Week to Jun 17th

Record rate hike causes market plunge

MY CALL THIS WEEK : BUY EURNZD

LAST WEEK

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


WEEKLY PRICE MOVEMENT

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.

NEXT WEEK

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