CFD’er er komplekse instrumenter, og der er en stor risiko forbundet med disse for at miste penge på grund af gearing. 75,6% af detailinvestorerne mister penge på deres konti, når de handler CFD’er med denne udbyder. Du skal overveje, om du forstår, hvordan CFD’er fungerer, og om du har råd til at løbe en stor risiko for at miste dine penge.
Week Ahead: US Election Special
The US Presidential and Senate elections will be the main event in the week ahead, but we’ll also be keeping an eye on meetings of the Federal Reserve and Bank of England.
The only show in town (almost) is the US Election on Tuesday. Whilst a result would normally be expected soon after polling booths close, no one is terribly sure when we will know who the next incumbent of the White House will be. Joe Biden holds a commanding lead in the polls at a national level, but it’s closer in the key battleground states that will determine the winner. Donald Trump could yet surprise the pollsters. Meanwhile in the Senate race it’s just as close and could be just as important for the market’s view of getting a stimulus deal done soon after.
Favouring volatility in futures pricing and potentially in some FX markets overnight will be the way in which calls on individual states are made. With some states processing the in-person ballots before the postal ones are counted, and with some states allowing postal votes to arrive after Nov 3rd (as long as they are postmarked by this date), we could get an inaccurate and uneven sample when the West Coast polls close. If there is no clear result or a contested outcome we can expect volatility to rise again.
Hot on the heels of the US election on Wednesday comes the November two-day meeting of the Federal Open Market Committee (FOMC), at which policymakers are not expected to announce any major shifts. Markets will be looking for additional clarity around how policymakers are approaching the new average inflation target framework. Minutes from the September meeting stressed that while rates will be lower for longer, officials are keen to maintain a degree of flexibility on forward guidance and don’t want to commit unconditionally to keeping rates on the floor. The FOMC statement and press conference with Jay Powell will take place on Thursday.
Bank of England
Ahead of this on Thursday, the Bank of England will issue its latest monetary policy statement amid expectations that rates will go negative. The Bank of England is laying the groundwork for a descent into negative interest rates. In a letter sent to commercial banks on October 12th deputy governor Sam Woods asked firms to detail their “current readiness to deal with a zero Bank Rate, a negative Bank Rate, or a tiered system of reserves remuneration – and the steps that you would need to take to prepare for the implementation of these”. The letter notes that “the financial sector … would need to be operationally ready to implement it in a way that does not adversely affect the safety and soundness of firms”, and explains that “the MPC may see fit to choose various options based on the situation at the time”. It comes after details from the last policy meeting showed that the BoE is actively considering negative rates, whilst Andrew Bailey has been at pains to stress that this does not necessarily mean they will take that route.
There is clearly a debate within the Bank’s Monetary Policy Committee (MPC) going on right now that we are seeing play out in public. In September deputy governor Dave Ramsden issued a note of caution only a day after Silvana Tenreyro pointedly backed negative rates. It looks as though there are some clear ideological disputes among rate setters that needs to be worked out over the autumn, implying as Andrew Bailey has suggested that negative rates are not on the near horizon, albeit they are being considered actively. The problem for the Bank would be fresh lockdowns and/or an unemployment crisis heading into Christmas that could put pressure on the MPC to act.
The Reserve Bank of Australia could well cut interest rates for the first time since March when it convenes this week, with markets increasingly expecting a reduction in the cash rate from 0.25% to 0.1%. The RBA left interest rates on hold in October, refraining from a cut below 0.25% but maintaining a decidedly dovish bias that still indicates a further cut may occur this year. The RBA said it will keep monetary policy easy “as long as is required” and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band. It kept its options open and stressed that it will continue to consider additional monetary easing.
Most if not all the economic data is out of date due the reappearance of the virus and restrictions, as well as the political landscape in the US likely changed even if Donald Trump remains president. Nevertheless, the markets will be watching the latest PMIs and nonfarm payrolls for the US.
Top Economic Data This Week
Open the economic calendar in the platform for a full list of events.
|2-Nov||China Caixin manufacturing PMI|
|2-Nov||UK manufacturing PMI|
|2-Nov||US ISM manufacturing PMI|
|3-Nov||Reserve Bank of Australia monetary policy decision|
|3-Nov||New Zealand unemployment rate|
|4-Nov||US ELECTION RESULTS EXPECTED|
|4-Nov||US ADP employment change|
|4-Nov||US ISM manufacturing PMI|
|4-Nov||EIA crude oil inventories|
|5-Nov||Bank of England monetary policy decision|
|5-Nov||US weekly initial jobless claims|
|5-Nov||FOMC statement and press conference|
|6-Nov||US nonfarm payrolls|
|6-Nov||Canada Ivey PMI|
Top Earnings Reports This Week
Don’t forget to tune into XRay for more updates.
|2-Nov||PayPal Inc||Q3 2020 Earnings|
|2-Nov||Estée Lauder||Q1 2021 Earnings|
|2-Nov||Mondelez||Q3 2020 Earnings|
|3-Nov||Aramco (Saudi-Aramco)||Q3 2020 Earnings|
|3-Nov||Ferrari N.V.||Q3 2020 Earnings|
|3-Nov||Bayer||Q3 2020 Earnings|
|4-Nov||QUALCOMM Inc.||Q4 2020 Earnings|
|5-Nov||T-Mobile US Inc||Q3 2020 Earnings|
|5-Nov||AstraZeneca PLC||Q3 2020 Earnings|
|5-Nov||Bristol-Myers Squibb Co.||Q3 2020 Earnings|
|5-Nov||Linde plc||Q3 2020 Earnings|
|5-Nov||Enel S.p.A.||Q3 2020 Earnings|
|5-Nov||Zoetis Inc (A)||Q3 2020 Earnings|
|5-Nov||Square||Q3 2020 Earnings|
|5-Nov||Barrick Gold Corp.||Q3 2020 Earnings|
|6-Nov||Toyota Motor Corp.||Q2 2021 Earnings|
|6-Nov||CVS Health Corp||Q3 2020 Earnings|
|6-Nov||Richemont||Q2 2021 Earnings|
Trump returns, big tech faces antitrust concerns
Don’t be afraid: President Trump returned to the White House, but it might not be for much longer. Whilst Trump almost revelled in his victory over the virus, telling Americans not to fear it, Joe Biden’s lead in the polls is rising. Trump has work to do in the battlegrounds to swing back in his favour.
Wall Street climbs on stimulus hopes
Wall Street rallied as we saw decent bid come through for risk that left the dollar lower and benchmark Treasury yields higher amid hopes that policymakers in Washington are close to doing a deal on stimulus. House Democrat leader Nancy Pelosi and Treasury Secretary Steven Mnuchin spoke yesterday but failed to reach agreement on a fresh stimulus package.
Negotiations are due to resume today and whilst the mood seems to be better, getting agreement so close to the election will be tough but not impossible.
The S&P 500 rose 1.8% to close at the high of the day above the 3,400 level but the intra-day high at 3,428 from Sep 16th remains the top of the channel that bulls will look to take out – failure here may call for a retreat towards the middle of the range again.
Stimulus hopes will drive sentiment, but election risk is also a factor. Vix futures for Oct at $30.86 compared with November’s $32.23.
European markets turned lower in early trade on Tuesday as bulls failed to follow through on the relief rally on Monday – still very much range bound.
Benchmark yields rose firmly with 10-year Treasuries breaking out of the recent dull range towards 0.80%, settling at 0.77% near 4-month highs. The 30-year yield also hit its highest since Jun 9th.
With polling and odds improving for a Democrat clean sweep, the market is starting to price in more aggressive stimulus, greater issuance and bigger deficits. Fed chair Jay Powell speaks later today about the US economic outlook at the National Association of Business Economics annual meeting.
Cable eyes Brexit latest Brexit headlines
Brexit talks rumble on – are we closer to a deal? Deadlines are fast approaching and on the whole it seems more likely than not that we at least see a skinny deal or sorts.
EC vice president Maros Sefcovic has been on the wires this morning underlining that ‘full and timely’ implementation of the withdrawal agreement is not up for debate. The British Parliament and government say otherwise.
Meanwhile the European Parliament is not budging on its demands over the EU budget – whilst the recovery fund was announced to much fanfare, it needs to be delivered for Europe’s economy to recover more quickly than it is.
Democrats to target tech giants
Big tech stocks need monitoring after reports that a Democrat-led House panel will call for an effective breakup of giants like Apple, Amazon and Alphabet. It comes after a long anti-trust investigation by the panel led by Democratic Representative David Cicilline.
If approved and legislation is enacted, it would be the most significant reform in this area since Teddy Roosevelt. Certainly, the concentration of capital in a handful of big tech stocks is worrisome for lots of reason. Even if approved, getting from draft to legislation will not be easy. However, if there were a Democrat clean sweep, it could open the door to some aggressive reforms.
As I noted over a year ago, given that the FAANGs have been at the front of the market expansion in recent years, any breakup or threat of it may act as a drag on broader market sentiment. Calls have been growing louder and louder for the authorities to at least look at antitrust issues for the tech giants.
Political pressure is building – lawmakers sniff votes in tackling big tech. The shift really happened two years ago with the Facebook scandals, which really broke the illusion that Silicon Valley is in it for the little guy.
AUDUSD sinks on dovish RBA meeting
The Reserve Bank of Australia left interest rates on hold, refraining from a cut below 0.25% but maintaining a decidedly dovish bias that still indicates a further cut may occur this year.
The RBA said it will keep monetary policy easy “as long as is required” and will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3% target band. It kept its options open and stressed that it will continue to consider additional monetary easing.
After a decent run since the Sep 25th low AUDUSD was smacked down from its 50-day SMA at 0.7210 to trade around 0.7150. Currently contained by its 50- and 100-day SMAs.
The dollar index broke the horizontal support and the 21-day SMA, with the price action testing the trendline off the September lows. After the RSI trend breach and the MACD bearish crossover flagged yesterday was confirmed. 50-day SMA around 93.25 is the next main support.
The softer dollar gave some support to GBPUSD as it tests the top of the range and big round number and Fibonacci resistance at 1.30 this morning. Markets are also pushing back expectations for negative rates in the UK, which may be feeding through to a stronger pound.
Brexit risks remain but the odds of a deal seem to be better than evens, at least a ‘skinny’ deal that keeps dollar-parity wolves from the door.
The weaker dollar, higher inflation outlook is pushing up gold prices, which have broken above $1,900 but faces immediate resistance at the 21-day SMA on $1,916. Yesterday’s potential MACD bullish crossover has been confirmed.
Week Ahead: Pence vs Harris in focus after messy presidential debate
Vice president Mike Pence and senator Kamala Harris will both be hoping to emerge from this week’s vice presidential debate with more dignity than the presidential candidates did last week. It shouldn’t be hard. Also ahead, there’s plenty from central banks this week, including a rate decision from the RBA and minutes from the latest FOMC and ECB meetings.
US election: More decorum from Pence and Harris in vice presidential debate?
This week sees the second of the US election debates, this time the one and only face-off between vice president Mike Pence and senator Kamala Harris.
The first presidential debate last week seems to have little impact on the polls, and is viewed as being such an embarrassment that the Commission on Presidential Debates has announced it will make changes to the format of future events in an attempt to make things more orderly.
One of the changes being considered is to cut candidate’s microphones if they try to interrupt excessively. Although this will impact Trump more than Biden, this might not necessarily disadvantage the President, who didn’t give his opponent much opportunity to slip up last time.
The vice presidential debate gets going at 21.00 ET, October 7th (01.00 UTC, October 8th). The last time Pence appeared in a nationally televised debate was in October 2016. Harris, on the other hand, has had plenty of practice in recent months.
FOMC and ECB meeting minutes
Sandwiching the vice-presidential debate this week are the Federal Open Market Committee minutes and the European Central Bank accounts.
The FOMC took the opportunity last month to flesh out its new average inflation targeting strategy, although according to its predictions it’ll be a long time before policymakers are in a position to let inflation run hot. The latest minutes might provide some more clarity, but with the debate following a couple of hours later, markets might not take much notice.
ECB president Christine Lagarde noted after the latest meeting of the Governing Council that the EURUSD exchange rate had risen notably, although she also stated that “as you know, we don’t target the exchange rate”. The minutes could give more information on how policymakers fear a strong euro might impact their mandate.
Although EURUSD has retreated after peaking above 1.20 at the start of September, the pairing is trending around the same levels as were seen when the ECB were considering its strength.
Reserve Bank of Australia interest rate decision
Futures markets are firmly betting that the Reserve Bank of Australia will cut rates to 0% when it meets this week. ASX 30 Day Interbank Cash Rate Futures show a 64% chance of a cut at the time of writing.
This comes after recent comments from deputy governor Guy Debelle, who used a speech to outline policy tools the RBA is considering to help it meet its twin mandates on employment and inflation.
Foreign exchange intervention and negative interest rates were both on the list.
Economic data to watch
In terms of economic data, we’ll be watching the US ISM nonmanufacturing PMI and weekly jobless claims, German industrial production and a slew of data from the UK on Friday, including monthly GDP, industrial production and construction output figures.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|17.00 UTC||05-Oct||Blonde Markets|
|From 15.30 UTC||06-Oct||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||07-Oct||Webinar: 10 Trading Rules for Every Level of Trader|
|17.00 UTC||08-Oct||Election2020 Weekly|
|12.00 UTC||09-Oct||Platform Walkthrough|
Key Events this Week
Watch out for the biggest events on the economic calendar this week. A full economic and corporate events calendar is available in the platform.
|07.15 – 08.30 UTC||05-Oct||Finalised Eurozone, UK Services PMIs|
|14.00 UTC||05-Oct||US ISM Nonmanufacturing PMI|
|03.30 UTC||06-Oct||RBA Interest Rate Decision|
|Pre-Market||06-Oct||Paychex – Q1 2021|
|After-Market||06-Oct||Levi’s – Q3 2020|
|06.00 UTC||07-Oct||German Industrial Production|
|07-Oct||Tesco – Interim Announcement 20/21|
|14.30 UTC||07-Oct||US EIA Crude Oil Inventories|
|18.00 UTC||07-Oct||FOMC Meeting Minutes|
|01.00 UTC||08-Oct||US Vice President Nominee Debate|
|11.30 UTC||08-Oct||ECB Monetary Policy Meeting Accounts|
|12.30 UTC||08-Oct||US Weekly Jobless Claims|
|14.30 UTC||08-Oct||US EIA Natural Gas Storage|
|06.00 UTC||09-Oct||UK Monthly GDP, Production, Output|
Week Ahead: NFP in focus as US lockdowns threaten recovery hopes
Earnings season is winding down, but the Q3 report from Walt Disney will be closely watched this week. On an economic front, the RBA and BoE both hold monetary policy meetings, and Friday’s US nonfarm payrolls report threatens to keep markets volatile right up until the weekend.
PMIs on tap from Markit, Caixin, ISM
A slew of PMIs this week will provide more information on the state of the global economy. Finalised manufacturing and services PMIs are due for the Eurozone, UK, and US. The closely-watched China Caixin manufacturing PMI arrives first on Monday, with the services PMI following during Wednesday’s Asian session.
Also in the docket this week are the US ISM manufacturing and nonmanufacturing indices. The nonmanufacturing index is expected to pull back slightly after leaping nearly 12 points in the June reading, while still remaining firmly in growth territory.
Reserve Bank of Australia meeting – recent deflation to prompt response?
The Reserve Bank of Australia meets against a backdrop of surging coronavirus cases both globally and domestically.
Fresh lockdowns threaten the economic reopening and recent CPI data revealed that prices fell on an annual basis for the first time since 1997 in Q2, with the quarter also posting its biggest drop in the consumer price index on record.
Markets are likely looking for policymakers to do more to stimulate inflation. With interest rates already effectively zero, and no appetite to go lower, the focus will be on whether the RBA considers other forms of stimulus necessary now or in the near-term.
Walt Disney earnings
Investors will be watching three key factors in Disney’s upcoming Q3 earnings report, which is due after the close on August 4th. The biggest portion of the company’s revenue comes from its theme parks – some of these have reopened, but others have remained closed even past their original reopen dates thanks to surging case numbers.
Delays not only to the release, but also the production, of blockbuster movies will impact both the bottom line and guidance.
Disney+ might prove a silver lining – lockdown has seen a surge in subscriber numbers for rival Netflix, and investors will be watching the see if Disney has enjoyed a similar boom.
Bank of England rate decision, Inflation Report
The Bank of England’s Monetary Policy Committee will announce its latest monetary policy decision on Thursday.
Chief economist Andy Haldane recently told the Treasury Select Committee that he believes the UK economy has recovered “roughly half” of the huge slump seen in March and April, but warned that unemployment could hit highs not seen since the mid-80s.
Haldane listed several policies the Bank of England could employ if policymakers deem it necessary – any talk of negative interest rates would be the most headline-grabbing, but the MPC could also consider additional QE, credit easing, or forward guidance.
No changes to interest rates or QE is currently expected. The BoE will also publish the latest Inflation Report on Thursday.
Nonfarm payrolls – fresh lockdown measures to slow labour market recovery?
July’s US nonfarm payrolls report is due for release on Friday. The past two readings have shown a huge rebound after the -20 million collapse seen in April, with 2.7 million jobs added in May and 4.8 million in June. Economists expect to see another 2.2 million jobs were created in July.
There is still a long way to go until the US is back to pre-Covid levels of employment, and surging case numbers and fresh restrictions on businesses in many states could weigh on future jobs gains.
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|12.00 UTC||03-Aug||Master the Markets with Andrew Barnett|
|From 15.30 UTC||04-Aug||Weekly Gold, Silver, and Oil Forecasts|
|17.00 UTC||06-Aug||Election2020 Weekly|
|12.00 UTC||07-Aug||Marketsx Platform Walkthrough|
Top Earnings Reports this Week
Here are some of the biggest earnings reports scheduled for this week:
|05.30 UTC||04-Aug||Bayer – Q2|
|04-Aug||Sony – Q1|
|Pre-Market (UK)||04-Aug||BP – Q2|
|After-Market||04-Aug||Walt Disney – Q3|
|05.00 UTC||05-Aug||Allianz – Q2|
|06.00 UTC||06-Aug||Glencore – Q2|
|06-Aug||Adidas – Q2|
|Pre-Market||06-Aug||Siemens – Q3|
|06-Aug||Uber – Q2|
Key Events this Week
Watch out for the biggest events on the economic calendar this week:
|01.45 UTC||03-Aug||China Caixin Manufacturing PMI|
|07.15 UTC – 08.00 UTC||03-Aug||Finalised Eurozone Manufacturing PMIs|
|08.30 UTC||03-Aug||Finalised UK Manufacturing PMI|
|14.00 UTC||03-Aug||US ISM Manufacturing PMI|
|04.30 UTC||04-Aug||RBA Interest Rate Decision|
|22.45 UTC||04-Aug||New Zealand Quarterly Employment Change / Jobless Rate|
|01.45 UTC||05-Aug||China Caixin Services PMI|
|07.15 UTC – 08.00 UTC||05-Aug||Finalised Eurozone Services PMIs|
|08.30 UTC||05-Aug||Finalised UK Services PMI|
|14.00 UTC||05-Aug||US ISM Nonmanufacturing PMI|
|14.30 UTC||05-Aug||US EIA Crude Oil Inventories|
|11.00 UTC||06-Aug||Bank of England Rate Decision, Monetary Policy Report|
|12.30 UTC||06-Aug||US Weekly Jobless Claims|
|14.30 UTC||06-Aug||US Natural Gas Storage|
|01.30 UTC||07-Aug||RBA Monetary Policy Statement|
|06.00 UTC||07-Aug||Germany Industrial Production / Trade Balance|
|12.30 UTC||07-Aug||US Nonfarm Payrolls, Average Earnings, Jobless Rate|
Week Ahead: Central banks on tap, NFP faces massive Covid hit
The economic calendar is packed full of top-tier releases this week, starting with manufacturing PMIs from China and the US. The RBA, BOC, and ECB all announce their latest policy decisions – and, in the case of the ECB, potentially ruffle a few more feathers in Germany. And, of course, we have the latest US nonfarm payrolls report to round off the week.
China Caixin Manufacturing PMI – does the headline reflect the story?
China’s Caixin Manufacturing PMI slipped back into negative territory in April, missing market expectations of another print just above the 50 mark. A look at the sub-indexes painted a rather more messy picture than the headline number.
New orders slumped for a third month and export orders dropped the most since December 2008. Order backlogs rose, while supplier delivery times improved and input costs fell on the collapsing oil prices, pushing the headline number higher.
May’s reading is expected to hold just below 50 – but once again, the vastly different performance of those sub-indexes is likely where the true story will lie. It looks like Chinese industry has a lot further to go yet before growth returns properly.
US ISM PMIs to stabilise
US manufacturing collapsed last month, with the index diving to 41.5 from 49.1 in March. Despite being the worst drop since April 2009, the reading was still better than market expectations of 36.9, although this was because of a surge in supplier delivery times. While usually a sign of a strong economy, deliveries were held up by supply shortages due to the Covid-19 pandemic.
Things are expected to have stabilised in May, but getting back into growth territory (a reading above 50) could take a while; Oxford Economics doesn’t expect output losses to be recouped until 2021.
The decline in non-manufacturing is expected to moderate slightly, with the index forecast to tick higher to 44.2 from 41.8.
RBA, BOC, ECB interest rate decisions
The Reserve Bank of Australia is the first of three central banks to hold monetary policy meetings this week. Rates are already at a record low 0.25%, which is effectively zero, and the board has no appetite for taking them negative.
ASX 30 Day Interbank Cash Rate Futures for June show markets are pricing in nearly 50-50 odds of a cut to zero, but many analysts think the RBA has done all it will do, and that rates will remain unchanged for two or three years.
This week’s Bank of Canada rate announcement coincides with the start of Tiff Macklem’s tenure as governor. Senior deputy governor Carolyn Wilkins said recently that the BOC could look at adjusting its asset purchasing programme with the aim of stimulating the economy, rather than just enhancing the liquidity of financial markets, although policymakers may not be ready for such a move just yet.
The European Central Bank is expected to leave rates unchanged, although the pandemic emergency purchase programme (PEPP) is likely to be extended and expanded. Christine Lagarde will face questions about Germany’s ruling on the ECB’s quantitative easing programme during the post-meeting presser. Read our full preview on the ECB monetary policy meeting here.
Last week Isabel Schnabel, a member of the ECB board who joined in January, shrugged off the ruling, suggesting it was for the Bundesbank and Germany’s government to resolve the issue.
“I’m sure there is going to be communication between the Bundesbank and the German parliament and the German government, and one will have to find a solution,” Schnabel told the Financial Times last week. “If the ECB can be constructive in supporting that process, we will of course do so.”
Australia quarterly GDP: the end of three decades of growth
First-quarter economic data is expected to show that the Australian economy contracted -0.8% on the quarter and -1.2% on the year. Australia is expected to fall into recession for the first time in three decades this year, with GDP dropping -10%.
Last week, Prime Minister Scott Morrison outlined the government’s plans to help revive the economy, but he also warned that any recovery was likely to take between three and five years.
Eurozone retail sales and Germany factory orders
The collapse in Eurozone retail sales is expected to have worsened at the start of Q2. Analysts are forecasting a month-on-month decline of -18.6% during April, after a -11.2% drop in March. Year-on-year sales are predicted to have cratered -24%.
Germany’s April factory orders data will likely reveal some similarly painful numbers. Orders fell -15.6% in March and economists are expecting a -21.3% drop when the April data is published on Friday.
US NFP – jobless rate to hit 20%?
After tanking -20.5 million last month in the worst drop on record, this week’s US nonfarm payrolls report is expected to show another decline in employment of up to -5 million. The jobless rate, which leapt to nearly 15% in April, is likely to print just shy of 20%. Economists expect unemployment will peak around 25%, although Goldman Sachs analysts have suggested it could climb higher.
Join Markets.com chief market analyst Neil Wilson for live analysis of the market reaction to the US nonfarm payrolls report with our free webinar.
Heads-Up on Earnings
The following companies are set to publish their quarterly earnings reports this week:
|After-Market||02-Jun||Zoom Video Communications – Q1 2021|
|Pre-Market||03-Jun||Campbell Soup – Q3 2020|
|After-Market||04-Jun||Broadcom – Q2 2020|
|After-Market||04-Jun||Slack – Q1 2021|
|05-Jun||Toshiba Corp – Q4 2019|
Highlights on XRay this Week
Read the full schedule of financial market analysis and training.
|07.15 UTC||Daily||European Morning Call|
|From 15.30 UTC||02-June||Gold, Silver, and Oil Weekly Forecasts|
|12.50 UTC||03-June||Asset of the Day: Indices Insights|
|19.30 UTC||04-June||Daily FX Recap and Looking Forward|
|10.00 UTC||05-June||Supply & Demand – Approach to Trading|
Key Economic Events
Watch out for the biggest events on the economic calendar this week:
|01.45 UTC||01-Jun||China Caixin Manufacturing PMI|
|14.00 UTC||01-Jun||US ISM Manufacturing PMI|
|01.30 UTC||02-Jun||Australia Company Operating Profits (Q/Q)|
|05.30 UTC||02-Jun||RBA Interest Rate Decision|
|07.15 – 08.00 UTC||02-Jun||Eurozone Member State Finalised Manufacturing PMIs|
|08.30 UTC||02-Jun||UK Finalised Manufacturing PMI|
|01.30 UTC||03-Jun||Australia GDP (Q/Q)|
|01.45 UTC||03-Jun||China Caixin Services PMI|
|07.15 – 08.00 UTC||03-Jun||Eurozone Member State Finalised Services PMIs|
|08.30 UTC||03-Jun||UK Finalised Services PMI|
|14.00 UTC||03-Jun||Bank of Canada Interest Rate Decision|
|14.00 UTC||03-Jun||US ISM Non-Manufacturing PMI|
|14.30 UTC||03-Jun||US EIA Crude Oil Inventories|
|01.30 UTC||04-Jun||Australia Retail Sales / Trade Balance|
|09.00 UTC||04-Jun||Eurozone Retail Sales|
|11.45 UTC||04-Jun||ECB Interest Rate Decision|
|12.30 UTC||04-Jun||ECB Press Conference|
|14.30 UTC||04-Jun||US EIA Natural Gas Storage|
|06.00 UTC||05-Jun||Germany Factory Orders|
|12.30 UTC||05-Jun||US Nonfarm Payrolls|
Euro wobbles ahead of German court ruling, risk appetite improves
Attention this morning was on the German constitutional court and its ruling on the ECB’s long-standing bond buying programme. This could limit the amount of bonds the Bundesbank can buy, potentially creating a rift with the ECB and other member states. The real concern is whether it could affect the €750bn Pandemic Emergency Purchase Programme (PEPP), which has much looser rules than other QE programmes.
It’s high stakes – if the court blocks the Bundesbank from participating in QE it would be curtains for the ECB and creates significant Eurozone breakup risks. The good news is that the judges probably realise this. High stakes but the risk of serious ructions appears low. The European Court of Justice has already ruled in favour of the ECB’s bond buying, so it’s hoped the German court will not rock the boat at this critical moment.
EURUSD was lower, breaking down at the 1.09 support having failed to sustain the move above 1.10 last week, which could open move back to around 1.0810. The euro seems to be displaying some degree of stress this morning ahead of the German court ruling.
European markets rose after Asian equities made some gains. Markets in Japan, South Korea and China were shut for a holiday, but Hong Kong and Sydney rose. Wall Street closed a little higher after bulls pushed the S&P 500 into positive territory only in the final hour of trading yesterday. There is a little more risk appetite as oil prices climb.
The Reserve Bank of Australia left rates on hold at the record low 0.25% and seems to be well dug in here. The RBA won’t go negative and won’t hike until the Covid-19 crisis is well in the rear view mirror. This is a pattern being repeated by most major central banks.
Oil continues to make steady gains with front month WTI to $22 on hopes lockdowns are being lifted. The idea that we will be moving around anything like as much as before is fanciful, at least in the near term. New Zealand is going to be shut to foreigners – except perhaps their pan-Tasman pals – for a long time to come, the prime minister says. Ryanair has reported passenger numbers in April fell 99.6% and sees minimal traffic in May and June. Carnival is getting cruises going again – tentatively – in August. New car registrations in the UK collapsed in April, falling 97% to just 4,000 vehicles.
API data later today could show a very small build in inventories, but as always we prefer to look at tomorrow’s EIA figures. A small build would give more hope to oil bulls that the glut is not as bad as feared, however I would caution that we are simply seeing inventories naturally build more slowly as we approach tank tops.
Chart: EURUSD wobbles
European markets tumble in catchup trade, Trump bashes China
On the plus side, the UK is sketching out how it plans to end the lockdown. On the minus side, it’s going to take a long time to get back to normal. This, in a nutshell, is the problem facing the global economy and it is one reason why equity markets are not finding a straight line back to where they were pre-crisis.
Indices on mainland Europe are catching up with the losses sustained in London and New York today, having been shut Friday. The DAX retreated 3% on the open to take a look again at 10,500, whilst the FTSE 100 extended losses to trade about 20 points lower. Hong Kong turned sharply lower ahead of its GDP report.
Whilst monetary and fiscal stimulus sustained a strong rally through April – the best monthly gain for Wall Street since 1987 – it’s harder to see how it can continue to spur gains for equity markets. Moreover, US-China tensions are resurfacing as a result of the outbreak, which is weighing on sentiment. Donald Trump spoke of a ‘very conclusive’ report on China – the demand for reparations will grow, and trade will suffer as the easiest policy lever for the White House to pull. This is an election year so I’d expect Trump to beat on the Chinese as hard as he can without actually going to war. Trade Wars 2.0 will be worse than the original.
And as I pointed out in yesterday’s note, equity indices are showing signs of a potential reversal with the gravestone doji formations on the weekly candle charts looking ominous.
Warren Buffet doesn’t see anything worth investing in. Berkshire Hathaway has $137bn in cash but the Oracle of Omaha hasn’t found anything attractive, he said on Sunday’s shareholder meeting. His advice: buy an index fund and stop paying for advice.
In FX, today’s slate is rather bare but there are some European manufacturing PMIs likely to print at the low end. The US dollar is finding bid as risk appetite weakens, favouring further downside for major peers. EURUSD retreated further having bounced off the 100-day SMA just above 1.10 to find support around 1.09250. GBPUSD has further pulled away from 1.25 to 1.2460.
Front month WTI retreated further away from $20. CFTC figures show speculative long trades in WTI jumped 35% – the worry is traders are trying to pick this market and the physical market is still not able to catch up with the speculators. The move in speculative positioning and price action raises concerns about volatility in the front month contract heading into the rest of May.
BT Group shares dropped more than 3% on reports it’s looking to cut its dividend this week. Quite frankly they ought to have cut it months ago. I rehash what I said in January: Newish CEO Philip Jansen should have done a kitchen sink job and cut the dividend from the start. The cost of investment in 5G and fibre is crippling, despite the cutbacks and cost savings. Net debt ballooned to more than £18.2bn – up £7.2bn from March 31st 2019. How can BT justify paying over £1bn in dividends when it needs to sort this debt out, get a grip on the pension deficit and do the kind of capex needed for 5G and mass fibre rollout? Given the current environment, a dividend cut seems assured.
What to watch this week
NFP – Friday’s nonfarm payrolls release is likely to be a history-making event. Last month’s -701k didn’t reflect many days of lockdown, so the coming month’s print will be seismic. However, this is backward looking data – we know that in the last initial jobless claims have totalled around 30m in six weeks – the NFP number could be as high as 22m according to forecasts. The unemployment rate will soar to 16-17%. The main focus remains on exiting lockdown and finding a cure.
BOE – The Bank of England may well choose this meeting to expand its QE programme by another £200bn, but equally it may choose to sit it out and simply say that it stands ready to do more etc. The Bank will update forecasts in the latest Monetary Policy Report, with the main focus likely to be on how bad they think Q2 will be. Estimates vary, but NIESR said Thursday the contraction will be 15-25%.
RBA – The Australian dollar is our best risk proxy right now. The collapse in AUDJPY on Thursday back to 68.5 after it failed to break 70 was a proxy for equity market sentiment. We will wait to see whether the Reserve Bank of Australia meeting on Tuesday gives any fresh direction to AUD, however there is not going to be a change in policy.
Tech stocks under pressure
Markets remain on the hook to the trade war rumblings, but a new war has opened up that threatens equity investors – a war on tech. What the Fed threatens to give, the DoJ takes away.
Yesterday we saw a soft start in the US before the ISM print missed and investors raised bets the Fed will cut rates this year. But the Fed put was not enough to fight the tide off tech woes.
Fangs are under severe pressure amid fears they are in the crosshairs of trust busters. The DoJ and FTC are marking targets and loading up. Whilst it’s far too early to say if any would, or could, be ripe to be broken up, there’s a real threat this will depress multiples and mean we need to reset expectations. Given the Fangs have been at the front of the market expansion in recent years, this will act as a drag on sentiment as well.
A couple of very big moves yesterday in Alphabet and Facebook.
Alphabet –6% – support now seen around $968, before $895 comes into play.
Facebook –7.5% – key support seen at $159, below that we look to the $145 level.
Calls have been growing louder and louder for the authorities to at least look at antitrust issues for the tech giants. Political pressure is building – lawmakers sniff votes in tackling big tech. The shift really happened last year with Facebook’s scandals, which broken the illusion of Silicon Valley being in it for the little guy. They’re just big corporations out to make money like any other – the politicians can smell blood. As I noted a year or two ago, I always thought Trump had the hallmarks of a Teddy Roosevelt trust-buster.
So now we have the Nasdaq in correction territory – down 1.6% yesterday to take it more than 10% off its all-time highs. The Dow was flat, while the S&P 500 notched a decline of 0.3%. The FTSE 100 ended the day in the green, up 0.3% at 7184 with the key 7150 level holding.
Asian shares followed Wall Street’s lead overnight, and futures show European shares are under the cosh again today.
US Treasury yields continue their slide with the 10yr slipping to 2.085% and threatening to find the 2.05% level now. EURUSD has broken out of technical resistance due to the slide in yields as markets bet on a Fed rate cut. EURUSD faces resistance at 1.126/7 but having broken out of the long-term descending wedge we could now look for more gains. Has the dollar rally ended? Well it all depends on the Fed.
Today’s Jay Powell speech is now key to market sentiment after dovish comments from James Bullard yesterday.
St. Louis Fed boss James Bullard – a voting member of the FOMC – says a rate cut may be warranted soon. He talked about a sharper than expected slowdown. He also discussed a cut as insurance – some sense the Fed is seeking to get ahead of the curve – too late! Over to Powell later today.
Bullard has always been one of the most dovish members of the FOMC – the market may have massively miscalculated the US central bank’s view of the economy, inflation and risks to its forecasts. I rather think the Fed will be a lot less ready to ease than the market thinks, and this suggests a significant decoupling between the Fed and market expectations.
Ahead of this we have the Eurozone CPI print. The last
reading showed inflation rose to a 6-month high in April at 1.7%, whilst core
price growth rose to 1.3%. However, this uptick seems to be down to
one-offs and the core read is expected to revert to trend around 1% in May,
with the headline print at 1.4%.
Woodford shut – worse to come?
Neil Woodford has suspended trading in the Woodford Equity Income. Woodford has clearly made a series of poor investment decisions. Out of love UK stocks with entirely domestic may have been ultra-cheap, but they’re still unloved and still cheap. Provident has been a disaster. Kier, whose shares tumbled 40% yesterday, also disaster. It’s been a tough few years for Woodford and things look like they will get worse still.
No surprise the RBA cut rates, it had been fully priced in. The question now is how many more? The statement didn’t tell us anything new. No indication there will be more this year. Worth noting the RBA’s own forecasts are predicated on 50bps of cuts so we’re only half way there. Watch the data. AUDUSD has gained a few pips post the statement, with little detail on future cuts likely to give the bulls some hope. Resistance at 0.6990, the 38.2% Fib level, tested and rejected.
UK retail sales fell off a cliff in May – down 2.7%. This is the worst ever decline in retail sales and will hit the sector today.
Sell in May and go Huawei: US-China ad nauseum
When can we stop talking about the US and China? European stocks called to open higher after a robust session in Asia showed investors are weighing the latest US-China spat over Huawei for what it is. SPX closed down 0.67% yesterday on the broad US-China-Huawei-Google spat, with tech stocks the worst hit. The Nasdaq 100 shipped 126 points to close 1.7% lower. Chip makers were rocked but look set to bounce back today – these rose in after-hours trading and Asian peers were much firmer overnight.
After blacklisting the Chinese firm, the White House has issued three-month reprieve to allow US companies continue to do business with the group. It’s all rather like the way Trump slaps on tariffs but delays the execution to allow room for negotiation. Whether it’s Huawei or tariffs, I would see all of this in the broader context of giant tug-of-war between the two superpowers being played out in front our eyes. As such, the more this goes on the lower the chance of a meaningful resolution to any of it. Trade disputes ad infinitum, ad nauseum.
China has vowed to retaliate but stocks in China rose overnight – the more damage the US tries to do the more the market expects stimulus from Beijing.
We don’t even have a lot on the Brexit front to worry about today. Euro elections are centre stage this week – as noted in yesterday’s FX note, the Brexit Party is set to win in the UK, whilst Eurosceptics and populists of various hue will sweep about a third of the vote across the continent. Watch therefore for action in EUR and GBP crosses, as well as Italian spreads.
Economic indicators overnight have been less than stellar. South Korean exports shrunk by nearly 12% in May, having decline more than 8% in April. Singapore’s government has downgraded growth forecasts for 2019. Thailand GDP growth hit a 4-year low. Lots of trade related effects being felt, clearly.
Fed chair Jay Powell spoke yesterday but did not really go into monetary policy. His remarks were focused on financial stability, stressing that ‘business debt does not present the kind of elevated risks to the stability of the financial system that would lead to broad harm … should conditions deteriorate’. He added though that ‘the level of debt certainly could stress borrowers if the economy weakens’. Move along, nothing to see here. Fed governor Richard Clarida speaks later – will have a lot more on policy and will be closely watched. FOMC minutes are due tomorrow.
Forex – dollar bid
The dollar continues to find bid, with the dollar index touching on 98 again, its strongest since May 3rd. Meanwhile EURUSD has also sunk to its weakest since May 3rd. US 10yr has risen above 2.4% again, having been as low as 2.35% last week. Firmer US yields and the safe haven appeal of the USD in the current trade war situation is keeping the dollar supported.
Yesterday’s emerging three inside up formation on the GBPUSD daily chart fizzled out, with the pound under the cosh still and threatening now to break below 1.27. The 1.2710 region is acting as support for now but the downwards pressure could eventually tell.
RBA set to cut
The post-election bounce in the Australian dollar proved short-lived as anticipated. AUDUSD was back trading on the 0.68 handle as the RBA gave us a very clear signal it’s ready to cut rates. In fact, this was about as dovish Philip Lowe could be without actually saying ‘I will cut rates in June’.
The June 4th meeting will likely see the central bank move to cut the cash rate to 1.25% from the current 1.5%. The RBA is really tying its policy outlook to the labour market. Unemployment rose to 5.2% in April and the risk is that exposure to China and trade will act as a drag in the coming months. Low inflation currently gives it ample scope to cut rates.
Morning note: Equities pressured on tough talk on China trade, RBA holds
US equity markets pared losses yesterday, with the S&P 500 declining by around half a percent to 2,932.47, having been close to the 2900 handle again.
Rhetoric from the US side has shifted markedly in the last two days. Having seen progress and a good direction to productive discussions, relations have soured.
Tweets from Donald Trump over the weekend saying he would raise tariffs on $200bn in imports from China as early as Friday did the main damage to risk sentiment, sparking a selloff in equities. Following this the Robert Lighthizer and Steve Mnuchin said China had reneged on its commitments and painted a very downbeat picture of the talks. This hit trade sensitive stocks after-market and will keep the downwards pressure on equities.
Quite where this leaves us is hard to say. There is a sense that the US is working extremely hard to extract last-minute concessions from China ahead of a planned visit by vice-premier Liu He. That visit has been confirmed – he is to visit the US May 9th-10th. Equity futures in Europe rose on the news of the Chinese visit still being a go, but risks remain skewed to the downside today it would seem.
Just talking tough?
Will that be enough to avert the tariffs being raised on Friday is unclear, but at least it means the two sides are continuing to talk and a deal is still possible. However, we don’t know if this is a last-ditch rescue mission to save talks or something that moves talks on in a more substantive way. The optics suggest the former, but one cannot but sense that Mr Trump is playing us a little. He may well be making a deal seem further away in order to make the achievement seem all the more impressive when it comes.
The market has been juiced by expectations the US and China would do a deal, combined with a much more dovish sounding Fed. Those two key planks are what the ATHs rest upon – remove one and we should expect more downside.
RBA holds rates before Australian elections
Elsewhere, in the FX space, the RBA chose not to cut rates, leaving the benchmark at 1.5% again. It was about 50/50 whether the central bank would cut or stick, and it seems that for now, with enough evidence that the slowdown can be blamed on transitory factors, the RBA is prepared to wait and see before easing. Also, with the election looming, the RBA probably felt it wise to wait.
We’ve seen global central banks pivot from their tightening stance, but markets have just been a tad quick in calling the new easing cycle – the Fed last week and the RBA today confirm that it’s a done deal. AUDUSD spiked to regain the 70 handle – it may well now keep in a range between 0.7030 and 0.7060, the narrow band it was in for the last week of April.
GBPUSD remains supported above 1.31 but remains susceptible to Brexit news flow again. Despite all the jawboning, there is little evidence that Labour and the Tories can do a deal. Whether this gaping chasm between the major parties forces the UK towards a second referendum, General Election or a hard exit is still unknown.
Finally, a word on Bitcoin – the crypto market remains bullish and Bitcoin futures are moving rapidly towards the $6,000 level. This could attract some technical interest as it would mark the clear move out of the bottom formation, whilst momentum traders may start to pile in on the back of it.