Cryptos hardly moved for a second week, but FANGs notably outperformed.

With little movement this week, my AUDCAD short worked, but only by 0.31%. It might work again, but it looks like stocks may be turning down now some second wave activity seems likely, and so JPY should be strong. The currency that has most recently topped is AUD, so this week I will sell AUDJPY. Results are 7.96% over 20 weeks, of which half were wins.

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.

NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold)

Monday June 22
Today we get to hear for the first time from the new BoC governor, Richard Tiffany “Tiff” Macklem, who took over from Stephen Poloz on June 3. He was previously the Senior Deputy Governor, although he left the bank six years ago for an academic post. Markets are closed today in Latvia and Croatia.

23:00 RBA's Governor Lowe speech (Sunday)
01:30 China PBoC Interest Rate Decision (e3.85% hold)
12:00 German Buba President Weidmann speech
12:30 Chicago Fed National Activity Index (May)
14:00 US Existing Home Sales (MoM)(May)
14:15 ECB De Guindos speech
15:00 BoC Governor Macklem speech
16:30 ECB's Lane speech
23:00 Commonwealth Bank Manufacturing PMI(Jun) Prel

Tuesday June 23
All June PMIs today, which whilst well under 50, are all expected to improve. Any failure to do so would be bearish for markets. There is a rate decision in Hungary. Markets are closed in Latvia and Estonia.

07:30 Germany Markit Prelim PMIs (Jun) (Manuf e41.0 p36.6)
08:00 Eurozone Markit Prelim PMIs (Jun) (Composite e41.0 p31.9)
08:30 UK Markit Prelim PMIs (Jun) (Services e39.5 p29.0)
13:45 US Markit Prelim PMIs (Jun)
14:00 Richmond Fed Manufacturing Index(Jun)
14:00 US New Home Sales (MoM)(May)

Wednesday June 24
Irishman Philip Lane is the first three ECB members to speak this week, as the central bank’s speaking programme resumes. As well as New Zealand, there are rate decisions in Thailand and Czechia. Markets are closed in all three Baltic republics.

02:00 RBNZ Rate Decision/Statement (e0.25% hold)
07:00 ECB Lane speech
08:00 Germany IFO Business Climate/Expectations
13:00 US Housing Price Index (MoM)(Apr)
22:45 NZ Imports/Exports/TB

Thursday June 25
Today is the big date of the week for data with the now in focus Initial Jobless Claims, as well as the Capital Goods and latest GDP print. There are rate decisions in Turkey and Mexico. Markets are closed in China and Hong Kong today and tomorrow for the Dragon Boat festival.

06:00 Germany Gfk Consumer Confidence
11:30 ECB MPC Minutes
12:30 US ND Capital Goods (May e+2.5% p-6.1%)
12:30 US PCE (QoQ)
12:30 US Initial Jobless Claims (Jun 19) (p1.508M)
12:30 US Annualised Q1 Final GDP (e-5% p-5%)
12:30 ECB Schnabel speech
13:30 ECB Mersch speech
17:00 BoE Haldane speech
20:30 US Bank Stress Test Info
23:30 Tokyo CPI (Core YoY Jun e0.2% p0.2%)

Friday June 26
Today is the ‘Russell Recon’ the once a year rebalancing of the 2,000 stocks in the index. Every year shows huge volume and volatility on this day, as you can see on this chart from Refinitv.

There is little scheduled news today.

12:30 US PCE (MoM and YoY)
14:00 Michigan CSI (Jun)

Sunday 14 June 2020

Week to Jun 12th

Markets fall 6% after Fed, Uptick in COVID cases in TX, CA, NDX breaks 10000

In a week where sentiment changed yet again, primarily driven by the Fed on Wednesday afternoon, which precipitated a sharp fall in equities and reversal in the dollar and yield slide. However signs of a possible second wave in Texas and California, and the consequent fear that this will slow the ending of restrictions and thus economic recovery. Notably haven assets (Gold, JPY and bonds) had been rising all week, and actually stalled on Thursday, when SPX fell over 6%. Notably NDX managed new all-time highs until the pullback. Technicals also come into play, as indices move into overbought territory.
Next week, we have two days of Fed Chair Powell giving his semi-annual ‘Humphrey-Hawkins’ testimony to Congress. You can sure the extent of COVID-19 economic damage will be the primary topic, and traders will be looking for any variation of last Wednesday’s message. There are rate decisions in the UK, Switzerland, and Japan, which all come with central bank messages.

In a busy data week, we also have a lot of inflation data : CPI for UK, Eurozone, German and Canada, PPI (wholesale price inflation) for the UK and Germany, and Retail Sales for the US, UK, Canada and Canada, and jobs reports from Australia and the UK. All are expected to be bad, but crucially, not as bad as last month. A second wave of declining data would be as damaging as that of the virus itself.

Mon Jun 8
Last week’s re-opening’ rally continued today, with SPX turning positive for the year, and NDX making a new all-time high. Travel stocks were the leaders. The dollar continued to fall, and in a sign that this rally is uncertain, the haven trio were also up and Oil was down.
Tuesday June 9
The pattern of this recovery has seen certain stocks gain at the expense of others, and the move today was tech stocks, so much so that DJIA was down 1.09%, but NDX was up 0.66% (breaking the 10000 barrier briefly). SPX was in between, down 0.78%. Once again, the haven trio all said ‘risk off’ and rose, and Oil was roughly flat. Another down day for USD (after a brief rally in Europe’s morning). The move was not universal, with GBP sliding, and the antipodean duo down over 1%.

Wednesday June 10
The Fed rate decision and dot plot today indicated no hikes until the end of 2022, and reiterated the damage to the economy caused by COVID-19. Maybe it was the latter warning, or even the CPI miss earlier, or maybe it was a case of buy the rumor, sell the news. Stocks turned down, although once again we had tech divergence (DJIA down 1.04%, NDX up 1.28%, another ATH).

A similar reversal was seen in USD, although there was not enough time for it to erase earlier losses and DXY posted a red candle for the day. This is not uncommon, as London (the world’s forex centre) is closed by the time of the Fed meeting. Most of the losses were against JPY which was up once again, along with bonds and Gold. Oil was flat on the day.

Thursday June 11
Today was the worst day in the markets since March, with DJIA down nearly 7% (NDX down 6%) as Texas and California reported new spikes in COVID-19 cases, inevitably linked to the reopening, and implying the crisis will take longer to resolve than originally thought. Travel shares in particular fell hard. Oil was also sharply down, losing 7.28%. The Initial Jobless Claims figure was a beat, but only very slightly, and there were still 1.5M new claims.

The dollar reversal continued with DXY strongly up again all currencies except of course JPY which along with bonds, was up for fourth day. Gold however took a breather and pulled back slightly.

Friday June 12
Markets recovered slightly after Thursday’s sell-off, although not by much, as most stocks had inside days, suggesting there was no immediate follow-through to Thursday, although this was still the worst week since March. Oil was slightly up, and the neutral mood saw JPY and bonds down on the day, and Gold rise again. The dollar recovery continued, with sharp moves up (except on CAD), some of this being driven by EUR and GBP concerns as Brexit deal deadlock seems to be back on the agenda, and not helped the worst British industrial production (-20.3% MoM) figures in decades.

The sharp fall on Thursday pushed all markets into negative territory this week, with last week’s top performer (DAX) being the week’s worst casualty, down nearly 7%. AUDJPY was the weakest pair this week, down 3.48%. Cryptos once again hardly moved, and FANG (and indeed NDX) did notably better than the market as a whole.

I knew AUDNZD wouldn’t move much, and so it proved to be the case. My trade paid off, but only by 0.55%, for 9 out of 19 weeks win, and accumulated profit of 7.65%. Not much, but I am tying one hand behind my back with forced entry and exit times. I am tempted to short AUDJPY for some more, but this depends on SPX continuing downwards, so I’ll sell AUDCAD instead.

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)

  • Powell Humphrey-Hawkins Testimony
  • GBP, JPY, CHF rate decisions
  • Lots of inflation and proxy data
  • Option Expiration Week

Monday June 15
A quiet start to the week, with no significant European or US data. Markets are closed in Argentina and Colombia.

02:00 China NBS Press Conference
02:00 China Industrial Production/Retail Sales
21:00 NZ Westpac Consumer Survey (Q2)

Tuesday June 16
Today is the first day of Fed Chair Powell’s Semiannual Monetary Policy Report to the Congress
before the Committee on Banking, Housing, and Urban Affairs of the U.S. Senate, the first in June since 2016. As well as Japan, there are rate decisions in Poland and Colombia. There is a 10-year UK bond auction. Markets are closed in South Africa.

01:30 RBA Meeting Minutes
01:30 Aus House Price Index(QoQ)(Q1)
03:00 BoJ Rate Decision/Statement
06:00 UK Unemployment (3mo to Apr e4.5% p3.9%)
06:00 BoJ Press Conference
06:00 Germany CPI (YoY e0.5% p0.5%)
09:00 Eurozone ZEW Economic Sentiment (Jun)
09:00 Germany ZEW Economic Sentiment (Jun e60 p51)
12:30 US Retail Sales (May Control Group e4.0% p-15.3%)
13:15 US Industrial Production(MoM)(May)
14:00 Fed Chair Powell testifies
14:30 NZ GDT Price Index
22:30 Fed Clarida speech
23:50 Japan Imports/Exports/TB

Wednesday June 17
Today Fed Chair Powell continues his Humphrey-Hawkins testimony to the Committee on Financial Services, U.S. House of Representatives. There is a 30-year German bond auction. Markets are closed in Iceland.

06:00 UK CPI (YoY e0.5% p0.8%)
09:00 Eurozone CPI
12:30 US Building Permits/Housing Starts (MoM)(May)
12:30 Canada BoC CPI (Core YoY e1.4% p1.2%)
16:00 Fed Chair Powell testifies
22:45 NZD 20Q1 Final GDP (QoQ e0.5% p0.5%)

Thursday June 18
Once again, the key weekly Jobless Claims figure is expected to fall, although still five times its long-term average. As well as the UK, there are also rate decisions in Taiwan, Norway and Indonesia.

01:30 Aus NFP/Unemp (Jobs e-125k p-594k, Unemp e7.0% p6.2%)
07:30 SNB Rate Decision/Statement (e-0.75% hold)
11:00 BoE Rate Decision/Statement (e0.1% hold)
12:30 US Initial Jobless Claims (Jun 12) (e+1.3M p+1.54M)
12:30 Philly Fed Manufacturing Survey (Jun)
17:30 BoC Schembri speech
23:30 Japan National CPI
23:50 BoJ MPC Minutes

Friday June 19
Today is June Option Expiration date, which often leads to heightened volatility especially in markets which have trended all month (and therefore options have not been closed early). There is a rate decision in Russia. Markets are closed in Sweden and Finland.

06:00 UK PSBR
06:00 UK Retail Sales
06:00 Germany PPI
12:30 Canada Retail Sales 
16:00 Fed Quarles speech
17:00 Fed Chair Powell speech