Sunday 26 July 2020

Week to Jul 26th

Second week of tech underperformance, Gold all-time high, Dollar 22-month low

In a week that saw some promise on the COVID vaccine front, and generally positive earnings, gains were capped by a rise in new Jobless Claims, and a further spat between China and US, who told the People’s Republic to close one of their US missions, claiming it was used for spying. COVID cases in the US are still rising, and this week, deaths started to rise again, which may have had a effect mid-week. Stocks had a lambda (inverted V) shaped week, and tech underperformance continued. The dollar slid all week, with DXY closing below 94.50 for the first time since Sep 2018, and possibly linked to this, Gold hit an all-time closing high, finishing above $1,900 for the first time.

Next week sees the Fed rate decision meeting, coming at a time of 22-month low for the dollar, and an all-time high for Gold, and of course earnings from tech giants AAPL, AMZN and GOOGL, coming when the tech/industrial ratio is at all-time highs, although faltering. We are also seeing a potential second wave of COVID deaths in the US. There is therefore potential for swings in sentiment, and thus bigger moves than we have seen so far this summer.
Mon Jul 20
PFE and BNTX reported further positive vaccine progress today, and the resistance to 3235 in SPX was broken today. Also there was a sharp reversal in the DJI/NDX ratio, with tech outperforming again, helped by a near-8% rally in AMZN after a broker upgrade. Oil and other indices followed, expect for FTSE which was slightly down after a strong GBP rally. The dollar was down across the board, except for JPY, which was up, along with bonds and Gold, showing, as we have said before, the fragility of this rally. IBM beat estimates after the bell and shares rose 6% AH.

Tuesday July 21
Stocks continued up today on news of EU agreement for a pandemic fund and Senate backing of another round of direct payments, but there was a turnaround again, with tech out of favour. The German-Italian bond spread closed to its lowest for four months today. Oil was up in line. Once again the dollar was down across the board, meaning that paradoxically the haven trio (Gold, JPY, Bonds) were all up. VIX was slightly higher as well. Once again FTSE was slightly down on strong GBP. This is not a sentiment thing, many FTSE companies are traded in the US, in dollars.

Wednesday July 22
A third day of gains, and a third day of tech underperformance, after another good day of earnings, and a rise in PFE on vaccine hopes, but with concerns about US-China relations, after the US closed the Houston Chinese Consulate after spying allegations.This caused a morning dip in SPX (and a brief dollar spike), which recovered later. Other indices were largely flat, with low volatility. Oil dipped after the strong rise on Tuesday. The dollar was down again, with only JPY falling further, in line with equities so far this week. Gold and bonds however, remained stubbornly up.

Thursday July 23
Todays Initial Jobless Claims went in the wrong direction today, and COVID cases and death had been rising all week. Equity markets pulled back across the board, and Oil was down in line. The dollar had a fourth day down, and once again the haven trio were all up. MSFT and TSLA beat estimates after the bell, but were still down on the day.

Friday July 24
The Chinese consulate closure, and disappointing forward guidance from INTC the night before (the stock was down over 16%) meant, despite the PMI beats, it was another down day on indices to complete this lambda (inverted-V) shaped week. Gold made a sixth straight day up and hit an all-time closing high of $1,900. DXY had a sixth down day, and closed 94.35, its lowest level since September 2018. Bonds finally reversed down after rising all week. Oil was flat on the day.

A general flat week on indices, with notable rotation out of tech into industrials. The biggest mover was FTSE, down 2.65% on a stronger pound. The biggest forex mover in this quite week was EURUSD, up 2%. Cryptos showed a little bit of life, particularly in ETH, and with the exception of AMZN, FANGS underperformed NDX. FANGS are nearly always more volatile than the underlying index, a consequence of their weight.

My own call, to sell GBPCAD failed. The pair gained 0.59%, making my running total 6.57% (25wks 11 wins). The strong dollar move makes things difficult to see again, but I will take a chance and buy CADJPY.

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)

  • Earnings season continues
  • AAPL, GOOGL, AMZN report
  • Fed Rate Decision
  • Final week of month

Monday July 27
As usual Monday is quiet, with only the Durable Goods and Non-Defence Capital Goods ex Aircraft print of importance, so once again we look to COVID news and China tensions to set the tone.

00:00 RBA Kent speech
08:00 Germany IFO – Business Climate/Assessment (Jul)
12:30 US Durable/Capital Goods (Cap e1.5% p1.6%)
22:45 NZ Total Filled Jobs (Jun)

Tuesday July 28
Earnings season continues today with DJIA components PFE, MCD and MMM before the bell, and AMD and V after the market closes. There is no significant macroeconomic news. Markets are closed in Thailand.

13:00 US S&P/Case-Shiller Home Price Indices
14:00 US Consumer Confidence

Wednesday July 29
The Fed rate decision today has a 0.25% hold 100% priced in according to the CME FedWatch tool, however the report remarks, press conference and dot-plot will be watched closely, especially as the dollar is at somewhat of a pivot point. Key earnings today before the bell are BA and GE, with FB reporting after the close.

01:30 RBA Trimmed Mean CPI (QoQ)(Q2) (e0.1% p0.5%))
14:00 US Pending Home Sales (MoM)(Jun)
18:00 Fed Rate Decision/Statement (e0.25% hold)
18:30 FOMC Press Conference
23:50 Japan Retail Sales

Thursday July 30
Earnings before the bell include DJIA component PG, but the most important point in the whole season comes after the bell tonight with AAPL, AMZN and GOOGL all reporting. The second quarter GDP is going to be very bad, but exactly how bad many also influence markets. Exchanges are closed today and tomorrow in Turkey, and many Islamic countries for Eid Al-Adha.

06:00 Germany 20Q2 Prelim GDP (QoQ e-11.2% p-2.3%)
07:55 Germany Unemployment Rate/Change s.a.(Jul)
08:00 Eurozone Economic Bulletin
09:00 Eurozone Consumer Confidence/Business Climate/Unemployment Rate
12:00 Germany CPI (YoY e0.4% p0.8%)
12:30 US Prelim PCE (QoQ)
12:30 US 20Q2 Prelim GDP (Annualised -35% p-5%, QoQ e+1.2% p+1.6%))
12:30 US Jobless Claims (Jul 24)
23:30 Japan Jobs/Unemp
23:50 Japan Industrial Production

Friday July 31
The end of the week and month will probably be influenced by the previous evening’s big three tech earnings, and of course there may be general end-of-month volatility. A few more companies report before the bell: XOM CAT CVX and MRK. Markets are closed today in Switzerland.

01:00 China PMIs (Mfr e51.0 p50.9)
06:00 Germany Retail Sales (YoY)(Jun) (e1.4% p3.8%)
09:00 Eurozone Prelim CPI (Core e0.7% p0.8%)
09:00 Eurozone 20Q2 Prelim GDP (QoQ e-12.0% p-3.6%)
12:30 US Core PCE MoM and YoY
12:30 Canada 20Q2 Prelim GDP
13:45 Chicago PMI
14:00 Michigan CSI (Jul)

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