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