Week to Jun 5th

New month, Best NFP ever, ECB stimulus exceeds hopes, All quiet in China this week

MY CALL THIS WEEK : SELL AUDNZD

This was the week that sentiment truly turned. Most economic releases were beats on estimates, and improvements on last month, and the positive ADP and Jobless Claims numbers culminated on Friday with the highest NFP print ever (+2.5M), a mere two weeks after the worst ever print, with a rally that produced a new all-time high for NDX. The haven trio were all sharply down, and the dollar posted its third weekly loss, as markets saw the government, not private companies as carrying the cost of COVID-19.

The expected escalation in US-China tensions did not occur this week, another positive driver for markets. Next weeks Fed rate decision even has a 10% chance of a 25bp hike priced in, and unless that unlikely event happens, it is hard to see how the Fed could depress markets. The only major US print is inflation, little affected by COVID-19. Eurozone and UK GDP prints are expected to be poor, but as in the US, the remedial action has already been taken.

Mon Jun 1

Stocks and Oil rallied after President Trump failed to follow through with any specific proposals to punish China for the Hong Kong dispute. The rally was first seen in the HSI, and then spread to Europe and the US. ‘Re-opening’ stocks such as airlines and cruise companies did particularly well. Bonds were down in line, although Gold stayed flat. The dollar continued its slide, down against all currencies, as the cost of COVID-19 becomes apparent.

Tuesday June 2

The stocks and Oil rally continued on Tuesday, for the same reasons and of course in the absence of any negative news. The dollar also continued to slide, except against JPY, which was 1.18% down. Gold and Bonds also fell, in line with the risk-off mood.

Wednesday June 3

A third day of risk-on was driven by the huge ADP jobs beat, and the ISM Services PMI (45.4 vs 44 est). The ADP estimate had been minus 9.5M, after last month’s minus 20M, but the figure came in at a much lower minus 2.8M. This rarely happens, but we had a third day of stocks and Oil rising (the latter helped by EIA stock turning negative), the dollar falling, except against JPY, which was down again, along with bonds and Gold, the latter falling sharply immediately on the ADP print.

Thursday June 4

The ECB exceeded expectations with its stimulus package today, with €600Bn (est €500Bn) of additional bond buying (QE), and EUR shot up on the news, of course pushing DXY sharply down, its ninth red daily candle. The risk picture was different today, stocks pulled back (even DAX) slightly, although still holding most of Wednesday’s ADP-driven gains. JPY was slightly down, as were bonds, but Gold recovered to the pre-ADP price of around $1,720. Oil was up slightly, but did not make Wednesday’s high.

Friday June 5

We said about NFP last week that “anything positive may well be seized on by bulls”.  The market had been expecting minus 10M jobs, this was tempered on Wednesday to minus 3M jobs, but the actual print was plus 2M, the highest figure since records began in 1939. Equity markets and Oil soared, with NDX making an all time high for the first time since February, and a three-month high for Oil. The haven trio was sharply down with Gold down over 2%, its worst day since March. DXY reversed up slightly, although this was only EUR coming off after Thursday’s ramp. The greenback was still well down against GBP, AUD, NZD and CAD, the latter being driven by a similarly stellar NFP (+289k vs -4M est.)

WEEKLY PRICE MOVEMENT

All markets were up this week, with a very strong ‘catchup’ by DAX, up 10.88%. Reflecting risk-on, strongest pair was NZDJPY up 6.51%. Cryptos were quieter than equities, and FANGs generally moved with NDX, with AAPL outperforming this week.

I got lucky this week, I had thought EUR would revert after its rally last week. It did, but fortunately AUD rallied more, and my call to sell EURAUD made 2.67%, 18 weeks, only 8 wins, but accumulated profit of 7.1%. Next week is hard to read, due to the dollar collapse. I thought about selling GBPCAD, but I will play safe and sell AUDNZD. It's not going to be huge, as the pair correlate quite strongly.

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)

• Positive Jobless Claims expectations
• US and Chinese inflation
• Japan, UK and EU GDP
• Watch US-China politics

Monday June 8

Over the weekend the Chinese Imports/Exports/Trade Balance may give the markets a lift for Monday. Markets are closed in Australia, Greece and Romania.

23:50 Japan Final Q1 GDP (QoQ e-0.5% p-0.9%)

06:00 Germany Industrial Production (MoM Apr e-15.5% p-9.2%)

Tuesday June 9

A quiet day with no significant US releases.

06:00 Germany Trade Balance

09:00 Eurozone Final Q1 GDP (QoQ e-3.8% p-3.8%)

Wednesday June 10

The busiest day of the week for scheduled news. The CME Fedwatch tool even suggests a 10% chance of a rate hike. Unless this happens, it is difficult to see how they could depress markets.

01:30 China CPI (YoY e2.6% p3.3%)

12:30 US CPI (Core YoY e1.3% p1.4%)

14:30 US EIA Oil Stocks

18:00 Fed Rate Decision/Statement (e0.25% hold)

18:30 FOMC Press Conference

Thursday June 11

Although 2M new jobs were created in May, the Initial Jobless Claims figure is still elevated. A beat here would be bullish. Markets are closed in Brazil, Poland and Croatia.

01:00 Aus Consumer Inflation Expectations (e4.2% p3.4%)

12:30 US PPI (YoY e0.9% p0.6%)

12:30 US Initial Jobless Claims (Jun 5) (e+1.5M p+1.88M)

21:00 NZ Westpac Consumer Survey (Q2)

22:30 Business NZ PMI (May)

Friday June 12

UK looks terrible but this is a MoM figure comparing March and April. Markets may well disregard it. The Michigan CSI is more interesting. Markets are closed in Russia and the Philippines.

04:30 Japan Industrial Production

06:00 UK Industrial Production (MoM Apr e-15% p-4.2%)

06:00 UK GDP (Apr MoM e-18.7% p-5.8%)

09:00 Eurozone Industrial Production (MoM)

14:00 Michigan Prelim CSI (Jun) (e75.0 p72.3)