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Week Ahead: All eyes on Jackson Hole
The Jackson Hole Symposium is the big one this week.
This annual gathering of top US and international finance policymakers, movers, and shakers has long been used to break major policy shifts. Markets are anticipating Fed Chair Jerome Powell will be using this year’s meeting to announce QE and stimulus policy changes.
Powell could use the Symposium to announce a pullback from its current bond-buying programme. The Fed hinted as much in its July meetings, and there’s been plenty of rumblings that tapering is on the way, but as yet traders and investors are yet to receive an official green light.
At present, the Fed is currently buying $120bn in fixed-income assets every month. $80bn comes from Treasury securities and the remaining $40bn is sourced from mortgage-backed securities. All of this was part of a package of ideas to help support the COVID-ravaged US economy.
Bond traders and currency markets in particular are watching Thursday’s get together with interest. Clarity on the economy’s course, and navigational ideas to make it through a Delta-dominated landscape, will do much to allay their fears. It’s up to Powell now.
Since the start of the year, the economy has been accelerating rapidly – even if last quarter’s GDP growth failed to meet expectations. But rapid rises can bring other challenges. In this case, they’re inflation shaped. CPI and PPI keep growing at record rates too, and while Powell has been content to let the economy run hot, he’d best put on some oven gloves, lest his fingers get burned.
Speaking of inflation, further data on its impact is on its way with Friday’s release of Personal Consumption Expenditure index numbers, the Fed’s preferred gauge of inflation.
PCE growth clocked in at 0.4% in July, below the expected 0.6%, but an increase of 3.5% on an annualized basis. Seeing as it has been rapidly rising across the past couple of months, no doubt Powell and co. will be keeping a very close eye on Friday’s print.
Further economic health indicators are on their way in the shape of a Monday morning PMI blitz. We’ll get releases judging American business output then, as well as IHS Markit insights into British and European activity too.
US flash PMI readings for manufacturing and service productivity are released on Monday. There will be a lot to unpack when these are published, particularly as July’s numbers reported solid-but-slowing growth in American business activity.
Both services and manufacturing sectors continue to feel the twin fangs of inflation and COVID-19. Factory output caused the manufacturing index to drop from June’s 63.7 reading to 59.7 in July (a four-month low), while the services sector also pulled back from 64.6 to 59.8.
Higher input costs, staff shortages, and rising raw material costs are limiting growth. Let’s be clear: a reading over 50 indicates growth, but it does appear there’s a slowdown occurring in American productivity.
Much the same can be said of the UK, according to its own PMI figures. August’s index readings are published on Monday morning, but we’ve seen supply chain bottlenecks and low worker numbers hold back output.
July’s IHS Markit UK services PMI score was 59.6, a quite significant drop from June’s 62.4. Manufacturing showed a similar drop to 59.2 from 62.2.
“More businesses are experiencing growth constraints from supply shortages of labour and materials, while on the demand side we’ve already seen the peak phase of pent-up consumer spending,” said IHS Markit’s economics director, Tim Moore.
Conversely, EU productivity showed a July surge. IHS Markit’s final composite Purchasing Managers’ Index reached 60.2 in July – the highest level since June 2006 – indicating a strong showing from both services and manufacturing.
However, to sustain this, the EU will have to be careful to avoid the logistical and labour market snags that have hit the UK and US. It’s unlikely to do so, so we could be looking at a lower reading in August.
Major economic data
|Mon 23-Aug||8.15am||EUR||French Flash Manufacturing PMI|
|8.15am||EUR||French Flash Services PMI|
|8.30am||EUR||German Flash Manufacturing PMI|
|8.30am||EUR||German Flash Services PMI|
|9.00am||EUR||Flash Manufacturing PMI|
|9.00am||EUR||Flash Services PMI|
|9.30am||GBP||Flash Manufacturing PMI|
|9.30am||GBP||Flash Services PMI|
|2.45pm||USD||Flash Manufacturing PMI|
|2.45pm||USD||Flash Services PMI|
|Wed 24-Aug||3.30pm||OIL||US Crude Oil Inventories|
|Thu 25-Aug||ALL DAY||USD||Jackson Hole Symposium|
|1.30pm||USD||Preliminary GDP q/q|
|Fri 26-Aug||ALL DAY||USD||Jackson Hole Symposium|
|1.30pm||USD||Core PCE Price Index m/m|
Week Ahead: FOMC minutes to confirm Fed policy rethink?
It’s a busy week for central banks this week. Firstly, we start with the FOMC’s meeting minutes from its June policy talks. Tapering was on the agenda, whilst policymakers started to pull forward when they think rates should rise, so getting beneath their skin is critical for understanding market movement.
The Reserve Bank of Australia shares its latest update too as rising Covid cases and lockdowns kick in. Will this inspire a policy rethink?
The impact of the delta variant on Eurozone recovery will be in focus too as the EU shares its latest economic outlook.
FOMC meeting minutes are the week’s big release, coming on Wednesday.
It will be interesting to see in the Fed’s internal discussions after June’s meeting. Then, the Fed signalled it won’t let inflation run hot and that a rate hike may be coming a little earlier than anticipated.
The Fed’s median projection showed they see lifting their benchmark rate to 0.6% from near zero by the end of 2023. In March, it was expected that rates would hold steady across that year.
Tapering was also on the agenda. We know Chairman Powell et al discussed an eventual reduction in the Fed’s bond buying programme, but, in the post-meeting statement, no indicators towards when this might occur were given.
The Fed is still making around $120bn in purchases every month as part of its overall Covid economy strategy.
A window into any central bank’s thinking is essential for market observers. Investors are having to recalibrate their high-inflation bets in response to the Fed’s hawkish June tilt.
What we’re seeing now is a US economy in a transitionary phase. No economy, no matter how large, can afford to simply ride the waves. It has to be responsive. The Fed has done that, but it will be interesting to see inside the Fed at this crucial juncture.
Keeping with central banks, the Reserve Bank of Australia speaks on Wednesday. Covid-19, in a country that largely appeared to have it under control, is starting to bite once more. The delta variant has begun its spread throughout Australia. A new wave of lockdowns is in place.
Roughly 80% of Australia’s population is back under stay-at-home orders or restricted movement.
Could this prompt a change in RBA thinking ahead of its July 6th meeting? Governor Lowe and his team are already in a dovish economic stance. Rates have not shifted from their historic 0.10% level since November.
Speaking after last month’s meeting, Governor Lowe said: “The economic recovery in Australia is stronger than earlier expected and is forecast to continue. The bank’s central scenario is for GDP to grow by 4.75% over this year and 3.5% over 2022. This outlook is supported by fiscal measures and very accommodative financial conditions.”
Of course, that statement was made when the road to recovery hadn’t been blocked. The RBA will need to act with clarity and precision to ensure it can keep Australia’s economy on the right track. We’ll learn more when the RBA speaks on Wednesday.
EU economic forecasts are coming this week, too.
The bloc appears to be coming out of the worst of the pandemic relatively strongly. We’ve seen strong PMI numbers and GDP forecasts are strong too. We’ve also seen some European Central Bank members suggest pulling back of the PEPP stimulus package could be on the cards.
Regarding PEPP, ECB council member and Deutsche Bundesbank President Jens Weidmann has suggested the programme could be wound up prior to the original March 2022 deadline. The ECB will have pumped €2.2 trillion into the Eurozone economy through its PEPP programme by then. However, to change this would require strong economic recovery and complete removal of Covid-caused restrictions.
With the delta variant beginning to bite, full removal of restrictions seems unlikely. In fact, how the EU responds to the new wave of cases will be crucial. Will it have to retool thinking and economic forecasts in response?
Still, the analysts’ outlook is broadly positive. S&P Global, for instance, has made a few tweaks.
“We revised upward our forecast for eurozone growth to 4.4% this year and 4.5% in 2022, seeing broader implementation of fiscal stimulus under the Next Generation EU plan and weaker contraction of GDP in the first quarter,” the ratings house said.
“Long-term scarring to the economy is likely to be limited by Europe’s coordinated fiscal and monetary policy response, paving the way for the output gap to close by 2024.”
Major economic data
|Mon 05-Jul||3.30pm||CAD||BOC Business Outlook Survey|
|Tue 06-Jul||5.30am||AUD||RBA Rate Statement|
|10.00am||EUR||EU Economic Forecasts|
|10.00am||EUR||ZEW Economic Sentiment|
|10.00am||EUR||German ZEW Economic Sentiment|
|3.00pm||USD||ISM Services PMI|
|Wed 07-Jul||3.00pm||CAD||IVEY PMI|
|3.00pm||USD||JOLTS Job Openings|
|7.00pm||USD||FOMC Meeting Minutes|
|Thu 08-Jul||2.30am||AUD||Retail Sales m/m|
|3.30pm||GAS||US Natural Gas Inventories|
|4.00pm||OIL||US Crude Oil Inventories|
|Fri 09-Jul||1.30pm||CAD||Employment Change|
Key earnings data
|Tue 06-Jul||Ocadao Group||Q2 2021 Earnings|
|Wed 07-Jul||Aeon||Q1 2021 Earnings|
|Thu 08-Jul||Levi’s||Q2 2021 Earnings|
|Fri 09-Jul||Tryg||Q2 2021 Earnings|
Stocks firm as travel gets a boost
The reopening in the US and UK continues apace. More states are opening up bars, restaurants and other hospitality venues at full capacity, whilst Britons are set to resume international travel this month and get back in the pub too. Europe is catching up fast on vaccinating its population and will be at a similar level by the summer. The vaccines are working. Stimulus is also supporting spending as US personal incomes soared by 21% last month. Dare we consider a return to genuine normality soon? Perhaps, but the picture is very uneven across the globe, as India shows all too clearly.
European stocks opened broadly higher on Tuesday before easing back to the flatline, with the UK market leading the way in a holiday-shortened trading week. The FTSE 100 rose 0.7% in early trade, testing the 7040 high from last month again before paring gains. Infineon scrubbed 20pts off the DAX as the German index dropped by around 0.4%. US markets were higher on Monday, with the S&P 500 up 0.3% to 4,192 and the Dow Jones rising 0.7% to 34,113. The Nasdaq lagged, falling 0.5% as big tech names declined a touch following a period of strong gains running into earnings season. Tesla fell 3.5% and Amazon dropped over 2%.
Profits at Saudi Aramco soared 30% versus last year as higher oil prices lifted earnings. Net income rose to $21.7bn. Crude prices have rebounded strongly in the last 12 months –it’s just over a year since WTI futures dropped into negative territory ahead of expiration. Crude prices have a bullish bias at the start of May with WTI futures (Jun) hovering around the $643.50 area and Brent just a little under $68. Whilst there concerns about the situation in India and implications for demand growth, this is being outweighed by hopes for demand recovering strongly.
On that front, IAG shares rose over 3% to the top of the FTSE 100 as the US and Europe move to reopen travel this summer and Britons look set to be able to resume foreign travel from May 17th. As US states declare further moves to open things up, the EU is looking to enable people from outside the bloc who have had both their vaccinations to travel freely to Europe this summer. Talks on the plans begin today. Whilst progress is slow, there is hope that by the summer holidays travel will be substantially more possible. Airline stocks were broadly higher. TUI and EasyJet topped the FTSE 250, which rose to within a whisker of its intra-day all-time high this morning.
Australia’s central bank left rates on hold but upgraded its outlook for the economy. Later this week the Bank of England is expected to do similar. The quarterly Monetary Policy Report should show better growth and higher inflation ahead as vaccines are working and enabling the economy to reopen as planned. The big question is over a taper of bond purchases. The thorny issue for policymakers is whether to use this meeting to announce how and when it will taper bond purchases. The yield on 10-year gilts is back to 0.84%, close to the March peak at 0.87% and could top this should the BoE signal it is ready to exit emergency mode. Policymakers may prefer to wait until June. Ultimately, the question about tightening is really one of timing, but the BoE cannot be blind to the economic data and this meeting could be the time to fire the starting pistol. The fact the furlough scheme is slated to run until September, the BoE has time on its hands and could wait until August. As far as sterling goes, also keep your eyes on the Scottish elections on Thursday, where a majority for pro-independence parties in Holyrood could up the ante in terms of a second referendum. GBPUSD tested 1.380 support yesterday before a rally ran out of steam at 1.3930 as it continues to hold the range of the last 2-3 weeks.
Gold touched the 100-day SMA and pulled back from the $1,800 area. MACD bearish crossover avoided for now but potential double-top at $1,800 could call for a deeper pullback.
Week Ahead: Acronyms a-go-go – CPI, PMI & GDP releases
A lot of economic data is released in key economies this week. Starting with the UK, CPI and retail sales figures are released, with furlough and lockdown still looming large over the economy. US GDP numbers for the first quarter are finalised but the focus will be on business sentiment showing up in a fresh batch of PMI releases from the US, UK and Eurozone amid vaccine progress that is diverging in the major economies.
Investors and FX traders will be watching UK inflation figures this week following the Bank of England decision.
Inflation is in focus in the UK right now, as the effects of rising bond yields, further government economic support via Chancellor Sunak’s “spend now, tax later” budget, and the Bank of England’s response continue to colour the economic picture.
ONS data shows the latest full-year CPI at 0.9%. Across 2021, the CPI is expected to rise to 1.5% across the year. Some estimates suggest it may even rise to 1.8% by April.
CPI inflation for the UK came in at -0.2% month–on–month in January, down on December’s 0.3%, but the figure was above the -0.4% the market was expecting.
CPI inflation rose 0.7% year-on-year in January, which is above December’s figure of 0.6% and above the consensus expectation for a reading of 0.6%. January’s upward trend was driven by rising prices of food, transport, and household goods.
UK Retail Sales
UK retail sales data is released this week. The latest industry data suggests February was a solid month for the UK’s retail sector, according analysis from KPMG.
Total sales were up 1% in February on a like-for-like basis against last year’s stats. Importantly, this was a sharp reversal of January’s retail sales, where sales contracted 1.3% against 2020’s figures.
Driving February’s growth was March’s reopening of schools across England. Spending on non-food items, like school uniforms and stationery, was up as shopper’s fell into the back-to-school trend.
Non-essential stores still remain shuttered in England and will remain so until April 12th. Online sales are benefitting greatly from lockdown, mainly because consumers have no other choice but to use digital outlets to get their non-essential items. Non-food spending accounts for 61% of February sales – up nearly double compared with 31% in February 2020.
However, overall consumer spending is down, Barclaycard reports, slipping 13.8% y-o-y in February. Lockdown restrictions on hospitality and leisure continue to weigh heavy. No doubt they’ll surge once full lockdown restrictions are removed in June, but until then the sector is going to greatly underperform.
US, UK, EU PMI
PMI data is released in major economies this week as the UK, US, and EU share index findings.
Starting with the UK, observers will be hoping the momentum started in February will continue into March. The IHS Markit/CIPS Composite PMI gave a reading of 49.6 for February, up from an eight-month low of 41.2 in January.
Some industries are performing above expectation. According to IHS Markit, UK construction was perkier than forecast in February, with the construction PMI at 53.3 from 49.2, as projects halted by Covid-19 were given the green light to continue or begin. Manufacturing continued an upward swing too, rising to 55.1 last month.
However, services remain disappointing, with the revised February figure chalked up as 49.5 – still below the 50 growth threshold. This is perhaps to be expected. Leisure and hospitality are still heavily restricted, so don’t expect any upward trends in March.
EU leaders were breathing a little easier after February’s numbers. For instance, manufacturing was up to 57.9 in February from 54.8 in January – a 3-year high – led by strong performance from The Netherlands and Germany.
However, since then the outlook for Europe has deteriorated as Covid cases in France and Germany have spiraled and Italy has entered a fresh lockdown. Survey data may not reflect the recent developments fully.
Hopping across the Atlantic, the US enjoyed a smash-hit manufacturing PMI in February, blowing the EU’s impressive numbers out the water. The US manufacturing PMI came in at 60.8 – the highest level seen for 3 years. However, that impressive figure may be cooled by issues in the supply chain.
According to manufacturers surveyed by the Institute for Supply Management (ISM), commodities and component prices are rising. The steel price is up, for instance, which massively affects pricing for the US manufacturing sector.
The final reading for US Q4 2020 GDP comes this week but all eyes are really on the updated forecasts we are getting for 2021. Last week the Federal Reserve raised its outlook for growth to 6.5% this year, up from 4.2% expected at the time of the December meeting.
The OECD and several investment banks have also upped their guidance for US growth this year. Therefore, high frequency data like the weekly unemployment claims and personal income and spending figures will be the ones to watch, particularly as the arrival of $1,400 stimulus cheques begins to be felt.
Markets, however, like to look forward, not backward. Q1 2021’s GDP figures will be very interesting for the market. On that front, the outlook is optimistic.
Back in December, Goldman upgraded its Q1 2021 GDP figure to 5%, following the passing of $900bn in stimulus. Joe Biden’s further $1.9bn stimulus package has been passed, which may influence the quarter’s GDP movement.
More recently, the Philadelphia Fed has put Q1 2021 GDP growth at 3.2%, citing a brighter outlook for labour markets, although it has also bumped its inflation expectations up to 2.5% for this quarter’s CPI release. The Atlanta Fed is even more upbeat than its cousin to the north. Its initial Nowcast puts the quarter’s GDP growth at 5.2% – in line with Goldman’s December estimate.
The point about unemployment raised by Philadelphia is pertinent here. The last Nonfarm payrolls indicated the jobs market was beginning to come off life support, surging 379,000. More people at work suggests more productivity, suggests healthy Q1 GDP growth.
Essentially, we’re looking at a healthier US economy in 2021 so far. Morgan Stanley has even gone so far as to suggest pre-pandemic GDP growth will kick in as early as the end of March. That might be a bit too ambitious, but it’s an indicator of increased confidence regarding the United States.
Major economic data
|Wed 24 Mar||7.00am||GBP||UK CPI y/y|
|8.15am||EUR||French Flash Manufacturing PMI|
|8.15am||EUR||French Flash Services PMI|
|8.30am||EUR||German Flash Manufacturing PMI|
|8.30am||EUR||German Flash Services PMI|
|9.00am||EUR||Flash Manufacturing PMI|
|9.00am||EUR||Flash Services PMI|
|9.30am||GBP||Flash Manufacturing PMI|
|9.30am||GBP||Flash Services PMI|
|1.45pm||USD||Flash Manufacturing PMI|
|1.45pm||USD||Flash Services PMI|
|2.30pm||USD||US Crude Oil Inventories|
|Thu 25 Mar||8.30am||CHF||SNB Monetary Policy Statement|
|12.30pm||USD||Final GDP q/q|
|2.30pm||USD||US Natural Gas Inventories|
|Fri 26 May||7.00am||GBP||Retail Sales m/m|
|9.00am||EUR||German ifo Business Climate|
Key earnings data
|Mon 22 Mar||Saudi Aramco||Q4 2020 Earnings|
|Tue 23 Mar||Adobe||Q1 2021 Earnings|
|Markit||Q1 2021 Earnings|
|Wed 24 Mar||Tencent Holdings||Q4 2020 Earnings|
|Geely Motors||Q4 2020 Earnings|
|Thu 25 Mar||CNOOC||Q4 2020 Earnings|
Week Ahead: The economic outlook for the EU, US CPI release & UK GDP unveiled
In the week ahead, the EU reveals what could be a less-than-optimistic economic forecast. The UK is also releasing GDP figures – is a double dip recession on its way? Over in the US, CPI data is released which could point towards inflation, and earnings season continues on Wall Street with Disney and other large caps reporting in.
US CPI – is inflation going to ramp up?
Are the dogs of inflation starting to bark? We’ll find out in the US this week as CPI data for January is reported.
The Labor Department reported the CPI rose 0.4% in December, following a 0.2% rise in November. Consumer prices may have risen, but the key driver here was gasoline. Gas prices jumped 8.4% in the last CPI review period, account for 60% of the index’s overall growth. Food, on the other hand, rose 0.4%.
Excluding volatile food and energy prices, CPI growth in December was at 0.1%, kept in check by a decrease in the price of used vehicles, as well as drops in airfares, health care costs, and recreation activities.
Last month’s CPI readings were in line with economists’ expectations. Overall, the CPI rose 1.4% in 2020, which is the smallest yearly gain since 2015, representing a drop from 2.3% in 2019.
There are mixed outlooks going forward. On one hand, over $has been pumped into the economy via stimulus packages so far, and President Biden has plans to add an extra $1.9 trillion. Whether that full figure makes it through Congress, we don’t know yet, but either way more stimulus is probably on its way, which could cause inflation to breach targets.
On the other, price pressures may stay more benign. Some 19 million Americans are on unemployment benefits. Stress in the labour market could also curbing wage growth and increasing rental vacancy rates are could restrain rental inflation too.
A not so bright EU economic forecast
Europe could be about to head into a double dip recession. That’s the stark headline as the EU shares its economic forecast in the week ahead.
The last quarter of 2020 pulled back any gains made that year, with the EU’s overall economy retracting 0.5% in 2020’s last 3 months. It’s the same story we’ve seen across the year: lockdown loosens, GDP goes up, but virus cases surge; lockdown tightens, GDP shrinks, virus cases still increase.
The EU is facing particular difficulty in its vaccine programme, although coordinating efforts across the bloc’s many constituent members requires almost Olympian effort. So far, it doesn’t look like it is paying off. Difficulty in sourcing vaccine supplies is one aspect of the EU’s vaccination woes, in particular the recent EU/UK spat over exports of Oxford’s AstraZeneca vaccine.
The euro has fallen against both the dollar and pound too, with a euro now worth about 88p at the time of writing, and roughly $1.20 – nine-month lows for the currency, and not a great indicator of a healthy economy.
Will Europe double dip? It’s possible. Basically, the bloc needs to pick up the pace when it comes to vaccination and get people out and about again. Stimulus will play a key role here too, as the first cash from its €750bn package should start reaching the EU’s economy in 2021’s first half. A reason for hope? Maybe, but for now the forecast isn’t particularly bright.
UK GDP – will the UK be double dipping?
The UK releases its latest quarterly GDP data this week. Q3 2020 showed rapid 16% growth, according to headline figures published by the House of Commons Library, but that was still down 8.6% compared with the previous year. Will we see a contract or continued growth in the upcoming quarter’s figures?
The Bank of England’s report from 4th February is actually better than previously feared. UK GDP is expected to have risen a little in the last quarter, to a level roughly 8% lower than Q4 2019.
This is a little surprising. Most of the UK returned to tough lockdown restrictions during November, with non-essential shops opening. While some were let open again in the run up to Christmas, and businesses of all sorts adapting to changing conditions, it may still not be enough to avoid recession. That said, it was spending season as Christmas and Black Friday fall in the last quarter. Perhaps they‘ve played a role in keeping the UK economy afloat.
Recession will be still be on everyone’s lips watching Q4’s official GDP figures, as they’ll be a barometer for what’s going to happen in Q1 2021. Lockdown measures are tight across the UK, and non-essential businesses remain shuttered for the foreseeable. Goldman Sachs has reconfigured its UK Q1 2021 outlook for 1.5% growth.
A mixed outlook then, but there is a small sliver of sunlight through the cloud. The UK’s vaccine rollout has been one of the most successful in the world, with evidence suggesting the spread of the virus is slowing with vaccine uptake. But will businesses remain closed, GDP growth seems out of reach for the UK economy going forward. We’ll know more when official GDP figures are released.
Earnings season rolls on
Plenty of large caps are yet to report their latest earnings as earnings season rolls on Wall Street.
Disney looks one of the most interesting companies to watch this quarter. The House of Mouse has its fingers in multiple deep pies, but with key revenue streams falling off, like its theme parks and resorts, and of course cinema, it will have to prop those up through gains in other business areas.
It looks like its working already. Disney+, its own in-house streaming service, has already obliterated subscription forecasts. In April 2020, Disney was targeting 60-90m subscribers by 2024. As of February 2021, subscription numbers had already hit 87m. Now commentators put future subscriber levels in the 250m range.
As well as its own properties established and developed over decades, Disney’s acquisitions of Marvel and Star Wars basically put two of the most popular franchises in the hands of a company already used to owning, marketing, and creating obscenely popular entertainment properties. Basically, limiting access to both show’s films and TV series together on a single platform is exceptionally shrewd.
So, while earning may have slumped in physical media, digital output could help propel Walt Disney to a strong quarter.
Disney is now fourth on Fortune’s list of the World’s Most Admired Companies and first overall for entertainment. Its brand recognition is already immense, but, according to Fortune, its business operations are a textbook case of identifying how and where to succeed.
A look at some of the key large caps reporting this week can be found below.
Key economic data
|Wed 10 Feb||1.30pm||USD||CPI m/m|
|1.30pm||USD||Core CPI m/m|
|3.30pm||USD||US Crude Oil Inventories|
|Thu 11 Feb||10.00am||EUR||EU Economic Forecasts|
|1.30pm||USD||US Unemployment Claims|
|3.30pm||USD||US Natural Gas Inventories|
|Fri 12 Feb||7.00am||USD||Prelim GDP q/q|
|Mon 8 Feb||Softbank||Q3 2020 Earnings|
|Take Two||Q3 2021 Earnings|
|Loews||Q4 2020 Earnings|
|Hasbro||Q4 2020 Earnings|
|Namco Bandai||Q3 2021 Earnings|
|Tue 9 Feb||Cisco||Q2 2021 Earnings|
|Total||Q4 2020 Earnings|
|S&P Global||Q4 2020 Earnings|
|Daikin||Q3 2020 Earnings|
|DuPont||Q4 2020 Earnings|
|Honda||Q3 2020 Earnings|
|Q4 2020 Earnings|
|Ocado||Q4 2020 Earnings|
|Fujifilm||Q3 2021 Earnings|
|Nissan||Q4 2020 Earnings|
|Wed 10 Feb||Coca-Cola||Q4 2020 Earnings|
|Toyota||Q3 2021 Earnings|
|Commonwealth Bank Australia||Q2 2021 Earnings|
|General Motors||Q4 2020 Earnings|
|Heineken||Q4 2020 Earnings|
|Vestas||Q4 2020 Earnings|
|A.P Moeller-Maersk||Q4 2020 Earnings|
|IQVIA||Q4 2020 Earnings|
|Sun Life||Q4 2020 Earnings|
|Uber||Q4 2020 Earnings|
|Thu 11 Feb||L’Oreal||Q4 2020 Earnings|
|AstraZeneca||Q4 2020 Earnings|
|Schneider Electric||Q4 2020 Earnings|
|Duke Energy||Q4 2020 Earnings|
|Kraft Heinz||Q4 2020 Earnings|
|Credit Agricole||Q4 2020 Earnings|
|Tyson Foods||Q1 2021 Earnings|
|ArcelorMittal||Q4 2020 Earnings|
|UniCredit||Q4 2020 Earnings|
|Kellogg||Q4 2020 Earnings|
|Expedia||Q4 2020 Earnings|
|HubSpot||Q4 2020 Earnings|
|Fri 12 Feb||ING||Q4 2020 Earnings|
Sterling’s RoRo Yo-Yo day
The pound endured some wild whipsaws today on a range of Brexit headlines. First sterling slid through the morning as the EU lodged its legal complaint over the internal market bill. GBPUSD hit the LOD at 1.2820 by 10am.
But then GBPUSD rallied aggressively through 1.295 on reports officials were close to entering the tunnel, with the FT’s Whitehall correspondent quoting one as saying: ‘We’ve gone from about 30% chance of a deal to the other way around. I think it’s almost certain we’ll enter the tunnel.’ The implication that officials see a 70% likelihood of a deal got sterling bulls running the stops.
Sterling pushed up to a fresh two-week high, but the 1.30 round number was not tested as the rally ran out of legs at 1.2980. The 1.30 level is the big horizontal and Fibonacci resistance to unlock the move to the mid-1.30s once a Brexit deal is signed.
However, cable was back down almost one big figure again, taking a 1.28 handle after an EU official said there is no sign of a landing zone on fisheries, or level playing field. At send time GBPUSD was sitting on the 1.29 round number around the mid-point for the day.
What we learned from this:
Sterling is on the hook to some wild price swings on headlines, which we knew would be the case. No one wants to try 1.30 unless there are more concrete rumours from ‘sources’. Talks wrap up tomorrow – more market-moving headlines to come.
Twitter is a very good source of information for trading – cable shot higher a couple of minutes after the initial 70/30% tweet. Algos were slow to respond for once – shows they don’t read Twitter very well – yet (H/T @PriapusIQ).
It does seem like there are tentative signs of ‘progress’ despite all the chuntering around the internal market bill, which looks increasingly like a sideshow to the main event of trade talks.
In short, a deal seems more likely than not. I’ve moved from 60/40 to 50/50 after the IMB to back to 60/40 again.
Moody music around Brexit sends sterling lower
Sterling took a bit of a kicking as the mood music around this week’s Brexit talks took a decided turn for the worse. The EU came out with some pretty stern words for the British government over its internal markets bill. Less Ode to Joy and more Siegfried’s Death and Funeral March.
The EU Commission has come out fighting, saying the bill would, if adopted, represent a serious breach of the withdrawal agreement (perhaps) and of international law (more dubious, since the EU cannot hold any sway or sovereignty over UK domestic markets, laws or affairs after the exit from the EU).
Anyway, the British position (on paper at least) remains resolute. The UK government legal opinion is that it remains a sovereign matter of UK domestic law, which of course, it is, regardless of what the EU may think.
Brexit talks under threat as EU warns UK has ‘seriously damaged trust’
The EC called on Britain to ditch the problem elements of the bill by the end of the month and warned that the UK has ‘seriously damaged trust between the EU and the UK’, adding that ‘it is now up to the UK government to re-establish that trust’.
This is real brinkmanship. It is one of three things: it is either a cynical masterstroke in negotiating a deal. Two, it is a cynical move but a miscalculation on the British side, as it may fatally undermine the good faith basis discussions. Or three, it is simply a genuine good faith step based on the British desire to main the integrity of its own internal market, just as much as the EU insists on maintaining its own single market.
Either way the language and tone coming out of everything today would suggest a material increase in no deal risks – more no doubt to follow later this afternoon.
Pound sinks on heightened no-deal risks
GBPUSD sank to fresh six-week lows under 1.2860 with the road to 1.280 clear after breaching the 50-day line, which had offered the support yesterday. EURGBP surged to its strongest in 6 months above 0.92, boosted as a hawkish-sounding ECB put a firm under the EUR.
The euro was sent spiking against the dollar before easing back a touch after the ECB left rates unchanged and indicate it was all very pleased with itself and doesn’t think it needs to do a lot more. Christine Lagarde seemed far too relaxed about the appreciation in the euro, which helped send the currency back up to 1.19.
All in all she did beat a dovish drum and seems to have got her communication rather muddled, again. But after this spike, a bit of dollar bid came back as risk assets soured following the US open.
Bank of England wheels for fresh charge
Central banks need to be marshalled like cavalry and stimulus like charges. If your stimulus doesn’t rout the enemy immediately, you can easily get bogged down in a melee in which you lose your advantage. The Federal Reserve keeps wheeling around and managing to rally troops for fresh charges – the corporate bond buying announcement this week was a fine example.
But increasingly the cavalry is wearying and the more this drags on the less impact the Fed’s repeated charges will have against the twin enemies of deflation and unemployment. Investors are clinging on to central bank stimulus like the Gordon Highlanders gripped the stirrups of the Scots Greys, as they rode down the French columns at Waterloo.
BoE preview: more QE on the way
The Bank of England will mount a fresh charge at the enemy formations today. Coordination is the name of the game: it needs to keep on top of the huge amount of issuance – borrowing – by the UK government. Wartime levels of debt means the BoE must expand the envelope to hoover it up or risk yields starting to rise and spreads widening.
So, the BoE is expected to increase QE by at least £100bn, but I think it may well opt for £200bn, or even more, given that even £100bn would only last it until the end of the summer and the real long-term economic problems are going to emerge later in the autumn. Interest rates will stay at 0.1% and expectations firmly anchored for the near future with forward guidance repeating that the Bank will do whatever it takes.
In order to achieve this, the government and central bank will need to coordinate throwing more money at the problem. Indications suggest furlough has been costly but only delayed a lot of the pain – a looming unemployment crisis will require further central bank support, which means more QE is likely. And don’t talk about negative interest rates – Andrew Bailey mentioned it once, but I think he got away with it. Once you go negative, it’s very hard to get back to normal.
Whilst fresh forecasts are not due until August, the Bank will likely set a more defensive tone in terms of its expectations for the recovery. As noted here on May 7th (BoE: for illustrative purposes only) the Bank’s assumptions on economic recovery seem rather optimistic.
Sterling was steady ahead of the decision. GBPUSD held around the middle of its trading range, sitting on the 38.2% retracement of the bottom-to-top rally from the May low to the Jun high. Monday’s test of the 1.2450 (50% level) remains the support whilst the upside seems well guarded by the 200-day moving average just above 1.2690 that sparked the run lower since Tuesday.
Stocks on the back foot on fears of second Covid-19 wave
Wall Street stocks fell yesterday, except for tech, whilst European markets are on the back foot this morning as investors parse new cases in the US and China. The bulls lost energy as new hospitalisations in Texas due to Covid-19 rose 11% in the space of 24hrs. Several other US states are seeing rising cases that are a worry, albeit the kind of mass lockdown seen earlier this year appears an unlikely course of action. The economic damage is too high, and we are generally better equipped to handle it.
Worries about China are also important – markets had largely not bet on a second lockdown in the world’s second largest economy.
Overall, the market swings now suggest investors are reacting to various headlines about recovery, stimulus and new cases without much clear direction as to what it all means as a bigger picture. The major indices are right in the middle of recent trading ranges, sitting around the 50-60% retracements of the move from the multi-month highs at the start of last week to the swing lows this week.
Elsewhere, the US pulled out of talks with Europe over a global digital services tax, which raises the risk of individual countries taking their own steps, in turn sparking a fresh wave of US-EU tensions. An escalation of dormant trade wars is not out of the question if EU nations and the UK decide to tax US tech giants aggressively.
This comes of course after the EU launched an anti-trust probe into Amazon. In Europe, Germany passed additional fiscal stimulus to combat the pandemic costs. This morning Angela Merkel called on the EU to agree to the Covid fund before the summer break.
Crude steady on EIA inventories data
Crude prices were steady as they hold within the consolidation pattern printed since the start of June. WTI for August was holding around the $38 marker after the EIA inventories rose 1.2m barrels, vs expectations for a draw.
This matched the API data (+3.9m) and suggests there are more supply-side pressures at present, but OPEC data indicated demand not falling as much as previously expected in the second half of the year. Meanwhile it seems Iraq is working its way towards complying with OPEC+ cuts.
Macron and Merkel’s rescue fund: Europe’s Hamiltonian moment?
Germany and France have agreed to push for a €500bn EU fund to help member states combat the economic fallout of Covid-19. The proposal comes as EU leaders fail to reach a consensus over what form a rescue package should take.
Angela Merkel and Emmanuel Macron have backed the scheme to support the Eurozone economy, which would be in the form of grants not loans.
The stimulus will be funded by the European Commission borrowing money – ‘coronabonds’ in all but name. The EC could borrow money from capital markets on behalf of all EU nations, secured against the next seven-year budget. The debt would mature after 2027.
This is an important breakthrough for the EU and has been dubbed Europe’s ‘Hamiltonian’ moment, in reference to Alexander Hamilton, who federalised the debts of the various US states in 1790.
This week on Wednesday EU President Ursula von der Leyen will present her plans, which will build on the Franco-German proposal.
If the budget talks are successful it should lower risk premia on EU sovereign debt, lowering bond yields and offering succour to the euro as well as to European equity markets.
It would also mark a major step towards EU fiscal policy coordination and possible fiscal union.
Will Eurozone members agree to rescue grants?
But it needs consensus and agreement from all the members of the common currency. Leaders struggled to agree an emergency funding package back in April, and the issue of how to support the recovery once the health crisis had passed was left alone.
Some nations have argued that making any rescue funding into a loan means saddling more debt on member states, like Italy and Spain, that are already struggling with their existing liabilities.
The ‘frugal four’ – Austria, Denmark, the Netherlands, and Sweden – are not playing ball with the French and Germans, putting forward a counterproposal to the €500bn bailout fund.
The four countries said they would not agree to a mutualization of debt, nor an increase in the EU budget.
Budget talks over the next few weeks will be crucial to the Eurozone and its economy.
Leg up: stocks make new ground, travel stocks soar
Sentiment among German companies has recovered somewhat after a “catastrophic few months”, the Ifo Institute said yesterday, in what neatly sums up where the global economy stands right now: horrendous, but perhaps not as horrendous as it could have been.
Of course, this is not the main reason stocks keep making new highs; this lies in the action of central banks and the vast amount of liquidity being pumped into the system.
The European Central Bank’s Villeroy – the governor of the Bank of France – said in all likelihood more stimulus is on the way. Overnight we’ve also heard from the Bank of Japan and PBOC, both of which have stressed they will keep their hands on the pump no matter what.
Global stocks have begun the week on a very solid footing and taken a leg higher to set new post-Covid highs as economies start to reopen and investors shrug off the simmering tensions over Hong Kong. The Nikkei rose over 2% to its best level since early March as Asian equities made broad gains with Japan ending its state of emergency.
Germany’s DAX extended Monday’s almost 3% gain, rallying 0.75% more on Tuesday morning. US futures are indicating the S&P 500 will recover 3,000 and look to take out the 200-day simple moving average, which would be its highest since March 5th. The FTSE 100 rallied 2% to 6100 as it played catch up to Europe’s Monday gains.
Travel & leisure are leading the charge today, with IAG, Tui, easyJet, InterContinental Hotels all posting double-digit percentage gains to top the index movers. Strength in this sector underscores confidence among investors that economies are reopening, and consumers are keen to travel.
There is a lot more hope that travel restrictions across Europe will be eased in time for the summer holidays. If the summer holiday season can be saved it would be a big plus after most of us wrote it off. Some people are a lot more willing to travel long distance than others. Tui rose 35% in London and was 17% higher in Frankfurt having gained on Monday.
Aston Martin shares shot up 30% after Andy Palmer walked the plank. It’s a pretty damning indictment of his tenure that the shares jumped this much after news of his sacking. Mercedes AMG stalwart Tobias Moers picks up the chalice.
Aston Martin has been one of the worst stock listings in living memory. In spite of rocketing higher today they are still worth a tenth of the IPO price – listing at about £5.50 today they are worth 45p. Things had already got pretty horrendous before this year; the coronavirus outbreak has been the coup de grace.
Across global equity benchmarks the indices are at or testing these March 5/6th-9th gaps. Momentum can see this run a bit more but there are still concerns that economic reality will catch up in the coming months and should there be secondary and tertiary waves of the virus it will see risk assets reverse.
There are many positives for markets to latch on to: Japan ended its nationwide emergency, England will reopen non-essential shops by Jun 15th, whilst Dubai and Hong Kong are easing lockdown measures.
The death rate in the US slowed to a 2-month low but may have been distorted by the Memorial Day holiday weekend seeing fewer cases reported. Germany’s Ifo business survey indicated things might not be as bad as feared. Spain is looking to save its summer holiday season by ending the quarantine of arrivals by July 1st.
There are hopes too on the medical front: Novavax has begun clinical trials of its Covid-19 vaccine, although Japan has postponed approval of the Avigan drug for the treatment of the coronavirus. The WHO has suspended trials of hydroxychloroquine – take note Donald Trump.
Yet there are lots of concerns still for the markets. Singapore lowered its GDP estimate to fall by as much as 7% this year and clearly the optimism being shown in equity markets is at odds with what’s happening on the ground.
Moreover, the situation in Hong Kong needs to be monitored and has the potential to become a lot more dangerous, whilst US-China tensions seem set to get a lot worse as we run into the US presidential election. Secondary and tertiary coronavirus waves are another significant risk to the global economy.
Oil was steady but WTI (Aug) does seem to be running into resistance $35 at the lower end of the gap, which could offer the opportunity for a pullback. Indications that Russia has cut output to 8.5m bpd, complying with its side of the OPEC+ deal, were encouraging. There are signs production cuts are coming through and the key focus will be on the pace of the demand recovery through the summer.
In FX, the euro was moving higher with EURUSD back towards the top of its 2-month range at little above 1.09 despite worries about the Eurozone rescue package. The ‘frugal four’ – Austria, Denmark, the Netherlands, and Sweden – are not playing ball with the French and Germans, putting forward a counterproposal to the ‘Merkon’ €500bn bailout fund.
The four countries said they would not agree to a mutualization of debt, nor an increase in the EU budget. Talks on the EU Budget continue this week but despite the four holdouts, the change of tune by Frau Merkel has completely altered the balance.
GBPUSD was higher in early trade, taking out 1.2250 to move back to 1.2260. The May 19th high just a whisker off 1.23 is the upside target and could open path back to 1.2360.
Michael Gove and Brexit negotiator David Frost will appear before MPs on Wednesday and despite the furore over the PM’s chief adviser, likely toe the Cummings line: the UK is taking a tough line and does not see a reason to budge from this.
Chart: SPX what comes next… leg higher to 3140, or retest 2800? The 200-day simple moving average looks more like a resistance after a 35% run off the March trough. Previously this level has seen rallies run out of steam.