Monday 30 May 2022

Week to May 27th

Reversals in stocks, dollar and bonds


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.


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.


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)

Saturday 21 May 2022

Week to May 20th

USD pulls back, SPX decline hits fib levels


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.


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.


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

Sunday 15 May 2022

Week to May 13th

Early signs of a trend change


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.


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.


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

Saturday 7 May 2022

Week to May 7th

Resolution of Fed policy only reverses trends for a few hours


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.  


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.


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