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