|This decline gathered pace after the NFP miss on Friday as US yields rallied 10bps. Equities were mixed, SPX and NIFTY were flat, DAX and NKY gently declined, and FTSE which had followed SPX suddenly had a sharp rally on Friday.
The new quarter opened on Monday with the news of a bombing in Russia, and in anticipation of the various risk events in the week, equities retreated all day as did bond yields and safe havens USDJPY and gold rose. Whereas German and Eurozone Manufacturing PMIs were as expected at 0800, the UK missed at 0830, and US PMIs were mixed, a miss from Market, but a beat from the more influential ISM. Not normally reported was the sharp miss in US Vehicle Sales (16.6M vs 17.5M) at 1910, considered by some to be a serious blip in the Trump recovered. In currencies (other than JPY), USD was slightly up against AUD and CAD, the latter assisted by a slight fade in oil. GBP was firmly down on the day.
The RBA rate hold at 0430 Tuesday was expected, and AUD continued its slide as the market maintained its stubbornly bullish view. Indices and bond yields recovered slightly, the US 10-year bouncing off a five-week low, helped by the US trade balance beat at 1230. The FTSE recovery was stronger, erasing all Monday’s losses, helped by a 0.3% fade in GBP. USD gained also slightly against all currencies except EUR which rose slightly. NZD spiked down over 0.5% on the slight GDT milk miss (1.6% vs 1.7%) but recovered to end the day flat.
Wednesday was a day of great contrast. After a quiet Asian and European session, the third ADP blowout beat in succession at 1215 gave SPX a big lift, rising nearly 1%, shrugging off the Services PMI misses at 1345 and 1400 although the effect was less marked in other markets. However, the FOMC minutes at 1800 changed all that with Fed indication that they wish to reduce their balance sheet, i.e. tighten money supply, and even a very rarely seen comment on equities that they are “quite high relative to standard valuation measures,”. SPX immediately gave up 1.42%, and made a new low for the month, and this time the other indices followed suit.
USD and bond yield reaction to the two factors was in the same direction (up for ADP, down for FOMC), but overall the dollar was flat on the day against gold and currencies except CAD which fell slightly as with. Oil fell when stocks rose on ADP, and on the EIA miss at 1530, but didn’t react further to FOMC until the following day, probably due to oil pit hours.
Thursday was, like Tuesday, a recovery day. SPX and NKY recovered 50% of the previous day’s drop (and gold gave half back), helped by the US Jobless Claims beat at 1230. DAX and USDJPY recovered 61.8%. FTSE recovered 50% with brief 61.8% spike. Satisfying technical points. Oil recovered 100% of it’s Wednesday loss and then flattened, taking CAD with it, otherwise USD made modest gains against other currencies. Bond yields were flat on the day.
At 0040GMT on Friday, the US launched a major missile attack on Syria in a surprise change of policy. Asian market reaction was immediate. Gold (safe haven) and oil (Middle East) spiked up. SPX (through Globex) and NKY were trading, and returned to Wednesday’s lows of the week, and bond yields fell even further. FTSE and DAX did not open until 0600, gapped down of course, but their reaction was more muted, and as the day progressed, and it was clear that Syria was not going to escalate, markets recovered.
The European morning data was mixed, German Trade figures beat at 0600, UK Manufacturing miss at 0830, and UK NIESR GDP estimate as expected (0.5%) at 1200. Then came another surprise. In February and March the ADP huge beat had presaged a similar blowout on NFP. This month, we saw, for the first time in a very long time, a substantial miss (98k vs 108k) after the ADP beat. Coupled with the strong beat on unemployment (4.5% vs 4.7%) and the fact the markets were already depressed after FOMC and Syria, equities shrugged this off and rose, albeit modestly. SPX DAX and NKY rose slightly above Thursday’s high, although they still finished down on the week. FTSE on the other hand rallied sharply, the only index to end the week up, although this can be attributed to GBP performance on the day.
The poor UK Manufacturing figure helped to push GBP into a tailspin, it lost 1% on the day and EUR was nearly as bad, losing 0.9%. CAD had an interesting day, spiking down 0.57% instantly as the Canadian payrolls figure, in contrast to the US was a massive beat (19.4k vs 5.0k). However all these gains evaporated to end the day flat. Otherwise USD had a good day against AUD, the latter falling to almost touch the 75c psychological level, down 150 pips (1.94%) on the week. JPY gave up the Syria spike, and then some, almost hitting its pre-FOMC low. Oil and gold similarly fell to Thursday levels, with the former advancing slightly towards the close.