Week to Oct 26th
Monday October 22
The week opened with a strong rally in Chinese stocks, with the CSI 300 adding 4.32%, its best day since 2015, making 6.8% over two days. Similarly Italian stocks and bonds rallied briefly after Moody’s Friday rating left the country bonds as still investment (as opposed to junk) grade—just. However concern still weighed over the Italian budget. The net result of all this was a very mixed bag. DAX and NKY were flat, whereas in the US SPX and DJIA faded 0.4% and 0.5% respectively, but NDX (unaffected by Europe or bonds) was up 0.3%. FTSE was also up, following the stronger Oil price after vague concerns about the need to take action against Saudi Arabia after the Khashoggi affair.
The picture was clearer in currency. Continuing last week’s direction, DXY was up 0.38% and all currencies and Gold faded, and US Treasury 10-year yields were up in line.
Tuesday October 23
A definite Turnaround Tuesday for the CSI300 which gave up most of Monday’s gains, and Italian bond yields rose again as the EC—as predicted—rejected the Italian budget as incompatible with EU fiscal rules. Oil fell sharply with WTI down 5%, and BNO a little more, in line with the Chinese move, and on reports that Saudi Arabia could provide more output quickly if needed. Indices all fell, heavily at first, but recovered as bond yields fell 2bp. DXY was virtually flat on the day (-0.08%), as all currencies (and Gold) moved up, but only very slightly, although Gold hit an intraday three month high at that point when SPX was down over 2%. NZD was completely flat.
The sentiment hit earnings reports from DJIA components MMM and CAT whose stock fell heavily despite earnings beats. MMM missed on revenue and guidance, and CAT warned of tariff-driven cost increased. Both stocks initially fell 6% pre-market. MCD, VZ and UTX on the other hand beat on all metrics, and were up on the day, paring the DJIA daily loss to 0.5%
Wednesday October 24
The rout continued today, with SPX down 2.58%, and DJIA down 3.90%. BA opened the day with blowout earnings (EPS 3.58 vs 3.47), and crucially a substantial upgrade in Q4 guidance. It is a measure of the current mood that this only briefly lifted the stock 5% in the pre-market, and most of this had evaporated by the close, leaving the aircraft maker down on the week. FTSE, DAX and NKY also fell hard. MSFT after the bell was similar story. A substantial beat on EPS (1.14 vs 0.96), a revenue beat and no guidance change still saw an initial AH spike down of nearly 7%, although the the stock then recovered. It was a similar story with T which beat on revenue (although not EPS), gave up 8% instantly, to end the week 11.9% down, a seven-year low, and the worst week for ten years, ie in the middle of the 2008 financial crisis.
DXY was up 0.42%, and most currencies duly fell. However, the picture was not uniform. The yen, and for once, Gold did what they are expected to do in equity risk-off, and advanced. Also up was CAD after the BoC increase rates by 25bp to 1.75%, despite this move being widely expected. The loonie did what it usually does, a sharp spike (116 pips/0.89%) and then started to retrace, and ended the day up 0.23%. The surprising move was in yields, which fell sharply by 6bp, but sharp unexplained moves are often seen at elevated levels.
Thursday October 25
Finally some relief came today, as markets rebounded, with tech leading the way as TWTR’s beat before the bell on a 50% surprise EPS (0.21 vs 0.14), and subsequent 14% leap, coupled with tiny SHOP (revenue a mere $270m) crossing the vital line into profit (EPS +0.04 vs -0.03) gave a somewhat irrational exuberance to AMZN and GOOGL buyers before earnings. The two giants put on 4.63% and 2.16%, in line with NDX as a whole rising 3.35%, its best day this year. SPX (+1.9%) and DJI (+1.0%) rose more modestly, as did DAX and FTSE, although NKY failed to move at all.
The closing bell was however a handbrake turn performance for tech.. Remember the ‘pass mark’ is 100% these days—all metrics must be beats. AMZN had a stellar EPS beat (5.75 vs 3.14—an 83% beat for the second largest company in the world is amazing), and a tiny 0.8% miss on revenue), but a reduction in Q4 guidance knocked 7% off the price AH. The GOOGL story was similar, they surprised by +25% on EPS, but only missed by 5% on revenue. Some economists would say making more profit on less revenue is a good thing, but not the market—the stock dropped 5%, although over half that was clawed back on Friday. Just to confirm how negative sentiment is this week, INTC announced a perfect scorecard, and faded its 6% rally in under two hours in the AH market, and only ended up 2.89% up the next day as shown here.
It was inevitable that DXY would have a good day. At the ECB rate meeting conference, President Draghi had little choice but to be dovish, so as not to cause a further run on Italy, and EUR duly fell. GBP also fell on Brexit worries, JPY and Gold on the risk on mood, and CAD doing its usual retracement after the rate hike spike. Only AUD appreciated on the day. Oil was up slightly in line with equities, and bonds were flat. Notably CNH hit a new 10-year low against the dollar.
Friday October 26
Thursday was only a brief respite. The tech results cast a pall over the whole market. Although the pre-market actually opens at 0900, it tends to be 1230, an hour before the US Open that the market take its cue from the economic releases at that time. Although GDP beat (3.5% vs 3.3%), the Core PCE miss (1.6% vs 2%) was probably more significant as the drivers for Fed rate decisions are the dual mandate, jobs (NFP) and inflation (CPI), not growth. PCE is an inflation proxy. Notably, the safe havens of bonds and JPY both spiked up on the report (ie USDJPY and yields fell) but retraced some of that quite quickly as you can see on the main chart. It remains to be seen whether bonds will continue to behave as risk-off havens.
SPX fell 1.7% and NDX, where AMZN and GOOGL reside gave up 2.2% on the day. Another hint that the malaise was earnings and not economic news driven was that DAX and FTSE were positive on the day, despite appreciating currencies. DXY pulled back 0.28% in line with the PCE miss, and all currencies and Gold advanced, except CAD, which finished off the retracement of its Wednesday rate hike spike. Oil was a shade higher but still down on the week.
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
A second good week for USD, with DXY adding 0.69%, and gaining everywhere except the yen, reflecting the risk-off mood in equities. Sterling was the weakest currency, the negative sentiment increases as we get closer to no-deal Brexit, and so shorting GBPJPY with its 2.51% bearish engulfing bar would have been the best trade. Indices were sharply down, with NKY giving up most on the stronger yen. Cryptos had their flattest week for years, moving less than 1%, and the FAANGs were badly hit, as NDX dropped 4.11%, its worst week since February, driven by disappointing earnings guidance from AMZN, although NFLX suffered worst.
AUDUSD 0.7093 (-0.38%)
EURGBP 0.8902 (+0.92%)
EURUSD 1.1424 (-0.93%)
GBPUSD 1.2833 (-1.83%)
NZDUSD 0.6512 (-1.24%)
USDCAD 1.3137 (+0.15%)
USDJPY 111.90 (-0.58%)
DAX 11255 (-2.51%)
FTSE 6939 (-1.41%)
NIFTY 10012 (-2.83%)
NKY 21317 (-5.61%)
SPX 2659.0 (-3.80%)
GOLD 1233.08 (+0.61%)
OIL 67.56 (-2.81%)
BTCUSD 6531 (+0.18%)
ETHUSD 205.03 (+0.05%)
FB 145.37 (-5.63%)
AAPL 216.30 (-1.37%)
AMZN 1642.81 (-6.87%)
NFLX 299.83 (-9.87%)
GOOGL 1083.75 (-1.94%)
(Crypto prices are given as at 0000GMT Saturday, after the other markets close.)
NEXT WEEK (all times are GMT)
(Calendar High volatility items are in bold).
Monday October 29
On Sunday the Brazilian elections are expected to confirm right-winger Jair Bolsonaro as President, and we start the week that happens this time of year every year where North America and Europe are one hour less apart. DST in North America starts two weeks earlier than Europe and ends one week later. Fed Evans speaks today at 1345. Today is also the UK’s budget statement, the surprise part of which is mainly tax changes. British stocks can be affected, particularly in regulated industries. The main items are usually revealed around 1200-1300. Like last week, there are no major earnings releases today.
23:50 JPY Japan Retail Sales (Sunday)
00:00 GBP UK Budget Report
09:30 GBP UK Mortgage Approvals
10:00 EUR EC Economic Growth Forecasts
12:30 USD US PCE (YoY est 2% prev 2%)
23:30 JPY Japan Unemployment/Jobs-applicants ratio
Tuesday October 30
We have listed an Italian report for the first time this week (we normally only list Germany among the EU nations), given the current volatility in Italian assets. Of less interest is Eurozone GDP, reported an hour later because as we have said before, the individual countries report beforehand. DJIA components KO and PFE report before the bell, along with V’s competitor MA, beleaguered giant GE, and car maker FCAU. FB is the final FANG to report, its earnings come after the bell, along with fellow tech companies BIDU, IQ and EBAY. The stock has been hammered recently, but as we have seen, an EPS beat on its own may not be enough for relief.
00:30 AUD Australia Building Permits (MoM)
02:10 AUD RBA Assistant Governor Bullock Speech
08:55 EUR Germany Unemployment Rate/Change
09:00 EUR Italy GDP
10:00 EUR Eurozone GDP (YoY est 2.1% prev 2.1%)
10:00 EUR Eurozone Business Climate
13:00 USD US S&P/Case-Shiller Home Price Indices (YoY)
13:00 EUR Germany CPI
20:30 WTI API Stock
21:45 NZD NZ Building Permits s.a. (MoM)
Wednesday October 31
The last day of the month, Hallowe’en is the end of the six-month summer seasonal cycle, where defensives typically outperform risk industries. There is more action than usual in the Asian session. ADP at 12:15 estimates 5k more than NFP. As always a large beat or miss can jump the gun on the ‘official’ result on Friday. GM report before the open. It will be interesting to compare the results with FCAU, and see how much steel and aluminum tariffs are mentioned. Don’t forget EIA stock, now that Oil is reacting to it.
00:30 AUD Australia CPI (YoY est 1.9% prev 2.1%)
01:00 CNY China PMIs
02:00 JPY BoJ Rate Decision/Statement (time approx.) (est -0.1% hold)
04:00 JPY BoJ Press Conference
07:00 EUR Germany Retail Sales (MoM)
10:00 EUR Eurozone Unemployment Rate
10:00 EUR Eurozone CPI (Core est 1.0% prev 0.9%)
12:15 USD US ADP Employment Change (est 195k prev 230k)
12:30 CAD Canada Gross Domestic Product (MoM)
13:45 USD Chicago PMI
14:30 WTI EIA Stock
21:30 AUD AiG Performance of Mfg Index
Thursday November 1
The new month starts today, and is traditionally the start of the winter six month seasonal cycle (risk stocks outperform). Banks are closed in Spain and Italy for All Saints Day, but not their stock markets. There is a rate decision in CZK, a 25bp hike is expected. Today is the pinnacle of the earnings season, with 491 companies reporting, the most of any day in the season, and of course AAPL, the biggest company in the world reports after the bell. It is likely that the AAPL result will set the tone for the whole market. Note that AAPL do not usually release until about 2130.
00:30 AUD Australia Imports/Exports/Trade Balance
01:45 CNY China Caixin Manufacturing PMI
02:00 CNY PBoC Rate Decision (time approx, est 4.35% hold)
12:00 GBP BoE Rate Decision/Statement (est 0.75% hold)
12:30 USD US Nonfarm Productivity/Unit Labor Costs
13:30 CAD Canada Markit Manufacturing PMI
14:00 USD ISM Manufacturing PMI/Prices Paid
Friday November 2
It’s the first Friday of the month so it must be NFP day in the US and Canada, so as always, USDCAD volatility is assured. The US estimate is 190k again, the ‘default’ estimate, well above last month, whereas the Canadian estimate is modest after last month’s blowout result. Remember how USDCAD works, one piece of news often retraces the price move from a previous one. We have the two NFPs and US Trade Balance at 1230, and the Canadian trade balance an hour later. BABA is the second BAT (Baidu-Alibaba-Tencent) stock to report this week,, before the bell.
00:30 AUD Australia Retail Sales s.a. (MoM)
08:55 EUR Germany Markit Manufacturing PMI
09:30 GBP UK Construction PMI
12:30 USD NFP/AHE/Unemp/Participation (NFP est 190k prev 134k)
12:30 CAD Canada NFP/Unemp/Participation (NFP est 25k prev 63.3k)
12:30 USD US Trade Balance
13:30 CAD Canada Trade Balance
17:00 WTI Baker Hughes US Oil Rig Count
22:45 NZD NZ Building Permits s.a. (MoM)