MAIN EVENTS THIS WEEK

  • Monday: GE Factory Orders, EZ Sentix Investor Confidence, HSBC earnings
  • Tuesday: AU RBA Rate Decision, GE Trade Balance, Industrial Production, FR Trade Balance, UK BRC Shop Price Index, Halifax House Prices, US JOLTs Job Openings, IBD/TIPP Economic Optimism, API Inventories, CA Ivey PMI
  • Wednesday: CN Trade Balance, AU RBA Governor Lowe, US DoE Inventories, 10-yr bond auction UK & US, NZ RBNZ Rate Decision, E.ON earnings
  • Thursday: CN CPI/PPI, Money Supply, New Loans, JN Machine Tool Orders, UK RICS House Price Balance, EU ECB Economic Bulletin, US PPI, Weekly Jobless Claims, Wholesale Inventories (F), 30-yr bond auction, Deutsche Telekom earnings, first round of trade talks between US & Japan
  • Friday: JN GDP (P), PPI, AU RBA Monetary Policy Statement, FR Industrial Production, GDP (P), Trade Balance, Industrial Production, Construction Output, US CPI, Federal Budget Balance, CA Employment Change & Unemployment Rate, Barclays & Lloyds earnings

With the Fed and NFP passed what next for US equities & risk…

The first half of last week saw rather ‘choppy’ trading in the US equity market which was to be expected with major events happening in the second half of the week, including the FOMC rate decision and NFP report. Both evens were in-line with expectations with interest rates left on hold and a reiteration of their commitment to ‘gradual Interest rate rises’.

Turning to the jobs report this was largely a non-event, with the main component of the report being the average hourly earnings printing in-line with expectations. Strong growth with no solid indication of forthcoming inflation is leading to a ‘gold-locks’ scenario in the equity market.

EARNINGS DATA

The second half of the week first saw a down tick in US stocks with an escalation in the US- China trade wars, with Donald Trump’s administration proposing to increase tariffs from the original 10% to 25% on $200 billion of Chinese imports. However, following Apple’s positive earnings reports the equity market rallied with Apple briefly becoming the first company to every be valued at over $1,000,000,000 ($1Trillion!).

Using last week as a guide, the markets have largely priced in the uncertainty surrounding the trade wars and it is becoming evident that investors are focusing on the strong US growth, coupled with a strong earning season helping drive the market higher. Confirmation of the above can be seen due to the limited reaction to China’s retaliation on tariffs on $60 Billion worth of US goods over the weekend.

S&P500 CHART

With US Equity markets within reaching distance at the start of August it would be worth mentioning Sam North’s (our senior mentor) prediction made on twitter on the 1st of June as can be seen here.

SAM TWEET

We now keenly await on what Sam has to say if the above levels were to be tested again this week! You can follow him on twitter via @snorth19.

The US Dollar and global growth…

The US dollar has continued to strengthen with the market having now priced in two more rate hikes this year in September and December respectively. Furthermore, whilst the US economy continues to grow at the fastest rate since Q3 2014 we have seen a slowdown in EU and UK growth with both printing GDP growth rates at 12-month lows. This diverging economic growth is further fuelling the relative strength in the dollar and therefore a continued move lower in major FX pairs looks likely.

GDP DATA

UK GDP

US GDP

USD INDEX

The dollar index this morning is trading at a key handle (95) which loosely defines the top of its range for the past 3 months. A break of the extremity of this range at 95.50 would likely result in an acceleration and be a key trading event this week with major focus being on GBP/USD, Gold and EUR/USD in descending importance.

BoE hike so what next for GBP…

Despite the rate hike, which was fully priced in for Thursday last week, sterling has continued to decline against the dollar. With the end of year insight with no meaningful developments on the Brexit negotiations – investors are becoming increasingly worried about a no deal outcome with Liam Fox, the Trade Secretary, putting the likelihood of this at 60%. This is further fuelling bearish sentiment amid deteriorating UK economic data, with some market pundits now calling for a recession in the UK as early as next year.

Final point of note would be the 9-0 vote split seen last week by members of the MPC. This contrasted with the expected 7-2 rate split which only resulted in a brief move higher in sterling before it continued the decline. Often this is the case if the market has a reason to move higher and it does not this can be a strong bearish indication. Sterling is currently printing lows for 2018.

KEY DATA: UK GDP (Fri) + US CPI (Fri)

CABLE CHART

With QE ending in December this year, the market is looking towards the first-rate hike from the ECB with the conversation focusing on the definition of summer when the ECB has communicated it will be looking to lift rates. Whether this will be in Q2 or Q3 is still to be seen and will be subject to forthcoming data.

KEY DATA: US CPI (Fri)

EUR CHART

Gold remains subject to USD movement…

Gold has continued to act poorly as a safe haven asset and largely being weighed upon due to the strengthening dollar. Given the US equities are on the front foot coupled with continued dollar strength, supports a bearish environment for gold to continue its trend lower. A market to keep an eye on for trend confirmation and continuation would be the treasury market – with yields still elevated around the 3% level, the market will be looking out for the US CPI numbers due this Friday, a reading at or above expectation will likely continue to support yields and weigh on gold.

YIELD MOVEMENT

GOLD CHART

KEY DATA: US CPI (Fri)

Saudi and supply…

Oil continues to hold on to majority of the gains made from Q2 2017 onwards with the market currently 50 cents below the $70 per barrel mark. Prices have seen a leg higher this morning following Saudi Arabia curbing their production to offset potentially lower demand due to the trade dispute between China and US. The market is seeing this move as a clear sign that Saudi Arabia will actively look to defend oil prices around current prices.

This is significant as the US has been putting pressure on Saudi Arabia to pump more oil to offset the decrease in supply due to the recently imposed Iranian sanctions. With Donald trump wishing for oil prices to go lower and Saudi Arabia indicating they are comfortable with where prices currently are, trades will be paying close attention from any comments out of OPEC to determine market direction.

KEY DATA: API’s (Tue) + DOE (Wed)

CLE CHART

The strategy report this week was written by Amplify analyst Saif Ali.

 

 

Anthony Cheung
Anthony is a leading market commentator with over a decade of experience accumulated as Head of Market Analysis at a leading news and analysis organisation, and now a Director of Amplify Trading.