Week to Dec 25th

Short Christmas week, New COVID strain, Brexit and US stimulus deals agreed

MY CALL THIS WEEK : SELL EURCAD

Despite the fact that it was the final short week before the holidays, and macro data was unsurprising, there were three big news items: the new more infectious COVID variant, the US stimulus deal finally agreed, and at the very close of the week, the long-awaited Brexit deal. All markets reacted to the first, only currencies to the second, and only GBP to the last as markets closed on Thursday lunchtime, although there was some more movement in currencies on Christmas Day, notable in EURGBP. Nevertheless the net effect was a fairly flat week, with no index moving more than 1%, as neither did any other asset except GBP and Oil.

Next week is the traditional core Santa Rally, and equities are expected to rise in thin trading, as many traders take the week off. London has an extra day off, so low volumes of forex trading plus the digesting of the full Brexit deal may produce some strange moves as seen on Christmas Day. Again macro news is slight. There may also be some year end last minute rebalancing (which means winners go up further and losers fall further)

I hope you have a happy Christmas and prosperous New Year.

Mon Dec 21
Equity and Oil Markets pulled back today on news of a new, more transmissible strain of coronavirus discovered in the UK and South Africa. The sell off held in Europe, but later trading in the US trimmed US losses and DJIA even managed to close slightly positive. After weeks of decline, the dollar perked up and was up across the board against all currencies and Gold. Bonds were flat on the day.

Tuesday December 22

Good news today as Congress finally passed the stimulus package. Also the WHO confirmed that the vaccines would still work against the new COVID variant. Europe recovered some of yesterday’s losses, and there was a slight rotation into NDX (up) from DJI and SPX (down). However Oil was down on the day, bonds were up, and JPY was up against all currencies except USD, which was strong after the stimulus news. Gold fell on dollar strength. So a mixed response really.

Wednesday December 23

Today was flat for SPX, with DJI and NDX reversing Tuesday’s rotation. Europe continued to recover from Monday’s drop, even against currency rises as the dollar gave up its rally and turned south, posting red candles against Gold and all currencies except JPY, which fell with bonds. Oil was also up on this overall positive day.

Thursday December 24

Germany was closed, and London and New York only did half-days today. However, the Brexit deal was confirmed before markets closed, and the notable movement was a rise in GBP and consequent fall in FTSE. Otherwise equity and Oil markets were up as Santa sentiment continued. The dollar was flat overall, as JPY fell to balance the GBP rise. Surprisingly though, Gold and bonds were up.

Friday December 25

Today was Christmas Day and markets everywhere except Japan and China are closed. There were however, notable moves in forex, with EURGBP adding 1.74% as the GBP rally fizzled out.

WEEKLY PRICE MOVEMENT

Indices were flat this week, with the biggest mover FTSE down 0.41% on GBP strength before Friday. Cable was the biggest mover down 1.27% on the week, the entire move being made on Christmas Day. Bitcoin made a new ATH on Christmas Day, and is outperforming Ethereum. FANGS were very mixed, with AAPL outperforming, up 4.19%.

My USDCAD trade worked, up 0.64%, moving my running total to 8.67% and 24/41 wins. This week I am selling EURCAD. Last week’s candle up was much larger than usual and I am looking for reversion to mean.

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 December 28

The US re-opens in what is traditionally a very strong three and half days, the core Santa Rally. The UK, Canada, Hong Kong and Australia are closed for Boxing Day observed.

23:50 Japan Industrial Production (Sun)

Tuesday December 29

The rest of the world markets open, the first day since the Brexit deal announced late on Christmas Eve. This should prove positive to markets, but there may be some sector variance (eg automobiles, the core part of DAX).

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

Wednesday December 30

Today is the UK Parliamentary Vote on Brexit deal, however it expected to pass easily as the opposition Labour Party have confirmed they will vote with the government.

07:00 Germany Retail Sales

14:45 Chicago PMI

15:00 US Pending Home Sales

Thursday December 31

The final day of 2020 may see some volatility through portfolio rebalancing. However, as most markets close at lunchtime, general trading is expected to be thin. Germany is closed for Silvester (New Year’s Eve)

01:00 China PMIs

13:30 US Jobless Claims

Friday January 1

All markets globally are closed today for New Year’s Day.

Week to Dec 18th

Dovish FOMC, All US indices ATH, Brexit hopes raise GBP

MY CALL THIS WEEK : BUY USDCAD

The continuing seasonal trend, vaccine hopes, a glimmer of hope on Brexit, and most importantly, the Fed’s indication that they will continue their monetary loosening as long as the economy is suffering pushed all four US indices (DJI, SPX, NDX and RUT) to new all-time highs. International indices also soared, except for FTSE, depressed by a 2.24% recovery in GBP. The dovish Fed also sent the dollar to new 32-month low, slipping below the psychological 90.00 handle. Equity sentiment and the dollar move pushed Oil up to within a whisker of $50, a 10-month high.

Next week is Christmas week, and hopes will still be for a stimulus package before Congress dissolves for the year. The big risk to the downside is the failure of the Brexit deal, which is still touch and go.

Mon Dec 14
Weekend passed without progress on the stimulus package and SPX fell, although there was noticeable rotation into tech (SPX -0.44%, NDX +0.70%), showing that COVID was the sentiment issue of the day, rather than full risk-on, as also shown by the the fact that Oil rose, and haven assets JPY, Gold and bonds were all down. This was despite a general fall in USD, driven by a rise in EUR and GBP, on hopes of a Brexit deal. A good example of sentiment on different issues shown up in different asset classes.

Tuesday December 15

An announcement that congressional leaders talks were continuing resulted in a strong Turnaround Tuesday rally today, with SPX/DJI slightly outperforming NDX, Oil rising, and JPY and bonds fading. The safe haven dollar continued to fall, hence why Gold was up on the day. Cable was particularly strong, on Brexit talks hopes.

Wednesday December 16

Today Fed Chair Jay Powell bolstered the Fed’s central message that it will not curtail its bond-buying programme until “substantial further progress” is made towards full employment and higher inflation (the dual mandate). Stocks rose again, with NDX outperforming and after a brief spike up, (as traders digested the Fed report) the dollar fell further boosting gold. Oil was up and bonds, yen, and the safe haven dollar were down again, DXY making another 24-month low.

Thursday December 17

Further progress on the stimulus meant yet another day in the same vein, with all indices and Oil up except FTSE which reacted to three days of strong sterling recovery. Just like yesterday, the same factors were in play, with USD making a new low, but JPY even further down, and bonds down. However, Gold was up with the weaker dollar on what was otherwise a risk-on day.

Friday December 18

Quadruple witching today, where option and futures contracts expire, which inevitably caused volatility, especially with futures which cannot simply be exercised. After rising in Europe, US markets fell from the opening bell, only to rise sharply again into the close. Markets ended slightly down. Having slipped below the psychological 90c on Thursday, DXY reversed back up slightly. The underlying sentiment was still positive as reflected by a sharp move up in yields and Oil, and a pullback in Gold. GBP was particularly strong on Brexit hopes, briefly hitting 1.36, its highest level since April 2018.

WEEKLY PRICE MOVEMENT

Indices were up this week, with last week’s worst performer DAX, being the best this week. The strongest forex move was GBPCAD up 2.33%. A huge move in crypto took BTCUSD to new all time highs, and FANGs were very strong, outperforming NDX considerably.

Selling AUDJPY last week was a bad idea, the Aussie continued to surge, and I lost 0.46%, taking my running total to 8.03% and 23/41 wins. This week I will bet that USD will continue back up, and that Oil is a little overextended. I will therefore buy USDCAD.

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)

• Short Christmas week
• Thin on data as expected
• Brexit talks continue
• US and UK GDP

Monday December 21

The foreshortened Christmas week opens with little scheduled news. The main driver will probably be the ongoing Brexit deal talks.

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

13:30 Chicago Fed National Activity Index

15:00 US Consumer Confidence

Tuesday December 22

Final GDP readings today from the UK and US make this the busiest scheduled news day of the week.

00:30 Aus Retail Sales (SA MOM e-0.6% p1.4%)

07:00 UK Q3 GDP (QoQ e15.5% unch)

07:00 Germany Gfk Consumer Confidence

13:30 US PCE QoQ

13:30 US GDP Annualised (e33.1% unch)

23:50 BoJ MPC Minutes

Wednesday December 23

The last full day before the three day closedown.

00:30 Aus Imports/Exports/TB (TB p7.45B)

13:30 US PCE MoM and YoY

13:30 US Jobless Claims

13:30 Canada GDP

15:00 Michigan CSI

15:00 US New Home Sales

Thursday December 24

Markets close at lunchtime today and re-open on Monday (US) and Tuesday (Europe). There is a rate decision in Turkey.

13:30 US Durable/ND Capital Goods (Durables e0.6% p1.3%)

23:30 Tokyo CPI ex Fresh Food (YoY)(Dec)

23:30 Japan Jobs/Unemployment

23:30 Japan Retail Sales

Friday December 25

Today is Christmas Day and markets everywhere except Japan and China are closed.

Week to Dec 11th

ECB $500Bn QE, FDA approves vaccine, SPX ATH, GBP Brexit concerns

MY CALL THIS WEEK : SELL AUDJPY

The vaccine rally took a breather this week, disappointed with the failure of both Congress to agree the next stimulus package, and of the UK and EU to agree a Brexit deal. Although SPX eked out another ATH, the mood was more risk-off, as demonstrated by the return to rotation into DJI out of NDX. The dollar came off last week’s low and consolidated in an inside week. As you would expect GBP whipsawed to end to the downside by more than 2c, but EUR was surprisingly stable, despite the $500Bn stimulus announced. EUR and JPY also had inside weeks. Gold had a brief rally which faded to flat, in the absence of a dollar cue. Oil continued its OPEC advance, pushing CAD to a new 31-month high.

Next week is the last ‘normal’ week of the year before the foreshortened Christmas and New Year weeks, and is also triple-witching OpEx when weeklies, monthlies, quarterlies and annuals all expire on the last trading Friday of the year. Quarterlies of course include SPY and QQQ. On the news front, Brexit talks are supposed to end on Sunday, but we would not be surprised if they continued, as no-deal is bad for both sides. Also, there is the key FOMC rate set and report, and of course a similar event in the UK a day later. GBP volatility seems assured, the extent to which it will spread to other markets remains to be seen. SPX fell 2.7% on the original decision in June 2016, although it fully recovered the following week.

Mon Dec 7

Uncertainties about the vaccines meant the rotation today was firmly back into tech, with NDX up 0.54% but DJI down 0.49%. Sensitive financials and energy were the biggest fallers. Even FTSE only managed to stay flat as GBP fell on Brexit no-deal concerns. In general, USD was up, bouncing off last week’s low, but in line with the SPX move, JPY outperformed, as did Gold and bonds. With Oil also down, we can say this was a risk-off day overall.

Tuesday December 8

Although SPX hit a new ATH today, movement was not strong, and there was no noticeable rotation.  All three US indices were up 0.3%, whereas Europe was flat. The dollar was similarly lacklustre, registering a slight increase entirely due to EUR. The other assets classes were similarly flat.

Wednesday December 9

Continued wrangling over the stimulus bill, and concerns about Brexit mean equity markets and Oil fell today, particularly NDX which was sharply down into the close, losing over 2% on the day. USD was up, entirely due to EUR again, being sold off in advance of Thursday’s ECB. Brexit caused a wild day on GBP which was up 1% before the US bell, and then lost it all to close flat. Gold was down on the stronger dollar. Bonds were slightly down.

Thursday December 10

Today the ECB announced further asset purchases, expanding the QE by $500Bn. This pushed European periphery bond yields to all time lows (Spain joined Portugal in slipping into negative territory), and rallied EUR by 0.5%, the ‘feel good’ factor outweighing the natural decline you would expect from loosening. This meant a down day for DXY, despite a Brexit-led drop in GBP. EURGBP was up 1% on the day. The antipodean pair were up over 1%,and CAD added 0.65% on a strong spike up in Oil.

The FDA approved the PFE vaccine for use, and equities rotated into risk, with NDX up against a slightly down SPX and DJIA. But this was after Wednesday’s tech selloff. Nothing has changed, optimism about the vaccine, pessimism about the Congress stimulus package and Brexit, and the bigger picture is a slight pullback from the highs. US Bonds were up today, following the cue from Europe.

Friday December 11

Another down day for indices and Oil as Brexit no-deal came closer, with a slight upturn at the end as the Senate passed legislation to avoid the annual government shutdown threat, one factor at least that we can discount this year. Gold, bonds and JPY were up in line.

Both GBP and EUR fell as the Brexit talks still failed to produce a result, meaning DXY was up sharply as GBP lost 1.5% in a few hours. There was talk of negotiations not continuing past Sunday. The week closed with indices firmly down except for FTSE which tends to run inversely to sterling.

WEEKLY PRICE MOVEMENT

Indices were down this week, with DAX the worst at -1.39%. GBPAUD was the biggest mover, down 3.07%. Crypto volatility has slowed down, and FANGs were similarly less volatile than in the past, with GOOGL down 2.68% the biggest mover.

My NZDCAD buy was up 0.48%, taking my total to 8.49% and 23/40 wins. This week I will sell AUDJPY as it seems to be at resistance, and the AUD move last week seems overdone.

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)

• FOMC Rate Decision
• UK and Japan Rate Decisions
• Brexit final deal decision
• Last full week of the year

Monday December 14

As often happens Monday is quiet on news in this final full week of trading before Christmas.

23:50 Tankan Manufacturing Index (e-15 p-27) (Sunday)

10:00 Eurozone Industrial Production

Tuesday December 15

Another day where news is mostly outside the US. There is a rate decision in Hungary.

00:30 RBA Meeting Minutes

02:00 China Retail Sales (p 4.3%)

07:00 UK Claimant Count/UnEmp/AHE (UnEmp e5.1% p4.8%)

14:15 US Industrial Production (MoM)(Nov)

19:30 BoC Governor Macklem speech

22:00 Aus Commonwealth Bank PMIs

23:50 Japan Imports/Exports/TB

Wednesday December 16

As well as a full day of Markit PMI, Canadian inflation, we have the final FOMC meeting of the year.    Markets are closed in South Africa.

07:00 UK CPI (YoY e0.6% p0.7%)

08:30 Germany Markit PMIs (Mfr e56.5 p57.8)

09:00 Eurozone Markit PMIs (Composite e46.2 p45.3)

09:30 UK Markit PMIs (Services e50.5 p47.6)

12:30 Canada BoC CPI (Core p1%)

13:30 US Retail Sales (MoM e-0.4% p0.3%)

14:45 US Markit PMIs

19:00 FOMC Rate Decision/Statement

19:30 FOMC Press Conference

Thursday December 17

The usual raft of US data at 1330 today. In addition to the BoE, there are also rate decisions in Switzerland, Norway, Czechia and Mexico.

00:30 Aus NFP/UnEmp (NFP e50k p178.8k)

10:00 Eurozone CPI

12:00 BoE Rate Decision/Statement (e0.1% hold)

13:30 US Building Permits/Housing Starts

13:30 US Jobless Claims

13:30 Philly Fed Mfr Survey

23:30 Japan National CPI

Friday December 18

Today is quad-witching option expiration, where weeklies, monthlies, quarterlies (including the important index options ie SPY and QQQ) all expire together. Expect volatility. In addition to Japan there are rate decisions in Russia and Iceland

03:00 BoJ Rate Decision/Statement (e-0.1% hold)

06:00 BoJ Press Conference

07:00 UK Retail Sales

07:00 Germany PPI

09:00 Germany IFO Business Sentiment Indicators

13:30 Canada Retail Sales (MoM e0.2% p1.1%)

Week to Dec 4th

Vaccine rally continues, NFP Miss good for QE, USD hits 2.5yr low

MY CALL THIS WEEK : BUY NZDCAD

We saw a raft of positive news this week including bi-partisan progress on the stimulus figure, OPEC production level agreements being lower than estimated, and of course, news of the rollout of the three viruses (four if you include the Russian one). Also President Trump appears to have gone quiet on the election, easing the Biden transition.

This resulted in all three US indices rallying to new highs, and the safe haven dollar plunging to lows last seen in April 2018. The drop was uniform, with EUR, GBP, NZD and CAD all making two-and-a-half year highs, and caused another Gold rally. Confirming the positive trend, the yield curve (US10Y-US02Y yields) rose to 0.821%, its highest level since October 2017.

Slight blips such as a delay in the Pfizer rollout, and an NFP miss were shrugged off in the larger positive picture, aided of course by seasonal sentiment.

The gains were not shared by DAX which is underperforming, partly due to EUR strength, but also the huge German second COVID wave being seen not only in cases (understandable as there is more testing), but more worryingly in deaths, meaning unlike, say the US, the infection locus has not moved to a safe cohort (younger people).

The left-hand chart shows the issue by comparing the performance of DAX (in USD, to remove the EUR effect) versus, ie divided by SPX against the number of Germany cases. The right-hand chart goes one further and compares the German case/fatality ratio against that of the US, which removes any testing density variation. You can see the correlation which goes some way to explaining DAX underperformance.

Next week is lighter on data as we move into the holiday season proper. The key events are the ECB rate decision and presser on Thursday, and an FDA meeting on the same day concerning approval of the PFE and MRNA vaccines (these have already been approved in the UK). This is followed by an EU banking and capital markets summit on Friday. Traders will be looking for the ECB view on the exchange rate, plus of course any further COVID news. Scheduled macro data is unlikely to be as important, unless, as always, there is a big surprise.

Mon Nov 30
As we predicted last week, there was some profit-taking today after a very strong November, which saw, for example the FTSE 100’s best month for 31 years. SPX fell 0.5% and other indices followed suit. Oil was down in line. After initially continuing last week’s decline, the dollar made a late rally to close 0.2% up, meaning Gold was down. Bonds were flat on the day.

Tuesday December 1

A beat on China PMIs set the tone for a strong opening to the month, with all indices up, and NDX outperforming. The tech index was up 1.52%. Copper, a forward indicator of tech activity (as it is required for all electrical cabling) hit $7,719 per tonne, although Oil fell ahead of the OPEC meeting. The safe haven dollar fell sharply, hitting a new 30-month low, especially after the Powell testimony (nothing new) and the ISM PMI miss. Bonds were down in line, and Gold rose on the weaker dollar.

Wednesday December 2

Markets took a breather today after the ADP miss, and were generally flat except for FTSE which rallied 1.23% after a 1c fall in GBP due to Brexit no-deal concerns. The bond market was more active, with a 6bp rise in the 10-year yield, and a rise in the yield curve (US10Y-US02Y) to 78 points, the highest level for three years, as investors sold Bonds fearing inflation after the COVID stimulus package, which edged closer to reality today with some bipartisan support for a $908B package. This inevitably pushed USD down further against all currencies (except GBP and CAD), and Gold. Oil recovered after yesterday’s drop on news that OPEC would cut production.

Thursday December 3

Another flat day for SPX and NDX, although DJI managed a 0.29% rise, although SPX hit a new ATH earlier in the day, but pulled back on news that PFE vaccine production levels may be restricted. Yields (inverse to bonds) pulled back slightly after yesterday’s strong move. Oil rose again on the OPEC news. The dollar continued to hit new lows, with JPY particularly strong after being even weaker than USD all week (in line with the stocks rally). The greenback was down across the board, including Gold.

Friday December 4

The NFP report at 245k was worryingly below the 520k estimate, but the markets saw this as “bad is good”, meaning that the prospect of QE taper is less likely. As you would expect therefore, markets rose again, with SPX adding 0.88%, and of course the dollar rose (including against Gold) for the same reason. Only CAD was up, following the Canadian NFP beat. Bonds were again down in line, with yields briefly touching 0.984, an eight-month high.

WEEKLY PRICE MOVEMENT

The strongest index this week was FTSE, reflecting a slightly weaker GBP. The top forex mover was CADJPY up 1.69%. Cryptos recovered after last week’s sharp fall, as BTC continues to flirt with ATHs. FANGS were generally in line with NDX with AAPL outperforming.

This week I am buying NZDCAD, as both currencies seem to be at pivots. I would trade the major (dollar) pairs, but it’s hard to say whether the dollar will recover or fall further. At the current level of 90.70, main support is still about 1c lower. Last week's GBPJPY buy was up 1%, taking my total to 8.01% (22 wins out of 40)

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)

Next week is lighter on data as we move into the holiday season proper. The key events are in Europe with the ECB rate decision and presser on Thursday, and an FDA meeting on the same day concerning approval of the PFE and MRNA vaccines (these have already been approved in the UK). This is followed by an EU banking and capital markets summit on Friday. Traders will be looking for the ECB view on the exchange rate, plus of course any further COVID news. Scheduled macro data is unlikely to be as important, unless, as always, there is a big surprise.

• ECB week
• FDA vaccine meeting
• EU capital markets summit
• China, US, Germany inflation

Monday December 7

China’s trade balance may set the tone for the day, although the important news comes later in the week.

22:05 RBA Governor Lowe speech (Sunday)

02:00 China Imports/Exports/TB

07:00 Germany Industrial Production

15:00 Canada Ivey PMI

23:50 Japan Q3 Final GDP (e5.0% p5.0%)

Tuesday December 8

Another slow data day. Markets are closed in Spain, Italy, Portugal and several South American countries for the Feast of the Immaculate Conception.

10:00 Eurozone ZEW Survey – Economic Sentiment

10:00 Eurozone Q3 Final s.a. GDP (e12.6% p12.6%)

10:00 Germany ZEW Sentiment Surveys

13:30 US Nonfarm Productivity/Unit Labor Costs

23:30 Aus Westpac Consumer Confidence

Wednesday December 9

A light data day, with the BoC decision as the main news.

01:30 China CPI (YoY e0.0% p0.5%)

07:00 Germany TB

15:00 BoC Rate Decision/Statement (e0.25% hold)

Thursday December 10

The FDA meet today and tomorrow to discuss the approval of the PFE and MRNA vaccines. The EU also meet to discuss COVID.

00:00 Aus Consumer Inflation Expectations

07:00 UK Manufacturing/Industrial Production

07:00 UK GDP MoM

12:45 ECB Rate Decision/Statement (e0% hold)

13:30 US CPI (Core YoY e1.8% p1.6%)

13:30 US Jobless Claims

13:30 ECB President Lagarde Presser

19:00 US Monthly Budget Statement

Friday December 11

There is an EU leaders summit today on banking and capital markets. Any surprise takeaways will no doubt affect EUR and thus DAX.

07:00 Germany CPI (YoY e-0.5% p-0.7%)

13:30 US PPI

15:00 Michigan Prelim CSI (e77 p76.9)