Sunday 26 June 2022

Week to Jun 24th

Strong bounce back in markets


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. 


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.


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)

Sunday 19 June 2022

Week to Jun 17th

Record rate hike causes market plunge


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


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.


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

Sunday 12 June 2022

Week to Jun 10th

CPI beat causes market plunge


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.


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.


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

Sunday 5 June 2022

Week to Jun 3rd

Rally stalls in stocks and bonds


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.


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.


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