Week to Sep 30th

LAST WEEK

Monday September 24
The main news of the day was a further increase in Oil prices after the OPEC meeting in Algeria on Sunday decided against output rises. WTI was up 2.1%, and Brent (the Middle-Eastern Oil price) added 3.3% to close at $81.43, the first close over $80 since 2014.  After rallying last week into OpEx, global equity markets pulled back on renewed China trade concerns, with SPX pulling back 0.4% from Friday’s record high. However, tariff-resistant NDX managed to add 0.1%, and NKY was flat in closed Asian markets. European bond yields rose on hawkish comments from ECB President Draghi. DXY was flat, and so was EUR. Other currencies (and Gold) pullbacks were balanced by a 0.4% increase in GBP. US 10-year yields followed Europe and rose by 2bp

Tuesday September 25
It was Turnaround Tuesday for some indices and currencies today. However the picture was not uniform. European indices recovered as Italian bond yields pulled back, as did NKY. However the mood was not shared in the US, with SPX and DJIA down slightly, but once again NDX advanced. DXY gave up the previous day’s gains to close 0.11% down, with EUR and GBP (and Gold) slightly up following the Draghi comments and further positive Brexit news out of Berlin. A slight pullback in Oil prevented CAD from moving, and Asian currencies AUD and JPY were slightly down. Yields added 1bp.

Wednesday September 26
As predicted, the Fed raised rates today to 2.25%, a ten-year high. The effect is usually seen immediately in equities, whereas currencies are sometimes slower to react, and so it was today. Some of this effect is because a lot of currency trading is done outside the US, which is closed and the time of the release. Equities were down following the rate announcement, with only NKY (because of timing) and NDX (because of strength) remaining flat. After sliding earlier, DXY rose a modest 0.12%, with a clear demarcation. CAD, GBP and EUR were down, but Asian currencies AUD, NZD and JPY were up. Again timing may come into this. Oil and Gold were slightly down in line with the rate-hike driven dollar strength. With US 10-year bond yields, it was a case of buy the rumor, sell the news. They fell by 4.5bp, the largest drop in a month.

Thursday September 27
Thursday was heavy on news releases, after beats on the key German inflation at 12:00 (and earlier confidence indicator beats), and US GDP and PCE at 12:30, all markets rose, with again NDX as the leader, with AAPL up 2.6%. NKY made a new 27-year all-time high. However, the Italian MIB fell 0.6% after a high public spending budget was passed by the new populist parliament. In forex, the effect of the rate rise was seen as soon as London (the world forex centre) opened. The dollar continued to rise all day, adding 0.78%, its best day since Jun 14 this year (the day after the last rate hike), and all currencies and Gold retreated heavily. Yields however, were surprisingly flat on the day.

Friday September 28
The end of month and quarter saw volatility as we predicted last week, however the key driver was not portfolio balancing but a collapse in sentiment in Italy following the populist budget, as the MIB fell 3.6% and Italian 10-year yields shooting up at one point by 40bp to a five-year high, to close 25bp higher. This pushed DAX down 1.09% and added to yesterday’s EUR fall. FTSE was down in line, although SPX ended the day flat, and NKY even managed a small rise on a weaker yen. NDX managed a small gain despite a 12% fall in TSLA, following promised regulatory action over Elon Musk’s infamous ‘funding secured’ tweet, and a 2.3% drop in FB after an admission of hacked accounts. SPX closed the quarter up 7.3%, its best Q2 since 2013.

DXY managed a small advance of 0.12%, but this covered a mixed picture in markets. GBP was down after the GDP miss, as was EUR after the Eurozone CPI miss and the Italian situation. However, this was balanced by a sharp rise in CAD (+1.03%) following a strong rally in Oil (+1.83%), and the Canadian GDP beat at 12:30. This was despite the fact that the Canada NAFTA deal is still not finalised (deadline:this Sunday). AUD and NZD were also up, as was Gold. Yields added 1bp, to close the first week for seven years entirely above 3%.

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

USD gave its best performance in seven weeks, with DXY up 0.96%. Only CAD performed slightly better, and after last week’s strong performance, NZD was the biggest slider. Selling NZDCAD was therefore the best forex trade. Indices were all over the place (contrast the huge NKY/NIFTY difference), but the Italian bond collapse on Friday made shorting DAX the best index trade. The FAANGs surged ahead—except for scandal-hit FB, with AMZN the overall leader, adding 4.59% against a general NDX gain of only 2%. One swallow does not make a summer, and after their brief respite last week, cryptos fell again, with, as before, ETH fading harder than BTC.

AUDUSD 0.7223 (-1.00%)
EURGBP 0.8903 (-1.11%)
EURUSD 1.1603 (-1.41%)
GBPUSD 1.3029 (-0.34%)
NZDUSD 0.6615 (-1.05%)
USDCAD 1.2908 (-0.18%)
USDJPY 113.68 (+0.99%)
DAX     12231 (-1.43%)
FTSE     7497 (+0.25%)
NIFTY   10930 (-1.91%)
NKY     24316 (+1.89%)
SPX    2917.2 (-0.35%)
GOLD  1190.40 (-0.77%)
OIL     73.49 (+3.96%)
BTCUSD   6635 (-1.78%)
ETHUSD 221.92 (-10.44%)
FB     164.46 (+0.94%)
AAPL   225.74 (+3.71%)
AMZN  2003.00 (+4.59%)
NFLX   374.13 (+3.58%)
GOOGL 1207.08 (+2.98%)

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

 

NEXT WEEK (High volatility items are in bold)

The new week and month also starts Q4, arguably the busiest quarter of the year, with the mid-term elections, Black Friday, the Santa rally, and of course a new earnings season. Like 2017, there was little sign of Q3 summer risk-off fatigue in the US, although the story was different in the rest of the world as this graphic from Reuters shows.

Monday October 01
Today is the first day of the China National Day Golden Week. Chinese markets are closed all week. It is Labour Day in some states in Australia but not Victoria, where the Melbourne stock exchange is situated. The British Conservative (ruling) Party annual conference starts on the Sunday, and Brexit is sure to be the main theme. Expect GBP volatility until the conference finishes on Wednesday. The Canadian NAFTA deadline was this weekend, and so may affect markets Monday. Chinese personal tax cuts come into force today.  Fed speakers today are Bostic (2018 only voter, centrist), and Rosengren (2019 voter, hawkish).

22:30 AUD Australia AiG Performance of Mfg Index (Sunday)
23:50 JPY Tankan Large Industry/Manuf Indices (Sunday)
00:00 EUR Eurogroup meeting (all day)
06:00 EUR Germany Retail Sales (MoM)
07:55 EUR Germany Markit Manufacturing PMI
08:00 EUR Eurozone Markit Manufacturing PMI
08:30 GBP UK Markit Manufacturing PMI
08:30 GBP UK Mortgage Approvals
09:00 EUR Eurozone Unemployment Rate
13:00 USD FOMC Member Bostic speech
13:30 CAD Canada Markit Manufacturing PMI
14:00 USD US ISM Manufacturing PMI/Prices Paid
16:15 USD Fed Rosengren Speech
21:00 NZD NZIER Business Confidence (QoQ)

Tuesday October 02
The day opens with the Australian rate decision. A hold at 1.5% is expected, but the recent Aussie jobs reports (44k vs 25k est) may give the RBA reason to be hawkish. Despite two weeks of recovery, AUD is still 11.22% off its January high. The official Mexico NAFTA deal is due to be published by the USTR. FRB vice-chair Quarles (centrist, voter in 2018 and 2019) speaks at 14:00, followed more importantly by Chair Powell. The Paris Auto Show starts today, but without the VW brand.

04:30 AUD RBA Rate Decision/Statement (est 1.5% hold)
08:30 GBP UK PMI Construction
14:00 USD Fed Quarles speech
14:00 NZD NZ GDT Milk Index (time approx)
16:00 USD Fed Chair Powell Speech
21:30 WTI API Stock

Wednesday October 03
Three Fed speakers today, Evans (dovish, 2019 voter) at 10:30, Barkin (hawkish, 2018-only voter) and Mester (hawk, 2018-only voter). There is the ADP print, a ’sneak preview’ for NFP, with an estimate of 185k, very similar to the NFP estimate for Friday. Otherwise most of the day’s releases are PMIs. There are rate decisions today in Poland and Romania, both are expected to hold. Turkish inflation is also published.

01:30 AUD Australia Building Permits (MoM)
07:55 EUR Germany Markit Composite/Services PMI
08:00 EUR Eurozone Markit Composite/Services PMI
08:30 GBP UK Markit Services PMI
12:15 USD US ADP Employment Change
13:45 USD US Markit Composite/Services PMI
14:00 USD US ISM Non-Manufacturing PMI
14:30 WTI EIA Stock
18:15 USD FOMC Member Mester speech

Thursday October 04
A quieter day today, with only the weekly Jobless Claims and Factory Orders releases from the US. Fed Quarles speaks again, and there is a rate decision in Mexico, hold expected.

00:00 AUD Australia HIA New Home Sales(time approx)
00:30 AUD Imports/Exports/Trade Balance
13:15 USD Fed’s Quarles speech
14:00 USD US Factory Orders (MoM)
14:00 CAD Canada Ivey PMI
23:30 AUD Australia AiG Perf of Construction Index
23:30 JPY Japan Overall Household Spending (YoY)

Friday October 05
NFP day again, and this is concurrent with Canada, so expect big moves in USDCAD. The US Average Hourly Earnings report is expected to improve from 2.9% to 3%, and unemployment is expected to fall from 3.9% to 3.8%. Canada’s unemployment is also expected to improve by 0.1%. There is a rate decision in India. A 25bp increase is possible, but by no means certain. INR is down 12.8% this year, and showing no signs of bottoming. A ruling is expected today from the ECJ on whether the ECB QE program falls within the bank’s mandate, after a challenge from Germany that it constitutes state aid. Although non-binding, the decision could affect EUR.

00:30 AUD Australia Retail Sales
12:30 USD US NFP/UE/AHE/Participation (est 188k prev 201k)
12:30 CAD Canada NFP/UE/Participation (est 3.25k prev -51.6k)

12:30 CAD Trade Balance
18:00 WTI Baker Hughes US Oil Rig Count
19:00 USD US Consumer Credit Change

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