Amplify Weekly Strategy
23rd – 27th July 2018
Main Events This Week
Monday: Limited news, US Existing Home Sales & BoE’s Broadbent Speaking
Tuesday: EU Markit Manufacturing PMI, Markit Services PMI, Markit Composite PMI & API Inventories
Wednesday: GE IFO Business Climate, IFO Expectations & IFO Current Assessment. AU Q2 CPI & DoE Inventories
Thursday: US Durable Goods Orders, ECB Meeting & Press Conference
Friday: US Q2 GDP & Revisions, US University of Michigan Sentiment Index, JP Tokyo July CPI & AU Q2 PPI
Earnings: See Picture Below for releases;
What would the markets be like if Donald Trump wasn’t in charge? What would they be like if he didn’t use twitter? Say what you like about him, but his comments, tweets and interviews move markets and supply the intra-day trader with opportunities to take advantage. Along with his comments on the Dollar being too strong and how he wasn’t too keen on the FED raising rates – weak GBP data and trade war concerns were the main drivers of markets last week.
The Week Ahead
Having had the longest day of the year and going into the last full week of July, focus will be on Earnings with 40% of the S&P 500 reporting by the end of the week. With the stock market on edge following a pick up in trade war rhetoric throughout the middle of last week, it will be interesting to see how earnings impact the direction of the market going into August. Historically, the 8th month of the year averages a decline of -0.27% for the S&P 500 despite having more up years (37) than down (31). However, and perhaps more interesting – is the fact that the Vix over the past two decades sees the biggest increase on average in August (see picture below). This accompanied by a SOMA day on 31st July, whereby the S&P 500 weakens by 0.8% on average could start to get equity markets slightly more jittery should earnings disappoint significantly. Is last week’s high in the Nasdaq going to be the All-Time-High for the remainder of the year? Ask me at the end of the week…..
Picture Above: Nasdaq Futures (Daily Continuation Chart).
As you can see, the Nasdaq has come off it’s High from the 18th and this morning has had a go at breaking a recent upwards trend-line to the downside. It remains to be seen whether we can close the day below and get a test of last week’s low. Trade War talks, or lack of and profit taking were perhaps the main reason for the sell-off into the back end of last week, but the bulls might be counting their lucky stars Tiger Woods didn’t win his first major since 2008. In the months that came after Tiger’s US Open win, saw global equity markets start their heavy decline. After not appearing in this Summer’s Football World Cup, Italy needed some good Sports News, so congratulations Molinari and our Italian readers!
Picture Above: S&P 500 Futures (Daily Continuation Chart).
With 40% of the S&P reporting their earnings this week, it has the potential to push this market significantly higher or lower but of course having now said that, a sideways ranging week might be the most likely! There is interesting support just below where we are currently trading so I would keep an eye on those levels should we come down to test that area. I said last week how I fancied a down week in US Stock Markets after a couple of decent weeks but having closed pretty much where we opened just shows how there is still some indecision about whether we can push on or not to have another go at those All-Time-Highs in the S&P. Alphabet, Amazon & Facebook all reporting this week will be key as the picture below shows just how influential they are! A miss on earnings and we could see the 11th July low very quickly.
As per usual, our focus will be on the EURUSD and GBPUSD but worth noting the movements of the Yen since Friday afternoon. An Exclusive Reuters report about possible policy change along with Trump talking down the Dollar, saw the USDJPY move significantly lower. With Policy not changed since 2016, the market has taken this as Bullish for the Yen with their meeting concluding the two-day event on the 31st of July.
Calendar-highlight-wise, the ECB meeting on Thursday and US GDP on Friday offer the potential to be most market moving. However, it might be the President of the US that influences the direction the most this week. Mnuchin tried to talk down Trump’s comments but the damage may be done – the last two times he went to these lengths to talk about the Dollar it lead to a complete reversal of the strength/weakness of the Dollar. To the upside, the $95 handle on the DXY will be key. For the most part of the week, it looked to be broken to the upside but Trump’s interview with CNBC saw a dramatic reversal across the board.
Keeping things closer to home, Brexit related stories have somewhat quietened down over the last couple of days as Theresa May seems to have ridden yet another storm. GBP data was poor last week which weakened the probability of an August rate hike – whether than in fact that is a good or bad thing remains up for debate. With no real relevant data points out of the UK next week ahead of the BoE’s meeting on August 2nd I would have a bit more focus on the Dollar side of things unless we do get a pick up in Brexit related chat.
Picture Above: EURUSD Futures (Daily Continuation Chart)
Picture Above: GBPUSD Futures (Daily Continuation Chart)
Gold, Oil & Bonds
Is Gold a safe-haven at the moment? Is it a hedge against Inflation at the moment? You’d be hard pushed to really say yes to both of those. We made a new 2018 low last week and only thanks to Donald Trump did we get a brief rally higher off the Doller & FED comments. I do feel we will have a bounce soon in Gold but not just yet. Historically over the last 9 years we have had a ‘Summer’ rally higher at some point so from a more ‘medium-term’ point-of-view I’m interested to see when that might be. 1235.00 area of the Futures will be a key technical level if I am to pull the trigger to get long.
Geopolitical tensions between Iran and the US took a turn for the worse over the weekend as Trump and Rouhani exchanged angry threats. If you haven’t seen them – check them out as they really are quite something. Despite the aggressive tone, Oil remained relatively range-bound – sitting just under $5 from it’s mutli-year high made a couple weeks ago. A big drawdown in Gasoline in Wednesday’s DoE inventories saw Oil finish higher into the close and with reports of Saudi Arabia reducing their exports in August if I had to answer on my favoured direction for the week – it would be to the upside. Of course, a lot can happen in 5 days though!
Bonds are sideways. T-notes and the Bund are plodding along with not too much to report. The 3% yield dramas are behind us for now so focus is elsewhere. The ECB meeting this Thursday and the FED next week could change that but as it stands I would expect the slower paced range kind of market price action to continue.