Week to Mar 1st

Brexit softening of position helps GBP, Tariff delay confirmed, Trump/Kim summit fails

Mon Feb 25

President Trump announced today that as there had been “substantial progress” in the US/China trade talks, he would be postponing the 15% increase in tariffs on $200Bn of Chinese imports. Although Chinese markets soared over 6%, the results were only modest in the US, Japan and Europe, which registered slight gains. DAX even retreated after the cash close. DXY had a flat day (as did Gold), with modest moves up in EUR, AUD and GBP being balanced by slight softening of CAD and JPY. Yields 

We have highlighted before the effect of President Trump’s tweets on his two favorite market subjects, the value of the dollar and the price of oil. Today he tweeted again that oil was too high, and  called on OPEC to “relax” Brent crude. The prices of both BNO and WTI quick dropped 3.2%.

Tuesday February 26

The big story of the day was UK PM May giving ground on Brexit, saying that if a vote for a deal could not be reached in time for the Mar 29 deadline, she would seek an extension. Sterling added over 1% on the news, which inevitably caused FTSE to fall (71% of the revenue of FTSE companies is from outside the UK). NKY moved down sharply in the cash session but recovered in futures to end the day flat, as did a volatile SPX. DAX continued to move independently and ended up.

The miss on US Housing Starts and Home Prices led to a weaker dollar, with DXY down 0.39%. Although not as strong as GBP, all currencies and Gold were up. Oil recovered 1% after the tweet crash. Yields were down in line with the weaker dollar. The Powell Humphrey-Hawkins testimony (summary: ‘patient’) did not add anything to what we already know.

Wednesday February 27

Another down day in equities as USTR Lighthizer testified to the House that a China trade deal was not yet certain, and would be a “long process”. Although not directly market-related, it didn’t help that Pakistan shot down two Indian military jets in Kashmir. Also the US Trade Balance (1330), Capital Goods, and Factory Orders (both 1500) reports were all down on the previous figure. World markets followed suit, although NKY managed to close flat in futures helped by the weaker yen.

The Brexit softening by PM May was accompanied by softening from both the hardline (want out, don’t care about a deal) ERG group in her party, and also the opposition Labour Party. Sterling continues to rise to its highest level in nearly eight months. Further oil recovery on the strong EIA beat at 1530 helped CAD, which despite a miss on annualised CPI, improved core monthly to 0.3% from -0.2% previously. Other currencies and Gold fell, resulting in a flat dollar basket. Yields were unusually up 4bp today, following USDJPY on part two of the Powell testimony.

Thursday February 28

Another down day after the failure of the Trump/Kim summit, where no progress was achieved. Also the long-awaited US Q4 GDP print at 1330, which beat estimates (YoY 2.6% vs 2.3% est, but was still well down on Q3 (3.4%). US Jobless Claims also missed. The markets are also working off an overbought condition after the strong 10-week bull run. Only DAX managed to post a small gain. The GDP print gave DXY a small boost (up 0.11%) with all currencies (even GBP) and Gold softening. Yields were up again. Oil continued its post Trump tweet recovery.

Friday March 01

Markets recovered again today, buoyed initially by the Chinese Manufacturing PMI beat at 0145, and German (0855) and Eurozone (1000) unemployment beats. The mood continued into the US Open, but was sharply halted by the double whammy of misses on the Michigan Consumer Sentiment (93.8 vs 95.7) and ISM Manufacturing PMI/Prices Paid at 1500. SPX dropped 0.73% in the two hours after the print. However, it then went on to fully recover into the close.

The GDP feelgood factor continued today with DXY up 0.22%, and all currencies and Gold down. However over half of the move was a plummet by CAD after the severe Q4 YoY GDP miss (0.4% vs 1.2%). The loonie is 9.1% of DXY, and fell 1.32% after the print, meaning if it had gone the other way, DXY would have been flat. The CAD move was accentuated by a 2.5% drop in Oil, fuelling by the ISM PMI miss.

WEEKLY PRICE MOVEMENT

A strong recovery from DAX this week, as it beat US indices and was the best performer. For the first time this year, we have a strong divergence in forex, with GBPCAD easily the biggest mover, up 2.26%. Last week’s crypto rally was short-lived, with BTC and ETH down again. A mixed week for FANGs, which were more volatile than the underlying NDX.

Note we use Google Finance data for daily movements, listing UUP as a proxy for DXY. All references to ‘the dollar’ are based on UUP. The equity and index prices are now based on the cash close each day.

• Rate decisions in EUR, CAD and AUD
• Non-farm payrolls in US and Canada
• Australian and Eurozone Q4 GDP
• China’s main political conference

NEXT WEEK (all times are GMT)

(Calendar High volatility items are in bold)

Monday March 04

A quiet start to a busy week, with limited scheduled news, so as usual, the trade war and Brexit will dominate. Brazil and Argentina are closed for two days for Carnival. India is also closed for Mahasivarathri Day.

00:30 AUD Aus Building Permits (MoM)

09:30 GBP UK Markit Construction PM

Tuesday March 05

The 13th National People’s Congress in China is expected to produce economic growth targets going forward, and review intellectual property and technology transfers, key areas in the trade dispute. The key scheduled event is the RBA rate decision. Fed Rosengren (hawk, 2019 voter) speaks at 1230, followed two hours later by Kashkari (dove, 2020 voter). Barkin (hawk, non-voter) is also on. Brazil and Argentina remain closed.

01:45 CNY China Caixin Services PMI

03:30 AUD RBA Rate Decision/Statement

07:00 EUR Germany Retail Sales (MoM)

09:00 EUR Eurozone Markit PMI Composite

09:30 GBP UK Markit Services PMI

10:00 EUR Eurozone Retail Sales (YoY)

14:00 NZD NZ GDT Milk Index

14:45 USD US Markit Services/Composite PMI

15:00 USD US ISM Non-Manufacturing PMI

15:00 USD US New Home Sales (MoM)

19:00 USD US Monthly Budget Statement

21:30 WTI API Oil Stock

23:01 GBP UK BRC Like-For-Like Retail Sales (YoY)

Wednesday March 06

The Canadian rate decision is expected to be a hold, but watch out for Gov Poloz remarks. It’s Australia’s turn to report Q4 GDP, which we have seen has moved markets in other countries. The ADP ‘sneak preview’ jobs estimate is 190k, 10k more than the NFP estimate for Friday. Fed Williams (hawkish, 2019 voter) and Mester (hawk, 2019 voter) both speak at 1700. There are also rate decisions on TRY and PLN. Brazil and Argentina reopen.

00:00 CNY China PPI

00:30 AUD Aus GDP Q4

12:15 GBP BoE Cunliffe speech

13:15 USD US ADP Employment Change

13:30 USD US Trade Balance

15:00 USD US Factory Orders (MoM)

15:00 USD US New Home Sales (MoM)

15:00 CAD BoC Rate Decision/Statement

15:00 CAD Canada Ivey PMI

15:30 WTI EIA Oil Stock

19:00 USD Fed Beige Book

21:30 AUD Aus AiG Performance of Construction Index

Thursday March 07

Another day, another rate decision, this time the key Eurozone figure. A hold is virtually certain, but as always it’s the report and press conference 45 minutes later which will be examined. The third day of Fed speeches as well, this time Brainard (was dovish, now centrist, 2019 and 2020 voter) is on at 1715. BoE Tenreyro speaks at 0930.

00:30 AUD Aus Retail Sales s.a. (MoM)

00:30 AUD Aus Imports/Exports/Trade Balance

05:00 JPY Japan Leading Economic Index

09:30 GBP BoE's Tenreyro speech

10:00 EUR Eurozone GDP Q4

12:30 USD US Jobless Claims

12:45 EUR ECB Rate Decision/Statement

13:30 USD US Trade Balance

13:30 USD US Nonfarm Productivity/Unit Labor Costs

13:30 EUR ECB Draghi Presser

13:30 CAD Canada International Merchandise Trade

23:30 JPY Japan Overall Household Spending (YoY)

Friday March 08

Simultaneous US and Canadian NFPs offer strong volatility for USDCAD today. As usual, the AHE figure may be more important than the jobs print itself. This is the final day before the US/Europe summer time disconnect. For the next three weeks, for Europeans, US markets will appear to open an hour earlier (1330 GMT), and for Americans, Europe will appear to run an hour later, closing at 1230 EDT. ECB Mersch (hawkish) speaks at 1630. Fed Chair Powell may also speak.

02:00 CNY China Imports/Exports/TB

09:30 GBP Industrial Production (MoM)

13:30 USD US NFP/AHE/UE/Participation/Productivity

13:30 CAD Canada NFP/UE/AHE/Participation

18:00 WTI Baker Hughes Rig Count

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Week to Sep 1st

After a flat NKY and JPY in the Monday Asian session, DAX and FTSE opened lower but then recovered, only to fade again with SPX in the US Session. EUR closed at new 27-month high, GBP was also up, pushing DXY to close at 92.52, a level not seen since May 2016. Bond yields similarly fell. Gold was sharply up, on North Korea fears. It broke the $1,300 barrier with ease, AUD followed it, but then fell sharply at the end of the day. CAD was also down, following a sharp drop in Oil prices, despite the 7% rise in gasoline futures following Hurricane Harvey.

On Tuesday, the North Korea missile flying over Japan caused a sharp gap down in the NKY, and this gap was repeated when the DAX and FTSE opened. Gold briefly hit $1,325, its highest price this year. However as the day progressed, and Trump and his cabinet’s response was less bellicose than in the past — neither fire nor fury were mentioned — the markets recovered their losses, partially in the case of DAX and FTSE because of currency pricing, and Gold pulled back to end the day flat.

DXY fell sharply at first as well, touching a new low of 91.62, but it also recovered to close the day up. This was, however, the second day it closed below the 200-week moving average of 92.50, for the first time since May 2014. The picture with other currencies was less clear. JPY was down smoothly all day. The other currencies spike up, but then all except AUD retreated to end the day flat. Yields fell in line with everything else, but ended the day up, although not fully recovering the previous day’s drop. So all in all, a one-day wonder.

Wednesday saw equities recover, with all indices up, following the reduction in North Korea tensions, and also beats across the board, in Europe from Eurozone Economic Sentiment (0900), German inflation (1200), and strongly from the US ADP jobs report at 1215 (237k vs 185k) and US GDP at 1330 (3.0% vs 2.7%). The only counter-intuitive event was oil. It spiked briefly and slightly on the EIA strong beat at 1430 (-5.39M vs -1.91M) which followed the API beat the day before, but otherwise continued its downward path, despite news of refinery closures in Texas. USD saw a similar recovery. It was also up against all currencies and Gold, and back up above the 200-week MA. However, yields didn’t move and were flat on the day.

Thursday was month end, and following a Eurozone inflation beat at 0900 (1.5% vs 1.4%) all equity indices were up closing ten green monthly candles in a row. As gasoline futures (RB_F) hit a 12-month high, having risen 16.7% since Hurricane Harvey made landfall after markets closed last Friday, WTI futures at some point would have to respond, and Oil rose 2.5% on the day to finish an inside month.

USD had a bad day. It started well against the Euro, which had pulled back on ECB concerns about the high value of the latter, but then pulled back against Gold and all currencies, particularly CAD which rose on the back of Oil, to close the month virtually flat. DXY closed negative for the sixth month in succession. It has not done this for 14 years. Bond yields were similarly down.

Friday started with a surprise NFP miss, given the earlier ADP beat, but this didn’t stop the momentum of indices into the new month, helped a little by the ISM PMI beat at 1400. All were up, NKY only slightly given that JPY started to fade again. The ‘bad news is good news’ reason — a poor print may delay interest rate rises —was the general consensus, although we have not seen this logic before in the Trump era. 

Currencies were mixed and volatile. USD fell 0.5% on the jobs report, the main beneficiary being CAD, which made a new 14-month closing low of 1.2397. Unusually, however, DXY ended up 0.26% on the day as EUR and JPY (71.2% of the basket) were down, whereas CAD and GBP (21% combined) and AUD were all up. Bond yields recovered Thursday’s losses and Gold was flat. So it is not really possible to say which way USD started the month. Oil had a quiet day, adding 0.2% with little volatility.

WEEKLY PRICE MOVEMENT

These are the prices movements for the week on the instruments we cover. The best major forex trade of the week would have been short NZDCAD down 1.85%. The strongest non-forex trade was GOLD, up 2.65%

AUDNZD 1.1132 (+1.61%)
AUDUSD 0.7969 (+0.47%)
EURGBP 0.9156 (-1.11%)
EURUSD 1.1861 (-0.51%)
GBPUSD 1.2953 (+0.57%)
USDCAD 1.2397 (-0.67%) 
USDJPY 110.26 (+0.84%) 
DAX     12147 (-0.20%)
FTSE     7447 (+0.68%)
NIFTY    9990 (+0.99%)
NKY     19696 (+1.22%)
SPX    2475.0 (+1.29%)
GOLD  1325.22 (+2.65%)
OIL     47.35 (-1.07%)

NEXT WEEK (all times are GMT)

This shortened first week on the month sees focus move away from the US and to three rate decisions. The big day is Thursday, with Eurozone GDP followed by the important ECB rate decision and press conference. CAD is the other currency worth watching.

Monday is Labor Day in the US and Canada and markets there are closed. It is only three weeks to the German Federal Elections, and Angela Merkel and SPD leader Martin Schulz appear in a TV debate. All the polls suggest a continuation, and there is very little interest by traders in this election.

Tuesday sees the RBA rate decision and statement in the Asian session. No change is expected. Note that Gov Wheeler will also make remarks at a dinner at 0910. AUD has been very volatile this summer and any reversal of recent dovish remarks could push the currency back towards the psychological 80 cent line. Staying in the same part of the world, we also have the New Zealand milk auction. European and US news is minimal.

Wednesday sees US Trade Statistics and PMIs, and then the Canadian rate decision. Like Australia, no change is expected, although recent strong GDP and jobs prints have meant some traders are expecting a hike. Significantly, there is no press conference for Gov Poloz to say anything hawkish. CAD hit a two-year low last week, and USDCAD has fell 14c (10.15%) in four months. With looming NAFTA talks, a rate hold could easily trigger a reversal. Finally, we have API Oil stock, reported a day later in holiday weeks.

Thursday is all about the Euro. At 0900 Eurozone GDP is reported, which may set the tone for the run-up to the big event. There has been a lot of concern about the single currency’s meteoric rise recently, breaking 1.20 last Tuesday, a two year high, and a rise of over 15% this year. Investor redemptions in European funds hit a six month high last week. Against this, because of improving economic data, traders are expecting the ECB to start unwinding its QE programme which would push the Euro even higher. So ECB President Draghi’s words on Thursday will be highly significant, as he tries to walk a path between two opposing forces.

Friday opens with German trade statistics, but this will probably be overshadowed by continuing Euro price action from the day before, which will in turn affect DAX. UK Consumer Inflation Expectations is a forward looking sentiment survey, and gives an indicator to actual CPI print the following Tuesday Sep 12. Canada has a different take on ‘first Friday’ and reports its payrolls figure today, so the effect on USDCAD is less than when it is reported on the same day as NFP. The 15k estimate is low, it equates to 133k in US terms, well below the stellar prints in June (54.5k) and July (45.3k) and is probably guided by last month’s dismal 10.9k. Of course CAD movement will depend to an extent where the loonie is after Wednesday.

CALENDAR (all times are GMT). High volatility items are in bold

Mon Sep 04
0100 AUD Australia TD Securities Inflation
0830 GBP UK Construction PMI
0900 EUR Producer Price Index

Tue Sep 05
0145 CNY China Caixin Services PMI
0430 AUD RBA Rate Decision (est 1.5%, prev 1.5%)
0755 EUR Germany Markit Services/Composite PMI
0800 EUR Eurozone Markit Services/Composite PMI
1400 USD US Factory Orders
1430 NZD GDT Milk Auction (time approx)

Wed Sep 06
0130 AUD Australia GDP
1230 USD US Trade Balance
1345 USD US Markit Services/Composite PMI
1400 USD US ISM Non-Manuf PMI
1500 CAD BoC Rate Decision (est 0.75%, prev 0.75%)
1800 USD US Fed Beige Book
2030 WTI API Stock
2330 AUD Australia AIG Performance of Construction Index
2350 JPY Japan FDI

Thu Sep 07
0130 AUD Australia Retail Sales
0130 AUD Australia Trade Balance/Imports/Exports
0500 JPY Japan Leading Economic Index
0900 EUR Eurozone GDP (est 2.2%, prev 2.2%)
1145 EUR ECB Rate Decision (est 0%, prev 0%)
1230 USD US Initial/Continuing Jobless Claims
1230 USD US Labor Costs/Nonfarm Productivity
1230 EUR ECB MPC Statement and Press Conference
1400 CAD Canada Ivey PMI
1430 WTI EIA Stock

Fri Sep 08
0130 AUD Australia Home Loans/Investment Lending
0200 CNY China Trade Balance/Imports/Exports
0500 JPY Japan Eco Watchers Survey
0600 EUR Germany Trade Balance/Imports/Exports
0830 GBP UK Consumer Inflation Expectations (no est yet, prev 2.8%)
0830 GBP UK Manuf/Industrial Production
1200 GBP UK NIESR GDP Estimate
1230 CAD Canadian Employment/Unemployment (est 15k, prev 10.9k)
1700 WTI Baker Hughes Rig Count
1900 USD US Consumer Credit Change