Week to July 8th

DAX underperformance

MY CALL THIS WEEK : SELL EURUSD

LAST WEEK

In a shortened week due to Independence Day, European divergence and underperformance came to a head on Tuesday’s re-open as DAX dropped 3% to take out its March low and EURUSD dropped through 1.035 support, reaching 1.007 on Friday. Meanwhile, the SPX easily held last week’s low. Tuesday also saw the peak of the recent recession scare, with commodities down heavily and oil lower by 11%. The data highlight of the week came from the NFP, which with a solid beat and print of +372k, tells us the US economy is holding up extremely well despite all the recession talk. Expect the Fed to raise 75bps again in July.


WEEKLY PRICE MOVEMENT

The biggest index mover this week was NDX, up 4.66%. The top forex mover was EURNZD down 2.32%. Crypto recovered sharply again, and FANG outperformed NDX.

My EURCAD long lost 1.89% this week, meaning I am now ahead 2.91% with 13/25 (52%) wins. This week I have thrown in the towel and am shorting EURUSD.

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

Each month in the past the main focus was on NFP week or Fed week, but these days the most importantly monthly print is CPI, due on Wednesday. The raw figure is estimated to increase yet again to 8.7% from 8.6%, but core inflation (stripping out food and, particularly, energy) is thought to fall again as it has done since the April peak of 6.5%. If this doesn't happen it could be bad for equity markets, whereas a miss (lower) on the headline rate would imply a Fed slowdown and boost recovery.

Earnings season for Q2 also starts next week, with, as always JPM first out of the gate, reporting on Thursday with MS, followed by WFC and C on Friday (GS report the following Monday to complete the opening quintet). UNH, at nearly 11% the largest component of DJIA also report on Friday. After the worst Q1 for decades, these releases will also be key, so overall, strong moves are possible ahead.


CALENDAR  (all times are GMT, volatile items in bold)

Monday, July 11
01:00 BoJ Gov Kuroda speech
18:00 US Monthly Budget Statement

Tuesday, July 12
09:00 Germany ZEW Sentiment
17:00 BoE Governor Bailey speech

Wednesday, July 13
00:30 Aus Westpac Consumer Confidence
02:00 China Imports/Exports/TB
06:00 UK GDP MoM
06:00 UK Ind/Mfr Production
06:00 Germany CPI (e8.7% p8.2%)
12:30 US CPI (Core e5.9% p6.0%)
14:00 BoC Rate Decision/Statement (e2.25% p1.5%)
15:00 BoC Press Conference
18:00 US Fed Beige Book

Thursday, July 14
01:00 Aus Consumer Inflation Expectations
01:30 Aus Jobs/UnEmp (Jobs e25k p60.6k)
04:30 Japan Ind Production
12:30 US Jobless Claims
12:30 US PPI

Friday, July 15
02:00 China GDP (QoQ e0.6% p1.3%)
02:00 China Ind Production
02:00 China Retail Sales (YoY e-7.1% p-6.7%)
12:30 US Retail Sales (MoM e-0.8% p-0.3%)
13:00 US Fed Index of Common Inflation Expectations (time approx.)
14:00 Michigan CSI (e58 p50)

Week to Jul 1st

Markets back down again

MY CALL THIS WEEK : BUY EURCAD

LAST WEEK

In a week where inflation concerns mixed with recession fears, the net effect was negative on stock markets as SPX and NDX retraced the late June rally and DAX maintained its relative weakness with further June lows. Currencies were mixed, but the general theme was one of USD strength as it made four higher highs and higher lows after bottoming on Monday. EURUSD re-tested the 1.035 low and looks on shaky ground as the annual central bank summit at Sintra underlined the ECB’s lack of options. ECB President Lagarde tried to strike a hawkish tone by saying that they could “move faster” depending on the data, which looked especially toothless when Spain’s CPI came in at 10.2% soon after, beating expectations by 1.4%. It begs the question: if not now, then when? Note the loose EU tone is not helping European stocks.

Inflation now looks more of a European problem than a US one as the Fed’s hiking cycle appears to be working. Long-term yields fell in the US and the 5-year forward inflation expectation rate fell to 2.08%, down from a high of 2.67% in April. Meanwhile, the 10s3s fell to 1.15% and the fall is accelerating – as inflation concerns fade, recession fears are picking up.

WEEKLY PRICE MOVEMENT

The biggest index mover this week was NDX, down 4.30%. The top forex mover was NZDUSD or NZDCAD down 3.21%. Crypto fell sharply again, and FANG underperformed NDX.

My EURAUD long made 1.12% this week, meaning I am now ahead 4.80% with 13/24 (54%) wins. This week I will carry on the theme but switch to buying EUR against the biggest riser CAD, which I think may pull back, so I will be long EURCAD.

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

A new month, quarter and half year, and of course the main event is NFP. Although inflation is the primary driver of expectations of Fed action (and thus SPX pricing), the jobs report still has some effect. Traders are looking for signs that the tightening will be slowed down, and a poor report could therefore boost markets.

The week is of course foreshortened in the US (only) for Independence Day, hence why the ADP report is a day late. The only other significant event is the RBA rate decision, where a 50bp hike is expected, and may reverse the AUD trend, which is now trading at a one-year low. There are several trade balance and PMI reports but as you know, these have much less effect on markets than central bank actions.

CALENDAR  (all times are GMT, volatile items in bold)

Monday, July 4
01:00 Aus TD Securities Inflation
01:30 Aus Building Permits
06:00 Germany Trade Balance
13:30 Canada S&P Mfr PMI
14:30 BoC Business Outlook Survey
22:30 Aus AiG Construction Index
23:00 Aus S&P Svcs PMI

Tuesday, July 5
01:45 China Caixin Svcs PMI
04:30 RBA Rate Decision/Statement (e1.35% p0.85%)
07:55 Germany S&P Comp PMI
08:00 Eurozone S&P Comp PMI
08:30 UK S&P Comp PMI
09:30 UK Financial Stability Report
14:00 US Factory Orders
16:30 BoE Tenreyro speech

Wednesday, July 6
06:00 Germany Factory Orders
08:10 BoE Pill speech
09:00 EC Growth Forecasts
09:00 Eurozone Retail Sales (e5.4% p3.9%)
09:30 DE10Y Bond Auction
13:45 US S&P Comp & Svcs PMI
14:00 ISM Svcs PMI (e55.7 p55.9)
18:00 FOMC Minutes

Thursday, July 7
01:30 Aus Imports/Exports/TB
11:30 ECB MPC Minutes
12:15 US ADP (e200k p128k)
12:30 US Trade Balance
12:30 US Jobless Claims
12:30 Canada Trade Balance
14:00 Canada Ivey PMI
23:50 Japan Current Account

Friday, July 8
12:30 US NFP/AHE/UnEmp (NFP e250k p390k)
12:30 Canada NFP/AHE/UnEmp (UE e5.2% p5.1%)

Week to Jun 24th

Strong bounce back in markets

MY CALL THIS WEEK : BUY EURAUD

LAST WEEK

In a week of two-way volatility and US-EU divergence, the overall theme was of improving risk sentiment. The SPX managed to hold last Friday’s low in an early dip and has since recovered nearly 300 points (+7%). Associated markets helped the bullish case as yields fell, oil and commodities continued to drop and the USD stayed steady. Inflation expectations were revised lower. Even Bitcoin provided a tailwind as it survived the key 20k re-test and is already +20% off the lows. Pockets of weakness continued, however, especially in the eurozone. DAX made new lows on Wednesday and Thursday and the euro dropped due to poor PMIs and the likelihood that the ECB will be severely limited in any hawkish ambitions.

Developments last week suggest an interim bottom has been struck or is very close. A 5-leg decline has developed on SPX and when it completes, we should see a correction to the entire downtrend, often a 50-61% retrace. Beyond that, the view gets bearish again as the presence of trend suggests another major leg lower should unfold. Just how severe this will be hinges on a number of factors, particularly on whether or not the US can avoid a recession. 


WEEKLY PRICE MOVEMENT

The biggest index mover this week was NDX, up 5.79%. The top forex mover was EURJPY up 1.08%. Crypto recovered, and FANG outperformed NDX.

My EURNZD long made 0.59% this week, meaning I am now ahead 3.68% with 12/23 (52%) wins. This week I will carry on the theme but switch to buying EURAUD.

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

As we close out the month, quarter and half-year, the only key US prints next week are the annualised GDP and ISM PMI. Also of interest are the PCE The big central bank event is the ECB Sintra summit (their version of Jackson Hole which is at the end of August), hence the raft of speeches on Wednesday. Markets didn't worry about the Powell testimony this week, so it is reasonable to assume there will be nothing new from the Fed Chair at Sintra. Ms Lagarde however is another story, a surprise from her could move DXY.

German inflation is still disappointingly on the increase, not helped by the fact that lagging EU tightening, a policy for all 27 member states now disadvantages the richest one, and may be a factor in SPX outperforming DAX by over 6% last week. One often overlooked release is PCE, said to be the Fed's preferred method of measuring inflation. The YoY print on Thursday is estimated to fall slightly, could this be a turning point in sentiment.


CALENDAR  (all times are GMT, volatile items in bold)

Monday June 27
12:30 US Durable/ND Capital Goods Orders (DG e0.1% p0.5%)
14:00 US Pending Home Sales
18:30 ECB Pres Lagarde speech

Tuesday June 28
06:00 Germany Gfk Consumer Confidence
08:00 ECB Pres Lagarde speech
13:00 US Housing/Home Price Indices
14:00 US Consumer Confidence(Jun)
23:50 Japan Retail Sales

Wednesday June 29
01:30 Aus Retail Sales (e0.4% p0.9%)
09:00 Eurozone Business/Consumer Confidence
11:10 BoE Governor Bailey speech
12:00 Germany CPI (e8.8% p8.7%)
12:30 US PCE (QoQ)
12:30 US GDP Annualised (e-1.5% p-1.5%)
13:00 Fed Chair Powell speech
13:00 BoE Gov Bailey speech
13:00 ECB Pres Lagarde speech
15:00 ECB Pres Lagarde speech
23:50 Japan Ind Production

Thursday June 30
01:00 China PMIs (Mfr e49.6 p49.6)
06:00 UK Q1 GDP (QoQ e0.8% p0.8%)
06:00 Germany Retail Sales (p-0.4%)
07:55 Germany UnEmp
09:00 Eurozone UnEmp
12:30 US PCE (MoM and YoY) (YoY e4.7% p4.9%)
12:30 US Jobless Claims
12:30 Canada MoM GDP
13:45 Chicago PMI
22:30 Aus AiG Mfg Index
23:30 Japan Jobs/UnEmp
23:30 Tokyo CPI
23:50 Japan Tankan Mfr Index (e13 p14)

Friday July 1
01:45 China Caixin Mfr PMI
07:55 Germany S&P Mfr PMI
08:30 UK S&P Mfr PMI
09:00 Eurozone CPI (e7.8% p8.1%)
13:45 US S&P Mfr PMI
14:00 US ISM Mfr PMI (p56.1)

Week to Jun 17th

Record rate hike causes market plunge

MY CALL THIS WEEK : BUY EURNZD

LAST WEEK

This week saw the Fed raise rates by 75bp, the first hike of this magnitude since 1994. The market was expecting a 50bp hike, but, during the blackout period on Monday, a WSJ journalist reported that the Fed are likely to "consider surprising markets" with the higher figure. SPX was off nearly 4% that day, and fell all week, other than a slight relief rally on the day itself. SPX is now 22.5% off the high and therefore 'officially' a bear market. Note that DJIA is still only 17.75% from its ATH. The UK and German markets pretty much followed suit, although DAX is still above its post-Ukraine March low, and FTSE, now the strongest of major indices is only 8.5% off, helped by its oil weighting.

The UK also raised rates on Thursday, but 'only' by 0.25% which held up GBP, although this may have also been dollar-driven, as EUR also rose. The BoJ continued with their loose policy (no rate hike, tightening of QE). DXY and USDJPY made their highest weekly close for 20 years, as 10-year yields rose 32bp and touched a new 11-year high, although notably pulled back to close the week only 5bp up.

Oil had its worst week since March, leading to a 18-month low for CAD, and gold pulled back, both more than you would expect for just the dollar movement. Bitcoin broke through June support to post its worst week since the March 2020 pandemic crash.

Next week we are expecting some SPX and DAX recovery, as shown in our subscriber analysis charts. This may however be followed by further lows. We have a similar view on EURUSD, some upside for now. The doji spike on 10-year yields is significant, which leads on to our view on USDJPY


WEEKLY PRICE MOVEMENT

The biggest index mover this week was SPX, down 5.79%. The top forex mover was USDCAD up 2.12%. Crypto collapsed hard, and FANG fell in line with SPX.

My EURGBP short lost 0.62% this week, meaning I am now ahead 3.09% with 11/22 (50% wins). This week I am reversing course and buying EURNZD. I feel EUR must rally, and NZD is the most overextended.

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

The main event in the four-day week in the US is probably Fed Chair Powell's Humphrey-Hawkins testimony, where Congress will no doubt be focused on inflation and the Fed's plan to combat it. Monday is the Juneteenth holiday in the US only. There are no major US releases. Elsewhere we have further rising inflation expected in the UK and Canada, and a batch of PMIs, all looking fairly stable. Volatility is therefore likely to damp down, compared to last week's rate hike moves. Equity markets will probably move slightly upwards, now the rate hike has been digested. The dollar has come off the highs, but as we have said previously, may not be done yet.

CALENDAR  (all times are GMT, volatile items in bold)

Monday June 20
01:30 PBoC Interest Rate Decision (e3.7% hold)
06:00 Germany PPI
08:00 BoE Haskel speech
12:30 Chicago Fed National Activity Index
13:00 BoE Mann speech

Tuesday June 21
00:00 RBA Governor Lowe speech
01:30 RBA MPC Minutes
07:15 BoE Pill speech
12:15 BoE Tenreyro speech
12:30 Canada Retail Sales (e1.8% p0.0%)
23:50 BoJ MPC Minutes

Wednesday June 22
06:00 UK CPI/PPI/RPI (CPI 9.8% p9.0%)
08:40 BoE Cunliffe speech
12:30 Canada CPI (BoC Core e5.9% p5.7%)
13:30 Fed Chair Powell HH Senate Testimony
14:00 Eurozone Consumer Confidence
14:40 BoC Rogers speech
22:00 Aus S&P Svcs PMI
23:00 Aus S&P Mfr PMI

Thursday June 23
07:30 Germany S&P PMIs (Mfr e54.8 p54.8)
08:00 Eurozone Economic Bulletin
08:00 Eurozone S&P PMIs (Comp e54.2 p54.8)
08:30 UK S&P PMIs (Svcs e52.6 p53.4)
12:30 US Jobless Claims
13:45 US S&P PMIs
14:00 Fed Chair Powell HH House Testimony
20:30 US Bank Stress Test Info
23:30 Japan National CPI

Friday June 24
06:00 US Retail Sales
08:00 Germany IFO Business Sentiment
11:30 RBA Governor Lowe speech
12:30 BoE Pill speech
13:45 BoE Haskel speech
14:00 Michigan CSI
14:00 US New Home Sales

Week to Jun 10th

CPI beat causes market plunge

MY CALL THIS WEEK : SELL EURGBP

LAST WEEK

In a week which started with some cagey, range-bound trading, Thursday’s session finally provided a decisive break lower in the main stock indices. The S&P 500 broke 4073 to signal the end of the sequence off the May low, and the DAX head and shoulders pattern gave a solid top signal.

Volatility increased after a hawkish ECB meeting pre-announced a 25bps hike in July and September, and surprisingly left the door open for the September hike to be upped to 50bps. The bank also revised inflation projections higher, and in a bizarre footnote to its statement, admitted the new projections were still too low as the May HICP inflation numbers came in higher than expected and they didn’t have time to re-calculate. Meanwhile, the White House pre-warned that inflation numbers due for release on Friday would be elevated due to the rally in oil and gas. And they weren’t wrong—CPI came in at 8.6%, the highest in 40 years. Barclays now expects a 75bps hike by the Fed next week.

Inflation shocks and central banks scrambling to get rates into neutral/restrictive territory continues to be the main theme and any pause in the Fed’s hiking cycle seems wishful thinking at this stage.  Friday’s print will break the 100-year downtrend in inflation and the worry is that central banks have lost control.

Yields keep pushing higher and are back near the yearly highs, as is DXY. Dollar pairs look quite similar to SPX and EURUSD et al have completed their first rally sequence higher from the May low and are now retracing that move.


WEEKLY PRICE MOVEMENT

The biggest index mover this week was NDX, down 5.70%. The top forex mover was for the third week USDJPY up 2.73%. Crypto had a relatively quiet week, moving no more than indices, and FANGs notably underperformed NDX as a whole.

The ECB was not hawkish enough, or more to point, USD rallied on the CPI print. Last week's EURUSD long lost 1.87%, which means I am ahead 3.71% this year, with 11/21 (52.4%) wins. This week I am selling EURGBP on the hope of a hawkish BoE.

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

There are three rate decisions next week, from the UK, Japan and the all important Fed. The CME Fedwatch tool suggests a 92.5% chance of a 50bp hike (the 7.5% is all for 75bp), so all eyes will be on the statement and Chair Powell presser. The situation with the BoE is less clear, the official consensus is a hold, but there is a strong risk to the upside, which should benefit beleaguered GBP.

The Fed decision will affect equities, already approaching the May 20 low after the new multi-decade high inflation print on Friday caused a 3% sell-off, and the May LOY of 3810 is in sight.
It is also OpEx week, where we have historically seen a downtrend.


CALENDAR  (all times are GMT, volatile items in bold)

Monday June 13
06:00 UK GDP MoM
06:00 UK Ind/Mfr Production

Tuesday June 14
01:30 Aus House Price Index
04:30 Japan Ind Production
06:00 UK AHE/UnEmp (UnEmp e3.8% p3.7%)
06:00 Germany CPI (e7.8% p8.7%)
09:00 Germany ZEW Sentiment
12:30 US PPI

Wednesday June 15
00:30 Aus Westpac Consumer Confidence
02:00 China Retail Sales (e-6.1% p-11.1%)
09:00 Eurozone Ind Production
12:30 US Retail Sales (e0.2% p0.9%)
18:00 Fed Rate Decision/Statement (e1.5% p1.0%)
18:30 FOMC Press Conference
23:50 Japan Imports/Exports/TB

Thursday June 16
01:00 Aus Inflation Expectations
01:30 Aus Jobs/UnEmp (Unemp e3.9% p3.9%)
09:00 Eurozone Labor Cost
11:00 BoE Rate Decision/Statement (e1.00% hold)
12:30 US Building Permits/Housing Starts
12:30 US Jobless Claims
12:30 Philly Fed Mfr Survey

Friday June 17
03:00 BoJ Rate Decision/Statement (e-0.1% p-0.1%)
06:00 BoJ Press Conference
08:30 BoE Pill speech
08:30 BoE Tenreyro speech
09:00 Eurozone CPI
15:00 Fed Monetary Policy Report

Week to Jun 3rd

Rally stalls in stocks and bonds

MY CALL THIS WEEK : BUY EURJPY

LAST WEEK

The week started with Memorial Day and a hawkish speech from known Fed hawk Christopher Waller, talking about 50bp hikes at every meeting until inflation is tamed, even running past the ‘neutral rate’ of 2.5%. Following that, just as last week’s poor data was read by the market as potentially delaying tightening, this week a run of good data, including Tuesday’s Chicago PMI (60.3 vs 55!) and Wednesday’s ISM PMI (56.1 vs 54.5), led to a small reversal of last week’s rally, but overall a much less volatile week that we have seen recently.

A similar theme from the even more hawkish (so therefore you’d expect 75bp or something, which he didn’t say) James Bullard temporarily arrested the decline, and Thursday’s misses on ADP and Factory Orders, following the bad=good theme helped SPX add 2.73% from the double-bottom low of the week, but still close 1.20% down on the week. NFP was a beat which fuelled the decline further, and as we predicted last week, did not essentially alter the trend.

In Europe, inflation data was worse than expected with Germany reporting 8.7% vs 8%, and Eurozone 8.1% vs 7.7% (core 3.8% vs 3.5%). Nevertheless DAX and FTSE closed flat on the week, the latter only trading for three days.

Currencies were fairly flat, except for JPY which fell again as US yields started to climb again. USDJPY had its highest weekly close for 20 years. Oil rallied again by 4.69% to its highest weekly close since 2008. Fed Williams speech and SEC consumer video about cryptocurrencies led to a 7.7% drop in BTC, back under $30,000. It had not recovered by the end of the week.


WEEKLY PRICE MOVEMENT

The biggest index mover this week was NKY, up 3.66%. The top forex mover was again USDJPY up 2.94%. Crypto had a volatile week ending slightly up, and FANGs notably outperformed NDX as a whole.

Last week's USDJPY short was the worst trade I could take, losing 2.94%, which means I am ahead 5.58% this year, with 11/20 (55%) wins. This week I am buying EURJPY on the hope of a hawkish ECB, and that JPY must pull back eventually.

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

The key release next week is the US inflation print on Friday where a slight but welcome reduction from 8.3% to 8.2% and core 6.2% to 5.9% is expected. Markets will definitely move whatever the print is, even coming as estimated would be a fillip to equities.

Otherwise the main events are outside the US with the RBA and ECB rate decisions. The RBA is expected to hike by 25bp, with some forecasters predicting a 40bp increase (meaning 25bp could depress AUD). The hawkish bar is also high for the ECB, the only currency area not to have raised rates or terminated QE yet. The single currency has come off multi-year lows recently, but this recovery could threatened unless the ECB take some action. The ECB has previously said it will not raises until it has ended bond buying.


CALENDAR  (all times are GMT, volatile items in bold)

Monday June 6
01:00 Aus TD Securities Inflation
01:45 China Caixin Services PMI
23:30 Japan Overall Household Spending

Tuesday June 7
04:30 RBA Rate Decision/Statement (e0.60% p0.35%)
06:00 Germany Factory Orders
12:30 US Trade Balance
12:30 Canada Trade Balance
14:00 Canada Ivey PMI
23:50 Japan Q1 Final GDP (e-0.2% p-0.2%)

Wednesday June 8
09:00 Eurozone Q1 Final GDP (QoQ e0.3% p0.3%)
09:30 DE10Y Auction

Thursday June 9
02:00 China Imports/Exports/TB
11:45 ECB Rate Decision/Statement (e0% hold)
12:30 ECB Pres Lagarde Presser
12:30 US Jobless Claims

Friday June 10
01:30 China CPI (p2.1%)
12:30 US CPI (Core e5.9% p6.2%)
12:30 Canada NFP/AHE/UnEmp (NFP p15.3k)
14:00 Michigan CSI (e56.9 p58.4)
18:00 US Monthly Budget Statement

Week to May 27th

Reversals in stocks, dollar and bonds

MY CALL THIS WEEK : SELL USDJPY

LAST WEEK

In a week that built on recent reversals in risk assets, our bullish view on SPX finally played out. After holding the confluence of the channel and Fib levels at 3810 (a confluence of the 38.2% retrace of the 2020-2022 rally and the 23.6% retrace of the 2009-2022 rally), SPX went on to convincingly break the down channel off the March high and the short-term moving averages. The strong close at 4158, 3 back-to-back >80% upside days (over 80% of stocks in the NYSE close higher), and the need for a correction to the March-May downtrend all project higher prices next week.

NDX and DAX also put in strong upside breaks, while yields and the US dollar fell. Even growth stocks caught a bid and ARKK at Wednesday’s open caught a +17% rally over the next three sessions.

Driving all this bullishness was the old bad news is good news paradox. US data was broadly weak with flash Services PMI missing, home sales down sharply, pending homes sales dropping and prelim GDP missing at –1.5%. This led to a sense that the Fed’s job is already mostly done, and the economy is slowing. Long-term inflation expectations continue to fall and if they fall enough, the Fed can ease off the tightening. We doubt this will avert 50bps in June or in July, but it may lead to a pause later this year. The June dot-plots will be important in this regard.

WEEKLY PRICE MOVEMENT

The biggest index mover was again NDX, reversing back up 7.15%. The top forex mover was again NZDUSD up 2.21%. Bitcoin was flat but Ethereum fell hard, and FANGs broadly followed NDX as you would expect.

Last week's AUDJPY short lost 0.94%, which means I am ahead 8.52% this year, with 11/19 (57.9%) wins. This week I am selling USDJPY, the safest dollar short.

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

Normally, in the first week of a new month, you would expect NFP to be the main event, but times are not normal, jobs are recovering nicely, this week's jobs estimates are modest, and unemployment is at multi-year lows, and all eyes are on inflation, or rather the Fed's reaction to it. There are no US inflation or growth indicators reported so the two Fed speeches on Wednesday assume outsized importance. The consensus for the June 15 hike is still 50bp, so anything hawkish may depress equities, which are currently consolidating around the 38.2% retracement from the March 2020 low.

Outside the US we have inflation from Germany and Eurozone, and GDP from Canada and Australia. Also affecting CAD is the expected 50bp rate hike from the BoC on Wednesday, and also any surprise action at Thursday's OPEC meeting. The consensus is an increase in output by 432kbpd, which is actually more than anyone other than Saudi Arabia and the UAE can manage. Various PMI releases are all expected to show slight contraction, except China manufacturing, the only one in negative (under 50) territory.

Also next week has several holidays, with Memorial Day on Monday, a two-day break in the UK for the Queen's Jubilee, and Friday is the Dragon Boat festival. Given the holidays, and the fact that equities are currently consolidating around a key SPX long-term fib point, volatility is likely be low, and there may be more action in currencies.

CALENDAR (all times are GMT, volatile items in bold)

Monday May 30
09:00 Eurozone Business Climate/Consumer Confidence
12:00 Germany CPI (e8.0% p7.8%)
15:00 Fed Waller speech
23:30 Japan Jobs/Unemployment
23:50 Japan Industrial Production
23:50 Japan Retail Sales

Tuesday May 31
01:00 China PMIs (Mfr e49.6 p47.4)
07:55 Germany Unemp Rate/Change
09:00 Eurozone CPI (Core e3.5% p3.5%)
12:30 Canada Q1 GDP (YoY e5.7% p6.7%)
13:00 US Housing/Home Price Indices
13:45 Chicago PMI
14:00 US Consumer Confidence
22:30 Aus AiG Mfg Index

Wednesday June 1
01:30 Australia GDP (QoQ e0.6% p3.4%)
01:45 China Caixin Mfr PMI
06:00 Germany Retail Sales (e4.0% p-2.7%)
07:55 Germany S&P Mfr PMI
08:30 UK S&P Mfr PMI
09:00 Eurozone Unemp Rate
13:30 Canada S&P Mfr PMI
13:45 US S&P Mfr PMI
14:00 US ISM Mfr PMI (e54.5 p55.4)
14:00 BoC Rate Decision/Statement (e1.5% p1.0%)
15:30 Fed Williams speech
17:00 Fed Bullard speech
18:00 Fed Beige Book

Thursday June 2
01:30 Australia TB (e9.50B p9.31B)
08:00 OPEC Meeting
12:15 US ADP (e280k p247k)
12:30 US Jobless Claims
14:00 US Factory Orders
14:45 BoC Beaudry speech
22:30 Aus AiG Construction Index
23:00 Aus S&P Svcs PMI

Friday June 3
06:00 Germany TB
07:55 Germany S&P Comp PMI
08:00 Eurozone S&P Comp PMI
09:00 Eurozone Retail Sales (YoY e5.4% p0.8%)
12:30 US NFP/AHE/UnEmp (e310k p428k)
13:45 US S&P Svcs/Comp PMI
14:00 US ISM Svcs PMI (e56.0 p57.1)

Week to May 20th

USD pulls back, SPX decline hits fib levels

MY CALL THIS WEEK : SELL AUDJPY

LAST WEEK

In another volatile week, data took a back seat as markets continued to focus on the Fed’s communication. Chair Powell’s comments on Tuesday cleared up any perceived dovishness during the last FOMC meeting and delivered the kind of hawkish message needed to tame yields and the USD. The Fed “wouldn’t hesitate” to slow the economy if needed, would “consider moving more aggressively” if inflation doesn’t come down and sees the drop in markets as “what we need.” It seems the Fed are more willing to throw the markets under the bus now that they are banned from holding individual stocks.

10-year yields dropped for the second week in a row, and USD weakness helped EURUSD reverse from the 1.035 level at the 2016 low. Meanwhile, stock markets were caught in a volatile crossfire. Falling yields are a plus, but the driver behind the falls—recession—is a negative. SPX made new bear market lows on Friday and looked all set to crash on Monday were it not for the late recovery, after it touched fibonacci retracement levels.

WEEKLY PRICE MOVEMENT

The biggest index mover was NDX, down 4.45%, it's seventh red week. The top forex mover was NZDUSD up 2.14%. Bitcoin and Ethereum were surprisingly flat, and once again, FANGs unevenly underperformed similarly to last week.

Last week's EURUSD long made 1.38%, which means I am ahead 9.46% this year, with 11/18 (61.1%) wins. This week I think AUDJPY is toppy so I am selling it.

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

The final full week of May doesn't offer much in the way of scheduled macro news, except for US PCE figures. PCE is the Fed's preferred method of measuring inflation, and Thursday's QoQ print can be contrasted again rising CPI. We also have the FOMC minutes which will be scrutinised closely, particularly for the view on the pace of rate hikes.

Otherwise the market declines do seem to have stabilised for now, although there is no clear consolidation support yet. On SPX, 3835 was the 38.2% retracement of March 2020 low, and 23.6% retracement of the 2009 low, so an upturn seems likely.

CALENDAR  (all times are GMT, volatile items in bold)

Monday May 23

08:00 Germany IFO Sentiment

12:30 Chicago Fed National Activity Index

16:15 BoE Governor Bailey speech

23:00 Australia S&P PMIs

Tuesday May 24

07:30 Germany S&P PMIs (Mfr e54.3 p54.6)

08:00 Eurozone S&P PMIs (Comp e55.78 p55.8)

08:30 UK S&P PMIs (Svcs e58.7 p58.9)

13:45 US S&P PMIs

14:00 US New Home Sales

23:45 RBA Ellis speech

Wednesday May 25

06:00 Germany Q1 GDP

08:00 EU Financial Stability Review

11:05 BoJ Governor Kuroda

12:30 US Durable/ND Capital Goods

18:00 FOMC Minutes

Thursday May 26

12:30 US PCE QoQ (e5.2% p5.2%)

12:30 US Q1 GDP (Annualised e-1.4% p-1.4%)

12:30 US Jobless Claims

12:30 Canada Retail Sales

14:00 US Pending Home Sales

23:30 Tokyo CPI

Friday May 27

01:30 Aus Retail Sales

12:30 US PCE (MoM e0.4% p0.3%, YoY e4.6% p5.2%)

14:00 Michigan CSI

Week to May 13th

Early signs of a trend change

MY CALL THIS WEEK : BUY EURUSD

LAST WEEK

In a week that was light on data, but packed with significant action, the only real event worth mentioning was the CPI print out of the US. This showed some slowing in inflation but was still far from comfortable reading for the markets or the Fed. Even so, it helped mark a change as long-term yields started to pull back. While this may help stocks in the near-term, the catalyst is hardly encouraging; yields are starting to price in a recession. The 3m 10y spread dropped sharply from 2.26% on May 6 to 1.88% this week. With the Fed set to hike 50bps next month and July, the spread could invert next quarter, in which case a recession is almost guaranteed.
Last week’s market price action was noteworthy for several reasons. Firstly, it showed a change in character. There was no Monday/Tuesday bottom and weak Thursday/Friday as previous weeks. In fact, it was almost the opposite with a solid Friday close which cemented weekly reversal patterns. These reversals came from some significant areas.


WEEKLY PRICE MOVEMENT

The biggest index mover was DAX, back up after three red weeks. The top forex mover was GBPAUD down 2.05%. Bitcoin and Ethereum fell hard, and once again, some FANGs underperformed. AAPL finally fell victim with the other FANGs whereas NFLX made a small recovery.

Last week's GBPAUD long made 1.33%, which means I am ahead 8.08% this year, with 10/16 (62.5%) wins. This week I think EURUSD is well oversold so I am buying it.

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

There is no important US news this week, other that perhaps Retail Sales, so the main markets are likely to show the large two-way volatility often seen when VIX is over 30. Even outside the US, the influence are more on currencies. The all-important inflation reports from Canada and the UK are the main macro releases, with Retail Sales also reported from China and the UK, the former estimating further contraction.

CALENDAR  (all times are GMT, volatile items in bold)

Monday May 16
02:00 China Retail Sales (e-6% p-3.5%)
09:00 EC Economic Growth Forecasts

Tuesday May 17
01:30 RBA Meeting Minutes
06:00 UK Unemployment (e3.6% p3.8%)
09:00 Eurozone Q1 Prelim GDP (YoY e5% p5%)
12:30 US Retail Sales (MoM e0.6% p0.5%)
23:50 Japan Q1 GDP (QoQ e-0.3% p1.1%)

Wednesday May 18
00:30 Aus Wage Price Index
04:30 Japan Industrial Production
06:00 UK CPI (p7%)
09:00 Eurozone CPI
12:30 US Building Permits/Housing Starts
14:30 Canada BoC CPI (Core YoY e5.5% p5.5%)
23:50 Japan Imports/Exports/TB

Thursday May 19
01:30 Aus Jobs/UnEmp (UnEmp e4.1% p4.0%)
11:30 ECB MPC Minutes
12:30 US Jobless Claims
12:30 Philly Fed Mfr Survey
23:30 Japan National CPI

Friday May 20
01:30 PBoC Interest Rate Decision (p3.7%)
06:00 UK Retail Sales
06:00 UK PPI
07:30 BoE Pill speech
14:00 Eurozone Consumer Confidence

Week to May 7th

Resolution of Fed policy only reverses trends for a few hours

MY CALL THIS WEEK : BUY GBPAUD

LAST WEEK

The long-awaited 50bp rate hike occurred as expected on Wednesday, and a comment by Chair Powell that the Fed were not considering a 75bp bhike in June (despite Fed Bulllard's hawkish comments) caused a spike with SPX up 3.4% and NDX up 4.7% in the remaining 90 minutes of the session . This move was fully retraced in the US Thursday morning session, as were gains made.

In another volatile week, the RBA made a hawkish hike, the BoE made a dovish hike, and the Fed were somewhere in-between. The latter made all the headlines and led to the strongest session since 2020. This was all given back just as quickly on Thursday and Friday and the SPX closed the week pretty much where it opened, creating doji patterns on the weekly chart and daily chart. This signals indecision, which is apt as there no consensus on what the Fed will do next. Despite Chair Powell saying the Fed were not “actively considering” 75bps hikes, the markets are assigning a 83% chance of a 75bps hike in June. They clearly believe the Fed has lost the battle with inflation and will have to play catch up. This view can be seen in the continued collapse in long bonds, with TLT down over –5% on the week, and USD making a new 2022 high on Friday.

Last week’s action was a challenge to trade and there were rumours of a fund blowing up during Thursday’s crash. It certainly tested our bullish view, but Friday’s close was off the lows and the weekly doji could lead to a reversal. Bulls now want to see the Fed take a “whatever it takes” stance on inflation in the hope they can ease off later so the terminal rate comes in less than expected. Again, we note that 10Y yields and DXY both have weekly and monthly exhaustion signals, but since these are long-term, the short-term charts could still overshoot.  


WEEKLY PRICE MOVEMENT

The biggest index mover was DAX for the third week, down 3%. The top forex mover was GBPAUD down 2.05%. Bitcoin and Ethereum continued to slide, and once again, some FANGs underperformed. Yet again AAPL was relatively unscathed.

Last week's GBPAUD short was the worst trade I could possibly have done, losing 2.05%, which means I am ahead 6.75% this year, with 9/16 (56%) wins. This week I am doing a reversal trade and buying GBPAUD again.

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

There is only one important release next week which is US inflation (CPI) on Wednesday. As we have stated before, the unemployment part of the Fed dual mandate is satisfied, so the primary indicator of the rate hike path in now inflation, given that the Ukraine effect has receded. In addition to the US, there are inflation reports from Germany and China on the same day. The week is also heavy with CB speakers, with three Fed speakers on Tuesday. Earnings next week is mainly China tech companies.


CALENDAR  (all times are GMT, volatile items in bold)

Monday May 9
02:00 China Imports/Exports/TB
13:00 BoE Saunders speech

Tuesday May 10
09:00 Germany ZEW Surveys
11:40 Fed Williams speech
17:00 Fed Waller speech
17:20 ECB De Guindos speech
19:00 Fed Mester speech

Wednesday May 11
01:30 China CPI (e1.9% p1.5%)
06:00 ECB Elderson speech
06:00 Germany CPI (e7.8% p7.8%)
08:00 ECB President Lagarde speech
09:30 DE10Y Bond Auction
12:20 ECB Schnabel speech
12:30 US CPI (Core e6.0% p6.5%)

Thursday May 12
06:00 UK Q1 GDP (QoQ e1.0% p1.3%)
12:30 US Jobless Claims
12:30 US PPI
15:35 BoC Gravelle speech

Friday May 13
02:00 RBA Bullock speech
07:00 ECB De Guindos speech
14:00 Michigan CSI (e63.6 p65.2)
16:00 ECB Schnabel speech