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)