Ugen der kommer: En ny måned bringer en frisk nonfarm payrolls report (ansættelsesstatistik) for USA.

En ny måned bringer en frisk nonfarm payrolls report (ansættelsesstatistik) for USA. Markederne vil håbe at Augusts store skud forbi bare var en enlig svale. Australiens og New Zealands centralbanker forbereder store udmeldinger imens OPEC+ forsamles til politiske forhandlinger i oktober.

Aftrappende kvantitative lempelser eller ej, er den nye ansættelsesstatistik vigtig for USA.

Markederne vil se om der sker en kovending på det amerikanske arbejdsmarked efter augusts tal skuffede fælt. Stigningen i antallet af NFPs (ikke-landbrugspersonel) var blot 275.000, langt fra markedets forventninger om 750.000.

Arbejdsløsheden faldt en tand til 5,2% imens arbejdsmarkedsdeltagelsen var uændret ved 61,7%. Timelønnen steg 0,6% i August, noget mere end markedets forudsigelser om en stigning på 0,3%.

Vi ved at Jerome Powell og “the Fed” elsker en stærk ansættelsesstatistik. Vi ved også, at uanset hvad septembers data bringer kommer en aftrapning – formentlig i november. Hvis denne fredags rapport virkelig er chokerende, kan det dog forstyrre the Fed’s planer for aftapning, men alle indikatorer viser at vi styrer mod aftrapning snart.

Fed-formand Powell tror dog stadig at USA er langt fra den beskæftigelse, som han ønsker.

I sidste uge udtalte Powell følgende: “Det jeg sagde i sidste uge var, at vi var lige ved at have nået kravet for aftrapning. Jeg gjorde det klart, at vi i min optik er langt fra fuld beskæftigelse.”

Hvornår kommer det? Ifølge en nylig spørgeundersøgelse foretaget af USAs nationale forening af erhvervsøkonomer, tror 67% af deltagende økonomer at beskæftigelsen vil nå sit før-Corona niveau ved slutningen af 2022. Lige under en tredjedel forventer at genopretningen af arbejdsmarkedet først sker i 2023.

Der er en lang, hård vej tilbage til normalen. Vi har dog i flere tilfælde i 2021 set en stigning i ansættelsen efter en tidligere, skuffende måned.

Stigningen fra januar til februar så f.eks. en ændring fra -306.000 ikke-landbrugsansatte til +233.000. Mellem april og maj 2021 var ændringen fra 269.000 til 614.000. Der er altså en præcedens her.

Flere end 7,5 mio. amerikanere har også fået stoppet deres Corona-relaterede kontanthjælp. $300-ekstrabetalinger blev afsluttet først i september da regeringen er begyndt at nedskalere støtten. Kunne dette være katalysatoren for øget beskæftigelse? Det ser vi måske i fredagens ansættelsesstatistik.

Udenfor USA er begge de store oceaniske centralbanker sat til at opdatere deres renter i denne uge.

Vi begynder med Australien, hvor nationalbankdirektør Philip Lowe og hans kollegaer lod til at bevæge sig i retning af en mere fleksibel pengepolitik ved septembers møde i Reserve Bank of Australia. Som sådan forventer markedet ikke nogen drastiske ændringer i oktober.

Vi så renterne forblive på samme lave niveau i Australien som i de forgangne 18 måneder. Den australske nationalbank forbliver stålsat på ikke at hæve sin udlånsrente indtil “den faktiske inflation holder sig stabilt ved målsætningen på mellem 2 og 3 procent”.

Septembers udmelding afslørede dog nogle nuancerede ændringer.

Den korte- og tre-årige udlånsrente forblev begge på 0,1%, men obligationsopkøbsprogrammets aftrapning blev dog justeret. Oprindeligt skulle det senest genovervejes i november, efter en nedjustering til 4 mia. AU$ pr. uge i juli. Nu vil det forblive på samme niveau frem til tidligst februar 2022.

Dette betyder at tempoet på RBA’s aktivopkøb ikke vil falde før næste februar. Efter mødet i juli, troede man at nationalbanken ville genoverveje obligationsopkøbet hver tre måneder for så at udfase det helt i løbet af året. For nu ser det ikke ud til at blive tilfældet.

Vi forventer dog stadig ingen overraskelser når RBA leverer sin renteudmelding for oktober tirsdag morgen.

Markederne forventede måske mere aggressive bevægelser fra Reserve Bank of New Zealand – men nylige kommentarer fra vicedirektør Christian Hawksby antyder at snak om en større stigning i udlånsrenten er forhastet.

“Globalt følger nationalbanker en jævn vej og holder deres renter uændrede eller foretager ændringer med 0,25 procentpoint,” sagde Hawksby, og afsluttede derved alle tanker om en mulig ændring af New Zealands kortfristede udlånsrente (aktuelt 0,25%) på 0,5 procentpoint.

I stedet vil renten sandsynligvis stige i trin, før den når 1,5% ultimo 2022.

Som altid er der dog en stor COVID-19 skygge over New Zealands finanspolitik. Landet gik for nylig tilbage til nedlukning efter en stigning i tilfælde af deltavarianten. Selv om sygdommen viser sig igen, kan det lille antal tilfælde have været nok til at give RBNZ et chok.

Ifølge Reuters har markederne prissat en 60% ændring af chancen for en rentestigning på onsdag når direktør Orr taler.

Afslutningsvis mødes OPEC og deres allierede til deres månedlige forsamling og politikdiskussion på mandag.

Med høje priser og efterspørgslen ligeså, vil vi formentlig se en blåstempling af en stigning i produktionen. OPEC+ har forpligtet sig til at producere yderligere 400.000 tønder/dag hver måned frem til slutningen af næste år, i sit forsøg på at genvinde pandemirelaterede tab.

Ifølge septembers månedlige oliemarkedsrapport, forventer OPEC+ at efterspørgslen vil overstige 2019-niveauet ved udgangen af 2022.

Prisen på Brent crude sniger sig i skrivende stund op imod $80, og det får alarmklokkerne til at ringe i USA. USA har historisk haft billigere brændstof end mange andre I-lande og alt der kan udfordre det er uacceptabelt hos både almindelige amerikanere og Joe Biden.

Præsidenten siger at USA har OPEC i tale vedrørende en yderligere stigning i volumen for at dække dette – og han ignorerer måske det faktum at amerikansk shale er klar til at tilføre mindst 800.000 tønder/dag til det globale udbud når først det kommer i gang.

OPEC+ er alligevel mest sin egen. Alt det gør er for at tjene sine medlemmer, allierede og olieprisen i hele verden. Om Bidens ønsker falder på døve øren vides ikke, men jeg ville ikke blive overrasket over at se OPEC-JMMC holde sig til sin egen agenda i oktober og frem i tiden.

Vigtige økonomiske data

Date  Time (GMT+1)  Asset  Event 
Mon 04-Oct  All Day  OIL  OPEC-JMMC Meetings 
       
Tue 05-Oct  4.30am  AUD  RBA Rate Statement 
  4.30am  AUD  Cash Rate 
  3.00pm  USD  ISM Services PMI 
       
Wed 06-Oct  2.00am  NZD  Official Cash Rate 
  2.00am  NZD  RBNZ Rate Statement 
  1.15pm  USD  ADP Nonfarm Employment Change 
  3.30pm  OIL  US Crude Oil Inventories 
       
Thu 07-Oct  3.30pm  GAS  US Natural Gas Inventories 
       
Fri 08-Oct  1.30pm  CAD  Employment Change 
  1.30pm  CAD  Unemployment Rate 
  1.30pm  USD  Average Hourly Earnings m/m 
  1.30pm  USD  Nonfarm Employment Change 
  1.30pm  USD  Unemployment Rate 
  Tentative  USD  Treasury Currency Report 

Week Ahead: Q1 earnings season kicks off on Wall Street

Earnings season gets underway on Wall Street as the big banks get the ball rolling this week. Meanwhile traders are looking at the latest inflation and retail sales figures from the US and a central bank interest rate decision from New Zealand taking place amid the country’s housing boom. 

Earnings 

 

Coming after fresh record highs for the S&P 500 and Dow and expectations for a major cyclical bounce back for the US economy in Q2 and Q3, this week marks the start of an important corporate earnings season for the market. April is historically a strong month for the market and traders will be looking to corporate updates to power further gains for stocks. However, the market is well priced for earnings to pick up this year already – in fact the 6% rise in the bottom-up EPS estimate for Q1 is the largest on record, according to FactSet. 

Big banks including JPMorgan, Bank of America, Morgan Stanley, Wells Fargo and Citigroup get the season off to the customary start. Financials have been on the up as bond yields rose in the first quarter and the sector has outperformed the broader market. 

In addition to the earnings updates and forecasts for the next quarter, market participants will be paying close attention to what the bank CEOs say about the outlook for the US economy and the recent uptick in bond yields which ought to be supportive of bank earnings. In his annual letter to shareholders sent last week, JPMorgan boss Jamie Dimon was very bullish on the US, saying the economic boom could easily run into 2023. Whilst he called stock market valuations are “quite high,” he said a multi-year boom may justify current levels. 

Inflation 

 

A big question facing the market right now is whether inflation is coming – prices are set to rise on a year-on-year basis as the base effects from the pandemic last year play out. But that is not the same as sustained inflation that could pressure central banks into raising rates before the recovery is complete. US CPI inflation figures are due on Tuesday. Last month’s 0.4% increase was in line with expectations but was the last ‘easy’ data point as base effects are set to take effect now. The Labor Department said its consumer price index increased 0.4% in February after rising 0.3% in January. For March the increase is expected to be markedly higher as sharp price declines at the start of the pandemic last year feed through the calculations. 

RBNZ rate decision 

 

No change expected to the cash rate of 0.25% and there are no updates to forecasts nor a press conference. However, the Reserve Bank of New Zealand meets amid a housing price boom and slowing momentum in economic indicators. The ANZ business survey released on Thursday showed confidence sliding further to –8.4 whilst details on the activity side were flat to weaker. Cost and inflation pressures were said to be ‘intense’ with pricing expectations hitting a new high on data going back to 1992. 

 

Major economic data 

Date  Time (GMT+1)  Market  Event 
Mon 12 Apr  15:30  CAD  BOC Business Outlook Survey 
  18:01  USD  US 10yr Bond Auction 
Tue 13 Apr  Tentative  CNH  China Trade Balance 
  13:30  USD  US CPI Inflation 
  18:01  USD  US 30yr Bond Auction 
Wed 14 Apr  03:00  NZD  RBNZ Rate Statement 
  10:00  EUR  EZ Industrial Production 
  15:30  WTI/Brent  US Crude Oil Inventories 
  19:00  USD  Fed Beige Book 
Thu 15 Apr  02:30  AUD  Australia Unemployment 
  13:30  USD  US Retail Sales 
  13:30  USD  Philly Fed Manufacturing 
  13:30  USD  US Unemployment Claims 
  15:30  Nat Gas  US Natural Gas Inventories 
Fri 16 Apr  03:00  CNH  China GDP 
  13:30  EUR  EZ Final CPI Inflation 
  15:00  USD  UoM Consumer Sentiment 

 

Key earnings data 

14-Apr  JPMorgan Chase & Co.  Q1 2021 Earnings 
15-Apr  UnitedHealth Inc.  Q1 2021 Earnings 
15-Apr  Bank of America Corp.  Q1 2021 Earnings 
15-Apr  PepsiCo Inc.  Q1 2021 Earnings 
16-Apr  Reliance Industries Ltd Dematerialised  Q4 2021 Earnings 
14-Apr  Wells Fargo & Co.  Q1 2021 Earnings 
12-Apr  Tata Consultancy Services Limited  Q4 2021 Earnings 
16-Apr  Honeywell  Q1 2021 Earnings 
15-Apr  Citigroup Inc.  Q1 2021 Earnings 
16-Apr  Morgan Stanley  Q1 2021 Earnings 
15-Apr  Charles Schwab  Q1 2021 Earnings 
15-Apr  BlackRock Inc.  Q1 2021 Earnings 
14-Apr  Goldman Sachs  Q1 2021 Earnings 
17-Apr  HDFC Bank Ltd Registered Shs  Q4 2021 Earnings 
15-Apr  U.S. Bancorp  Q1 2021 Earnings 
15-Apr  BB&T Corp Registered Shs  Q1 2021 Earnings 
16-Apr  PNC Financial Services Group Inc.  Q1 2021 Earnings 

 

Week Ahead: US consumer confidence shaky while rising yields impact markets

Looking forward to the week ahead we see US consumer confidence on shaky ground, despite more stimulus coming soon. Rising yields will also potentially have big implications for the markets. Elsewhere, New Zealand’s economy looks like its gaining strength ahead of the RBNZ rate statement, while Airbnb leads large caps reporting next week with its first earnings call as a publicly traded company. 

US consumer confidence doesn’t look so confident 

Ahead of the official US consumer confidence figures posted next week, it appears consumer sentiment has fallen in February so far. 

Preliminary data revealed a drop in the University of Michigan’s consumer confidence index from a reading of 79.0 for January to 76.2 in February against a consensus of 80.5-80.8. 

Low income households, i.e. those with an annual income of $75,000 or lower, appear to be driving sentiment lower. Only 23% of households in this grouping said their finances had improved since 2014, and 71% said they had made gains in their income.  

What’s interesting, according to Survey Director Richard Curtain, is that consumer confidence has dropped against the previous month, despite Joe Biden preparing the mother of all stimulus packages. $1.9 trillion in relief is on its way, which will put, at minimum, $1,400 apiece into US consumers’ pockets, plus extra support for small businesses. $900bn was also doled out to lower income households in December 2020. 

Support is on its way, but at the moment, consumer sentiment looks like its in the doldrums. 

Rates & equities react to steepening yields 

As rates have sold off, yields have steepened,  which may have consequences for asset classes like FX, equities, and maybe even crypto currencies.  

Last Tuesday, Treasury yields had their biggest gain in 3 months. 10s rose 9 basis points, reaching the highest since February above 1.3%.  

As our Chief Market Analyst Neil Wilson has previously reported, there are some important factors at play here creating inflationary impetus, notably: 

  • A heavy volume of pro-cyclical fiscal stimulus 
  • Ultra-loose monetary policy 
  • Pent-up demand  
  • A savings glut 

European stocks are sliding as concerns around interest rates feed into investors’ thinking with the speed of the change in absolute yields catching them off guard. UK Inflation rose from 0.6% in December to 0.7% in January, due to rising costs as the cost of furniture and household goods, restaurants and hotels, food, and transport. 

Gold has also weakened on higher yields. 

Essentially, this is one to keep track of, as rising yields as implications across the investment and finance world. 

RBNZ Rate announcement – No change on the Kiwi front 

The Reserve Bank of New Zealand (RBNZ) makes its rate statement next week amidst expectations that no major rate changes are coming. 

New Zealand’s economy has been one of the more resilient in the year of the pandemic. Swift, strong lockdown and border control measures limited damage caused by Covid-19, which has put New Zealand in a better than expected economic position. 

The New Zealand Dollar (NZD) enjoyed a great 2020, making significant strides against the pound, euro, and US dollar, reacting well to a turbulent first half of the year, which included a big sell off 

It’s now expected that no further stimulus is needed for New Zealand. Commentators also believe that negative rates are not going to be implemented by New Zealand’s central bank either. 

Australia New Zealand Banking Group, one of the country’s top lenders, does not expect a rate change by RBNZ, in part due to the strength of the NZD, but also because the country’s labour market is in a good position too. 

New Zealand’s labour rate fell to 4.9% in the last quarter, somewhat unexpectedly, with labour underutilisation in some key sectors falling too. Government stimulus in some areas of the economy is helping cover shortfalls in others, which is a boon for employers, a boon for workers, and a boon for the economy as a whole. Exports have also remained supportive. 

Essentially, the outlook in the short term is still good for New Zealand. Some predict OCR rates will begin rising in 2024. Inflation is predicted to rise to 2.5% by June but may scale back to 0.8% in the following year. Let’s keep an eye on New Zealand, but it may not be wise to expect a massive overhaul in monetary policy at next week’s statement. 

Airbnb’s first earnings as a publicly traded company 

Airbnb went public in December 2020 and will make its first ever earnings call as a publicly traded company on February 25th. 

Of course, any earnings will have to be viewed through the pandemic prism. According to its S1 filing, Airbnb’s gross booking volumes had fallen 39% year-on-year 2020, totalling $18bn, while revenues dropped 32% for a total of $2.5bn in the 9 months up to September 2020. Mandatory lockdowns struck in key economies like the US, EU, and UK in April 2020, which bought personal travel to a halt. 

But Airbnb does have enormous brand recognition, which may be helping its shares and business do better than peers. Its market cap of about $120bn outstrips its rival online holiday rivals like Expedia ($22bn), Tripadvisor ($5bn) and even Booking.com ($91bn) Listings have stayed relatively stable, for instance, dropping only 2% across the pandemic with 5.6m registered in September 2020 against 5.7m in December 2019. 

Long-term stays (bookings over 28 days) were down only 13% y-o-y in April 2020, traditionally the worst month for hotel bookings, but showed y-o-y growth between May and September of that year. 

A project $3.2 trillion market opportunity may keep investors looking to Airbnb. According to commentators, Airbnb has very strong potential in its three key offerings: 

  • $1.8 trillion – Short-term stays 
  • $210 billion – Long-term stays 
  • $1.4 trillion Experiences 

What is more, Airbnb had 247 million guests in 2019, accounting for 3.8% of the estimated 6.5 billion global paid overnight trips that year. If it can capture just 10% of the potential market, Airbnb could net $340 billion in sales a year. 

This will be an interesting earnings call to say the least. We’ll be able to register the impact of pandemic on Airbnb and see if its fundamentals are strong enough to weather the storm.  

The outlook may be good already. Investor confidence seems high. Airbnb shares soared 200% after it went public, and as of February 15th, they were trading around their record level. 

Major economic data 

Date  Time (GMT)  Currency  Event 
Tue Feb 23  3.00pm  USD  CB Consumer Confidence 
       
Wed Feb 24  1.00am  NZD  Official Cash Rate 
  1.00am  NZD  RBNZ Monetary Policy Statement 
  1.00am  NZD  RBNZ Rate Statement 
  1.00am  NZD  RBNZ Press Conference 
  3.30pm  USD  US Crude Oil Inventories 
       
Thu Feb 25  1.30pm  USD  Prelim GDP Q/Q 
  3.30pm  USD  US Natural Gas Inventories 

 

Key earnings data 

Date  Company  Event 
Mon 22 Feb  Berkshire Hathaway  Q4 2020 Earnings 
  Palo Alto Networks  Q2 2021 Earnings 
     
Tue 23 Feb  Home Depot  Q4 2020 Earnings 
  Square  Q4 2020 Earnings 
  HSBC  Q4 2020 Earnings 
  Thomson Reuters  Q4 2020 Earnings 
     
Wed 24 Feb  NVIDIA  Q4 2021 Earnings 
  Lowe’s  Q4 2020 Earnings 
  Royal Bank of Canada  Q1 2021 Earnings 
  Budweiser  Q4 2020 Earnings 
  National Bank of Canada  Q1 2021 Earnings 
  Puma  Q4 2020 Earnings 
     
Thu 25 Feb  Salesforce  Q4 2021 Earnings 
  Airbnb  Q4 2020 Earnings 
  Vale  Q4 2020 Earnings 
  Toronto-Dominion Bank  Q1 2021 Earnings 
  Moderna  Q4 2020 Earnings 
  Bayer  Q4 2020 Earnings 
  Dell  Q4 2021 Earnings 
  HP  Q1 2021 Earnings 
  Etsy  Q4 2020 Earnings 
  Telefonica  Q4 2020 Earnings 
     
Fri 26 Feb  Deutsche Telekon  Q4 2020 Earnings 
  BASF  Q4 2020 Earnings 

Week Ahead: Tesla Battery Day to spark investor interest

Tesla hosts its long-awaited and much-hyped Battery Day on Tuesday, with investors eyeing a possible game-changing technology announcement. Meanwhile the economic data stream flows with flash PMIs for the Eurozone, a Reserve of Bank of New Zealand interest rate decision and the weekly US jobs report.

Fed chair Jay Powell and Bank of England governor Andrew Bailey are both due to speak in the coming days after last week’s FOMC and MPC meetings. 

Tesla Battery Day

Tesla’s 2020 annual meeting of stockholders will be held on Tuesday, September 22, 2020, at 13:30 Pacific Time. Immediately after this meeting, Tesla will hold the Battery Day event, which has been generating equal amounts of speculation in the shares as in what CEO Elon Musk may be about to reveal. 

Our full guide to the event can be found here.

How is the economic recovery going?

Is the global economic recovery losing momentum? Whilst the snapback after lockdowns was the easy bit, it’s going to be much harder to get back to 2019 levels. Marginal gains are becoming harder to come by and some high frequency economic indicators are starting to level off. Eurozone PMIs for instance, have started to soften.

The latest round of flash manufacturing and services surveys for the Eurozone, UK and US are due on Wednesday. Meanwhile traders will be watching the weekly US jobless claims numbers as closely as ever on Thursday, while US durable goods orders on Friday offer a useful leading indicator of business demand.

How are central banks responding?

Last week the Federal Reserve and Bank of England signalled they are ready to do more as required and interest rates are set to stay low for a long time. This week sees the Reserve Bank of New Zealand in action after the country posted its worst recession in decades.

The country’s economy shrank by 12.2% between April and June, the steepest decline since the current system of measurement began in 1987 as strict national lockdown measures crippled activity.

The RBNZ has been looking at negative rates with assistant governor Christian Hawkesby saying last month that the central bank is “preparing the groundwork” for additional policy tools, which include negative rates. Will they make the leap now, or will they gauge that the economy will bounce back thanks to the very low number of cases? 

Highlights on XRay this Week 

Read the full schedule of financial market analysis and training.

15.00 UTC 21-Sep Tesla Battery Day Preview
17.00 UTC 21-Sep Blonde Markets
17.00 UTC 22⁠⁠⁠-⁠⁠⁠⁠⁠⁠Sep Webinar: Identify Trends and Choose Technical Indicators
14.45 UTC 24⁠⁠-⁠⁠⁠⁠⁠⁠Sep Master the Markets
17.00 UTC 24⁠-⁠⁠⁠⁠⁠⁠Sep Election2020 Weekly

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.

06:00 UTC 

22-Sep  Kingfisher – Half-Year Results 
14.00 UTC  22-Sep  Eurozone Consumer Confidence 
02.00 UTC  23-Sep  Reserve Bank of New Zealand Rate Decision 
07.15 – 08.00 UTC  23-Sep  Eurozone Flash Services / Manufacturing PMIs 
Pre-Market  23-Sep  General Mills – Q1 2021 
08.30 UTC 23-Sep  UK Flash Services / Manufacturing PMIs 
14.30 UTC 23-Sep  US EIA Crude Oil Inventories 
23.50 UTC  23-Sep  Bank of Japan Meeting Minutes 
08.00 UTC  24-Sep  German Ifo Business Climate 
Pre-Market  24-Sep  Accenture – Q4 2020 
12.30 UTC 24-Sep  US Weekly Jobless Claims 
14.30 UTC  24-Sep  US EIA Natural Gas Storage 
After-Market  24-Sep  Costco Wholesale Corp – Q4 2020 
11.00 UTC  25-Sep  Bank of England Quarterly Bulletin 
12.30 UTC 25-Sep  US Durable Goods Orders 

 

Gold makes fresh highs, equities retreat to middle of ranges

Gold broke out to fresh multi-year highs above $1770 as real Treasury yields continued to plunge. US 10-year Treasury Inflation Protected Securities (TIPS) dipped to new 7-year lows at –0.66% and have declined by 14bps in the last 6 days. The front end of the curve has also declined more sharply in the last couple of sessions, with 2-year real rates at –0.81%. Indeed, all along the curve real rates have come down with the 30-year at –0.14%.

Gold has also found some bid on a softening dollar in recent days, with the dollar index down 1% in the last two sessions. Fears that global central banks are fuelling a latent inflation boom with aggressive increases in the money supply continue to act as the longer-term bull thesis for gold.

Gold climbs on falling bond yields, fears of long-term inflation bubble

As previously discussed, gold is a clear winner from the pandemic. Gold was initially sold off in February and the first half of March as a result of the scramble for cash and dollar funding squeeze. Since then gold has made substantial progress in tandem with risk assets since the March lows because of central bank action to keep a lid on bond yields. The combination of negative real yields and the prospect of an inflation surge due to massively increased money supply is sending prices higher.

Whilst the Covid-19 outbreak is at first a deflationary shock to the economy, the aftermath of this crisis could be profoundly inflationary. Gold remains the best hedge against inflation which may be about to return, even if deflationary pressures are more pronounced right now.

Covid-19 second wave fears keep stocks range bound

Stocks are a little shaky this morning after a strong bounce on Tuesday. European markets opened lower, with the FTSE 100 slotting back under 6,300 at the 61.8% retracement, which called for a further retreat to the 50% zone around 6220. The DAX is weaker this morning and broke down through support at 12,400, the 61.8% level.

The Dow is holding around 26,100 and the 50% level of the pullback in the second week of June, while the S&P 500 is finding support on the 61.8% level around 3,118. Equity markets continue to trade the ranges as investors search for direction on how quickly the economy will recover and whether second waves threats are real.

On the second wave, the US looks clearly to have suffered a new, and in the words of Dr Fauci, ‘disturbing surge’ in cases. Virus hotspots like Texas, Florida, California and Arizona are seeing cases soar. Such is the worry the EU may ban Americans from travelling to its member states. Tokyo has also reported a spike in cases, whilst Germany is locking down two districts in North Rhine-Westphalia and there has been an outbreak in Lower Saxony.

On stimulus, Treasury Sec Steve Mnuchin said the administration is looking at extending the tax deadline beyond July 15th and is seriously looking at additional fiscal support to build on the $2.2tn Cares Act.

Dollar retreats, RBNZ decision hits NZD

In FX, the dollar has been offered this week, allowing major peers to peel back off their lows. GBPUSD has regained 1.25, while EURUSD has recovered 1.13. The kiwi was offered today after the Reserve Bank of New Zealand left rates on hold but said monetary policy easing would need to continue. The RBNZ said it will continue with the Large Scale Asset Purchase programme of NZ$60b and keep rates at 0.25%. The central bank noted that the exchange rate ‘has placed further pressure on export earnings…[and] the balance of economic risks remains to the downside’.

Crude off multi-month highs, mixed on API data

WTI (Aug) pulled back having hit its best level since March, dropping beneath the $40.70 level that was the Jun 8th peak, but remained clinging to $40. Prices have slipped the near-term trend support. Again, I’m looking at a potential double top calling for a pull back to $35. However, the fundamentals are much more constructive, and indicate a stronger outlook for demand and supply than we had feared in May.

API data showed inventories rose 1.7m barrels last week, gasoline stocks declined by 3.9m barrels, while distillate inventories fell by 2.6m barrels. Crude stocks at the Cushing, Oklahoma, fell by 325,000 barrels for the week. EIA figures today are forecast to show a build of 1.2m barrels.

Chart: Gold up over 20% from its March low

A candlestick graph showing gold prices in 2020

Negative rates: not now Bernard

Not Now, Bernard is a children’s story about parents who don’t pay attention and don’t notice their son has been gobbled up by a monster, which they duly allow into the house. One could make parallels with central banks and the monstrosity of negative rates.

Last week a strange thing happened: Fed funds futures – the market’s best guess of where US interests will be in the future – implied negative rates were coming. The market priced in negative rates in Apr 2021. It doesn’t mean they will go negative, but the market can exert serious gravitational pull on Federal Reserve policy. Often, the tail wags the dog, and the market forces the Fed to catch up. Of course, given the vast deluge of QE, it’s not always easy to read the bond market these days – central bank intervention has destroyed any notion of price discovery.

Now this is a problem for the Fed. Japan and Europe, where negative rates are now embedded, are hardly poster children for monetary policy success. Nevertheless, the President eyes a freebie, tweeting:

As long as other countries are receiving the benefits of Negative Rates, the USA should also accept the “GIFT”. Big numbers!

The Fed needs to come out very firmly against negative rates, or it could become self-fulfilling. Numerous Fed officials this week are trying their best to sound tough, but they are not brave enough to dare sound ‘hawkish’ in any way. Minneapolis Fed president Neel Kashkari said Fed policymakers have been ‘pretty unanimous’ in opposing negative interest rates, but he added that he did not want to say never with regards to negative interest rates.

It’s up to Fed chair Jay Powell today to set the record straight and make it clear the Fed will never go negative, or the US will go the way of Japan and Europe. Powell has to push very hard against this market mood. Too late says Scott Minerd, Guggenheim CIO, who believes the 10-year yield will eventually hit -0.5% in the coming years. Powell speaks today in a webinar organized by the Peterson Institute for International Economics. If he doesn’t lean hard on the negative rate talk it will cause a fair amount of mess on the short end.

UK 2yr yields turn negative, RBNZ doubles QE

Another strange thing happened this morning – UK interest rates also went negative. The 2yr gilt yield sank to an all-time low at -0.051% as markets assessed how much stimulus the UK economy is going to need (more on this below).

Inflation may or not be coming; deflation is the big worry right now as demand crumbles. The Covid-19 outbreak, or, more accurately, the response by governments, creates a profoundly deflationary shock for the global economy. Just look at oil prices. And yet, as central banks approach the precipice of debt monetization and Modern Monetary Theory, inflation could be coming in a big way.

So, we move neatly to the Reserve Bank of New Zealand (RBNZ), which last month said it was ‘open minded’ on direct monetisation of government debt. Today’s it has doubled the size of its bond buying programme but kept rates at 0.25%. The kiwi traded weaker.

German judge slams ECB

Sticking with central banks, and Peter Huber, the German judge who drafted the constitutional court’s controversial decision was reported making some pretty stunning remarks about the European Central Bank. Speaking to a German publication he warned the ECB is not the ‘Master of the Universe’, and, according to Bloomberg, said: ‘An institution like the ECB, which is only thinly legitimized democratically, is only acceptable if it strictly adheres to the responsibilities assigned to it’. These are pretty stunning and underline the extent to which this decision upends the assumption of ECJ oversight in the EU and over its institutions. Remarkable.

US stocks tumble on talk of lockdown extensions

US stocks had a dismal close, sliding sharply in the final hour of trading as Los Angeles County looked set to extend its stay at home order for another three months and Dr Fauci warned of reopening too early. The S&P 500 fell 2% and closed at the session low at 2870. The close could leave a mark as it broke support and we note the MACD crossover on the daily chart. European markets followed suit and drove 1-2% lower – this might be the time for the rollover I’ve been talking about for the last fortnight.

Pound off overnight lows after Q1 GDP decline softer-than-expected

Sterling is softer but off the overnight lows after less-bad-than-feared economic numbers. GBPUSD traded under 1.23 having tested the Apr 21st swing low support at 1.2250 ahead of the GDP print. The UK economy contracted by 5.8% in March. However, the –1.6% contraction in Q1 was less than the –2.2% expected, while quarter-on-quarter the economy contracted -2% vs –2.6% expected. GBPUSD bounced off its lows following the release, but upside remains constrained and the bearish MACD crossover on the daily chart still rules. We know it’s bad – the extension of the furlough scheme does not indicate things will be back to normal this year.

Oil markets are still looking quite bullish. A number of OPEC ‘sources’ yesterday suggested the cartel would stick to the 9.7m bpd cuts beyond June. API figures showed a build of 7.6m barrels, though there was a draw on stocks at Cushing, Oklahoma of 2.3m barrels. Gasoline inventories fell 1.9m barrels, but distillates continued to build by 4.7m barrels. EIA inventory data is later today is expected to show a build of 4.8m barrels.

RBNZ on hold, US CPI on tap, UK & EU update on growth

Growth data

With the UK starting 2020 by leaving the EU and striking out on its own, markets would like to see that it ended 2019 on a strong economic footing when preliminary Q4 data is released. The data for most Eurozone members will be the second reading; the preliminary estimates showed expansion of just 0.1% as strong growth in Spain helped to offset contractions in France and Italy. Germany’s Q4 reading will be the flash estimate – analysts expect the Eurozone powerhouse to post a contraction of -0.1%.

RBNZ – Easing cycle is over

A round of strong labour market data last week has markets pricing in stronger odds that the RBNZ is done with its easing cycle. Unemployment dropped to 4% in Q4 and the underutilisation rate, which measures the labour market’s untapped capacity, fell to an 11-year low of 10% in December.

While the Chinese coronavirus outbreak is the latest economic headwind for markets and central banks to contend with, the strength of the domestic data should see the RBNZ confident enough to stand pat and see how the situation develops.

US CPI

Last month’s CPI reading showed the fastest pace of annual inflation in eight years, but a closer look at the numbers revealed some big weaknesses. Month-on-month, price growth slowed to 0.2% from 0.3% in November, core CPI slowed to 0.1% from 0.2%. Average earnings grew just 0.7% in 2019. More soft readings like this will support the market view that Fed policy will remain on hold until well into H2.

Earnings – Kraft Heinz and NVIDIA

Top reports this week will be Kraft Heinz before the market opens on February 13th and NVIDIA after the closing bell the same day. KHC has had a bad start to 2020, declining around 9% even as the S&P 500 and Nasdaq hit fresh record highs. The company is facing weakening demand and a lack of free cash with which to innovate.

Coronavirus fears caused a small stumble in NVIDIA’s continuing rally, with the stock quickly recovering. China accounts for around a quarter of the chipmaker’s revenue, so management may warn that the virus could dent demand in this key market. EPS of $1.66 is expected on revenue of $2.96 billion – both hefty increases on the same period a year ago.

Key Events

(All times GMT)
01.30 GMT 10-Feb China Consumer Price Index
06.30 GMT 11-Feb Daimler – Q4 2019
09.30 GMT 11-Feb UK Preliminary GDP (QoQ) & Manufacturing Production
Pre-Market 11-Feb Hasbro – Q4 2019
After-Market 11-Feb Lyft – Q4 2019
01.00 GMT 12-Feb RBNZ OCR Decision & Monetary Policy Statement
07.00 GMT 12-Feb Softbank – Q3 2019
15.30 GMT 12-Feb US EIA Crude Oil Inventories
After-Market 12-Feb Cisco – Q2 2020
07.00 GMT 13-Feb Barclays – Q4 2019
Pre-Market 13-Feb The Kraft Heinz Company – Q4 2019
13.30 GMT 13-Feb US Consumer Price Index
15.30 GMT 13-Feb US EIA Natural Gas Storage Data
After-Market 13-Feb NVIDIA – Q4 2020
13-Feb Airbus – Q4 2019
07.00 GMT 14-Feb Germany Preliminary GDP (QoQ)
10.00 GMT 14-Feb Eurozone Flash GDP (QoQ)
13.30 GMT 14-Feb US Retail Sales
15.00 GMT 14-Feb US Preliminary UoM Consumer Sentiment Index

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