Sunday 10 July 2022

Week to July 8th

DAX underperformance


In a shortened week due to Independence Day, European divergence and underperformance came to a head on Tuesday’s re-open as DAX dropped 3% to take out its March low and EURUSD dropped through 1.035 support, reaching 1.007 on Friday. Meanwhile, the SPX easily held last week’s low. Tuesday also saw the peak of the recent recession scare, with commodities down heavily and oil lower by 11%. The data highlight of the week came from the NFP, which with a solid beat and print of +372k, tells us the US economy is holding up extremely well despite all the recession talk. Expect the Fed to raise 75bps again in July.


The biggest index mover this week was NDX, up 4.66%. The top forex mover was EURNZD down 2.32%. Crypto recovered sharply again, and FANG outperformed NDX.

My EURCAD long lost 1.89% this week, meaning I am now ahead 2.91% with 13/25 (52%) wins. This week I have thrown in the towel and am shorting EURUSD.

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.


Each month in the past the main focus was on NFP week or Fed week, but these days the most importantly monthly print is CPI, due on Wednesday. The raw figure is estimated to increase yet again to 8.7% from 8.6%, but core inflation (stripping out food and, particularly, energy) is thought to fall again as it has done since the April peak of 6.5%. If this doesn't happen it could be bad for equity markets, whereas a miss (lower) on the headline rate would imply a Fed slowdown and boost recovery.

Earnings season for Q2 also starts next week, with, as always JPM first out of the gate, reporting on Thursday with MS, followed by WFC and C on Friday (GS report the following Monday to complete the opening quintet). UNH, at nearly 11% the largest component of DJIA also report on Friday. After the worst Q1 for decades, these releases will also be key, so overall, strong moves are possible ahead.

CALENDAR  (all times are GMT, volatile items in bold)

Monday, July 11
01:00 BoJ Gov Kuroda speech
18:00 US Monthly Budget Statement

Tuesday, July 12
09:00 Germany ZEW Sentiment
17:00 BoE Governor Bailey speech

Wednesday, July 13
00:30 Aus Westpac Consumer Confidence
02:00 China Imports/Exports/TB
06:00 UK GDP MoM
06:00 UK Ind/Mfr Production
06:00 Germany CPI (e8.7% p8.2%)
12:30 US CPI (Core e5.9% p6.0%)
14:00 BoC Rate Decision/Statement (e2.25% p1.5%)
15:00 BoC Press Conference
18:00 US Fed Beige Book

Thursday, July 14
01:00 Aus Consumer Inflation Expectations
01:30 Aus Jobs/UnEmp (Jobs e25k p60.6k)
04:30 Japan Ind Production
12:30 US Jobless Claims
12:30 US PPI

Friday, July 15
02:00 China GDP (QoQ e0.6% p1.3%)
02:00 China Ind Production
02:00 China Retail Sales (YoY e-7.1% p-6.7%)
12:30 US Retail Sales (MoM e-0.8% p-0.3%)
13:00 US Fed Index of Common Inflation Expectations (time approx.)
14:00 Michigan CSI (e58 p50)

Sunday 3 July 2022

Week to Jul 1st

Markets back down again


In a week where inflation concerns mixed with recession fears, the net effect was negative on stock markets as SPX and NDX retraced the late June rally and DAX maintained its relative weakness with further June lows. Currencies were mixed, but the general theme was one of USD strength as it made four higher highs and higher lows after bottoming on Monday. EURUSD re-tested the 1.035 low and looks on shaky ground as the annual central bank summit at Sintra underlined the ECB’s lack of options. ECB President Lagarde tried to strike a hawkish tone by saying that they could “move faster” depending on the data, which looked especially toothless when Spain’s CPI came in at 10.2% soon after, beating expectations by 1.4%. It begs the question: if not now, then when? Note the loose EU tone is not helping European stocks.

Inflation now looks more of a European problem than a US one as the Fed’s hiking cycle appears to be working. Long-term yields fell in the US and the 5-year forward inflation expectation rate fell to 2.08%, down from a high of 2.67% in April. Meanwhile, the 10s3s fell to 1.15% and the fall is accelerating – as inflation concerns fade, recession fears are picking up.


The biggest index mover this week was NDX, down 4.30%. The top forex mover was NZDUSD or NZDCAD down 3.21%. Crypto fell sharply again, and FANG underperformed NDX.

My EURAUD long made 1.12% this week, meaning I am now ahead 4.80% with 13/24 (54%) wins. This week I will carry on the theme but switch to buying EUR against the biggest riser CAD, which I think may pull back, so I will be long EURCAD.

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.


A new month, quarter and half year, and of course the main event is NFP. Although inflation is the primary driver of expectations of Fed action (and thus SPX pricing), the jobs report still has some effect. Traders are looking for signs that the tightening will be slowed down, and a poor report could therefore boost markets.

The week is of course foreshortened in the US (only) for Independence Day, hence why the ADP report is a day late. The only other significant event is the RBA rate decision, where a 50bp hike is expected, and may reverse the AUD trend, which is now trading at a one-year low. There are several trade balance and PMI reports but as you know, these have much less effect on markets than central bank actions.

CALENDAR  (all times are GMT, volatile items in bold)

Monday, July 4
01:00 Aus TD Securities Inflation
01:30 Aus Building Permits
06:00 Germany Trade Balance
13:30 Canada S&P Mfr PMI
14:30 BoC Business Outlook Survey
22:30 Aus AiG Construction Index
23:00 Aus S&P Svcs PMI

Tuesday, July 5
01:45 China Caixin Svcs PMI
04:30 RBA Rate Decision/Statement (e1.35% p0.85%)
07:55 Germany S&P Comp PMI
08:00 Eurozone S&P Comp PMI
08:30 UK S&P Comp PMI
09:30 UK Financial Stability Report
14:00 US Factory Orders
16:30 BoE Tenreyro speech

Wednesday, July 6
06:00 Germany Factory Orders
08:10 BoE Pill speech
09:00 EC Growth Forecasts
09:00 Eurozone Retail Sales (e5.4% p3.9%)
09:30 DE10Y Bond Auction
13:45 US S&P Comp & Svcs PMI
14:00 ISM Svcs PMI (e55.7 p55.9)
18:00 FOMC Minutes

Thursday, July 7
01:30 Aus Imports/Exports/TB
11:30 ECB MPC Minutes
12:15 US ADP (e200k p128k)
12:30 US Trade Balance
12:30 US Jobless Claims
12:30 Canada Trade Balance
14:00 Canada Ivey PMI
23:50 Japan Current Account

Friday, July 8
12:30 US NFP/AHE/UnEmp (NFP e250k p390k)
12:30 Canada NFP/AHE/UnEmp (UE e5.2% p5.1%)