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%)
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