Week to Aug 10th

LAST WEEK (all times GMT)

Monday August 06
Markets rallied on Friday and this continued today. There were no economic releases, but President Trump said he was winning the trade war, and the market shrugged off Chinese threats to impose retaliatory tariffs. All indices advanced. DAX was not as strong as the others. The Italian government bought back some debt, pushing their (and US) bond yields down, which was good for Europe. However TRY fell 4% to a new all-time low, which was not. We mentioned in previous weeks how Germany and Turkey’s economies are linked.

The forex effect, surprisingly for EUR was flat, as it was across the board, except for GBP which continued last week’s decline, producing a small uptick in DXY overall. Gold was down $5 on the day.

Tuesday August 07
The RBA rate hold and remarks during Asian session gave AUD a lift, and equities were up as well. However, the indices flattened out in the European and US session, as China threatened $60Bn of retaliatory sanctions, but nevertheless closed the day up, helped by more strong earnings. 413 SPX constituents have now reported for Q2 and 79% have beaten on earnings. The UK FTSE was particularly strong on weak sterling. The big news in equities was a tweet by Elon Musk saying he would take TSLA private at $420. The stock immediately leapt by 10%.to close at $379.50. SNAP beat EPS and revenue estimates, but reported lower user numbers, a similar story to Facebook, Twitter and Netflix. The stock initially shot up 11%, then gave it all up, to open 2.2% down the next day.

USD had a slightly down day, with DXY giving up 0.16%. The picture was mixed, with EUR and AUD up, but GBP (on Brexit ‘no deal’ fears), CAD and JPY slightly down. NZD was flat despite after a flat (0.0%) GDT milk auction. Gold was up in line with the weaker dollar. Oil was also flat on the day.

Wednesday August 08
We have said before how the equity price pattern at the moment is an uptrend on no news, which is then knocked back when a trade war news item appears. So it was today. US trade officials confirmed tariffs on a $16Bn tranche of Chinese imports from August 23. Chinese markets fell in Asia, with the CSI300 near a two-year low. The trend continued into European and US markets. The only exception was FTSE, as GBP gave up further ground against the dollar, the only currency to do so. Mainstream media were still talking about the SPX being near all-time highs, some would say a sure sign it will fall!

Oil had started to fall heavily from about 10:00, on China trade concerns (we have mentioned in the past how trade and Oil are linked, for obvious reasons). A miss on the EIA print at 15:30 exacerbated the problem, and the black stuff ended the day 3.5% down, its worst day for three weeks.

DXY was down again, but GBP losses trimmed the basket’s decline to 0.1%. The other currencies (and Gold) were slightly up on the day. The notable move of the day was RUB, which fell 3.2% after the US announced further sanctions on Russia following the Skripal poisoning case. RUB was also hurt by the fall in Oil. (BNO was down 3%). The RBNZ held rates, with a dovish outlook and NZD started to fall (see tomorrow).

Thursday August 09
We will cover forex first today. In addition to all their other problems, Turkey has been holding a US citizen in prison following the failed coup attempt in 2016. Talks to release him failed today, and in anticipation of punitive measures, TRY fell 5.12% today, its worst day since October 2008. RUB continued to fall from the previous day, down 1.43%. We also had the NZD collapse, down 1.96% on the day. As a consequence of the Turkey and Russia routs, EM currencies MXN and ZAR fell 1.22% and 2.23% respectively, purely on sentiment, as Mexico and South Africa are not known for their Turkish links [and they didn’t react to RUB on Wednesday]. The Eurozone is strongly linked with Turkey, and EUR fell 0.72% (and PLN 1.04%). AUD fell in line with NZD, and even CAD, JPY and Gold were slightly down. Notably CNY had a flat day (as it did on Wednesday). DXY was therefore up 0.54%. Oil was only slightly down after Wednesday’s drop.

Unsurprisingly, with all this trouble, US stocks fell, although only slightly, and the ‘trade war insensitive’ NDX was 0.2% up. DAX was up, solely on the strength of EUR (The dollar denominated EWG ETF was 0.58% down), and FTSE advanced for the same reason. NKY was flat. Notably, with the huge drop in TRY, the Istanbul BIST100 only managed a 0.2% gain. US yields were down, as traders preferred bonds to Gold/JPY as their risk-off asset class of choice.

Friday August 10
The response of the US to the failed Pastor Brunson talks was swift and savage, doubling tariffs on Turkish steel and aluminum. Turkey is the eighth largest steel exporter in the world, 25% of that of China. Who knew? The US is, unsurprisingly their largest market. Their second largest market is Israel, a stark reminder of the difference between politics and trade! TRY fell 15.63% on the day, the lira’s worst day ever, and the largest move of any major currency since GBP at Brexit, and before that the Swiss franc peg. A slight recovery was quashed when President Erdogan made a defiant speech.

EUR fell 1%, and RUB, ZAR, MXN and PLN performed even worse than on Thursday, with CZK joining the 1%+ club. DXY added 0.65%. A clear risk-off situation meant Gold and JPY were up. Oil staged a small recovery, adding 1.5% on the day. US yields fell 6bp on further movement into safe US bonds. AUD was briefly up (30 pips) on the RBA minutes at 01:30, but then fell in line with the general move.

A second and more serious day in this crisis had a larger effect of stocks. All markets were down, but the strongest effect was, unsurprisingly seen in DAX, down 2%. The Italian MIB was down 2.5%, and the BIST 100 was down 2.3% (so nearly 18% in dollar terms). The US inflation print at 12:30, which was a beat at 2.4%, and an eight-year high, was lost in the turmoil, as was the Canadian stellar jobs beat (54.1k v 17k est) at the same time.

Please note all figures and percentages given for daily movement on indices cover the entire cash and futures period in that day.

WEEKLY PRICE MOVEMENT

DXY added 1.12% this week to hit a 13-month high, as Trump appears to be ‘winning’ the trade war, although JPY shows that it is more a case of US losses being less than foreign countries. Selling anything into JPY would have been a winner, the best major being NZD. (Selling TRYJPY would have yielded 21%!). The Turkish contagion affected DAX most, as we have explained above, making it the best index short for the second week in row.

The crypto collapse also repeated last week, with ETH once again suffering worse than BTC, and unlike it’s bigger cousin, making a 2018 low against USD and against BTC.

AUDUSD 0.7299 (-1.35%)
EURGBP 0.8931 (+0.43%)
EURUSD 1.1411 (-1.33%)
GBPUSD 1.2766 (-1.78%)
NZDUSD 0.6578 (-2.45%)
USDCAD 1.3137 (+1.13%)
USDJPY 110.82 (-0.36%)
DAX     12429 (-1.68%)
FTSE     7674 (-0.03%)
NIFTY   11429 (+0.61%)
NKY     22210 (-1.58%)
SPX    2837.4 (-0.05%)
GOLD  1211.04 (-0.28%)
OIL     67.70 (-1.33%)
BTCUSD   6143 (-17.22%)
ETHUSD 332.36 (-20.44%)

(Crypto prices are given as at 0000GMT Saturday, two hours after the other markets close.)

NEXT WEEK (High volatility items are in bold)

Monday August 13
Another quiet start to the week. All eyes will be on the EM currencies, and also any further progress on NAFTA. There are no important news releases, but Italy’s inflation figure is released at 08:00.

02:15 CNY China FDI

Tuesday August 14
A double whammy of GDP and CPI from Germany opens the day, swiftly followed by the first of three data prints from the UK this week, the average earnings, together with the less important unemployment and claimant count. The UK does not release new jobs filled figures. The German business sentiment figures missed badly last month. Since then EC President Juncker has met with Trump and the Italian situation has eased. An improved figure is expected, although recent Turkey issue may spoil that. The outcome of the NAFTA auto origin deal with Mexico is expected.

02:00 CNY China Retail Sales/Industrial Production
06:00 EUR Germany GDP MoM (est 0.4% prev 0.3%)
06:00 EUR Germany CPI YoY (est 2.1% prev 2.1%)
08:30 GBP UK AHE/Unemployment/Claimant Count (ex bonus est 2.6% prev 2.7%)
09:00 EUR Eurozone GDP/Industrial Production (GDP est 2.1% prev 2.1%)
09:00 EUR Germany ZEW Economic Sentiment/Current Situation
20:30 WTI API Stock

Wednesday August 15
This is the biggest day of the week for economic news. After the BoE rate hike, and guidance that the next one is a long time away, UK inflation would have to deviate substantially. The core annual figure is expected to rise to 2.2%. This figure will probably be taken by traders along with the previous days earnings figure to determine whether sterling falls any further. US Retail Sales are less important that usual, given that CPI (for which they are a proxy) was reported last week. Watch out for the EIA Stock print, it has been moving Oil noticeably in the last few weeks, in the absence of OPEC noises. Italian Markets are closed for the Assumption Day holiday.

00:00 EUR EcoFin Meeting (all day)
00:30 AUD Australia Westpac Consumer Confidence
01:30 AUD Australia Wage Price Index
08:30 GBP UK CPI/RPI (Core CPI est 2.2% prev 1.9%)
10:00 GBP UK Inflation Report Hearings
12:30 USD US Retail Sales MoM (Core est 0.4% prev 0.4%)
12:30 USD US Unit Labor Costs/Nonfarm Productivity
13:15 USD US Capacity Utilization/Industrial Production
14:30 WTI EIA Stock
23:50 JPY Imports/Exports/Trade Balance
23:50 JPY Japan Foreign investment in stocks/bonds

Thursday August 16
Although there is a raft of minor US data, the main calendar event today is the Australian jobs report. The estimate is more modest (and therefore easier to beat) than last month’s blowout figure. It remains to be seen whether this will help the beleaguered AUD which fell sharply last week. RBA Governor Lowe appears before the Australian House for their version of Humphrey-Hawkins. The third UK print, Retail Sales should have limited impact for the same reason as the US release on Wednesday. There is a rate decision in Norway.

01:00 AUD Australia Consumer Inflation Expectation
01:30 AUD Australia NFP/Unemp/Participation Rate (est 27.3k prev 50.9k)
08:30 GBP UK Retail Sales
12:30 USD US Housing Starts/Building Permits
12:30 USD US Jobless Claims
12:30 USD Philadelphia Fed Manufacturing Survey
22:45 NZD NZ Producer Price Index – Input
23:30 AUD RBA’s Governor Philip Lowe Speech

Friday August 17
Two more inflation releases today, the Canadian being the more likely to cause volatility. Eurozone figures rarely move the Euro, mainly because the figure tends to follow the individual country releases. The monthly Michigan sentiment index last month showed a significant increase in concern about tariffs. This part of the survey will therefore be of heightened interest this month. Monthly options expire today, which may provide additional volatility.

07:30 AUD RBA Assistant Governor Ellis Speech
09:00 EUR Eurozone CPI (Core est 1.0% prev 1.1%)
12:30 CAD Canada CPI (est 2.0% prev 2.1%)
14:00 USD Michigan Consumer Sentiment Index
17:00 WTI Baker Hughes US Oil Rig Count

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