GoPro turns bullish on upward revision of Q3 2020 view

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Peter’s Stock Market Blog

Peter’s View of the financial markets

Financial Market Commentary May 31st 2020

June 1, 2020

For a PDF version of the below commentary please click here Weekly Letter 5-31-2020

Commentary quick take:

  • Market statistics:
    • US markets were positive last week
    • Equity markets rallied on Fed speeches
    • Earnings season drew to a close
    • VIX moved lower, pushing ever closer to the lowest point so far this year
  • US Federal Reserve remained the focal point of the market last week:
    • 10 speeches by Fed officials were given last week
    • Chair Yellen uttered the word “Probably” at Harvard
    • Chance of a near term rate hike increased
  • Global news effecting markets was mostly negative:
    • Greece passed austerity measures and thought it unlocked bailout funds
    • IMF threw a wrench into Greece’s plans
    • G7 meeting concluded with little being done
    • Venezuela looks to be headed for political change
  • Technical market view:
    • All three indexes are at the high end of their recent trading range
    • VIX is making a run at the lowest point that we have seen in 2020
  • Hybrid investments strategy update:
    • Defensive
  • Economic news releases:
    • Last week the economic news releases were in line with market expectations
    • GDP grew a little faster than first estimates
    • Nothing in the numbers indicated to delay increasing interest rates
  • This week for the markets:
    • OPEC meeting
    • Continued Fed speculation
    • First “summer” trading week of 2020
  • Interesting Fact: “Poor” Venezuela has more reserves than “Oil Rich” Saudi Arabia

Major theme of the markets last week: Did she say, “PROBABLY”?

Hedgeye released the great cartoon above over the weekend and it really depicts exactly what the US and global financial markets were focused on last week—the US Federal Reserve. This is not a new topic that the markets are focused on, but once again it appears that we could be on the verge of another rate hike in the coming months, so it is all that financial pundits and economists are talking about. The biggest news last week came from Fed Chair Yellen at a question and answer session she held at Harvard University when she said the word “Probably.” The single word seemed to spread very quickly despite many people on Wall Street having already shutdown for the long holiday weekend.

US news impacting the financial markets:

Going into a holiday weekend last week the markets seemed to lack a general news story other than the potential Federal Reserve rate hike on the horizon, as has been the go-to story during slow times many times over the past year. During the week last week there were a total of 10 speeches given by Fed officials around the country, all of which towed the same lines and reiterated what was seen in the statement from the last week as well as the meeting minutes published two weeks ago. While the Fed remains data dependent it now looks like it will likely raise rates at either the June or the July meeting, baring the data reversing course and signaling that waiting may be more prudent. This was very clear late in the day on Friday when Chair Yellen spoke for the first time in two months as she did a question and answer session at Harvard University late in the day. During the Q&A session she said the following when asked about the timing of the next rate hike: “It’s appropriate, and I’ve said this in the past I think, for the Fed to gradually and cautiously increase our overnight interest rate over time, and probably in the coming months such a move would be appropriate.” The fixed income markets immediately jumped on a new word that she used: “probably.” Most of the time she is much more vague about her timing of when she thinks rates may be increasing, but by throwing in the word probably she made it sound like it will happen very soon. The reaction in the fixed income market was the most noticeable as the 4-year treasury increased by about 4 percent in a matter of seconds following the sentence, but the other areas of the fixed income markets and the broad equity markets seemed to take the statement in stride and continued to move as they had been moving prior to the Q&A session.

One other indicator that can be watched to see if chair Yellen had any impact is the Fed Watch data out of the CME. The table to the right shows the CME Fed Watch data for the odds of a rate hike increased over the course of the previous week. This time last week there was only a 26 percent chance of a rate hike at the June meeting and a 53 percent chance of a hike at the July meeting. Now the odds of a June hike have jumped to 32 percent and the July meeting now has odds of a 61 percent chance of a rate hike at the meeting. Earlier in the week one of the Fed officials giving a speech said he wanted the markets to be pricing in a higher probability of a rate hike this year; in looking at the current numbers he seems to have gotten his way. This coming week, while shortened for the Memorial Day holiday, will play a big role in the upcoming Fed decision, as there are a number of key economic news releases that could sway its thinking. These are explored in greater detail below in the economic news releases section.

Earnings season for the first quarter of 2020 drew to a close last week as we have now seen more than 98 percent of the companies in the S&P 500 report their results. Below is a table of the well-known companies that released earnings last week with earnings that missed expectations highlighted in red, while earnings that beat expectations by more than 10 percent are highlighted in green:

Abercrombie & Fitch -18% Dollar Tree 11% Seadrill Ltd -32%
Best Buy 26% DSW -13% Sears 50%
Big Lots 15% Express -7% Splunk -16%
Bristow Group -73% GUESS? -21% Tiffany & Co -6%
Costco Wholesale 2% Intuit 8% Toll Brothers 6%
Dollar General 10% Sanderson Farms 36% Williams-Sonoma 6%

Last week the focus of the earnings results was on the retail sector and the divergence in performance between both the high-end and lower-end retail companies. The higher-end retailers continued to show a large amount of weakness as companies like Guess, Express, Tiffany & Co and Abercrombie & Fitch all posted results that were significantly below market expectations. Discount retailers, however, had a good quarter as Big Lots, Dollar General and Dollar Tree all posted gains that were 10 percent above expectations or more. Oil driller Seadrill posted a weaker than anticipated quarter, despite the slight upward movement in the price of oil to end the quarter, as the rig count utilization remains low and the average billing for the days the rigs are in use continued to be under pressure.

Overall, according to Factset the first quarter of 2020 figures saw mixed results as they compare to historical numbers. When looking at revenues per share, the first quarter looks strong as the 72 percent of companies meeting or beating expectations is higher than both the 1-year average of 69 percent meeting or beating expectations and the five-year average of 67 percent meeting or beating expectations. When looking at revenues, however, the picture is a little less rosy as the 53 percent of companies beating revenues expectations is above the one-year average level of 50 percent, but below the five year average of 56 percent of companies beating expectations. Looking forward, there have been 111 companies that have issued forward guidance with 80 of them having issued negative guidance, while 31 have issued positive guidance for the next quarter and the rest of the year. Overall expectations for the second quarter of 2020 are for earnings to continue to decline for the S&P 500, but at a slower rate than they declined during the first quarter of the year.

Global news impacting the markets:

Global news flow was low last week compared to a typical week as there was not much economic data released around the world for the media to parse through and try to conjure up reports. Greece made a few headlines as the country passed its latest round of austerity measures needed to secure the next in what is surely many installments of money from the Europeans. That occurred during the middle of the week last week and everything seemed good and well, but then the IMF released a report that was very critical of the creditors of Greece and how they have put nothing concrete about debt restructuring into writing. With no such details having been written down, the IMF is threatening to withdraw its support of providing bailout funds to Greece. This was much unexpected as the IMF has always just gone along with whatever the rest of the Europeans and other creditors hammer out. If the IMF were to actually fully withdraw support of the Greek bailout it would add even more pressure to the Europeans and especially Germany to make up the difference in funding, something the Germans would be reluctant to do, both out of principal and actual means to do so.

In other news last week, the G7 concluded a meeting in Japan, which was called for the leaders of the nations to discuss what they could to in the future to get the global economy growing faster. As with many of the G7 meetings, there was a lot of talk from various members, but in the end there was nothing agreed to other than that the countries need to try harder to achieve growth. Japanese PM Shinzo Abe was pushing during the entire meeting for other countries to embark on further rounds of stimulus-oriented economic packages. But the calls seemed to fall on deaf ears as Japan really is in a unique situation with the failing economy and the needed measures in Japan to right the ship are certainly not needed in the majority of the rest of the world. One country that needs even more help than Japan, but is even more unlikely to receive any help, is Venezuela as the government looks to be headed quickly to its downfall.

Venezuela has been in economic troubles since before the price of oil started to decline, but the falling price of oil only exacerbated the situation. President Maduro (he took over office after Huge Chavez passed away in 2020) is starting to have a very difficult time keeping the unrest from starting to lash out at the government. There are hour long ques that start early in the morning around the country for the basic necessities and the government is seeing prices run away to the upside with some projections putting the annual rate of inflation in the country during 2020 at more than 700 percent, after being the highest in the world last year with prices increasing by more than 250 percent. The value of the local currency is almost worthless and is becoming more expensive in terms of the cost for the ink than the dollar bills being printed are worth. Unrest in Venezuela could have long reaching impacts on the oil market as it is one of the most oil rich countries in world in terms of proven oil reserves. After a political revolution, oil could once against start flowing from the country onto the world market, adding to the already oversupplied oil markets around the world.

Technical market review:

After enjoying the strong upward move last week, all three of the broad US indexes now are in the very upper end of the trading ranges that have been in place for the last two months. The charts below show each of the three major indexes, plus the VIX, drawn with green lines. The red lines on the three major indexes depict the closest resistance levels, as represented by points that have been tested on each index several times in the last 6 months. The blue lines represent the closest level of support for each of the indexes, established by points that in the past the markets have touched prior to bouncing higher. For the VIX, the red line remains the rolling 52-week average level of the VIX.

At this point all three of the indexes are virtually tied in terms of short term technical strength with all three indexes taking on their resistance levels. If we see the indexes manage to break through their resistance level it would be a positive development for the indexes and could signal further upward movements. But if the indexes hit the resistance level like they did on Friday last week and proceed to bounce off the level to the downside we could be in for a few percentage points decline as the closest downside support level is indicated by the blue lines above. While the equity indexes were pushing upward last week, the VIX was moving in the opposite direction and pushing down near the lowest point that we have seen so far in 2020. The low point is 13.10 and on Friday last week the VIX closed at 13.12 just 2 hundredths above the low point. As mentioned above, it seems like the VIX is entirely too low currently given the many geopolitical risks that are present.

Market Statistics: Last week a strong positive move for the US indexes as the market seemed to take the possibility of a rate hike in June or July in stride:

Index Change Volume
NASDAQ 3.44% Below Average
S&P 500 2.28% Below Average
Dow 2.13% Way Below Average

Volume was low during the first part of the trading week last week, but picked up as the economic data and several Fed speeches made it seem highly possible that interest rates could be increasing at either of the next two Fed meetings. Going into the long holiday weekend volume tapered off on Friday after enjoying a small bump higher as Fed Chair Yellen was speaking late in the day.

When looking at sectors, the following were the top 5 and bottom 5 performers over the course of the previous week:

Top 5 Sectors Change Bottom 5 Sectors Change
Semiconductors 5.49% Infrastructure 0.76%
Biotechnology 4.55% Global Real Estate 0.79%
Broker Dealers 3.76% Aerospace & Defense 1.14%
Home Construction 3.60% Materials 1.21%
Financial Services 3.31% Utilities 1.25%

Semiconductors and biotechnology were the high flying sectors of the market last week, each gaining more than four and a half percent as investors favored risky sectors of the market over less risky sectors. The more defensive sectors of the market were the lowest performers of the week last week as Infrastructure, Real Estate and Utilities all turned in positive, but low, numbers for the week.

Fixed income markets were mixed as bond traders and investors alike adjusted their positioning to all of the rhetoric coming out from the Fed about when it may or may not increase interest rates in the near future:

Fixed Income Change
Long (20+ years) -0.23%
Middle (7-10 years) -0.03%
Short (less than 1 year) -0.01%
TIPS 0.19%

Currency trading volume was average last week as traders pushed up the value of the US dollar by 0.41 percent against a basket of foreign currencies, as the dollar made it three weeks in a row of gains. The best performance of the global currencies was seen with the British Pound as it gained 0.85 percent against the value of the US dollar, thanks to the latest polls showing more people favoring staying in the EU than wanting to leave. The weakest of the major global currencies last week was the Euro as it declined by 0.98 percent against the value of the US dollar, thanks to continued uncertainty over the bailout funds to Greece with the IMF throwing a wrench into plans, as discussed above.

Commodities were mixed over the course of the previous week as Gold and Silver moved lower as the other commodities pushed higher:

Metals Change Commodities Change
Gold -3.42% Oil 1.96%
Silver -1.91% Livestock 0.17%
Copper 3.25% Grains 3.31%
Agriculture 1.37%

The overall Goldman Sachs Commodity Index advanced by 1.23 percent last week as Oil increased 1.96 percent, making it three weeks in a row for oil gaining with last week seeing the $50 per barrel price point being broken to the upside. Oil was also helped by a few strikes in key oil producing countries in the Middle East last week, but in general oil has been on a nice path to recovery over the past several weeks. The major metals were mixed last week with Gold declining 3.42 percent and Silver falling 1.91 percent as the safe haven aspects of the two metals was less in demand. The more industrially used Copper advanced 3.25 percent on the hopes that the global economy will continue to plod along its very slow upward path. Soft commodities were strong last week with Agriculture overall gaining 1.37 percent, while livestock gained 0.17 percent and grains were the standout performer of the group, adding 3.31 percent over the course of the week.

Last week was a positive week for all of the global equity markets except for one, which posted a very small decline. The best performing index last week was found in India, and was the SENSEX 30 Index, which turned in a gain of 5.2 percent as the economy in India continues to ride high on the political moves of Prime Minister Modi. The worst (only negative) performing index last week was found in China, and was the Shanghai Se Composite Index, which turned in a loss of 0.2 percent as China continues to post poor economic indicators about the health of its overall economy.

After seeing three previous weeks of very low VIX movements, last week the VIX moved by a much larger percentage, but the move was still very small when compared to what we used to see on a weekly basis a year ago. Last week the VIX moved lower by 13.68 percent, ending the week almost exactly at the lowest point seen so far during 2020. The VIX still seems like it is a bit too complacent given the possibility of a rate hike at one of the next two meetings of the Fed and the slow global growth, which we just can’t seem to shake. The current reading of 13.12 implies that a move of 3.79 percent is likely to occur over the next 30 days. As always, the direction of the move is unknown.

For the trading week ending on 5/27/2020, returns in the hybrid hypothetical models* (net of a 1% annual management fee) were as follows:

Last Week 2020 YTD Since 6/30/2020
Aggressive Model 0.78 % 1.13 % 5.45 %
Aggressive Benchmark 2.05 % 0.85 % -4.28 %
Growth Model 0.78 % 1.20 % 4.56 %
Growth Benchmark 1.59 % 0.76 % -3.16 %
Moderate Model 0.71 % 1.21 % 3.95 %
Moderate Benchmark 1.14 % 0.61 % -2.11 %
Income Model 0.66 % 1.59 % 4.24 %
Income Benchmark 0.57 % 0.40 % -0.89 %
S&P 500 2.28 % 2.70 % 1.74 %

*Model performance does not represent any specific account performance but rather a model of holdings based on risk levels that are like my actual holdings, the hypothetical models are rebalanced daily to model targets.

Over the course of the previous week there were no changes in the hybrid model allocations; the models are still defensively positioned. As the markets have moved up now to the top of their most recent trading ranges there will likely be some adjustment made in the models based on whether the markets break out to the upside or bounce downward. Healthcare is one sector of the market that we are looking very closely at for a possible first step on an investment. The other major area of the market being closely evaluated are Midcap value stocks, which have a very favorable risk and reward ratio in the currently market environment.

Economic Release Calendar: Last week was a slow week for economic news releases in terms of number of releases with the data overall coming in slightly above market expectations. There was one release that significantly beat market expectations (highlighted in green below) and none that significantly missed market expectations:

Economic Impact Date Economic News Release Date Range Actual Expectation
Neutral 5/24/2020 New Home Sales April 2020 619K 521K
Positive 5/26/2020 Durable Orders April 2020 3.40% 0.60%
Neutral 5/26/2020 Durable Orders, ex-transportation April 2020 0.40% 0.50%
Positive 5/26/2020 Pending Home Sales April 2020 5.10% 0.60%
Slightly Negative 5/27/2020 GDP – Second Estimate Q1 2020 0.80% 0.90%
Neutral 5/27/2020 University of Michigan Consumer Sentiment May 2020 94.7 95.5

Data for table from Econoday.com, Bloomberg and Yahoo Finance

Last week the economic news releases started on Tuesday with the release of new home sales for the month of April, which came in almost 100,000 units higher than was anticipated, indicating that the housing market here in the US is likely to continue to push higher during the 2020 selling season, which is now officially under way. On Thursday the durable goods orders for the month of April were released with overall orders increasing by 3.4 percent, which was much higher than the expected 0.6 percent. However, the positive news on durable goods orders was somewhat dampened with the release of durable orders excluding transportation, which were shown to have increased by only 0.4 percent, very slightly below the expected 0.5 percent growth reading. With many cars, planes and other transportation equipment selling well there might be a little bump to the economy in terms of GDP, but it is unlikely, meaning we are still growing painfully slow here in the US. This very slow rate of growth was confirmed on Friday when the government released its second estimate for GDP growth here in the US and showed an upward revision from 0.5 percent (first estimate) up to 0.8 percent now for the first quarter of 2020. This is still anemic growth by almost all standards, but at least it is growth! Wrapping up the week last week was the University of Michigan releasing its latest reading on its consumer sentiment index for the month of May, which showed consumer sentiment decreasing slightly, but still staying relatively high.

This week is a busy week for economic news releases with the focus being on the US employment situation as a full week of releases is crammed into a shortened trading week:

Date Release Release Range Market Expectation
5/31/2020 Personal Income April 2020 0.40%
5/31/2020 Personal Spending April 2020 0.70%
5/31/2020 PCE Prices – Core April 2020 0.20%
5/31/2020 Case-Shiller 20-city Index May 2020 5.10%
5/31/2020 Chicago PMI May 2020 50.9
5/31/2020 Consumer Confidence May 2020 96.2
6/1/2020 ISM Index May 2020 50.4
6/2/2020 ADP Employment Change May 2020 180K
6/3/2020 Nonfarm Payrolls May 2020 155K
6/3/2020 Nonfarm Private Payrolls May 2020 160K
6/3/2020 Unemployment Rate May 2020 4.90%
6/3/2020 ISM Services May 2020 55.4

Data for table from Econoday.com, Bloomberg and Yahoo Finance

On Tuesday personal income and spending are both released for the month of April and both are expected to come in at less than one percent growth during the month. As is typically the case, personal spending will likely be more important to the market than income. However, the markets will likely have other data points to evaluate on Tuesday that could have more of an impact. PCE prices will be closely watched on Tuesday as expectations are for a 0.2 percent reading, which would signal that inflation is running well below the Fed’s target of 2 percent. This release will be one of the factors the Fed will likely look at while decided when to increase interest rates. The Chicago PMI for the month of May is also due out on Tuesday and is expected to print something perilously close to 50. Any reading under 50 indicates a contraction in manufacturing activity, which would be a bad sign, but not an unusual sign since we have already seen several contractionary prints on other manufacturing indicators. Consumer Confidence is the final release of the day on Tuesday and it is expected to be little changed during the month of May when compared to April; thus leading to little market impact. On Wednesday there is a single release, but it could have big impacts on the Fed’s thinking as manufacturing is a key part of the US economy. The ISM index for the month of May is expected to show a reading of 50.4, but this seems a little too high given the sub-50 prints that we have seen almost across the board on other manufacturing data points for the month of May. If we see this release come in below 50 it could give the Fed enough reason to pause on increasing rates at the June meeting and put the next hike more likely at the July meeting. This would also be convenient since it would fall after the Brexit vote in June, which is another wild card that could move the global financial markets and probably not something the Fed wants to step right in front of with a rate hike in June. Friday is a big day for Fed data to be evaluated. The US government releases its latest employment figures in terms of labor force participation, wage growth, payrolls data and the overall unemployment rate in the US. If there are no surprises, either positive or negative, in any of these releases the Fed will likely see no change in the labor market and therefore it will likely be strong enough for a rate hike. If a few of these labor related indicators show weakness it could present a bit more of a puzzle to the Fed as to when to start increasing rates. Wrapping up the week this week is the release of the Services side of the ISM for the month of May, which is expected to post a reading of 55.4, indicating a healthy growth rate in the services sector of the US economy. In addition to the above mentioned economic news releases there are also six more speeches by Fed officials this week that the market will undoubtedly be listening to very closely.

Interesting Fact — “Poor” Venezuela has more reserves than “Oil Rich” Saudi Arabia

Venezuela has the largest proven oil reserves in the world at nearly 300 billion barrels of oil in the ground, more than 10% more oil than Saudi Arabia.

Peter’s Financial Market Commentary February 8th 2020

February 8, 2020

For a PDF version of the below commentary please click here Weekly Letter 2-8-2020

Commentary at a glance:

– So much for a sustained rally in the markets; they were clobbered last week.

– With Iowa behind them, presidential hopefuls move on to New Hampshire.

– Fourth quarter earnings results deteriorated slightly last week here in the US.

– Chinese New Year celebrations this week have the main Chinese stock market closed all week.

– Economic news releases last week were very negative, painting a concerning picture.

Market Wrap-Up: Last week was a rough week for the US and global stock markets as investors seemed to be selling a wide variety of assets in favor of sitting in cash on the sidelines. The main driving force of the week was anticipation surrounding the US Federal Reserve’s interest rate decisions over the coming 11 months as the Fed weighs the strength of the labor markets as well as price stability and many other factors in its decision making process. The charts below show each of the three major indexes, plus the VIX, drawn with green lines. The charts this week include the closest levels of support to the downside to indicate where support for each of the indexes could lay in the near future (these levels are drawn with red horizontal lines). For the VIX, the red line remains the rolling 52-week average level of the VIX.

This week I adjusted the starting date on the above charts from 6/30/2020 to 9/30/2020 so it is easier to see what has been happening recently in the markets. I left the support level in the same spots they have been for the past few weeks. From a technical perspective, the NASDAQ (lower left pane above) is clearly the worst of the three major US indexes as it broke down below its most recent support level by a significant amount. It is now in an area that has very little support until you look way back on the charts. In fact, you would have to look back all of the way to October 20 th of 2020 to find a closing price for the NASDAQ that is at or below the current level. Much of the decline in the NASDAQ over the past week was driven by a few high profile earnings results that, while they may have not been dismal in their earnings numbers for the fourth quarter of 2020, held some very negative comments about the future earnings expectations. The S&P 500 takes the middle position in terms of technical strength after looking at the performance of the last week and the Dow is in the lead. One other positive aspect of the Dow is that there have already been a significant number of component companies that have released their earnings results for the fourth quarter of 2020, meaning there is less chance of a downside surprise. One curious part of the week last week, in terms of charts and numbers, was the movement of the VIX (lower right pane above).

Typically, during a week that turns out to be so negative, the VIX (fear gauge for the markets) moves in much bigger movements relative to the markets than we saw last week. If the markets are down 5 percent plus, like the NASDAQ was last week, the VIX historically should have spiked upward by more than 30 percent. However, last week the VIX only moved up by 16 percent. This divergence from normal in the relationship between the VIX and the markets most likely means there was not a signal factor that pushed the markets lower last week and that the events that pushed the markets lower were one-off events. The VIX is very good at predicting volatility in areas where there are large dislocations, such as a dislocation in the Chinese economy hitting the global financial markets. This type of macro risk to the global economy is very quickly accounted for by the VIX as traders around the world adjust their positions very quickly and thus move the VIX. With moves completely unknown, events like single company earnings results pushing the entire markets around, the VIX does not have time to move; it is a predictive indicator, not a reactive indicator and the VIX does not predict one off events.

Going forward, the markets will likely continue to be very volatile as the underlying problems that have caused the recent volatility are not likely to go away any time soon. “Is the US headed for a recession?” is a question I received a few times last week. No, I don’t think the US is currently headed into a recession. A bear market for the stock market, potentially, but not highly likely. At least it’s not likely to be a sustained bear market; maybe more of a bull market pullback. There are too many positive developments in the US economy for a full blown recession to start at this point, especially when you consider that much of the drag on the economy and corporate earnings is driven by the decline that we have seen in oil prices. Remember that pull backs in the markets are healthy and normal. What is not normal is going for extended periods of time without a pullback of at least 10 percent, which we achieved for years in the three major indexes until July and August of last year.

National News: National news last week focused on politics and earnings season, in addition to the wild movements we saw in the US financial markets. As we draw closer and closer to the Presidential election, politics will play a bigger and bigger part in the news media and potentially on the financial markets. Last week, Iowa became the first state in the country to cast their vote for who should get the nomination in both the Republican and Democratic races. The Democratic side of the night was much closer than anyone had thought as Bernie Sanders pulled out a virtual tie with Hillary Clinton, with the decision going to Clinton by just 0.2% of the vote. The Republican side of the aisle was also interesting as Donald Trump, who came into the event riding a nice lead, was easily beaten by Ted Cruz and almost fell all of the way to third after Marco Rubio had an unexpectedly strong evening. Seeing that Trump was not as strong as he was thought to be emboldened some of the Republican candidates who went on the offensive in New Hampshire (the next state to cast their votes; Tuesday evening). For his part, Trump took the loss better than many people had expected, only calling out voter fraud for a few days and then moving on to the next battle ground where he holds an even bigger lead. The markets did not react to the results of the Iowa primary, but they do seem to be watching the Democratic ticket very closely with fear that if Sanders gets the nomination he could try to make some sweeping changes to the investment world as he tries to even the playing field between the wealthy and the poor. While the political shenanigans flowed freely last week, so too did the corporate earnings results as the fourth quarter 2020 earnings season continued to move forward.

Last week was a busy week for earnings releases. Below is a table of the well-known companies that released earnings last week with earnings that missed expectations highlighted in red, while earnings that beat expectations by more than 10 percent are highlighted in green:

ADT 7% Comcast -1% Marsh & McLennan 1%
Aetna 14% ConocoPhillips -41% Metlife -10%
Aflac 5% Dow Chemical 33% News -5%
Allstate 20% Dunkin’ Brands 4% Occidental Petroleum -21%
Alphabet 6% Estee Lauder 12% Pfizer 2%
AmerisourceBergen 2% Exxon Mobil 5% Piper Jaffray 94%
Aptargroup 5% General Motors 12% Post Holdings 108%
Archer Daniels Midland -6% Gilead Sciences 12% Ralph Lauren 8%
Arrow Electronics 7% GoPro -75% Rent-A-Center 4%
Arthur J Gallagher 5% Hain Celestial 6% Sally Beauty 19%
Buffalo Wild Wings -10% Hanesbrands -4% Sysco 17%
Callaway Golf 8% Hillenbrand -7% Tyson Foods 33%
Cardinal Health 4% Jones Lang LaSalle -7% Waddell & Reed 0%
Chipotle Mexican Grill 17% Level 3 0% Wynn Resorts pushed
Church & Dwight 0% LinkedIn 0% Yahoo! -60%
Clorox 9% ManpowerGroup 10% Yum! Brands 3%

There were a few surprises in the results of corporate America last week as several companies saw much worse than anticipated results. GoPro is a prime example of such results after the company announced that sales had slowed down a lot on its newest model camera. Integrated oil companies also made some negative headlines last week as ConocoPhillips and Occidental Petroleum both missed earning expectations, while Exxon bucked the trend and beat expectations (though they lowered their expectations so much that it was easy to jump over such a low bar). One home town favorite that beat expectations, despite having a very difficult fourth quarter, was Chipotle, as the outbreaks of various food poisoning incidents took a big bite out of their earnings for the quarter, but the damage was better than had been anticipated.

According to Factset Research, we have seen 315 (63 percent) of the S&P 500 companies release their results for the fourth quarter of 2020. Of the 315 that have released, 70 percent have met or beaten earnings estimates, while 30 percent have fallen short of expectations. When looking at revenue of the companies that have reported, 48 percent of the companies have beaten estimates, while 52 percent have fallen short. The earnings per share number fell by about 2 percent with the releases last week as earnings, especially from the oil and gas companies, continue to negatively impact the overall index. The markets have been especially brutal to technology companies that just made this quarter’s earnings estimates, but guided lower their expectations of the future. There is no larger example of this than the LinkedIn trading that occurred on Friday. On Friday, LinkedIn was down nearly 44 percent after the company lowered guidance for 2020 and announced that it was moving around some business units. The company literally saw more than $12 billion in market cap wiped away in just a matter of minutes. According to Factset so far, there have been 71 companies that have released forward guidance for 2020 and of those 71 companies 57 have issued negative guidance, while only 14 have issued positive guidance.

This week is a big week for earnings season as 65 more component companies of the S&P 500 release their earnings results for the fourth quarter. With so many component companies releasing earnings this week and a large number having already done so, this week will go a long way toward solidifying the overall figures for the percentage of companies beating and missing expectations. The table below shows the companies that have the greatest potential to move the markets highlighted in green:

Avon Products Humana Red Robin Gourmet Burgers
Bristow Group Kellogg Tesla Motors
CenturyLink LendingClub Time
Cisco Systems Loews Time Warner
Coca-Cola Molson Coors Brewing Twitter
CVS Health O’Reilly Automotive Walt Disney
Expedia Owens & Minor Wendys
Flowers Foods Pandora Media Western Union
Goodyear Tire & Rubber Panera Bread Whole Foods Market
Groupon PepsiCo World Wrestling Entertainment
Hasbro Prudential Financial Zillow Group

The big announcements this week will be consumer facing companies, both in the dining as well as the entertainment industries. Walt Disney will be closely watched to see how much of an impact the lead up to Star Wars being released had on its bottom line as well as park performance around the world. Tesla will be watched to see if it can stay on its lofty growth projections, even after sales of the Tesla SUV have been slightly weaker than anticipated. After what happened to LinkedIn last week, some investors will be closely watching Twitter for signs of upcoming weakness and will likely punish the stock accordingly if any weakness is shown. The last of the earnings that could move the markets are the two big beverage makers of the world, Coca-Cola and Pepsi. Both release their earnings this week. Watch for earnings to move in the same direction, with both either beating or missing expectations.

International News: International news last week held nothing new of note as the global financial markets seemed much more concerned about what was going on in the US than anywhere else. In addition to watching the US markets, the international markets seemed to be very keenly watching the oil market, and OPEC in particular, for any signs that it may be having an emergency production meeting at which several members of OPEC would likely be pushing for drastic production cuts in an attempt to boost oil prices. The final story the global markets took note of last week was the launch of a satellite by North Korea, an action that was directly in violation of several UN resolutions. This launch increased the tension between North and South Korea as well as Japan and the rest of the international community; but the launch was not a surprise and North Korea knows the rest of the world will not take any further action than is being currently taking just because of a rocket launch.

This week, however, could be a very interesting week as the ECB is scheduled to hold a meeting on Thursday at which interest rates and monetary policy will be discussed and any action taken by the ECB will be decided upon. With such uncertainty in the European markets, low inflation rates, high unemployment rates and uncertainty over the future refugee situation; it is hard to imagine that the ECB will not take some kind of action at this week’s meeting in an attempt to get Europe onto more sure footing. This week will likely not be very interesting in many parts of Asia as the lunar New Year celebrations are taking place in many different countries. China, for instance, has its financial markets closed all week in celebration and it is unlikely that there will be much if any new information about the health of the Chinese economy during the celebrations. China will likely be hoping that the year of the monkey will turn out to be much better than the annus horribilis that 2020 turned out to be.

Market Statistics: After enjoying positive performance for the previous two weeks, the three major US indexes moved notably lower last week, giving up most if not all of the recent gains:

Index Change Volume
Dow -1.59% Above Average
S&P 500 -3.10% Above Average
NASDAQ -5.44% Above Average

Volume remained above the 52-week average level, but much of this was derived from a few key earnings announcements and the markets ensuing movements within those specific stocks. While volume was above the one year average volume levels on all three of the indexes, volume was lower last week than it had been during the past 4 weeks, which means there was less participation in this downward move of the markets than in the previous upwards moves.

When looking at sectors, the following were the top 5 and bottom 5 performers over the course of the previous week:

Top 5 Sectors Change Bottom 5 Sectors Change
Basic Materials 4.13% Oil & Gas Exploration -9.00%
Utilities 2.39% Software -8.43%
Transportation 0.63% Semiconductors -6.32%
Telecommunications 0.10% Technology -6.25%
Infrastructure -0.28% Home Construction -5.51%

Despite the large declines seen in many of the sectors last week, there were four sectors of the markets that managed to pull out positive performance for the week. Basic materials led the way higher after having been one of the worst performing sectors thus far in 2020; the move seemed like a relief rally more than anything else. The remaining three sectors that saw positive performance last week were the classic defensive sectors of the markets: Utilities, Transportation and Telecommunications. Seeing these sectors having the top performance lends even more weight to the theory that last week was purely a risk-off rebalancing week for the financial markets. On the negative side of performance last week, Oil and Gas Exploration was (not surprisingly) the worst performing sector as the price of oil came back down to about $30 to close out the week. Three technology sectors were the next hardest hit last week, thanks in large part of earnings results; Software, Semiconductors and Technology in general all declined by more than 6 percent for the week. Turning in the fifth worst performance last week was the Home Construction sector as uncertainty in the overall economy and the US financial markets appears to be spilling over into the US housing market a little.

The fixed income market acted as one would expect last week, moving higher as demand for the perceived safety of fixed income investments pushed prices higher and yields lower:

Fixed Income Change
Long (20+ years) 1.31%
Middle (7-10 years) 0.73%
Short (less than 1 year) 0.00%
TIPS -0.01%

After seeing the yield push below 2 percent on the 10-year bond last week, it seems the yield could continue to push lower as prices and demand for the safety of government bonds increases. Currency trading volume was a little higher than normal last week, leading into the week-long Chinese New Year holiday, which is taking place this week. The US dollar had a very rough week last week, falling by 2.67 percent against a basket of foreign currencies, with much of the declines coming on decreased chances for a Fed rate hike during 2020. This week, the best and worst currency movements are exactly the opposite of what we saw last week. The best performing currency last week of the major currencies was the Japanese Yen, which gained 3.49 percent against the value of the US dollar, thanks to announcements by the BOJ of new actions being considered to try to improve the Japanese economy. The worst performing (only one to lose value versus the US dollar last week) currency of the major currencies last week was the Australian dollar, as it declined by 0.05 percent against the value of the US dollar. The decline in the Australian dollar last week was not a result of movements in the precious and industrial metals markets as those all pushed higher.

Commodities were mixed over the course of the previous week, as oil pushed lower and metals moved higher:

Metals Change Commodities Change
Gold 5.02% Oil -7.67%
Silver 5.52% Livestock 0.16%
Copper 1.44% Grains -1.99%
Agriculture -0.35%

The overall Goldman Sachs Commodity Index declined by 3.64 percent last week, thanks to a large decline in the price of oil more than offsetting some nice gains in other commodities. Oil prices declined 7.67 percent, taking back half of the positive gains we saw over the previous two weeks last week. The major metals were all higher last week as investors fled toward safety with Gold gaining 5.02 percent for the week, while Silver increased 5.52 percent and Copper went up 1.44 percent. The movements in the Gold market last week also plays into the risk-off trade seen in other sectors and investments last week. Soft commodities were mixed last week with Livestock gaining 0.16 percent, while Grains declined 1.99 percent and Agriculture overall moved lower by 0.35 percent.

With such large declines in the UD last week it was not surprising to see that there were only 4 indexes globally last week that turned in positive gains for the week. The best performing index last week was found in Indonesia and was the Jakarta Composite Index, which turned in a gain of 4.0 percent for the week. The worst performing index last week was found in Italy and was the Milano Italia Borsa Index, which turned in a loss of 7.5 percent as fears over many of the large banking institutions in Italy being in financial trouble seemed to scare investors.

After pushing lower two weeks ago, the VIX reversed course and moved higher last week, gaining back more than it gave up two weeks ago. Overall for the week, the VIX advanced by 15.89 percent, as investors fled the markets on fears that the US economy may be weaker than anticipated. As the markets adjust to various earnings announcements and the uncertainty over the US Fed rate decisions and growth from China, the VIX will likely remain very volatile. The current reading of 23.41 implies that a move of 6.76 percent is likely to occur over the next 30 days. As always, the direction of the move is unknown.

For the trading week ending on 2/5/2020, returns in my hypothetical models* (net of a 1% annual management fee) were as follows:

Last Week 2020 YTD Since 6/30/2020
Aggressive Model -0.32 % -2.07 % 1.98 %
Aggressive Benchmark -2.03 % -7.41 % -12.12 %
Growth Model -0.48 % -1.81 % 1.43 %
Growth Benchmark -1.58 % -5.78 % -9.44 %
Moderate Model -0.57 % -1.04 % 1.63 %
Moderate Benchmark -1.11 % -4.16 % -6.73 %
Income Model -0.49 % -0.12 % 2.47 %
Income Benchmark -0.55 % -2.06 % -3.32 %
S&P 500 -3.10 % -8.02 % -8.87 %

*Model performance does not represent any specific account performance but rather a model of holdings based on risk levels that are like my actual holdings, the hypothetical models are rebalanced daily to model targets.

I made no changes to my models over the course of the previous week as I was defensively positioned going into the week and stayed defensively positioned throughout the week. During weeks of extreme market movements, especially to the downside, it is not uncommon for my models to drastically outperform. This is due to the defensive nature of many of the core equity positions I hold in all models. In addition to the defensive nature of the individual stock holdings in the models, I also currently have a hedging position in my model that goes up when the markets go down in an attempt to offset some of the overall risk in the models. While currently being defensively positioned in all models, I am evaluating when and what to purchase when the market does turn around. Many areas of the markets I have been patiently watching for many months have become even cheaper than they were just a few short months or weeks ago. The areas I am most interested in remain Oil and Gas as well as Transportation.

Economic News: Last week the economic news releases were all about employment and the US consumer and the numbers that came out were not positive. There were four releases that significantly missed market expectations (highlighted in red below) and none that significantly beat market expectations:

Economic Impact Date Economic News Release Date Range Actual Expectation
Neutral 2/1/2020 Personal Income December 2020 0.30% 0.20%
Negative 2/1/2020 Personal Spending December 2020 0.00% 0.20%
Neutral 2/1/2020 Core PCE Prices December 2020 0.00% 0.10%
Slightly Negative 2/1/2020 ISM Index January 2020 48.2 48.3
Neutral 2/3/2020 ADP Employment Change January 2020 205K 190K
Slightly Negative 2/3/2020 ISM Services January 2020 53.5 55
Neutral 2/4/2020 Initial Claims Previous Week 285K 275K
Neutral 2/4/2020 Continuing Claims Previous Week 2255K 2253K
Negative 2/4/2020 Factory Orders December 2020 -2.90% -2.60%
Negative 2/5/2020 Nonfarm Payrolls January 2020 151K 188K
Negative 2/5/2020 Nonfarm Private Payrolls January 2020 158K 183K
Neutral 2/5/2020 Unemployment Rate January 2020 4.90% 5.00%

Data for table from Econoday.com, Bloomberg and Yahoo Finance

Last week the economic news releases started out on Monday with the release of personal income and spending for the month of December. Personal income came in very close to expectations, showing a gain of 0.3 percent, while personal spending missed expectations, posting a zero change while the market had been expecting a gain of 0.2 percent. No growth in consumer spending is a negative development for the overall health of the economy as the US consumer is a very large percentage of the overall economy. Also released on Monday was the latest reading for the ISM index, which posted a reading of 48.2, which was in line with expectations, but still means that manufacturing overall in the US during the month of January contracted, something we had been seeing out many different regions prior to the release, so it was not very surprising when the contraction was actually released. On Wednesday the ADP employment change figure for the month of January was released and showed that 205,000 jobs had been added during the month, slightly ahead of the expected 190,000. Overall, this release did not differ from expectations enough to cause anyone to change their estimates for the employment figures set to be released later during the week. Later during the day on Wednesday the services side of the ISM was released and it too was below market expectations, but still managed to post a reading over 50, which means there was expansion in the services sector during the month of January in the US. On Thursday, the standard weekly unemployment related figures for the previous week were released with both initial and continuing jobless claims coming in slightly higher than was anticipated, but not enough to cause alarm in the markets. Later during the day on Thursday the factory orders figure for the month of December was released with a decline of 2.9 percent being posted. This decline is now the second month in a row of declines on the indicator as it declined 0.2 percent during the month of December. Factory orders declining is typically a precursor for the economy hitting a slow spot as companies order fewer products from the factories out of precaution for a slowdown potentially coming. Friday was all about employment and the report was mixed. Overall unemployment in the US declined from 5 percent in December down to 4.9 percent in January. The labor force participation rate ticked up one tenth of a percent to 62.7 from 62.6 and we saw wage growth of 0.5 percent during the month (the fastest wage growth that we have seen in a long time). Those previous items were the positive aspects of the releases. The negative aspects of the release were found in the payroll numbers as non-farm public and private payrolls were shown to miss expectations greatly. You may remember that the December payroll numbers were nothing short of great as public payrolls registered 262,000 new jobs and private payrolls racked up 251,000 jobs. January, however was not so kind, with only 151,000 public payroll jobs having been created and only 158,000 private payroll jobs having been created. Both of these numbers are very low and do not even cover the number of new entrants into the job market. Overall, these employment numbers sent a bit of a mixed signal to the market as to how the Fed would look at the employment data. Ultimately, the markets seem to price in that these new data points would not alter the Fed’s thinking on when to increase rates again, but the expected rate hike odds had already been lowered substantially earlier during the week, as mentioned above in the national news section.

After last week held so much negative economic news releases, this week should provide a bit of a breather. The releases that could impact the overall markets the most are highlighted below in green:

Date Release Release Range Market Expectation
2/9/2020 Wholesale Inventories December 2020 0.00%
2/11/2020 Continuing Claims Previous Week 2250K
2/11/2020 Initial Claims Previous Week 280K
2/12/2020 Retail Sales January 2020 0.20%
2/12/2020 Retail Sales ex-auto January 2020 0.00%
2/12/2020 University of Michigan Consumer Sentiment Index February 2020 92.7

Data for table from Econoday.com, Bloomberg and Yahoo Finance

This week the economic news releases start on Tuesday with the release of the wholesale inventories figure for the month of December, which is expected to post no change during the month. If this figure comes true it would actually be a slight improvement over the November reading when wholesale inventories were shown to have declined by three tenths of a percent. On Thursday the standard weekly unemployment related figures for the previous week are set to be released with little change expected in either initial or continuing jobless claims. Friday is the big day this week in terms of releases that could impact the overall markets with retail sales for the month of January being set to be released as well as the University of Michigan’s Consumer sentiment Index for the month of February (first estimate). Retail sales are expected to post a gain of 0.2 percent overall during the month of January, which is a notable improvement over the December reading that indicated a decline of 0.1 percent in overall retail sales. Retail sales excluding auto sales, however, are expected to post no change during the month of January, meaning they stayed at the relatively low levels we saw in December. These two readings were somewhat confirmed last week when we saw the poor consumer spending figures come out about the month of December, a trend that likely carried over into January as well. If we see two months in a row of declines, either in overall retail sales or retail sales excluding auto sales, it would be a bad precursor for the US economy moving forward as it would imply that consumers are not confident in the future of the economy. This confidence is also going to be quantified for us on Friday when the University of Michigan releases its first estimate of consumer sentiment for the month of February. Expectations for the release are for no change over the level seen at the end of January, but this indicator can be volatile at times, so anything between 90 and 94 is reasonably possible. In addition to the scheduled economic news releases this week, the market will likely be paying very close attention to Fed Chair Yellen as she speaks before both houses on Congress at her twice per year economic update session on Capitol Hill. While it is unlikely any new information will be released during these sessions, the markets will be looking for any clues as to what the Fed will be doing with interest rates later this year. Right now the markets are predicting that there is a less than 30 percent chance that the Fed can manage to get even one interest rate hike in this year, which is a far cry from the scheduled four increases expected by the Fed late last year for 2020.

Fun fact of the weekNumber 18 (Peyton Manning) led the way to a victory in Super Bowl 50

Frank Tripucka’s number 18 was retired, but Peyton Manning gained Frank’s approval to have it re-issued when he signed with the Denver Broncos in 2020. Tripucka ranked as the first quarterback in Denver history and he completed the first TD throw in American Football League history in 1960.

Source: The Football Database

2020 Year in Review and Fourth Quarter 2020 Review

January 5, 2020

For a PDF version of the below commentary please click here Full Year and Fourth Quarter 2020 in Review

2020 Wrap Up: Continually climbing the wall of worry is the best way to describe the US financial markets during 2020 as the markets had to contend with and ultimately overcome reactions to unfolding events and resulting headlines, both here in the US and abroad. We started 2020 with 23 of the first 27 trading days seeing the VIX above the 17 level, which was a very volatile start given the relative calm in 2020. This volatility continued throughout the year as one “crisis” situation or another popped up, ultimately fading away as the markets lost interest in the various situations. One such situation that appears to have been played out, at least for this current round, is the situation in Europe and Greece in particular.

Greece has been in financial trouble since the global downturn of 2008, after which countries not competitive in the global economy have struggled to regain lost footing. This somewhat came to a head in 2020 as Greece—already on life support from the European Central Bank (ECB)—was literally bailed out by Germany and the ECB as new loans were approved, despite protests in many countries such as Germany. These new loans were approved even after the citizens of Greece officially voted “No” on the bailout package. The bailout package was eventually approved after a snap election was called for in Greece, but in its final form was actually a worse deal for the people of Greece. This left many international investment professionals scratching their heads as to why Greece would reject a fair, but tough, deal in exchange for a bad deal, all within a two weeks time. While Greece managed to unlock bailout funds throughout the year, the rest of Europe was not performing very well and forced the ECB to finally put its money where its mouth is.

The ECB has for a long time said it would stand behind Europe, supporting struggling countries, the EU as a whole and the Euro (for countries utilizing the Euro as their currency). In May, the ECB launched a new quantitative easing program that allowed the central bank to buy debt of countries and companies in order to provide both liquidity and stability. This program was tweaked in the third and fourth quarter; additional funds were added to the program and the options for what can be purchased continued to increase. The program the ECB is currently running will run until at least 2020 and will likely end up costing the ECB hundreds of millions of Euros to fund. The real question is, “Will it work?” So far, it does appear that the actions of the ECB have temporarily stopped the wild swings we have seen out of Europe, but is this really just a Band-Aid on an injury that requires a tourniquet? We will have to wait and see.

As Europe seemed to be coming under control during the middle of 2020, China was coming unglued as fears about the Chinese economy caused volatility that had not been seen in the Chinese markets since 2008. Growth in China for 2020 is expected to come in near 7.5 percent when looking and GDP, which is significantly slower than the 10 plus percent China had been growing at for the better part of a decade. This slowdown was felt throughout the global economy as Chinese demand for raw materials was very evident when looking at countries such as Australia. The Chinese financial markets had a very rough year in 2020 as investors went from feeling euphoric in the first half of the year to fearful that the main Chinese exchange may fall to zero in the third quarter of the year. The chart below shows just how volatile the Shanghai Se Composite Index was during 2020 as the index was up more than 50 percent to start the year before tumbling by nearly 50 percent in just a single quarter. In the volatility of the markets we learned a few key things about China. First, the government is willing to step in and try to manipulate its financial markets. Second, China is not very good and manipulating its financial markets, learning on the fly what the government should and shouldn’t say or do to try to appease investors. Ultimately, the government in China will force growth in its economy and at the same time will likely to continue to cause bubbles in many asset classes. This is the way China has operated for years and there is no reason to think the country will act differently at this point. One feather in China’s cap during 2020 is that the IMF officially named the Chinese Yuan as a reserve currency of the world (despite objection from the US), something China had been vying for over many years.

Oil was another major story line of 2020 as the nearly 50 percent decline we saw in oil during 2020 was almost identically repeated in 2020 as oil once again came tumbling down to prices not seen in more than a decade. As you can see in the chart to the right, oil started moving in a sideways manner for the first half of 2020, just like it did in 2020, only to see the price of oil fall off a cliff in the second half of the year. Throughout 2020 there was a global oversupply of oil. Some thought OPEC would cut production at either of its two meetings of the year, but this was not to be the case. Saudi Arabia made it very clear that it wants the price of oil to remain low as it tries to protect and gain market share from other higher cost oil drillers and oil drilling countries such as Iran, Russia and Venezuela. So far, the actions of OPEC have caused some pain in the US oil drilling market, but with many rigs being laid down, it is hard to tell if the damage is permanent or temporary. As oil prices came down, so did many of the oil companies and their earnings. Energy alone accounted for more than 25 percent of the decline in earnings expectations that we saw during 2020 for the S&P 500, which goes to show that the S&P really did have a significant weighting toward oil prior to 2020. The weighting is now a bit less than it was.

The final major story line of 2020 was the US Federal Reserve finally taking the first step toward normalizing interest rates here in the US. After speculating for the entire year as to when Chair Yellen would finally increase interest rates, the markets’ uncertainty was alleviated. At the last possible meeting of the year, the Fed increased the rate by 0.25 percent. The chart below from Moneycafe shows the Fed Funds rate over the past 10 years:

You can see just how minuscule of a move the quarter point rate hike was. More importantly, it is the first step in what is anticipated to be a series of steps by the Fed as it attempts to normalize interest rates. Now the question for 2020 becomes, “Will the Fed continue to hike rates or will we find ourselves in a one-and-done situation where the data turns out to not be strong enough to signal that further rate hikes are warranted?”

2020 Outlook: 2020 will be a volatile year. There are several situations around the world that will likely come to a head during the year. Oil will continue to be a major driver of global financial performance as the Saudis look set to drive oil prices as low as they can at the expense of others. Analysts’ expectations range from $15 per barrel on the low end all of the way up to $50 per barrel by year-end. With such a wide range almost anything could happen. One significant risk to the upside for oil is continued unrest in the Middle East as IS and other terrorist organizations continue to gain footing in the region, leading to a lot of geopolitical uncertainty in the heart of global oil production. At some point it seems lower oil prices should have a trickle-down effect on consumer spending as spending can be increased in other areas as the price to fill up on gas goes down; but this has been the expectation for more than a year now and so far we have yet to see any increase in consumer spending as a result of falling oil prices. It seems consumers are saving their fuel savings, which is good for them, but not positive for the overall US economy. Aside from oil, China looks like it will be a major headline maker during 2020 as the government in China tries to pick up growth in China to get back to double digit GDP growth as fast as it can.

The Chinese government will likely continue to take new and bold steps to try to build its economy. The most obvious way to do so is to build and build a lot of everything. Large scale infrastructure spending is highly likely, as is large scale spending on technology, with both geared toward the continual transformation of China from an export driven economy to an internal consumption economy. If China becomes less dependent on the world for growth and more dependent on itself, it will achieve the illusion of more control over its economy. China will achieve relatively strong growth in 2020 or it will fail miserably in its attempts. The ripple effects, as we have seen in 2020, can and will be felt around the world as China is such a large and important player in the global economy. The third major story line for 2020 will be the US fixed income market and the US Federal Reserve, which have a lot in common.

With US Fed Chair Yellen increasing interest rates at the December meeting in 2020, it opens up the possibility of further rate increases in 2020. Much like this first rate hike, however, Chair Yellen seems to be in no hurry to increase rates further. At her press conference following the rate hike announcement she continued to reiterate that the Fed will be data dependent going forward to determine the timing of rate hikes. The data she is looking at currently looks like it will stay weak for a long time; especially inflation, which does not appear to be picking up at all as the price of oil and gasoline continue to decline. The labor market is already near long-run full employment, so if we could get a little wage inflation to occur during 2020 and see the unemployment number decline by maybe half of a percent, this half of the Fed’s dual mandate would be fulfilled.

It is now time for the fun part of this review: the outlook prediction for how 2020 should turn out for the US financial markets, if history repeats itself. The following analysis is based strictly on the historical movements of the three major indexes given certain situations playing out in 2020. I provide a table of the assumptions and variables being considered and then the average corresponding returns for each of the indexes based on those assumptions and variables being true:

Assumption Variable Dow S&P 500 NASDAQ
10 Year Yield Increasing 10 Year Rate Change 6.98% 8.36% 11.43%
Presidential Election Year Election Cycle 3.58% 6.47% 5.83%
GDP between 2% and 3% GDP 11.05% 9.30% 30.70%
Years that end with 6 Years ending in 6 11.01% 10.91% 16.42%
Year after Mixed Returns Market Previous Change 6.60% 6.82% 9.82%
Between 4.0% and 5% Unemployment Rate 6.84% 0.60% 11.48%
Long run average Long Run Average 8.14% 8.52% 12.17%
Total Average 7.74% 7.28% 13.98%

I start my analysis on the fixed income side of life, looking at the directional move in the US 10-year bond yield. My assumption is that bond yields will be moving higher over 2020, largely due to the US Fed wanting to ultimately further increase interest rates. The second item I looked at was 2020 being a Presidential election year. The third point I looked at was GDP and years during which GDP grew by between 2 and 3 percent. The latest projections from the US Federal Reserve as well as other institutions such as the World Bank and the IMF largely fall within this range. I want to point out that the NASDAQ data is a little skewed for this GDP assumption as there have only been three times when this series of variables have occurred, with one being after the tech bubble and one being 2009, both of which were huge positive years. The fourth scenario I looked at was a very simple scenario where I pulled all of the previous years that ended in “6” (I have some reservations about using this data set in my analysis since it only has a handful of data points). The fifth set of data I looked at was what happens to the various indexes after each index’s performance the previous year, with the change from 2020 on each of the indexes being the trigger level in the analysis. The sixth indicator I looked at was the overall rate of unemployment in the US, which I estimated would be between 4 and 5 percent at year-end for 2020. The final data set that I looked at was all of the historical years for each of the indexes and what the average return has been. All of the data was analyzed using the full time series of data on the three major indexes. The data went back to 1930 for the Dow, to 1958 for the S&P 500 and to 1972 for the NASDAQ.

What does all of this boil down to? To answer that question I took the average of all of the expectations and came up with a final number on each of the indexes. I was surprised at how bullish the numbers look. For the Dow, this analysis is expecting a return of 7.74 percent for the year with a range between 5.11 and 10.38 percent. For the S&P 500, this analysis is expecting a return of 7.28 percent with a range of 3.98 to 10.59 percent. For the NASDAQ, this analysis is expecting a return of 13.98 percent with a range of 5.97 to 21.99 percent. I am personally a little less bullish on 2020 than the historical numbers. I think this year will be a hard year for investments with the gains coming from the least likely of spots and likely coming fast and furious when they do come. My numbers for the year are between 3 and 5 percent growth on the major indexes.

Have a great 2020!

Peter Johnson
Fourth Quarter 2020 in Review: The fourth quarter of 2020 was all about two topics that were the topic of discussion for the majority of 2020: the US Fed rate hike and the continued slide in oil. At the last possible meeting of 2020, Fed Chair Yellen finally increased interest rates for the first time in nine long years and, in doing so, officially achieved lift-off for the Fed. The global financial markets had been anticipating the Fed’s move and when it was actually announced the global financial markets seemed to take it in stride, which is likely the best outcome that anyone at the Fed could have wanted. There was no immediate decline in the emerging markets, as many analysts had predicted, nor did the US fixed income market react violently. Some of the calm was likely due to the passing of the uncertainty of the first rate hike. The financial markets greatly dislike uncertainty and with the first rate hike now behind us, this is one less thing investors have to be anxious about. Potentially the larger story of the fourth quarter was the drop in the price of oil.

Oil has been on the decline now for the better part of 18 months as prices continue to slide around the world. This decline accelerated during the fourth quarter after a key announcement from the semiannual OPEC production meeting. The chart to the right shows the price of oil from December 7 th through the end of the month. December 7 th is important because it was the day of the meeting at which OPEC essentially said that each county can pump as much oil as it would like, doing away with the pumping ceiling that had been in place for years. As you can see on the right, oil immediately fell by more than 10 percent, declining to an 11-year low. The move within the OPEC cartel was orchestrated by Saudi Arabia, which has a large stock pile of cash from decades of selling high priced oil around the world as well as some of the cheapest oil production costs of any country in the world. It can afford to have low priced oil for a long time as competitors are forced out of the market. Other countries are not as lucky. Iran, Venezuela and Russia will likely be the hardest hit by the ultra-low price of oil. We have already seen a lot of political unrest due to the price of oil in Venezuela and slowly we will likely see more and more unrest out of Iran and potentially even Russia if the Saudis keep the oil war going.

Overall, during the fourth quarter of 2020 the financial markets moved higher, recovering some of the losses that mounted during the third quarter of 2020. But with much uncertainty remaining in the markets, the gains were somewhat capped as the three major US indexes remained range bound for the majority of the quarter.

Full Year 2020 in numbers:

The following is a numerical representation of 2020. I will start with the three major US indexes and the VIX, which turned in performance as follows:

Index 2020
NASDAQ 5.73 %
S&P 500 -0.73 %
Dow -2.23 %
VIX -5.16 %

When looking at the numbers for the three major indexes for all of 2020, there is very little that stands out. Turning in declines for the year, both the S&P 500 and Dow broke a record run of six consecutive years of positive performance for the indexes. The VIX had a few spikes during the year, but overall it ended up being one of the more tame years for the VIX that we have seen in the past 10 years.

Globally, the top three performing indexes for 2020 were:

Country Index 2020
France CAC-40 Index 10.9%
Germany DAX Index 9.6%
China Shanghai Se Composite Index 9.4%

The two-speed economy of Europe was very prevalent during 2020 as the top two performing indexes globally came out of Europe, while other countries within Europe struggled through difficult economic times. China made it to third place on the list, despite a very wild year in which the Shanghai SE Composite Index increased by more than 50 percent during the first half of the year only to decline by more than 40 percent over the course of the second half of the year as the government in China undertook many actions in an attempt to keep the economy in China growing.

Globally, the bottom three performing indexes for 2020 were:

Country Index 2020
Malaysia KLC Index -20.3%
Canada Toronto Stock Exchange -11.1%
Hong Kong Hang Seng Index -7.5%

The poorest performing indexes globally were indexes that either represented countries that were heavily dependent on China’s economy or heavily dependent on natural resources. Malaysia turned in the worst performance of the year with its main KLC Index declining more than 20 percent after tourism took a big hit following recent airline disasters. Canada came in at the second worst position, falling more than 11 percent, as the price of oil declining was not offset throughout the year by other mining of natural resources such as gold and silver. Hong Kong made it into the third spot of top decliners of 2020 as its economy was hurt by the slowdown in China.

For those of you who follow and are interested in the style box performance of various investments throughout the year, below is the standard style box performance for 2020:

Style / Market Cap Value Blend Growth
Large Cap -3.29% 1.30% 5.37%
Mid Cap -6.71% -2.33% 1.91%
Small Cap -6.90% -2.07% 2.70%

2020 was an interesting year when looking at the style box performance as there was a drastic difference between growth and value across all three different market caps; there was a more than 8.5 percent difference between value and growth at each market cap level.

The following table gives the performances for the top-performing sectors for 2020:

Sector Change
Software 12.12%
Biotechnology 11.56%
Residential Real Estate 11.37%
Medical Devices 9.69%
Pharmaceuticals 8.83%

With the NASDAQ being the best performing of the three major indexes it was not surprising to see that the top two performing sectors for 2020 are technology focused, those being Software and Biotechnology. Residential Real Estate being third on the list was nice to see as real estate is one of the most far reaching areas of the US economy and provides the most Americans with the feeling of growing wealth. High technology in both Medical Devices and Pharmaceuticals also turned in strong performance during 2020, thanks in large part to a high number of mergers and acquisitions within the sectors.

The bottom-performing sectors for 2020 were as follows:

Sector Change
Commodities -34.06%
Oil & Gas Exploration -24.59%
Natural Resources -24.56%
Energy -22.18%
Transportation -16.91%

The drastic declines seen in the price of oil took down Commodities overall as well as almost all energy related industries during 2020. The downturn does not look like it will be slowing down any time soon. Transportation also made the list of poor performing sectors during 2020. This is a little concerning as transportation is typically a leading indicator for the overall health of the US economy. With it being decidedly negative, it could spell trouble on the horizon for the US economy.

Commodities continued to see very volatile trading throughout 2020. Returns were as follows:

Commodities Change
GSCI Commodity Index -34.06%
Gold -10.67%
Silver -12.42%
Copper -27.44%
Oil -45.97%

Oil started the year in a slide from the second half of 2020 and never looked back during 2020. In fact, oil declined 45.97 percent during 2020, after declining by 42.36 percent during 2020—it is a little strange to see how close these two declines are. Gold and Silver both lost some of their luster leading up to the US Fed taking action and both failed to gain after the announcement. Overall, the Commodity index was hit hard for the second year in a row, thanks to the fall in oil.

With 2020 looking like the year the Fed would increase rates and the Fed delivering the rate hike in December, the US fixed income market changed very little during the course of the year:

Fixed Income Change
Long (20+ years) -1.79%
Middle (7-10 years) 1.51%
Short (less than 1 year) 0.00%
TIPS -1.75%

There was a lot of posturing early on in 2020 in the fixed income market, but as the year moved forward and it became common thought that the US Fed would raise rates closer to the end of the year, bond trading picked up and made up the losses seen during the first part of the year. TIPS and high yield bonds had a particularly difficult year as inflation remained low and defaults increased in some of the highest risk bond holdings, as several energy companies struggled to service some of their debts.

Fourth Quarter 2020 Numbers:

The following is a numerical representation of the fourth quarter of 2020. I will start with the three major US indexes and the VIX, which turned in performance as follows:

Index 4th Quarter 2020
VIX -25.67%
NASDAQ 8.38%
Dow 7.00%
S&P 500 6.45%

After starting the fourth quarter of 2020 near the bottom of the 10 percent decline that occurred on the three major indexes in the US during 2020, it was not surprising to see that the rally that ensued was strong. The Volatility we had seen during the third quarter of 2020 vanished during the 4 th as the VIX fell by more than 25 percent while the indexes advanced.

Globally, the top three performing indexes for fourth quarter of 2020 were:

Country Index 4 th Quarter 2020
China Shanghai Se Composite Index 15.9%
Germany DAX Index 11.2%
Japan Nikkei 225 9.5%

Much like the US indexes recovering from large losses seen during the third quarter, the main Chinese stock market, the Shanghai Se Composite Index, snapped back after falling more than 40 percent and turned in a strong gain of nearly 16 percent during the fourth quarter of 2020. Germany saw strong growth despite the emission scandal that has landed VW in hot water around the world. Japan managed to grab the third best performing spot for the fourth quarter as the government in Japan continues to throw money at its economy in hopes that something will work and turn around an economy that has experienced anemic growth for more than the last 20 years.

Globally, the bottom three performing indexes for fourth quarter of 2020 were:

Country Index 4 th Quarter 2020
Canada Toronto Stock Exchange -2.3%
India India Bombay Se SENSEX -0.2%
UK FTSE 100 3.0%

There were only two major global indexes to turn in declines during the fourth quarter of 2020 and those were the main Canadian index, the Toronto Stock Exchange (TSE); and the main Indian index, the Bombay based Se SENSEX. The TSE moved lower as the price of oil slid by more than 25 percent during the quarter and much of the Canadian economy is dependent on the oil business. The Indian market declined, but only slightly as tensions increased between the country and some of its neighbors. In the UK, the FTSE 100 turned in the third worst performance of any of the global indexes during the fourth quarter as investors seemed to shy away from the country as the Central Bank looked set to follow in the footsteps of the US Federal Reserve and increase interest rates early during 2020.

For those of you who follow and are interested in the style box performance of various investments throughout the quarter, below is the standard style box performance for fourth quarter 2020:

Style / Market Cap Value Blend Growth
Large Cap 6.05% 7.02% 7.88%
Mid Cap 2.20% 2.48% 2.83%
Small Cap 3.65% 3.78% 3.88%

The style box performance of the fourth quarter of 2020 is a little puzzling as both large caps and small caps outperformed the mid caps. Typically you see either large caps or small caps underperform and mid caps are in the middle, but this was not the case during the quarter. The out performance of growth over value is something that has been persistent for much of 2020, with the fourth quarter being no different.

The following table gives the performances for the best sectors for the fourth quarter of 2020:

Sector Change
Biotechnology 11.55%
Medical Devices 11.02%
Pharmaceuticals 10.64%
Technology 10.62%
Semiconductors 10.52%

With the NASDAQ turning in such strong performance for the quarter it was not surprising to see that the top five performing sectors were heavy in technology. Biotechnology successfully jumped from being one of the bottom five sectors during the third quarter to the top performing sector for the fourth—a reversal that is not typically seen so quickly. Merger and acquisition announcements prior to the US Fed increasing interest rates was one of the driving factors that helped boost many of the above listed sectors.

The bottom-performing sectors for the fourth quarter of 2020 were as follows:

Sector Change
Oil & Gas Exploration -4.07%
Transportation -3.38%
Infrastructure -3.02%
Natural Resources -1.95%
Global Real Estate -1.18%

Not surprising with the drastic decline in the price of oil was seeing the Oil and Gas Exploration sector topping the list of poor performing sectors of the markets. Energy, however, did not make the list as many of the large integrated energy companies pulled through the fourth quarter with relatively good performance (-0.59 percent) after being repeatedly in the bottom five sectors when looking at recent quarterly results. As I mentioned above in the annual figures, the transportation sector being in the bottom 5 performing sectors is not a good sign for the overall US economy.

Commodities continued to see very volatile trading throughout the fourth quarter of 2020. Returns were as follows:

Commodities Change
GSCI Commodity Index -16.69%
Gold -5.05%
Silver -4.90%
Copper -10.11%
Oil -25.07%

Oil saw more than half of the full 2020 decline happen during the fourth quarter as the oversupply of oil and the falling demand from China seemed to be a one-two punch that oil could not recover from. Precious metals all moved lower over the course of the fourth quarter as investors worried about global demand and the uncertainty over future monetary actions taken in places like China and Japan.

With the US Fed finally increasing interest rates during the fourth quarter it was not surprising to see that fixed income investment pushed lower over the course of the quarter:

Fixed Income Change
Long (20+ years) -1.57%
Middle (7-10 years) -1.51%
Short (less than 1 year) -0.05%
TIPS -0.86%

When interest rates increase the underlying value of fixed income investments typically declines, with the largest declines being seen on the longest maturity bonds. This was exactly what occurred during the fourth quarter of 2020 and will likely continue in 2020 as the Fed continues to increase interest rates. Fixed income investment could surprise many investors during 2020 and it doesn’t look like the surprise will be a positive one.

Peter’s Financial Market Commentary December 28th 2020

December 28, 2020

For a PDF version of the below commentary click here Weekly Letter 12-28-2020

Commentary at a glance:

– Positive week last week, but very little volume.

– Holiday shopping season numbers are starting to roll in.

– Oil finally had a strong positive week of performance.

– VIX moved notably lower last week, closing below the 52-week average.

– Economic news last week came in below market expectations.

Market Wrap-Up: Last week was cut short with the Christmas Holiday for the US markets and several other markets around the world. Volume was very light, as expected, but the markets turned in a nice positive week as oil rallied off of 11 year lows. Some of the positive movement in the markets could have been due to investors repositioning for the start of 2020, in what looks like a potential Santa rally that could run through the end of the year and well into January. It looks like the low volume seen last week will persist these final days of trading in 2020 and the markets will likely continue to chop around within their respective trading ranges. The charts below show each of the three major indexes, plus the VIX, drawn with green lines. The charts this week include the most recent trading range for each of the indexes, a range that has been in place for more than two months. These support (lower lines) and resistance (upper lines) levels are the approximate high and low points reached over the past three months. For the VIX, the red line remains the rolling 52-week average level of the VIX:

As you can see in the charts above, last week saw all three of the major US indexes start the week at or below the lower bound of their respective trading ranges and then proceed to move up to around the middle of each of their trading ranges. There is currently no differentiation between the three major indexes in terms of which index is the strongest and which is the weakest. While this may sound good on the surface, we are starting to see a troubling technical pattern on the three major indexes.

The charts above show each of the three major US indexes for the month of December. Drawn on the charts with a series of blue and red arrows are the various peaks and troughs we have seen during December; the peaks are denoted with blue arrows and the troughs are denoted with red arrows. In technical language, we have seen a “series of lower highs and lower lows,” which means the markets have been moving down over the time frame, chopping back and forth. With each chop, the previous high has not been reached and the previous low has been broken. Having now been repeated three times on each of the three indexes, this pattern technically shows that the markets are likely to continue to push lower with a lot of chopping. Much of the volatility we have been seeing in the market after the Fed meeting has been due to the large moves in the price of oil that seem to be occurring on a nearly daily basis. When oil moves upward the financial markets seem to rally; when it moves down the indexes move down. Oil is one of the only exciting story lines right now in the markets since the Fed has raised rates and does not look to be in a hurry to do so again. We are in what is typically a slow time of the year for investments. Moving forward, it looks like the choppy markets we have seen for the past few months will continue into the first part of 2020.

National News: National news last week focused on holiday sales and the new Star Wars movie, which is the topic of the fun fact of the week at the end of this commentary. With many regular market makers, money managers and traders taking last week off, it was not surprising to see that the national news pertaining to the financial markets was pretty light. The first of the major retail spending reports that came out is the SpendingPulse report that MasterCard released this past weekend. The numbers, according to the report, show that overall spending increased slightly less than 8 percent from Black Friday through Christmas Eve when compared to a year ago. This figure, however, includes all spending and not just holiday shopping spending. When look at just holiday shopping data, according to the national retail Federation, they are expecting to see an increase of 3.7 percent, up to about $630 billion on holiday spending between November and December. The items that saw the largest percentage increases this year were furniture and women’s clothing. We do not yet know if the holiday shopping season was good for retailers, as many retailers offered big discounts on items in order to compete with online shopping outlets. So while the volume may have been relatively high, retailers may have had to cut into their margins a bit. These numbers will be coming out during the fourth quarter earnings season, which gets under way in just two short weeks. Online holiday shopping sales increased by 20 percent this year, the largest percentage increase we have seen in years, with many purchases having been made using mobile devices. Amazon seems to be the big winner in online sales this year as more than 3 million people signed up for Amazon Prime accounts during the month of December alone and quickly took advantage of the free two-day shipping and in some cities even the 2-hour shipping option. FedEx appears to be one of the early losers of the holiday season as it had difficulties getting all of the last minute holiday packages to their destinations on time, despite increasing staff and accounting for the higher volume than usual. UPS released a statement saying it saw no major issues this year with getting packages to consumers on time, which is a stark contrast to the mess it had a few years ago when many thousands of packages were delayed due to inclement weather on the east coast. Star Wars was the other hot topic of the week last week and it could have a very noticeable impact on one of the Dow 30 component companies, Disney.

Walt Disney currently owns the rights to Lucas Films and all of the Star Wars Empire, so with a blockbuster movie release on its hands it seems the company should get some pop from Wall Street after having such a successful release. Just how successful has the latest installment of Star Wars been? The film grossed over $1 billion in ticket sales in just the first 12 days after its release (fastest film to $1 billion ever) and the film has not yet been released in countries such as China where there will be many more tickets sold when it is released early in January. The film also saw the highest opening weekend total, the highest Christmas Day sales and a large variety of other records. The knock-on effects from such a large movie will be seen in the coming quarter as all of the memorabilia and toys from the latest movie go on sale at major retail outlets around the country. The direct impact to Disney is yet to be seen, but with a market cap of more than $175 billion, it will take more than just a mega blockbuster hit to move the company.

International News: Japan and Spain made a few headlines last week that could have longer term impacts on the global financial markets. The news out of Japan was not great, as the latest economic data released by the Bank of Japan (BOJ) showed that prices were flat (up 0.1percent), meaning almost no inflation, and that household spending continued to decline, as it has now for more than 6 months in a row. Weak consumer spending is the biggest concern going forward and may be enough to cause the government to announce more stimulus measures in the near future to try to keep the economy headed in the correct direction. One thing that did lift the spirits of many investors in Japan is the numbers that came out last week about the 2020 Summer Olympic Games that will be held in Tokyo. Expectations are for about $350 billion in economic gains for the Japanese economy from hosting the Olympic Games. The real questions now become whether Japan can get to the 2020 games without a financial crisis and what the government will need to spend between now and 2020 to get Japan ready to host the games. In most cases, the Olympics are not money making events as the costs are high to design and build the various venues, which are so large that they will rarely, if ever, be used to capacity in the future by the host country. Brazil is currently in the throes of Olympic spending for the 2020 Summer Games and is at odds with many of the country’s poorest residents as those residents see the government spending billions on the games, while cutting back on its already meager spending for the residents. One thing that hosting the Olympics in Japan will likely do is increase the employment market in Japan, if only temporarily, as construction and infrastructure spending starts to ramp up for 2020. Spain was the other country that made a few notable headlines last week as the Catalonia region continues to be the poster child of a dysfunctional government in Europe.

You may remember that Catalonia voted a few months ago to secede from Spain and form its own country as the citizens of Catalonia feel the monetary benefits received from Spain are not proportionate to their percentage contribution to the overall Spanish economy. A parliament election was held in Madrid two weekends ago. With no party winning a clear majority, the provisional government was given one week to form a coalition government that would control the Spanish Parliament for the next two years. That deadline came and went over the weekend and the current ruling party (the People’s Party) failed to find enough coalition members to form a new government. The lynch pin in the election is Catalonia, which held up the formation of a new government by managing to get enough politicians on its side in the national election to force the issue of what to do with Catalonia. Both sides are watching closely and if neither side bows out of the fight, yet another election will have to be held in Spain. This could have a noticeable impact on the global financial markets as Spain has many of the same problems as other European countries. In Germany, for instance, there is a large political movement calling for Germany to focus on Germany and not save the weaker countries of Europe, such as Greece. We have been seeing support for these types of movements gaining steam over the past few years and we are finally starting to see the movements creep into the mainstream election figures. This could be the start of a movement that ultimately causes the failure of the EU and the euro as a few key countries become very protectionist in their political views. We will have to continue to wait and see how all of this plays out in Spain because we could very easily see this same situation play out in other European countries over the next year as elections are held.

Market Statistics: With last week being a shortened holiday trading week, it was surprising to see the three major US indexes make such a large upward move:

Index Change Volume
S&P 500 2.80% Below Average
NASDAQ 2.55% Below Average
Dow 2.47% Below Average

The upward move last week was done on such weak volume that some of the positive move has to be slightly discounted as there was just too low of a participation rate for the move to be taken at face value. With the increase last week it looks like 2020 will still turn out to be negative for the S&P 500 as well as the Dow, but we are close enough that the year’s returns may come down to the last trading day of the year. The NASDAQ is solidly positive for the year, thanks in large part to the large gains seen throughout the first half of the year from sectors of the markets such as Biotechnology and Pharmaceuticals.

When looking at sectors, the following were the top 5 and bottom 5 performers over the course of the previous week:

Top 5 Sectors Change Bottom 5 Sectors Change
Oil & Gas Exploration 5.92% Consumer Discretionary 1.62%
Energy 5.31% Residential Real Estate 1.65%
Materials 4.94% Consumer Service 1.99%
Telecommunications 3.89% Technology 2.17%
Transportation 3.64% Software 2.24%

When looking at the sector performance last week, we finally saw Oil and Gas Exploration move from the negative list to the positive. It was the top performing sector of the markets, gaining nearly 6 percent last week as it moved in near lockstep with the price of oil. Moving along with oil was energy overall as well as the materials sector, which had also been beaten down in the commodity downturn we have seen for nearly all of 2020. Rounding out the top 5 positions in terms of sector performance last week were Telecommunications and Transportation. With Transportation being a bellwether sector for the overall health of the US economy, it was nice to see it on the positive list for once as it has been on the negative list several times over the past two months. There were no negative equity sectors last week in terms of performance, so for the bottom 5 sectors I chose the lowest gains for the week. A few of the more defensive sectors not surprisingly made the list, such as real estate, consumer discretionary goods and consumer services. With such large gains in the overall indexes it was not surprising to see the more defensive sectors lag behind other more high flying sectors such as oil.

The US fixed income markets continued to adjust to the Fed move last week with the long end of the curve declining the most, while the short end of the curve was little changed:

Fixed Income Change
Long (20+ years) -1.14%
Middle (7-10 years) -0.43%
Short (less than 1 year) 0.02%
TIPS -0.05%

Currency trading volume was light last week as many traders took some time off for the holidays. Overall, the US dollar declined 0.59 percent against a basket of international currencies. The best performing currency last week of the major currencies was the Swedish Krona, which gained 1.81 percent against the value of the US dollar, thanks in part to the increase in the price of oil. The worst performing currency of the major currencies last week was the Chinese Renminbi, as it declined by 1.03 percent against the value of the US dollar. Much of the decline in the Chinese currency was due to uncertainty over the future pegging of exchange rates as the government in China attempts to alter the valuation of the currency going forward.

Commodities were mixed over the course of the previous week:

Metals Change Commodities Change
Gold 0.99% Oil 6.00%
Silver 1.94% Livestock 5.77%
Copper 0.78% Grains -2.94%
Agriculture 0.39%

The overall Goldman Sachs Commodity Index gained 2.22 percent last week, thanks almost entirely to the increase in the price of oil. Oil gained 6.0 percent, in what turned out to be the largest weekly gain for the commodity since October 9 th of 2020. The upward movement in the price of oil also broke a trend of 7 consecutive weeks of losses on oil. While we are still a very long way from putting a meaningful dent in the decline we have seen in the price of oil over the past 18 months, many investors will take almost any gain they can get. The major metals were positive last week with Gold gaining 0.99 percent for the week, while Silver gained 1.94 percent and Copper made it five positive weeks in a row, gaining 0.78 percent. Soft commodities were mixed last week with Livestock jumping 5.77 percent, while Grains slid 2.94 percent and Agriculture overall moved higher by 0.39 percent.

International markets were mixed last week as some markets were closed for more days than others. The best performing index last week outside of the US markets was found in Canada with the Toronto Stock Exchange, which turned in a gain of 2.3 percent for the week. Much of the gain in the Canadian markets was due to positive performance of oil companies, which benefited from the increasing price of oil. The worst performing index last week was found in China and was the Shanghai Se Composite Index, which turned in a loss of 3 percent for the week.

We have now seen two weeks of double digit losses for the VIX as the VIX tumbled almost 24 percent last week, following a decline of more than 15 percent two weeks ago, bringing the two week decline in the VIX to nearly 40 percent. With the decline last week, the VIX is now below the 52-week average level we have seen. The current reading of 15.74 implies that a move of 4.54 percent is likely to occur over the next 30 days. As always, the direction of the move is unknown.

For the shortened trading week ending on 12/24/2020, returns in my hypothetical models* (net of a 1% annual management fee) were as follows:

Last Week Since 6/30/2020
Aggressive Model 1.73 % 5.31 %
Aggressive Benchmark 2.16 % -4.47 %
Growth Model 1.38 % 4.12 %
Growth Benchmark 1.68 % -3.40 %
Moderate Model 0.91 % 3.18 %
Moderate Benchmark 1.20 % -2.36 %
Income Model 0.55 % 2.96 %
Income Benchmark 0.60 % -1.11 %
S&P 500 2.76 % -0.10 %

*Model performance does not represent any specific account performance but rather a model of holdings based on risk levels that are like my actual holdings, the hypothetical models are rebalanced daily to model targets.

In light of the very low trading volume and absence of buy signals among any of the investments I am currently watching, I made no changes to my investment models over the course of the shortened trading week last week. The models remain defensively positioned, while still maintaining the ability to take advantage of any investment opportunities that may arise in the markets. With the markets chopping back and forth so much, this is the perfect time for active investment management as buying and holding indexes will leave most investors feeling seasick.

Economic News: Last week felt like a busy week for economic news releases as the standard week’s releases were largely crammed into two trading days. There was only one release that significantly missed market expectations (highlighted in red below), while there were no releases that significantly beat market expectations:

Economic Impact Date Economic News Release Date Range Actual Expectation
Neutral 12/22/2020 GDP – Third Estimate Q3 2020 2.00% 2.00%
Negative 12/22/2020 Existing Home Sales November 2020 4.76M 5.30M
Neutral 12/23/2020 Personal Income November 2020 0.30% 0.30%
Neutral 12/23/2020 Personal Spending November 2020 0.30% 0.30%
Neutral 12/23/2020 PCE Prices – Core November 2020 0.10% 0.20%
Neutral 12/23/2020 Durable Orders November 2020 0.00% -0.70%
Slightly Negative 12/23/2020 Durable Goods -ex transportation November 2020 -0.10% 0.00%
Neutral 12/23/2020 University of Michigan Consumer Sentiment December 2020 92.6 92
Neutral 12/23/2020 New Home Sales November 2020 490K 505K
Neutral 12/24/2020 Initial Claims Previous Week 267K 271K
Slightly Positive 12/24/2020 Continuing Claims Previous Week 2195K 2228K

Data for table from Econoday.com, Bloomberg and Yahoo Finance

Last week the economic news releases started off on Tuesday when the government released its third and final estimate for third quarter GDP, which came in at 2.0 percent, just as the market was expecting. The big news of the day on Tuesday was the decline seen in the existing home sales figures, which missed expectations by more than 500,000 units. The decline was temporary, according the government, as new application paperwork on mortgage applications was blamed for the decline. On Wednesday, personal income and spending were released with both showing a 0.3 percent gain during the month of November, as the market had expected. Durable goods orders, however, came in mixed as overall orders were shown to have not changed during the month of November, while expectations had been for a decline of 0.7 percent. However, durable goods orders excluding transportation declined by one tenth of a percent, while the markets had been expecting a zero figure. Both of these durable goods orders figures show that while personal income has increased, spending on big ticket items appears to be lagging. Also released on Wednesday was the latest reading from the University of Michigan Consumer Sentiment Index, which showed that consumer sentiment increased slightly during the second half of December. Wrapping up the busy day on Wednesday was the release of the new home sales figure for the month of November, which also came in lower than expected, but not by the same magnitude of the miss for the existing home sales. On Thursday the standard weekly unemployment related figures were released with both figures coming in slightly better than the market had been expecting, but by this point in the week there were very few investors around to notice and the market saw no reaction to the announcements.

With New Year’s falling at the end of the week this week and the markets once again having a holiday, the economic news releases are very light. There are two releases that could impact the overall markets, highlighted below in green, and they are crammed into three of the four trading days this week:

Date Release Release Range Market Expectation
12/29/2020 Case-Shiller 20-city Index October 2020 5.40%
12/29/2020 Consumer Confidence December 2020 93.5
12/30/2020 Pending Home Sales November 2020 0.50%
12/31/2020 Continuing Claims Previous Week 2213K
12/31/2020 Initial Claims Previous Week 270K
12/31/2020 Chicago PMI December 2020 50.1

Data for table from Econoday.com, Bloomberg and Yahoo Finance

The week’s economic news releases start off on Tuesday with the release of the Case-Shiller 20-City Home Price Index, which is expected to show a gain of 5.4 percent for the month of October. With the data being so stale, it would take a major miss from expectations for this release to move the overall markets. Released at the same time, however, is the consumer confidence figure for the month of December, as measured by the US government. Expectations are for an increase over the November level. We are not seeing the confidence in spending, so it really doesn’t matter if consumers are more confident, but the market could still react to this announcement if it either exceeds or falls short by a wide enough margin. On Wednesday, pending home sales for November will be released and we could see this number increase as some sales may have been stalled by the new paperwork that was cited last week by the government. On Thursday the standard weekly unemployment figures for the previous week will be released with expectations that both figures will have increased slightly when compared to the figures from two weeks ago. Wrapping up the week and year is the release of the Chicago area PMI for the month of December, which is expected to post a 50.1 reading, which is dangerously close to the 50.0 inflection point between growth and contraction. With all of the other poor readings we have been seeing from other regions of the US it would not be surprising to see this figure post under 50.

Fun fact of the weekWhat is the world’s largest army?

According to the BBC, the army of Storm Troopers is by far larger than all of the combined armed forces around the globe. Since 1999, Lego alone has produced more than 1 billion miniature storm troopers. According to IHS, the latest figure of military personal around the world is 20 million; this means the Lego army of Storm Troopers outnumbers military personnel 50 to 1. Toy Storm troopers have been produced for more than 30 years with Lego representing the easiest data point to find, so there are actually far more than 1 billion storm Troopers out there!

Have a Happy and Safe New Years!

Peter’s Financial Market Commentary September 8th 2020

September 8, 2020

For a PDF version of the below commentary please click here Weekly Letter 9-8-2020

Commentary at a glance:

-Market volatility continued last week, albeit slightly less than it was two weeks ago.

-Count down to the Fed decision is on—T minus 8 days!

-Europe is not out of the woods yet.

-Economic data overall came in slightly below market expectations.

Market Wrap-Up: Heightened volatility continued throughout the week last week as we unofficially closed out the summer trading season. Historically, the middle of May through Labor Day is considered the summer months for the stock market. It is a time when the market is typically less active than normal as there are fewer eyes on the markets with people taking summer vacations and holidays. This year, however, it seems the summer activities ended a few weeks early, thanks in large part to the uncertainty surrounding the Fed’s interest rate decision. The charts below are of the three major US indexes in green with their respective most recent trading ranges drawn by the red lines. The VIX (lower right pane below) is drawn with the index in green and the one-year average level of the VIX drawn in red:

Last week started out with two down days that tested investors’ nerves as the rally to close out the week two weeks ago seemed to fade just as quickly as it started. The extreme uncertainty and volatility we have seen in the markets over the past three weeks is likely to continue until the end of the Fed meeting, which is scheduled to take place next week. This is the meeting at which some Fed watchers have been calling for the interest rate hikes to commence. This call to start increasing rates comes at a very controversial time as various other countries and economic regions of the world appear to be struggling with slow growth or in some cases economic recessions. The global financial markets have been having a very difficult time ahead of the potential rate hike, but this is somewhat expected as this is the first rate hike since 2006 and we truly are in uncharted waters coming off of the zero bound for interest rates. When looking back at periods of rising interest rates, the start of the rising rates is typically more volatile for the equity markets, but this volatility dissipates quickly as investors realize that the economy is strong enough to support corporate profits and warrant higher interest rates. Rates have also been increased in the past to bring high inflation rates back into the Fed’s target range. Everyone needs to remember that the US Federal Reserve has a dual mandate that includes price stability and full employment; the Fed does not have a mandate to keep the financial markets happy and increase rates with low volatility. The table below looks at four different variables to the full employment mandate (green highlighting is at or better than target; light red is close to target, but slightly worse than target; and red highlighting is way below/worse than target):

Employment Variables Rate Time period
Unemployment rate 5.10% August 2020
U6 Employment rate 10.30% August 2020
Labor force participation Rate 62.60% August 2020
Wage Growth 2.20% July 2020

The overall unemployment rate is at or a little below target with the latest reading of 5.1%. However, this reading is a little suspect since the U6 rate remains stubbornly high and the labor force participation rate remains very low. One of the reasons the labor force participation rate remains so low could be that we have seen a general lack of wage inflation. Thus, fewer people are enticed to return to work and join the workforce. Overall, the full employment mandate is not pointing to a need for an interest rate hike.

When looking at the price stability mandate the picture is about the same. The table below looks at six different variables relevant to the full employment mandate (light red highlighting is close to target, but slightly worse than target, and red highlighting is way below/worse than target):

Price Stability Variables Rate Time period
CPI (Consumer Price Index) 0.20% 12 months through July 2020
Core CPI 1.80% 12 months through July 2020
PPI (Procuder Price Index) -0.80% 12 months through July 2020
Core PPI 0.60% 12 months through July 2020
PCE (Personal Consumption Expenditures) -0.10% 12 months through July 2020
Core PCE Prices 1.20% 12 months through July 2020

Overall, CPI and PPI numbers through the end of July have been poor, but the reason for the low numbers has been the large decline in the cost of energy fueled by the decline in oil prices. This drop in oil prices has been described as “transitory” in nature by the Fed and not something that should have full weight in its modeling. But even when looking at prices at the consumer, producer and personal consumption levels, the prices are all still running well below the 2 percent target rate. All of the price indicators are pointing toward not increasing rates and in many cases would point to lowering rates if we were already in a normal interest rate environment. So what will the Fed do? The Fed will likely discount the figures on the price stability front since these are the hardest to look at to justify a rate increase and the easiest to explain by blaming falling oil prices. On the employment front, it is harder to blame one thing for the poor numbers. At the same time, the Fed will highlight the overall unemployment rate, which is below the target rate. I think a rate hike coming in September is a coin flip, despite the latest Fed Watch figures showing only a 24 percent chance of a rate hike in September. The Fed needs to raise rates to get off the floor and have one of its main policy tools back in its toolbox, but the Fed may err on the side of caution and kick the first rate hike back for at least another meeting. If the Fed kicks rates back, it will take a lot of steps to try to show that it was not because of the recent movement in the global financial markets as the Fed cannot afford to look like its decision is being dictated by financial market movements. The only thing that seems to be certain in the current situation is that interest rates will be moving higher in the relatively near term.

International News: The European Central Bank (ECB) managed to steal a few headlines away from China last week on the international news front as ECB President Mario Draghi held his latest press conference. At the governing council meeting of the ECB, it was determined that the overall growth rate for the Eurozone would be only 1.4 percent during 2020, down from previous expectations of 1.5 percent. The ECB also lowered its expectations for 2020 GDP growth from 1.9 percent down to 1.7 percent. When looking at inflation, the ECB sees inflation within the Eurozone area increasing at a 0.12 percent rate during 2020, 1.5 percent during 2020 and 1.7 percent during 2020. All of these expectations were also lower than previous estimates. In his press conference, President Draghi also mentioned that all of the above figures were calculated in Mid-August and would likely be a little worse if calculated currently. The ECB trying to tackle several issues in Europe independently would not be extremely difficult, but in concert with all of the other issues the ECB is weighing, the puzzle becomes a monumental task. Germany is the key to the puzzle. Within Germany, it is the export business that has been providing the driving force behind the Eurozone. With the Euro continually weakening against other global currencies it makes German exports to other countries cheaper and thus drives up demand. But the downside is that Germany is one of the only countries to truly benefit from the falling Euro as it is the most reliant on exports. One other major wild card for the Eurozone is the migrant issue that has captivated the world recently; there could be further financial strain on an already weak economic system if there are new large waves of migrants heading to Europe. China also made headlines last week, as it has for the past few weeks, as the country continues to try to deal with its financial market upheaval.

Last Thursday and Friday the Chinese markets were by far the quietest they have been in more than a month as the stock market was closed for a Chinese holiday! Leading up to the holiday closure, the Shanghai stock exchange had bounced pretty hard off the 3,000 level after crashing down from more than 5,400 back in the middle of June. It closed its shortened trading week at 3,311, a nearly 10 percent bounce from its low point. So is the worse behind us in the Chinese stock market and in the Chinese economy? I do not think the worst is behind us. I think the government in China threw so many financial actions at the markets that the government finally got enough to work to stabilize the situation. But now the trick becomes removing the life support measures while ensuring the markets will be strong enough to stand on their own. The outright buying done by the government over the past few weeks is the most concerning to investors since the stocks that were purchased will likely be sold as the government does not want to hold on to as much risk as it had to buy to stabilize the situation. The government will likely back out of these positions at the same time that it will take other actions, attempting to have an offsetting effect on the financial markets. The most logical next step would be to further cut interest rates and sell securities into the rate cut bounce that is likely to follow. The problem is that many market watchers will be watching for unusual selling blocks and volume and will likely sound the alarm that the government is dumping shares, potentially negating the benefit of an interest rate decrease. The other and potentially more enticing option would be to hold the positions and offset the risk of the positions through the use of derivative contracts. This would technically keep the government holding the stocks, while at the same time mitigating some of the risk. This option would buy the government more time to figure out what to do next. The problems in China have not gone unnoticed by the global financial community. Last week the IMF released a report ahead of a G20 summit in Turkey that said the slowdown in China could have major repercussions in commodity countries such as Brazil and Russia. This report also lowered the IMF’s projections for GDP in China from 7.4 percent for 2020 down to 6.8 percent. Interestingly enough, the report also called out something we have been seeing rumbling about in China; that the government is concerned that it should be focusing on the economy and not on saving the financial markets, as the government has said that China should keep “reforming its economy despite the recent falls in the stock markets on the mainland.” Despite all of this, as I mentioned last week, Canada may prove to be more of an issue for US economic growth than China in the near term.

Last week Canada confirmed in its numbers that the country has technically entered a recession as of the second quarter of 2020. However, the recession was quickly dubbed the “Best Recession Ever” as the unemployment rate in Canada remains very low and consumer spending remains high. One economist at BMO pointed out that Porsche sales are up 30 percent this year from where they were last year. So how is the economy posting negative GDP growth, while everything seems to be going so well? The answer lies in two things: the first being consumers taking on large amounts of debt to fuel their spending habits and the second is energy. Canada is primarily a manufacturing based economy, but it also has a heavy energy component to the overall economy, whether it be oil from the tar sands, coal, natural gas or oil in general. With energy and commodity prices down so much over the past year it is not surprising to see Canada struggle a little. Current forecasts for Canada are that overall GDP will grow at about a 1 percent rate overall in 2020. With Canada being the largest trading partner with the US this could provide a little bit of a drag on the US economy.

National News: The US news cycle last week focused on speculation about when the Fed will start to increase interest rates as the majority of Congress seemed to be on vacation, along with many American workers as they enjoyed the last part of summer before getting back to work for the fall. Going into the Labor Day weekend is normally a time when the market sees muted trading, both in terms of volume and market movement. However, last week was a continuation of the volatility in the market that we have seen over the past few weeks, with the driving forces being China and the Fed. As mentioned above, the Fed is now only 7 days from the start of the September policy meeting and 8 days away from releasing its policy statement, which will either keep rates unchanged or increase rates slightly. Between now and then the speculation will be rampant with the market and news media jumping on each data point released, regardless of how insignificant the point would normally be to the Fed and overall economy. With the markets very skittish it seems the best course of action is to be defensive and wait and see how this unfolds. The other main news on the national level last week, despite most of Congress being absent, is that President Obama has enough votes to block a Presidential veto override on the Iran negotiations, meaning the deal will likely be passed one way or the other by Congress, which has until early next week to vote on the deal. The Iranian deal has become a hot button issue in the Presidential race as Republicans have jumped all over the deal, as have some Democrats. In other Presidential race news, last week Donald Trump signed a pledge that he would not run as a third party candidate should he not get the Republican nomination. Donald Trump and Ben Carson are the clear front runners for the Republicans, while the more household names such as Marco Rubio and Jeb Bush seem to be struggling to get their campaigns into the mainstream media. On the Democratic side, Hillary Clinton still has the clear lead, but it is a lead that has been getting smaller and smaller as the scandal about her personal e-mail server continues to drag on. All eyes in the Democratic Party right now seem to be focused on Joe Biden and his pending announcement that he either will or will not run for the Presidency in 2020.

Market Statistics: We still seem to be on a weekly roller coaster for the financial markets, as we have now seen more than 10 weeks of consistent weekly chopping by the markets. With two weeks ago being a positive week last week set up for a negative week and the markets did not let the 10 week trend be broken:

Index Change Volume
NASDAQ -2.99% Average
Dow -3.25% Above Average
S&P 500 -3.40% Average

While the decline in the overall markets was pretty large last week, it was done on lower volume than we had been seeing over the past few weeks, leading me to think that the downward move could have been amateur traders finishing up their summers in control, before the main investors came back to work after Labor Day, and not wanting to show on their books what they owned during the volatile past few weeks. We are not, however, into September and volume should progressively pick up slightly over the next two months as we move closer to the yearend holidays and the all-important holiday shopping season.

When looking at sectors, the following were the top 5 and bottom 5 performers over the course of the previous week:

Top 5 Sectors Change Bottom 5 Sectors Change
Home Construction -0.25% Real Estate -5.10%
Telecommunications -1.32% Utilities -5.06%
Transportation -1.48% Financials -4.89%
Technology -1.54% Biotechnology -4.58%
Consumer Service -1.97% Medical Devices -4.54%

Last week’s sector performance was a hodgepodge of seemingly random sectors on both the positive and negative side of performance. On the bottom five performing sectors it is relatively rare to see Utilities and Real Estate (very defensive sectors) in the same list as Biotechnology, and Medical Devices (very offensive sectors). On the positive side of performance, Transportation held up well, as did Telecommunications. Both were not surprising given their defensive nature. Home Construction had a great week on a relative basis last week, but that was only because of a dead cat bounce after the sector was third worst two weeks ago, as value investors swooped in.

The US fixed income market moved broadly higher last week as investors continued to guess at which way the Fed was going to go during its September meeting, given all of the volatility seen last week in the global equity markets:

Fixed Income Change
Long (20+ years) 0.48%
Middle (7-10 years) 0.56%
Short (less than 1 year) 0.02%
TIPS -0.41%

The currency continued to trade in a very muted way last week as the US dollar gained 0.12 percent against a basket of international currencies. The Japanese Yen was the strongest performing currency last week after gaining 2.03 percent against the value of the US dollar, as many investors seemed to view the Yen as an alternative Asian currency to the Chinese Yuan. The weakest performing currency of the major global currencies was found in Australia, for the second week in a row, with the Australian Dollar giving up 3.35 percent against the value of the US dollar as the commodity driven economy in Australia continues to struggle with lower demand for raw materials coming from China.

Last week commodities were mixed with oil moving slightly higher, while most of the precious metals pushed lower:

Metals Change Commodities Change
Gold -1.11% Oil 1.34%
Silver 0.00% Livestock -0.23%
Copper -0.91% Grains -3.11%
Agriculture -0.91%

The overall Goldman Sachs Commodity Index gave up 0.34 percent last week, thanks to the decline in some of the soft commodities as well as Gold. Oil had a relatively tame week when looking at a weekly point to point basis, but this comes as rumors were confirmed that OPEC is willing to talk about production in relation to the current price of oil. This means OPEC may be willing to cut supply to help keep prices higher than they would otherwise be, in part to offset the large amount of Iranian oil that will likely come onto the market once the international sanctions are lifted. The major metals were mixed last week with Gold falling 1.11 percent, while Silver turned in no move on a weekly basis last week and Copper declined 0.91 percent. Soft commodities were mixed last week with Livestock falling 0.23 percent, while Grains declined 3.11 percent and Agriculture overall moved lower by 0.91 percent.

China and the uncertainty surrounding the US interest rates continued to be the driving force behind the global financial market movements. The best performing index last week was found in Thailand with the SET Index (Stock Exchange of Thailand) advancing 0.4 percent, after the latest constitution that had been drafted by the military was torn up and the interim government went back to the drawing board. The largest decline last week was seen in Japan as the Nikkei 225 Index fell by 7.0 percent, as the continued spill over from mainland China is having reverberating effects on its neighbors.

The VIX traded in a pretty wide trading range last week, going between about 32 and 24, finally settling on 27.8 to close out the week. The VIX easily remains above the 52-week average level (15.75) and looks set to stay there for the near term. The current reading of 27.8 on the VIX implies that a move of 8.02 percent is likely to occur over the next 30 days. As always, the direction of the move is unknown.

For the trading week ending on 9/4/2020, returns in my hypothetical models* (net of a 1% annual management fee) were as follows:

Last Week Since 6/30/2020
Aggressive Model -1.41 % -1.38 %
Aggressive Benchmark -3.40 % -8.31 %
Growth Model -0.90 % -1.01 %
Growth Benchmark -2.64 % -6.47 %
Moderate Model -0.44 % -0.58 %
Moderate Benchmark -1.89 % -4.63 %
Income Model -0.15 % 0.15 %
Income Benchmark -0.94 % -2.10 %
S&P 500 -3.40 % -6.88 %

*Model performance does not represent any specific account performance but rather a model of holdings based on risk levels that are like my actual holdings, the hypothetical models are rebalanced daily to model targets.

I made no changes to my models over the course of the previous week as I was well positioned for the heightened volatility and downward movement of the markets going into last week. One area of the markets that I have been watching for a while as a potential buying opportunity is the mining sector and last week the sector seemed to come to life on the back of a few key company announcements. I am still taking a wait-and-see approach to the sector, but in looking at all of the sectors available it looks like one of the sectors that has given up the most and has the largest potential upside should the Chinese economy get back on track.

Economic News: Last week was a slow week for economic news releases with the focus of the week being on the US labor market. There were no releases that significantly beat market expectations last week, while there was a single release that significantly missed market expectations (highlighted in red below):

Economic Impact Date Economic News Release Date Range Actual Expectation
Neutral 8/31/2020 Chicago PMI August 2020 54.40 54.70
Neutral 9/1/2020 ISM Index August 2020 51.10 52.60
Neutral 9/2/2020 ADP Employment Change August 2020 190K 201K
Neutral 9/3/2020 Initial Claims Previous Week 282K 273K
Neutral 9/3/2020 Continuing Claims Previous Week 2257K 2261K
Neutral 9/3/2020 ISM Services August 2020 59.0 58.4
Slightly Negative 9/4/2020 Nonfarm Payrolls August 2020 173K 217K
Negative 9/4/2020 Nonfarm Private Payrolls August 2020 140K 212K
Slightly Positive 9/4/2020 Unemployment Rate August 2020 5.10% 5.20%

Data for table from Econoday.com, Bloomberg and Yahoo Finance

Last week started on Monday with the release of the Chicago area PMI, which came in very close to market expectations and was a bit of a relief after some of the bad numbers that had been posted by different regions of the US for the same time period. On Tuesday the overall ISM index for the month of August was released and came in slightly below expectations, but still above the all-important 50 level, signaling an expansion in manufacturing during the month of August. On Wednesday the ADP employment change figure for the month of August was released and indicated that 190,000 new jobs had been created during the month; this was in line with market expectations. On Thursday the standard weekly unemployment related figures were released with initial jobless claims coming in higher than anticipated, while continuing jobless claims came in lower, thus having an offsetting effect on each other. Also released on Thursday was the services side of the ISM for the month of August, which unlike the overall ISM came in better than expected by a little bit. On Friday the big releases of the week were released, those being related to the unemployment situation in the US. Overall unemployment as measured by the government fell from 5.3 percent in July down to 5.1 percent in August. But the nonfarm public and private payroll figures both disappointed with public payrolls only adding 173,000 jobs, while expectations had been for 217,000 jobs. The private payrolls figures added only 140,000 jobs, while expectations had been for 212,000 jobs to have been added. Both of these figures were negative and would lead toward weakness in the employment market, but single data points are probably not enough to dissuade the thinking of the Fed at this point. However, the labor force participation rate (mentioned above in the first section) was also poor, indicating that the issues with the employment market may be more structural in nature than the headline unemployment rate would seem to indicate.

With this week being a shortened trading week due to the Labor Day holiday it seems like a typical number of releases being released, but the week is slightly lighter than normal. The releases highlighted in green below have the ability to impact the overall markets on the day they are released:

Date Release Release Range Market Expectation
9/8/2020 Consumer Credit July 2020 $18.0B
9/10/2020 Initial Claims Previous Week 275K
9/10/2020 Continuing Claims Previous Week 2257K
9/11/2020 PPI August 2020 -0.10%
9/11/2020 Core PPI August 2020 0.10%
9/11/2020 University of Michigan Consumer Sentiment Index September 2020 91.5

Data for table from Econoday.com, Bloomberg and Yahoo Finance

This week starts off on Tuesday with the release of the consumer credit report for the month of July, which is expected to show that credit expanded by $18 billion during the month. This expansion comes despite the tighter rules that many lending institutions have enacted leading up to the higher interest rates once the Fed takes action. On Thursday the standard weekly unemployment related figures are set to be released with the market really hoping for a recovery from the poor numbers seen last week. On Friday the Producer Price Index (PPI), both overall and core, are set to be released and represent the last of the major inflation related data points the Fed could work into its calculations for the meeting next week. Expectations are that on a month-over-month basis, prices will have declined overall by 0.1 percent, while the core prices at the producer level will have increased by 0.1 percent. Both of these figures represent annual changes that are well below the Fed’s target 2 percent inflation rate, but both figures will be chalked up as transitory by the Fed because of the falling oil and energy prices. Wrapping up the week on Friday this week is the University of Michigan’s Consumer Sentiment Index for the month of September (first estimate) and it is expected to show almost no change from the end of August reading of 91.9. Should we see a dip in sentiment due to the financial market volatility of the past few weeks, it could be a problem going forward for the financial markets. On top of the above mentioned economic news releases during this shortened trading week, there is a single Fed official giving a speech, Minneapolis Fed governor Kocherlakota, who speaks on Tuesday. This will likely be the last public speech by a Fed official prior to the announcement that is forth coming next week.

Fun fact of the week—The end of August was VERY volatile!

The end of August felt very volatile with large multiple percentage point moves seemingly happening every day, but I wanted to quantify just how volatile of a time period we saw. In looking back at the historical data for the S&P 500 going back to 1950, I found that in the 5 trading days between August 21 st and August 27 th we saw 2 of the top 100 largest percentage declining days and 2 of the top 200 largest percentage gaining days for the S&P 500. That is out of more than 16,525 trading days of history!

Testy Tuesday – Q4 Begins With a Lot of Concerns

Is Impeachment an Elitist move that shifts power away from the voters?

Of course not, that’s idiotic as the voters elected the representatives (by actual majorities) that exercise their Constitutionally Mandated oversight of the President who was, in fact, put in power by an elitist Electoral College that did, in fact, ignore the popular vote. Still, that’s the headline Fox “News” is going with this morning as part of an all-out GOP effort to discredit our Government, our laws and our processes – whatever it takes to keep their guy in power.

The “President” is, in fact, calling for a Civil War now and is back to his usual media bashing, making me wonder if it was all a dream when we were told in school that a free press is the backbone upon which a Democracy is built. Since Coporate Dollars have now crept into every click an article generates, there is really no such thing as a free press anymore as it’s now all about pleasing the advertisers anyway.

“Liberty cannot be preserved without a general knowledge among the people, who have a right, from the frame of their nature, to knowledge, as their great Creator, who does nothing in vain, has given them understandings, and a desire to know; but besides this, they have a right, an indisputable, unalienable, indefeasible, divine right to that most dreaded and envied kind of knowledge, I mean, of the characters and conduct of their rulers. Rulers are no more than attorneys, agents, and trustees, of the people; and if the cause, the interest, and trust, is insidiously betrayed, or wantonly trifled away, the people have a right to revoke the authority that they themselves have deputed, and to constitute other and better agents, attorneys and trustees.” – John Adams, A Dissertation on the Canon and Feudal Law (1765)

“The moment we no longer have a free press, anything can happen. What makes it possible for a totalitarian or any other dictatorship to rule is that people are not informed; how can you have an opinion if you are not informed? If everybody always lies to you, the consequence is not that you believe the lies, but rather that nobody believes anything any longer. This is because lies, by their very nature, have to be changed, and a lying government has constantly to rewrite its own history. On the receiving end you get not only one lie—a lie which you could go on for the rest of your days—but you get a great number of lies, depending on how the political wind blows. And a people that no longer can believe anything cannot make up its mind. It is deprived not only of its capacity to act but also of its capacity to think and to judge. And with such a people you can then do what you please.” – Hannah Arendt

In the First Amendment, the Founding Fathers gave the free press the protection it must have to fulfill its essential role in our democracy. The press was to serve the governed, not the governors. The Government’s power to censor the press was abolished so that the press would remain forever free to censure the Government. The press was protected so that it could bare the secrets of government and inform the people. – Hugo L. Black, (New York Times Company v. United States, 1971).

“The last right we shall mention regards the freedom of the press. The importance of this consists, besides the advancement of truth, science, morality, and arts in general, in its diffusion of liberal sentiments on the administration of Government, its ready communication of thoughts between subjects, and its consequential promotion of union among them whereby oppressive officers are shamed or intimidated into more honourable and just modes of conducting affairs.” – Letter sent by the Continental Congress (October 26, 1774) to the Inhabitants of Quebec.

That last one was about as directly from the Founding Fathers as you can get. The press is here SPECIFICALLY to hold our Government leaders accountable to the people who elected them AFTER they get to office. Trump thinks getting to office (by any means necessary) then means he has to answer to no one but, if that were the case – why are there Rules for Impeachment in the Constitution in the first place?

“The President, Vice President and all Civil Officers of the United States, shall be removed from Office on Impeachment for, and Conviction of, Treason, Bribery, or other high Crimes and Misdemeanors.” — U.S. Constitution, Article II, section 4

And what are “Hign Crimes and Misdemeanors“? Well, we can ask the lady who wrote the book (literally) on the subject in the Watergate Era – Hillary Clinton. As noted in the bi-partisan Watergate Report, “high crimes” was not an invention of the framers of the constituation but a long-settled phrase in English Law that generally meant crimes committed by people of a high office – not some special super-crime that Trump hasn’t been caught doing yet – simply extortion and perverting his oath of office is more than enough to get him impeached.

So why doesn’t the market seem to care about all this turmoil (or anything else, for that matter)? Here we are, back near our all-time highs with a Dollar at long-term highs and stock valuations at all-time highs – as if everything is great and can only get greater… Well, for one thing, “we didn’t start the fire – it was always burning since the World’s been turning” – if you can trivialize the things we worried about 50 years ago – why worry abotu this now?

This too shall pass is the mantra for the stock market, which has outlived all this nonsense and the Great Depression and two World Wars. In fact, the “Brugse Beurze” (pictured in center) was established in 1409 and THAT was the first institutional stock market but bankers in Venice were trading Government Securities since 1351 so, to put it mildly, Stock Markets have survived pretty much everything – Donald Trump isn’t going to take them down – even if he goes down, which is looking very likely.

There are plenty of opportunities in the market – no matter what’s going on in the World or the economy. As I mentioned last week, in our Tuesday Mornng Report, we were playing Soybeans ( /ZS ) long at 895.50 in anticipation of China placing a large order for Soybeans and, finally, we got the order yesterday – for 1 MILLION TONS! There’s also a few Million more tons coming and /ZS has popped up to 908 this morning and those /ZS contracts pay a very nice $50 per 1 unit move so, just since last week – they are up another $625 for EACH long contract – (you’re welcome!) and our options spread (for the Futures Impaired) was:

  • Buy 50 Nov $14 calls for $1.10 ($5,500)
  • Sell 50 Nov $15 puts for 0.95 ($4,750)

Which we began with at net $750 in May but was already net $3,750 last week but we said it would be good to stick out for the additional double at $7,500 and already they are at $1.60/0.70 for net $4,500 – up another $750 (20%) since last week’s report – which you saved $21 on by not subscribing for the week – BRILLIANT!

We also featured a brand new trade idea for Coffee (/KCH20) at $102 and we hit $108 yesterday for a nice $2,250 gain per contract and our ETF (JO) trade idea (all from the same day’s Report) was:

Coffee does have an ETF (JO) and, like SOYB above, we can pick up a spread that can give us a nice return. We think $100 (though it can dip below) is a good floor for Coffee as it’s a point below which the farmers simply can’t make money selling it. For the ETF, which is at $32.50, we can do the following spread:

  • Sell 5 JO March $30 puts for $1.40 ($800)
  • Buy 10 JO March $30 calls for $4.40 ($4,400)
  • Sell 10 JO March $32 calls for $3.20 ($3,200)

That’s net $400 on the $2,000 spread so $1,600 (400%) upside potential if JO holds $32 into March. As long as /KC stays above $98, you should get paid in full. The downside to this trade is that, below $30, you would be forced to buy 500 shares of JO at $30 ($15,000) but we like that price and you can turn right around and sell calls against it to lower the basis further.

Already the 5 short March $30 puts are 0.98 ($490) and the $30/32 bull call spread is $4.70/3.45 for net $1.25 ($1,250) is net net $760 and up $360 (90%) , which isn’t bad for a week’s work – just something fun we can do with our CASH. while we wait on the sidelines this month.

Today, with the Dollar up at 99.25 and likely to at least pull back from $100, we can take advantage of Silver ( /SI ) testing the $17 line and playing bullish above it and Gold ( /YG ) at $1,465 is another good bullish play and Natural Gas ( /NG ) is a nice long at $2.25 as it’s still hurricane season and could spike up quickly and, if not, $2.25 is still a pretty good price for /NG .

The chart says it could drop close to $2 and /NG contracts cost you $100 per penny if you are wrong so that’s $2,500 to lose but I’d put a stop below the $2.25 line and go long again at $2.15 with conviction and double down at $2.05 to average $2.10 in 2 contracts and hold onto that for the long run.

If you are Futures impaired, there is a Natural Gas ETF (UNG) and the way I would play that one is:

  • Sell 5 UNG Jan $19 puts for $1.80 ($900)
  • Buy 10 UNG Jan $15 calls for $4.80 ($4,800)
  • Sell 10 UNG Jan $19 calls for $2.50 ($2,500)

That’s net $1,400 on the $4,000 spread so $2,600 (185%) upside potential if UNG can hold $19 into Jan 17th expirations. If not, the break-even is $17.70 so /NG would have to drop more than 10% for you to get burned on this one. Hopefully it does as well as our last set!

See, there’s always something we can play…

This entry was posted on Tuesday, October 1st, 2020 at 8:33 am and is filed under Appears on main page, Immediately available to public, Uncategorized. You can leave a response, or trackback from your own site.

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Date : 9th January 2020.

MACRO EVENTS & NEWS OF 9th January 2020.

Main Macro Events This Week

Though the December U.S. jobs report was largely plain vanilla, it was good enough to support rising “animal spirits.” The surprise headliner of the report, however, was the 0.4% surge in earnings, which caught the markets’ attention. The question is, was this a one-off gain, or is it a harbinger of a pick-up in wage and price pressures that will push the FOMC into a more aggressive rate hike path? Several Fed voters have already begun to incorporate some Trump stimulus into their projections and are expected to continue to voice that opinion as Republicans are itching to expeditiously move ahead with their pro-business agenda in 2020.

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United States: The back-loaded U.S. economic calendar in the wake of the slightly inflationary December employment report could be a little anti-climactic, but there will be a host of potentially relevant fundamental data with retail sales headlining on Friday. Expectations are for 0.7% increase and 0.5% ex- autos. Prior to that anchor release, consumer credit (Monday), Wholesale sales are projected to rise 0.5% in November (Tuesday). The weekly MBA mortgage and EIA energy inventory reports (Wednesday) are on tap next. Import prices are set to increase 0.8% (Thursday) in December given the rebound in oil prices from long-term depressed levels, after their prior 0.3% drop, while export prices are pegged to sink 0.2%. Initial jobless claims should snap back 19k to 254k for the week ended January 7 after their inter-holiday plunge the week prior. With retail sales will come December PPI also due (Friday), Inflation data will be closely monitored after the uptick in earnings/wage growth in December payrolls. Business inventories are forecast to rise 0.7% in November, while preliminary Michigan sentiment may rise to 98.5 in January.

Fedspeak: Fed Chair Yellen returns this week on Thursday. Already Saturday Minneapolis Fed dove Kashkari took part in a “Too-Big-To-Fail” panel and Governor Powell participated in a panel on “Low Interest Rates and Financial Markets.” Monday has updates from Boston dove Rosengren and Atlanta Fed centrist Lockhart. Thursday also brings Philly Fed’s Harker on the economic outlook, Chicago’s Evans on the economy and policy, and St. Louis Fed hawk-dove Bullard on the economy and policy. Harker speaks again on economic mobility on Friday-the-13th.

Canada: Policy relevant economic data remains front and center on Canada’s calendar in the run-up to the January 18 BoC announcement and Monetary Policy Report. The BoC’s Business Outlook Survey is first out of the gate this week (Monday). The slate of housing figures is heavy, with housing starts (Tuesday), building permits (Tuesday), the new home price index for November (Thursday), December Teranet/National HPI (Thursday) and December existing home sales (Friday) all due.

Europe: The year is only a week old, but the focus has switched as inflation is making a comeback and survey indicators continue to come in higher than expected. The central bank just got its QE extension in on time ahead of the uptick in HICP rates, which of course come mainly on the back of base effects from energy prices. The calendar this week will not really add anything new to the outlook for 2020 and data are mainly backward looking with November production numbers from Germany, France and the Eurozone as a whole, as well as final French December HICP readings. The latter are not expected to bring a major surprise and we expect the headline rate to be confirmed at 0.8% y/y, which is in line with consensus. The most up to date number is the initial estimate of full year 2020 GDP from Germany on Thursday, where we look for an acceleration in the overall growth to 1.9% from 1.7% in 2020.

UK: Incoming data, particularly last week’s December PMI surveys yesterday, which smashed forecasts, continue to point to a robust economic rebound from the brief dip that was seen in the month or so following the vote to leave the EU last June. Sentiment in sterling markets has been correspondingly upbeat in early-year trading; the FTSE 100 equity index clocked record highs last week and the pound held its ground on foreign exchanges (though remains 17% below pre-EU vote levels). The calendar this week is highlighted by production figures for November (Wednesday). The BRC retail sales report for December is also up (Tuesday), along with November trades figures (Wednesday) and a smattering of house price data through the week. None of the data is likely to challenge prevailing sentiment.

China: December CPI and PPI (tentatively due Tuesday) are penciled in at 2.1% y/y from 2.3% for the former, and 4.5% y/y from 3.3% for the latter. December new yuan loans (tentatively Tuesday) are expected to slip to CNY 700.0 bon from 794.6 bln. Trade data (due Thursday or Friday) should show modest improvement in the deficit to -$44.0 bln in December.

Japan: Markets will be closed Monday for the “Coming of Age” holiday. The calendar picks up Tuesday with December consumer confidence, which we expect will improve slightly to 41.0 from 40.9. November’s current account surplus (Thursday) is forecast to have narrowed to JPY 1,400.0 bln from JPY 1,719.9 bln previously. December bank loans (Thursday) should be up 2.5% y/y from 2.4% in November.

Australia: The calendar remains thin this week, Retail sales (Tuesday) are projected to improve 0.5% following the identical 0.5% increase in October. There is nothing from the Reserve Bank of Australia. Projects are for steady rates from the RBA in 2020, as the economy gradually adjusts to the post-resource boom environment. The next RBA meeting is in February.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 10th January 2020.

MACRO EVENTS & NEWS OF 10th January 2020.

European Outlook: Asian stock markets were down, with Japan under pressure (closed down -0.79%at 19,301) as the Yen strengthened. The ASX is also in the red, while the Hang Seng outperformed ahead of economic data out of China later in the week. U.S. and European stock futures are heading sound after already being under pressure yesterday while oil prices are little changed, with the front end USOil future trading around the USD 52 per barrel mark. Bond futures remain supported as stock markets correct and while the drop in Sterling has for now underpinned the multinational dominated FTSE it may not be long before inflation concerns pick up again and weigh on Gilt futures. There is nothing in today’s calendar to shake up markets, with only inflation data out of Norway, French production and Swiss unemployment.

FX Update: The dollar has traded steady-to-softer, losing moderately versus the euro and yen, but gaining versus a still-underperforming sterling. USDJPY logged a two-session low of 115.19 as Tokyo markets returned to the fray following a long weekend in Japan. The conjecture in the market is that higher oil prices and recent weakness in the yen have eroded BoJ easing expectations, which has shifted the relative yield dynamic. USDJPY’s low from last week at 115.07 is in the frame. A breach below here would put the pair in one-month low territory, and a daily close below here would signal a shift to a downside bias. Supports are at 114.77-80 and 114.40, the latter of which is the present situation of the 50-day moving average. EUR-USD clawed out a 12-day peak at 1.0627, before ebbing back under 1.0600 to the upper 1.05s. Cable traded softer versus yesterday’s closing levels, but remained above yesterday’s 10-week low at 1.2124 ,while EUR-GBP clocked a fresh eight-week high at 0.8735. Weakness in the pound was sparked by weekend remarks form PM May, who suggested that a “hard” Brexit is the course being set.

Overnight Data: UK Shop price index rose more than expected to 1.0% in December as UK shoppers spent significantly more on food in the week before Christmas. Poor Retails sales figures for Australia failed to den the AUDUSD rally; Retail Sales grew only 0.2% in November against expectations of a 0.4% rise. Mixed data from China as PPI index beat expectations at 5.5% (4.5% expected) and CPI missed expectations at 0.2% MoM and 2.1% YoY when 0.3% and 2.3% were expected respectively. Better news from Japan as consumer confidence grew to 43.1 from 40.9 last time and beat expectations of 41.3 (consumer confidence in the US is expected at 98.5 on Friday)

US Data Yesterday: US consumer credit surged $24.5 bln in November, stronger than expected, after a $16.2 bln increase in October (revised from $16.0 bln). Non-revolving credit paced the rise, jumping $13.5 bln versus $13.8 bln in October (revised from $13.7 bln). But, revolving credit was up a solid $11.0 compared to the prior $2.4 bln gain (revised from $2.3 bln) — it’s the largest increase in this measure since February 2001, with the record $19.5 bln increase set in April 1998.

Fedspeak: Lockhart said it’s too early to estimate fiscal policy effects, in his written remarks. That’s a contrast from some of his colleagues who priced in some upside risk due to fiscal expectations. And he added it is unclear whether the economy is positioned for markedly higher growth. GDP is forecast at around 2% over the next few years, less optimistic than several others on the Committee, and below the markets’ hopes. Inflation is projected to move to 2.0% this year or next. He still looks for a gradual pace of rate hikes. It’s time for the FOMC to shift to “more of a support role” as the new administration comes into play.

Main Macro Events Today

US Wholesale Trade – Wholesale trade data for November is out today and should reveal a 0.4% sales headline for the month with inventories up 0.9% as indicated by the advance economic indicators report. This follows respective October figures of 1.4% for sales and -0.1% for inventories. Data in line with forecasts would leave the I/S ratio ticking up to 1.31 from 1.30 in October.
Canada Housing Starts – Housing starts are expected to improve to a 190.0k unit rate in December from the 184.0k pace in November. The ever volatile multi-unit category was the source of the decline in total starts during November: multi-unit starts fell 7.7% to 105.9k in November while singe-detached units were steady at 60.9k. Underlying starts growth remained steady in November, as the six-month moving average was 199.1k from 199.6k in October. Permits, also due Tuesday, are expected to reveal a 5.0% drop in value during November after the 8.7% gain in October.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 11th January 2020.

MACRO EVENTS & NEWS OF 11th January 2020.

European Outlook: Asian markets managed to move higher, with Hong Kong outperforming as stronger metals boosted miners. The Yen retreated, which helped to underpin gains in Japan, while mainland China underperformed. Oil prices are up on the day, but the front end WTI future is still below USD 51 per barrel, after the latest slump and U.S. and U.K. stock futures are down. Sterling up from recent lows, but still down against most currencies, which should continue to underpin equities, (UK100 closed at a record high for the ninth consecutive day yesterday) but is also reviving inflation concerns. This added to Gilt underperformance versus the Bund yesterday and saw yields moving higher. In the Eurozone spreads were volatile throughout the day yesterday, and yield curves steepened as the short end outperformed again, highlighting that as inflation is making a comeback, the ECB is struggling to get a grip on the long end despite QE, although the most recent dip in oil prices, if sustained should help to dampen inflation concerns somewhat and base effects should see headline rates peaking in Q1 this year, before falling back somewhat. The local calendar has U.K. trade and production data, as well as a German 10-year Bund sale, but markets will be looking mainly to Trump’s eagerly awaited press conference.

FX Update: Forex markets have been hunkering down ahead of the U.S. president-elect Trump’s press conference, his first since the election, scheduled later on Wednesday, looking for some clarity on the political and fiscal agendas of the incoming administration. USD-JPY has settled around 116.00, above last week’s one-month low at 115.07, and below the pre-Christmas trend high at 118.66. EUR-USD has become entrenched in a narrow orbit of 1.0550, holding just below the 50-day moving average at 1.0571. We see Trump’s conference as something of a wildcard, though there is a chance he will manage to reignite the Trumpflation rally. This would follow bond guru Gross remarks of yesterday, where he argued that a sustained break in the U.S. T-note yield above 2.60% — which Gross reckons is much more important than Dow 20,000, $60-a-barrel oil or parity in EUR-USD — would mark the beginning of a “secular bear bond market.” Such a scenario would fuel another upward adjustment in dollar valuations against most other currencies.

Kuroda and Abe meet: BOJ’s Kuroda says meeting with Abe was a regular one and they discussed the global economy, specifically the US economy. They touched on Trump but no actual reference was made to the president-elect and both see the US economy growing “steadily”. No reference or report on the FOMC rate hike cycle. USDJPY continues to pivot around the 116.00 handle.

Overnight Data: The U.S. wholesale report was modestly disappointing, with a 0.4% November sales rise after a downwardly-revised 1.1% (was 1.4%) price-led October surge, alongside a 1.0% inventory gain that exceeded the 0.9% increase in the advance indicators report, following a 0.1% drop in October. Wholesale sales undershot inventories in November but are still outpacing inventories overall in Q4 as oil prices rebound, following Q3 weakening in both sales and inventories. The Q4 GDP growth estimate has increased slightly to 1.6% from 1.5%, but this trims Q1 GDP estimate to 2.3% from 2.4%. Expectations are now for a $14 (was $10) bln inventory addition and a still-lean $21 bln accumulation rate that extends the $16.5 bln bounce in Q3, as inventories are now reversing a big five quarter inventory headwind that culminated in a $9.5 bln liquidation rate in Q2. U.S. JOLTS report showed job openings rose 71k to 5,522k in November after dropping 180k to 5,451k (revised down from 5,534k). The rate edged up to 3.7% from 3.6% (revised from 3.7%). November hirings rose 59k to 5,219k following the 39k increase to 5,160k (revised from 5,099k). The rate was steady at 3.6% (October was revised up from 3.5%). Quitters rebounded 41k to 3,064k from -29k to 3,023k (revised from 2,986k). The rate was unchanged at 2.1%. The JOLTS report is an important one to Fed Chair Yellen, but this is rather old news for the markets and hence didn’t move the ticker.

Fedspeak: Fed hawk Lacker announced his retirement for October 1 on the Richmond Fed’s website. He’s been the bank’s president since August 2004, but has been with the Richmond Fed since 1989. He has also been a serial dissenter, opposing the consensus in all of his voting turns. In his last stint in 2020 he dissented twice against the consensus unchanged policy stance. And back in 2020 he opposed the FOMC’s outcome in all 8 meetings. He was the lone opponent in 2009, but it was with respect to QE and the purchase of Treasuries. But back in 2006 he dissented four times, each for a 25 bp hike. There’s going to be a lot of turnover at the Fed during Mr. Trump’s administration. He has two open governorships, while Atlanta Fed’s Lockhart already announced he’ll be stepping down in February. Meanwhile, Chair Yellen has indicated she plans to continue through her term which ends early in 2020.

Main Macro Events Today

Donald Trump Press Conference – Scheduled for 16;00 GMT. No a data release but by far the most significant event of the day. A wide ranging event is expected including Tax reform, immigration controls and reference to the Wall and climate change. Of particular interest to traders will be the incoming administrations (Mr Trump specifically) approach to trade and the impact particularly on the Mexican and Chinese currencies. Trade War Round 1?
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 12th January 2020.

MACRO EVENTS & NEWS OF 12th January 2020.

European Outlook: Stock markets headed south in Asia overnight, with Japan underperforming and the Nikkei closing with a 1.19% loss as the strength of the yen weighed on exporters. The first press conference of the incoming U.S. administration disappointed and initially sparked a fresh bout of volatility, with investors taking a wait and see stance now to get a clearer picture of what lies in store going ahead. U.S. and U.K. stock futures are also heading south and the Bund future, which outperformed yesterday, lost much of its gains during the PM session. Eurozone spreads narrowed yesterday and the German yield curve flattened as the short end underperformed, while the U.K. yield curve steepened on short end outperformance. Today’s calendar has the first estimate of German 2020 GDP, seen at 1.9%, up from 1.7% in 2020. The calendar also has Eurozone production data for November, as well as the final reading of French December HICP and the ECB’s minutes for the Dec meeting.

The Dollar got Donalded: Trump conducted a test of the intelligence community by having a meeting with those agencies without letting any of his staff know and news of that meeting was subsequently leaked, he said. That would certainly explain his skepticism about the intelligence community’s motivations and secrecy. His conference roamed wildly across the range from fake news, to reaffirming the Mexico wall will remain an urgent priority (the peso plunged through 22.0), along with the relationship with Russia, Pharma pricing, hacking protections, the Trump Trust, Veteran’s affairs, etc. The conference was wide ranging and characteristically frank, leaving the press on their heels and markets chomping in ranges, but not essentially charting a new course. He was all rather vague and the markets reacted accordingly, the USD fell from its heady heights and continued to decline overnight. EURUSD sits at 1.0630, USDJPY under 114.50 (at one month lows) and Cable over 1.2240.

Carney: BoE Governor Carney said Brexit-related risks have “gone down” during testimony, in terms of what he described as the immediate scale of risks, before a parliamentary select committee. However, he warned that a disorderly Brexit process, where there is no transitional arrangements, could lead to “unforeseeable moves in markets.”

Fedspeak: NY Fed’s Dudley spoke on reforming the culture in banking, in his written text on “Remarks at the Culture Imperative — An Interbank Symposium.” He noted the NY Fed was prompted to work on this issue after the LIBOR manipulations and misconduct highlighted the importance of culture. He believes evidence points to an industry wide problem, across firms and countries. Also, he stressed that reforms must be industry driven, while not denying the importance of regulation. He did not discuss monetary policy.

Main Macro Events Today

German 2020 GDP The first estimate for full year 2020 GDP is as usual released before the Q4 numbers are out, but with expectations for a robust fourth quarter growth rate, is widely seen at 1.9%, up from 1.7% in the previous year. The numbers will confirm that Germany is on a solid growth path, and confidence indicators suggest that this will remain the case in the first quarter this year, although going ahead, there are numerous downside risk.
US Import & Export Prices December trade price data should reveal a 0.7% increase for headline import prices and a 0.2% decline for export prices on the month. This follows respective November figures which had import prices down 0.3% with export prices down 0.1% for the month. Oil prices resumed there rebound in December so there is some upside risk to import prices.
US Initial Jobless Claims Initial claims data for the week of January should reveal a 252k headline, up from last week’s 235k which marked a low extending all the way back to the1970’s. Claims are expected to average 258k in January, about matching December’s 257k average and up from 252k in November.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 13th January 2020.

MACRO EVENTS & NEWS OF 13th January 2020.

European Outlook: Aftershocks from President-elect Trump’s campaign-like press conference, which had weighed on global stock markets and yields started to recede late in the U.S. session and U.S. equities managed to recover part of their losses. Asian markets rebounded led by Japan as the Yen weakened and U.S. and U.K. stock futures are also higher, while the front end Nymex future is trading around USD 53 per barrel. Bund futures already started to head south in the after hour session yesterday and core yields are likely to move higher in early trade. The European calendar only has the BoE’s credit conditions survey and the final reading for Spanish December HICP, leaving markets to focus on global developments.

FX Update: The dollar is trading softer into the London open, but remains comfortably above the post-Trump press conference lows. USD-JPY has ebbed to the upper 114s after failing to sustain gains above 115.00, but remains over a big figure up on yesterday’s one-month low at 113.75. EURUSD has firmed up to around 1.0630 after logging an intraday low in Asia at 1.0603, but still remains some 50 pips below yesterday’s one-month peak. While doubts have now crept in about U.S. president-elect Trump’s reflation plans following his fractious press conference on Wednesday, returning some support to the dollar have been Fed speakers, who were not been shy yesterday in warning of upside risks to policy in 2020, with the debate hottest over how quickly to hike rather than when to do so. Another batch of U.S. data today will help shape Fed policy expectations, though Trump may have his work cut out to reignite the sputtering Trumpflation trade.

U.S. Reports revealed surprising firmness in December export prices alongside a restrained oil-boost to import prices, and a largely expected 10k rise in initial claims to a still-firm 247k that signals a tight start for 2020. For trade prices, the relative firmness in export versus import prices trimmed Q4 GDP growth prospects, though we left our estimate at 1.6%. For claims, gyrations through the New Year’s week can be attributed to holiday volatility, though we’re encouraged that claims are starting January below the 258k December average. Next week’s BLS survey week reading will likely undershoot the 275k December BLS survey week figure. We expect a 180k January nonfarm payroll rise that matches the average monthly gain in 2020, though this average faces a likely downward bump with the next report’s annual revisions.

Fedspeak: Chair Yellen’s speech contained surprises and keynote comment was that sh e thought “short term I would say I don’t think there are serious obstacles. I see the economy as doing quite well” Fed’s Bullard maintained a rather circumspect outlook on policy and the economy. He projects only limited movement in rates, reiterating his views noted earlier of perhaps only 1 tightening this year and noting there is little reason to alter policy as the Fed nears its goals. There shouldn’t be any undue pick up in inflation. Job growth is likely to slow this year and next. And in terms of the new administration’s policies, he said it’s questionable what will actually occur. Bullard is not a voter this year. Kaplan: Fed should be removing accommodation in 2020, with growth forecast at greater than 2%, even without any fiscal boost. The U.S. is pretty near full employment and inflation is heading to 2%, though there’s some slack in the labor market and more demand than supply for skilled workers. He expects regulatory review and tax reform to help boost productivity, along with infrastructure investment. Kaplan said he will be scrutinizing decisions on trade, immigration and Obamacare for any impact on growth, while manufacturing plants need to be allowed flexibility in supply chains. This about par for the course, with the Fed evidently predisposed to normalize rates in 2020 all else equal.

Main Macro Events Today

US Retail Sales – December retail sales data is out today expectations are for a 0.7% headline with the ex-autos aggregate up median 0.5% on the month. This follows November data which had the headline up 0.1% and ex-autos up 0.2%.
US PPI Data – December PPI data has expectations to post a 0.3% with the core index up 0.2% on the month. This compares to respective November figures which posted a 0.4% headline and a 0.4% increase for the core. Despite the fact that oil prices remain at depressed levels we did see a 14.0% climb in WTI prices in December which could lend some support to the headline.
US Michigan Consumer Sentiment – The first release on January Michigan Sentiment should reveal a headline increase to 98.5 (median 98.4) from 98.2 in December and 93.8 in November. Consumer confidence measures have been posting improvements since the election and the January IBD/TIPP poll has already reveal an increase for the month with a rise to 55.6 from 54.8 in December.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 16th January 2020.

MACRO EVENTS & NEWS OF 16th January 2020.

Main Macro Events This Week

U.S. markets are closed Monday for Martin Luther King Day. This will be a busy week for traders, with the inauguration of president-elect Trump on Friday headlining. While that won’t be market moving in and of itself, investors and traders anxiously await clarity his ambitious agenda to be outlined in his 100-day plan once he assumes office.

United States: This week’s data calendar is busy and includes several important releases. The December CPI report (Wednesday) will be key after the surge in the inflation expectations. Also on tap this week is December industrial production (Wednesday). The Empire State data (Tuesday) and The Philly Fed reading (Thursday) will be watched closed as these are as close to real time indicators as possible. December housing starts (Thursday) and other data this week includes the January NAHB homebuilder sentiment survey (Wednesday), and November Treasury capital flows (Wednesday).

Fedspeak: Considerable Fed presence this week; Chair Yellen will make two appearances (Wednesday & Thursday), Dudley (Tuesday). Dallas Fed’s Kaplan, Minneapolis Fed’s Kashkari both (Wednesday). Fed’s Harker, a voter, speaks on the economic outlook (Friday). Also, Williams will give closing remarks (Friday) at the Bay Area Council meeting. Meanwhile, the Fed releases its Beige Book (Wednesday) for the January 31, February 1 FOMC meeting. It will be interesting to see what references are made regarding the post-Trump surge in equities and the pick-up in several of the manufacturing and sentiment numbers.

Canada: The main event is the Bank of Canada’s rate announcement and Monetary Policy Report (Wednesday). Expectations are for no change to the 0.50% rate. Manufacturing (Thursday) is expected to reveal a 1.0% rise in shipments after the 0.8% drop in October. The December CPI (Friday) is projected to be unchanged. Retail sales (Friday) are expected to rise 0.5% in November after the 1.1% gain in October.

Europe: The focus this week is on the first ECB meeting of the year. Draghi is widely expected to keep policy on hold. German PPI inflation (Friday) is expected to jump to a 0.9% y/y clip from 0.1% y/y, and the data will confirm that for at least Germany. German ZEW Economic Sentiment for January is due (Tuesday) and is expected to see the headline rate rise to 18.0 from 13.8 in December. Other data releases include Eurozone trade and BoP numbers for December, which will be too backward looking to change the overall outlook.

UK: December inflation data (Tuesday), labour market figures covering November and December (Wednesday), and official December retail sales (Friday). Carney speaks Monday and PM May on Wednesday at Davos; these two could be fundamental to the performance of Sterling this week.

China: Releases are back loaded to Friday. Q4 GDP highlights and is expected to print a 6.7% y/y rate, unchanged from Q3 clip. In fact, 6.7% has been the reported rate of growth for each of the three quarters of 2020 so far. December industrial output is forecast at 6.0% y/y, slightly slower than the 6.2% seen previously, and would be the slowest since July. December retail sales are penciled in at a still robust 10.6% y/y from 10.8% in November. And, December fixed investment is seen at a 8.2% y/y rate, little changed from 8.3% previously.

Japan: Revised November industrial production is due (Tuesday), having originally posted a 1.5% monthly gain.

Australia: The calendar has the employment report (Thursday), expected to reveal a 15.0k gain in December following the 39.1k rise in November. The unemployment rate is seen steady at 5.7%. Housing finance (Tuesday) is projected to fall 2.0% m/m in November after the 0.8% decline in October. There is nothing from the Reserve Bank of Australia.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 17th January 2020.

MACRO EVENTS & NEWS OF 16th January 2020.

European Outlook: Asian stock markets were mixed, with Japan and ASX heading south amid reports that U.K. Prime Minister May will announce plans for a hard Brexit at today’s keynote speech. Yen strength is also continuing to put pressure on the Japanese markets. Mainland Chinese markets meanwhile mostly managed to pair losses in late trade and the CSI 300 is currently unchanged on the day while the Hang Seng is up 0.48%.Oil prices are little changed on the day, with the front end WTI future trading at USD 52.30 per barrel and Gold benefiting from the risk on mood trading at USD 1212. U.S. and U.K. stock futures are also down, after European markets already closed in the red yesterday, while core bond yields came off, with Sterling weakness for once not weighing on Gilt futures, which outperformed yesterday as inflation considerations are balanced with the risks of weaker growth going ahead as the U.K. seems to be heading for an exit from the single market. May’s speech aside today’s calendar includes U.K. inflation data for December, as well as German ZEW investor confidence (see below)

Canada Home Sales: Existing home sales improved 2.2% m/m in December after the 5.3% tumble in November’s seasonally adjusted home sales. The pull-back in November was the largest one month decline in 4 years and corresponded with the implementation of tightened mortgage regulations. The increase in December is contrary to expectations for another decline. But total actual (not seasonally adjusted sales) fell 5.0% compared to the level in December of 2020. New listing fell 3.0% in December versus November. Prices continued to climb on an annual basis: the MLS HPI was 14.2% higher y/y in December while the national average sales price grew 3.5% y/y.

Davos Speak: (From the BBC) – The big draw at the World Economic Forum in Davos today is Chinese president Xi Jinping who will officially open the event this morning. It is the first time a leader from China has attended the event. Early afternoon, Anthony Scaramucci, a member of US president-elect Donald Trump’s transition team, will talk about the outlook for America. Shortly afterwards, the outgoing US secretary of state, John Kerry, will discuss “diplomacy in an era of disruption”. Then Satya Nadella, the chief executive of Microsoft, will tackle the issue of artificial intelligence alongside Zhang Ya-Qin, boss of China search engine giant Baidu. Other highlights include The Future of Finance: John Cryan, the boss of the troubled Deutsche Bank takes part in a panel discussion on where now for the industry and Nobel Prize winning economist Joseph Stiglitz will examine how to end corruption.

ECB’s Praet: ECB policy was focused on avoiding deflation trap. The Executive Board member said at a conference in Paris late yesterday that the “when you have a very slow growth rate with an increase in unemployment for a long period of time, you get into a sort of vicious circle. You have to use the tools that you have to support demand”. Praet said that “it has been key from the central bank point of view to avoid the de-anchoring of inflation expectations” with ECB policy “driven by the mandate and by avoiding that we fall into a sort of deflationary trap”.

Main Macro Events Today

UK CPI & PPI – 09:30 GMT – YoY UK CPI data is expected to increase to 1.4% from 1.2% last time, with the Core figure up to 1.5% from 1.4%. MoM for December expected to increase to 0.3% from 0.2%. PPI figures also released at the same time this morning with input figures expected to increase to 2.2% from -1.1% last time and output figures expected to increase to 0.3% for 0.0% last time.
German ZEW – 10:00 GMT – December expected to see the headline rate rise to 18.0 from 13.8 in December. This would be consistent with a quarterly growth rate of 0.4% in the first quarter of this year after a broadly similar number in Q4 2020.
UK PM May Speech – 11:45 GMT – Expected to outline 12 key points for UK’s exit from the EU. No “half in, half out measures”. Prerelease of speech from Downing Street overnight.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

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Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 18th January 2020.

MACRO EVENTS & NEWS OF 18th January 2020.

European Outlook: Stock markets continued to stabilise during the Asian session, and the Nikkei closed with a 0.43% gain as the Yen retreated and markets started to shake off the most recent Trump jitters while the Dollar stabilised. Hong Kong outperformed and most Chinese shares gained amid speculated state intervention to ensure more stability as President Xi Jinping visits Davos for the World Economic Forum. U.S. and U.K. stock futures are also higher. The FTSE 100 underperformed yesterday as the Pound bounced back from recent lows, following May’s Brexit speech, but Sterling is already retreating again and this is helping the FTSE to win back lost ground, which could see yields picking up again today, especially as the Bund future already started to come off highs going into yesterday’s close and today’s final German and EMU inflation data for December and UK labour data. Oil held over $52 and GOLD continued in positive mood around the key $1212 level.

German HICP confirmed at 1.7% y/y, as expected, with prices up 1.0% m/m. The sharp acceleration from just 0.7% y/y in November was mainly due to base effects from lower energy prices and the breakdown showed that prices for heating oil jumped 21.9% y/y in December, after still falling -6.7% y/y in the previous month. Petrol prices rose 6.0% y/y, after falling -2.2% y/y in December. Still, even excluding household energy and petrol, the annual rate jumped to 1.6% from 1.2% in November and the data will back the critics of Draghi’s expansionary policy in Germany. The Eurozone headline rate, due later today, remains lower, but at 1.1% has also been trending higher – at least for now. But with growth picking up and the labor markets improving, there is the risk of second round effects, especially in areas where wage indexation still remains in place.

UK PM May Speech: UK PM confirmed that Brexit really does mean Brexit, setting a course for the UK to make a “clean” break from the EU, meaning a departure from single market membership and the customs union. That is the bottom line from her long-awaited, platitude -laden (Britain to be “truly global … profoundly internationalist” etc etc) keynote speech that is laying the government’s four principles and 12 negotiation priorities for Brexit. Among the highlights, May confirmed that the Brexit deal will be subject to parliamentary approval, which should not be too much of a surprise but has still gone down well in markets, sparking a rally in the pound, which has built on gains seen after hotter than expected UK inflation data earlier. Cable rallied by 3% at seven week highs above 1.2400, putting in some distance from Mondays’ three-month lows that were seen just under 1.2000.

US Data: The Empire State headline drop to 6.5 trimmed the December surge to an 8-month high of 7.6 (was 9.0) from 2.2 (was 1.5) in November and a pre-election -5.5 (was -6.8) in October, leaving a big net climb despite the January setback. And, the component data beat estimates to leave an ISM-adjusted Empire State rise to 50.7 from 48.8 (was 48.9) in December, 47.3 (was 47.2) in November, and 46.9 (was 46.3) in October, with small annual revisions that did little to alter the trajectory. We expect a January Philly Fed drop-back to 14.0 after the December spike to a 2-year high of 19.7, a Richmond Fed drop to 7.0 from 8.0, a Dallas Fed rise to 16.0 from 15.5, a Chicago PMI rise to 55.0 from 54.6, an ISM downtick to 54.5 from a 2-year high of 54.7, and an ISM-NMI downtick to 57.0 from a 1-year high of 57.2 over the past two months. The mix should allow the ISM-adjusted average of the major surveys to rise to a 2-year high of 54 in January from 53 in November and December, 51 in October and 50 in August and September.

FedSpeak: Fed governor Brainard said more rapid rate hikes are likely if fiscal policy changes quickly eliminate labor market slack, but a gradual path of rate hikes will be appropriate so long as inflationary pressures are muted. She sees fiscal change that persistently raises aggregate demand alone could reduce the ability of fiscal policy to respond to future shock. Brainard views risks for the domestic economy as closer to balanced than they have been in a long time, while full employment remains in reach and could be sustainable with the right policy mix. Like the risks she cites, her views are pretty balanced. NY Fed dove Dudley is optimistic about the U.S. expansion, expecting it to continue, though “long in the tooth.” He doesn’t think Fed action will snuff out the expansion anytime soon as inflation is not a problem. He sees pressure on labor resources increasing, but quite slowly, while dollar strength will pressure import prices lower and limit domestic producers from raising prices. Dudley sees household finances in unusually good shape at this stage in the cycle, while challenges in retail are not due to aggregate demand but changing consumer demands.

Main Macro Events Today

Yellen Speech – (20:00 GMT) – “The Goals of Monetary Policy and How We Pursue Them” at the Commonwealth Club, in San Francisco. Possible policy implications ahead of Trump inauguration on Friday.
US CPI – The December headline CPI is expected to grow 0.3%, while the core index rises 0.2%.Forecast risk: downward, as oil prices gave up some of their gains in November.Market risk: downward, as inflation undershoots may affect the timing of additional rate hikes. Energy prices are expected to remain flat, with a 1% gasoline price increase. Food prices have risen by 0.1%-0.4% per month over the past three years, though the drought in California had an upward effect with last year’s 0.5% May rise being the largest since August of 2020.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 19th January 2020.

MACRO EVENTS & NEWS OF 19th January 2020.

European Outlook: Asian stock markets traded mixed, with Japan and ASX moving higher, as Fed’s Yellen said she expects to hike rates few times a year through 2020 to 3% neutral rate. The weaker Yen helped to underpin Nikkei and Topix, while the drop in energy prices added to pressure on Chinese stocks with energy producers and miners leading the way down. The front end WTI future has lifted somewhat, but remains firmly below USD 52 per barrel. U.S. stock futures are also down, while FTSE 100 futures are posting gains, despite a stronger Pound. In Europe the focus turns to today’s ECB announcement, where Draghi is widely expected to keep policy on hold and will be under pressure to defend the ECB’s QE extension as inflation lifts higher and growth remains strong. The calendar also has Swiss producer price inflation and Eurozone BoP and current account data for November.

BOC: Larger Question Marks on the Outlook; The Bank of Canada delivered the widely expected lack of change to the 0.50% rate setting alongside a modestly more upbeat domestic and global growth outlook. The outlook is largely similar to October, but the degree of uncertainty has increased according to Governor Poloz. Hence, the Governor, in his Q&A, said that a rate hike remains on the table. While the outlook remains very uncertain, consensus is to see no change in rates for an extended period as the most sensible base-case policy scenario.

Fed Chair Yellen: Said she can’t give the timing of the next hike, but noted the Fed is close to meeting its twin goals, in her comments at The Commonwealth Club. As suggested by the outcome of the December FOMC meeting and the dot-plot, she noted that she and most of her colleagues expect “a few” rate hikes a year. The next tightening will be a function of the economy over the coming months (that suggests a March move is unlikely). It makes sense for the Fed to gradually reduce monetary policy support.

US Data: U.S. reports revealed a hefty 0.8% December industrial production rise thanks to a 6.6% utility output surge that reversed the prior 9.7% weather-induced 3-month drop, alongside a 1.8% vehicle assembly rate bounce before a likely January drop-off, and a 0.7% business equipment rise that reversed a 0.7% November decline. Expectations are for a resumption of positive industrial production growth in 2020 led by a 2.4% Q1 clip, after a 0.6% weather-induced Q4 contraction rate that left a 7th decline over the last 9 quarters. We also saw the expected December CPI headline gain of 0.3% (0.282%), though the core price rise of 0.2% rounded down from a surprisingly firm 0.230% gain that sets the tone for bigger price gains in 2020.

Davos Speak: (from the BBC) Bills Winters and Briyan Moynihan, of Standard Chartered and Bank of America respectively, will be part of a panel examining the Global Banking Outlook.–Santander chairwoman Ana Botin forms part of a discussion on Which Europe Now?-Sheryl Sandberg, chief operating officer of Facebook, will discuss A Leader’s Resilience. Sergey Brin, co-founder of Google and founder of Bayshore Global Management, will be sharing his ideas. Bill Gates and GSK boss Andrew Witty take part in a discussion on CEPI: A Global Initiative to Fight Epidemics. Saudi Arabia and Russia will discuss the Global Energy Outlook. The UK PM Theresa May will pitch her Brexit plan to leaders and the Russian deputy PM Igor Shuvalov will talk about Russia’s place in the world.

Main Macro Events Today

ECB Rate & Statement – ECB is widely expected to keep policy on hold after clarifying the policy outlook through to the end of the year, with purchase targets cut back to EUR 60 bln again from April. The ECB obviously tried to create some stability at least on the monetary front amid heightened uncertainty on the political front ahead of the Brexit talks and amid the change in U.S. administration. However, with inflation jumping higher, the central bank’s policy is coming under more scrutiny again and much of the press conference will likely be an exercise in trying to play down the importance of the rise in HICP to the highest level since 2020 as the ECB is heading for a further expansion of its balance.
US Housing Starts – Should reveal an increase in the pace of starts to 1,184k from 1,090k in November and a recent high 1,340k in October. Permits should climb to a 1,230k pace from 1,212k in November and completions should be 1,100k from 1,216k in November.
US Phili Fed Index – Should reveal a headline decline to 15.1 from 19.7 in December and 8.7 in November. Revisions to the Philly Fed were released last week and lowered December’s headline slightly. More broadly, producer sentiment is expected to remain firm in January with the ISM-adjusted average of all measures rising to 54 from 53 in December.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 20th January 2020.

MACRO EVENTS & NEWS OF 20th January 2020.

European Outlook: Asian stock markets were mixed overnight, after U.S. and European shares closed in the red Thursday. Japan and mainland China bourses managed to move higher (Chinese GDP beat expectations at 6.8%), but investors are cautious ahead of the inauguration of President elect Donald Trump. Bund futures managed to move up from lows yesterday, after Draghi re-affirmed the central bank’s commitment to further QE and kept the easing bias in place, despite the jump in inflation, but yields still moved higher and the DAX closed in negative territory yesterday. Gilts and FTSE 100 underperformed. Today’s European calendar is pretty quiet, with only German PPI at the start of the session and U.K. retail sales, which will leave the focus firmly on the U.S.

German PPI inflation jumped to 1.0% y/y in December from 0.1% y/y in the previous month. Not a total surprise considering the sharp acceleration in import price inflation previously and the pick up in HICP that month. Still, the numbers serve to highlight that the rebound in inflation is well and truly underway, even if producer prices remain the main driving factor so far. Indeed, the breakdown showed that energy prices were up 0.2% y/y, after falling -1.7% in the previous month, while non-durable goods prices jumped 2.1% y/y, after 1.5% y/y in November. With growth continuing strong, however, and the labour market looking very tight, while house price inflation is also picking up sharply, the risk of second round inflation effects are rising at least in Germany, although for now that doesn’t seem to impress Draghi too much, who yesterday confirmed the ECB expansionary course for the year.

FX Update: The dollar has settled moderately lower, by about 0.2% versus the other majors, as markets brace for Trump’s inauguration later today, hungry for further detail on his plans for fiscal and trade policies. USD-JPY has ebbed back under 115.00 after rallying strongly over the previous two days. Resistance is marked at 115.31, which marks the present situation of the 50-day moving average. The 20-day average is at 115.65. EURUSD has recouped to the upper 1.06s, about a big figure up on yesterday’s low at 1.0589. Cable has settled around 1.2350, also about a big figure higher relative to yesterday’s low while remaining below the week’s high at 1.2616 and the 50-day moving average, at 1.2400.

BOC: Fed Chair Yellen: She was less hawkish yesterday and toned down her earlier policy stance. “Gradual monetary adjustments were prudent”, although she warned against letting the economy run hot. Yet on Wednesday she had cautioned that waiting too long to raise rates could lead to “too much inflation, financial instability, or both,” amid comments by other Fed officials that also favoured faster hikes.

Main Macro Events Today

UK Retail Sales – Expectations are for a YoY to increase to 7.3% with a flat December at 0.2%.
Canada CPI – Expectations are for unchanged (0.0%) in December versus November, contrasting with what is usually a sizable pull-back in this not seasonally adjusted index during December. Our projection for the steady reading on December month comparable CPI is due to the collision of the typical seasonal decline with a hefty increase in gasoline prices. Total CPI is seen accelerating to a 1.7% y/y pace in December from 1.2% in November.
President Trump Speech – 14:00 GMT – Expect the unexpected.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 23rd January 2020.

MACRO EVENTS & NEWS OF 23rd January 2020.

President Trump has his feet under the desk in the Oval office and the tone of his inaugural speech and actions over the weekend reiterated his campaign themes to “Make America Great Again”. The unapologetic dogmatic “America First” rhetoric caused markets to pause on protectionism and trade barriers. The media once gain came under scrutiny over claim and counter claim from the new administration for attendances at the inauguration, and the women’s led demonstrations on Saturday. The NAFTA came under immediate review, the new Presidents tax returns will not be released “People didn’t care. They voted for him” (Kellyanne Conway) and the USD sold off significantly at the beginning of the new trading week.

United States: The week starts with existing home sales (Tuesday) forecast to rise just 0.2% to 5.62 mln in December following the 0.7% gain in November. The MBA mortgage market report (Wednesday) is due, alongside the EIA energy inventory report. The Advance trade report is forecast (Thursday) to show wider deficit to the tune of $65.7 bln in December, while the Chicago Fed national activity index is on tap, along with an expected 20k rebound in initial jobless claims to 254k for the week ended January 21. New home sales are expected to sink 2.0% to a 580k unit pace in December. Advance Q4 GDP is projected to sink to 2.0% from 3.5% in Q3 (Friday), Durable goods orders are expected to rebound 2.5% in December vs -4.5% previously and final Michigan sentiment is seen revised up to 98.5 in January from 98.1 initially.

Fedspeak runs dry this week after the flurry from Yellen and company last week, though it is entirely possible that some impromptu remarks could be forthcoming. Overall, even the doves now appear wary of unleashing fiscal stimulus with the jobless rate down at 4.7% and core CPI inflation topping 2.2% y/y — levels that Yellen suggested are consistent with the Fed’s twin goals.

Canada: Wholesale shipments (Monday) are expected to rise 0.5% in November after the 1.1% gain in October. The establishment survey (Thursday) is expected to reveal a 0.1% gain in average weekly earnings during November after the 0.1% dip in October. There is nothing from the Bank of Canada this week. Governor Poloz delivers a speech at the University of Alberta School of Business on January 31.

Europe: Eurozone markets will be looking to the U.S. this week, as investors await more guidance on U.S. economic policies going ahead, but also on the future relationship between Europe and the U.S. and the implications for Nato. Eurozone Manufacturing PMI predicts a rise to 55.0 from 54.9, while we see the services reading at 53.7, which should lift the composite to 54.5 from 54.4. French business confidence is seen steady at 106, and the German Ifo Business Climate reading is expected to rise to 111.3 from 111.0 in December

UK: PM May last week at a long-awaited keynote speech on Brexit set the course for the UK to make a “clean break” from the EU. This cleared up a chunk of uncertainty, helping put a floor under the beleaguered pound. Cable rallied by just over 3% in the wake of the speech last Tuesday, helped on its way by a spike in CPI data, in what was the biggest single-day rally the pound has seen since 2008. May will also be the first foreign leader to meet with the new USA President this week. January CBI industrial trends and distributive trades surveys (Tuesday and Wednesday, respectively). The first estimate of Q4 GDP is also up (Wednesday), growth of 0.5% q/q and 2.1% y/y is expected, which would be slightly off the 0.6% and 2.2% pace of Q3. Overall, as-expected outcomes in the data should not have much impact on sterling markets.

China: The docket is empty.

Japan: The December trade balance (Wednesday) should reveal a wider surplus, to JPY 400.0 bln from 150.8 bln in November. December services PPI are penciled in at up 0.3% from the 0.2% increase previously. December national overall CPI (Friday) is seen up 0.1% y/y, down from 0.5% previously. Core CPI is expected at -0.4% y/y, unchanged from November.

Australia: The calendar is highlighted by the CPI (Wednesday), expected to gain 0.6% in Q4 after the 0.7% gain in Q3. The Q4 PPI and trade prices for Q4 are due on Friday. The Reserve Bank of Australia’s schedule remains empty this week, with nothing due from the bank until the meeting in early February.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 24th January 2020.

MACRO EVENTS & NEWS OF 24th January 2020.

European Outlook: Asian stock markets were mixed overnight, with Japanese bourses still under pressure (Nikkei closed down 0.55%). despite a dip in the Yen, as USD stabilised. Uncertainty over Trump’s regulatory and trade policies continues to weigh on investor sentiment. News that the U.S. plans to withdraw from the Pacific Rim trade pact, known as Trans-Pascific Partnership and that Trump plans to renegotiate the North American Free Trade Agreement is not helping as a lack of key data on Monday kept markets focused on politics. U.S. stock futures are narrowly mixed, while FTSE 100 futures are slightly higher, as Sterling retreated from yesterday’s high. Oil prices are slightly up on the day and the front end WTI future is trading around USD 53 per barrel and Gold holds on to gains at USD 1215. FTSE 100 futures moving slightly higher Bund futures could lose some of yesterday’s gains in opening trade. The calendar has January PMI readings for the Eurozone as well as U.K. public finance data and a final decision from the Supreme Court on EU membership.

FX Update: The dollar found its feet after declining over the last day. USDJPY traded back around the 113.00 level after logging an eight-week low at 112.52 during the early phase of the Asia-Pacific session. Investor worries over a more protectionist U.S. weighed on the dollar, with Trump pulling the nation out of TPP and warning U.S. manufacturers there will be punitive taxes on any goods they make abroad and are sold in the U.S. Japanese preliminary January manufacturing PMI surpassed expectations, but cast little market impact. EURUSD drifted under 1.0750 after making a 1.0772 seven-week high in early Asia-Pacific. Cable ebbed under 1.2500, leaving a six-week peak at 1.2544. AUDUSD and NZDUSD settled lower after logging respective 10-week highs, and USDCAD based after seeing a four-session low.

Trump Executive Orders Signed: 1) formal withdrawal from the Trans-Pacific Partnership (TPP) 2) hiring freeze on federal employees and 3) a ban on U.S. NGOs that receive federal funding from providing abortions abroad. Stocks and yields continue to retrace lower, along with the dollar index as the markets adjust to the new era of unilateralism and activism in the executive branch.

Fedspeak: Fed hawk Lacker worries that the FOMC could be getting behind the curve, in an interview on a public radio station in Virginia. He wants the Fed to be a little more aggressive in pushing up rates, versus the views of his colleagues, with the majority on the FOMC projecting 3 quarter-point increases. They are also advocating a very gradual approach to tightening. Note that Lacker is not a voter this year, and has announced he’ll retire on October 1. Fedspeak will go into hibernation today as the informal pre-FOMC blackout period goes into effect.

Main Macro Events Today

Eurozone PMI’s – Modest improvements across the board are expected following the uptick in the ZEW number. Forecast for the Eurozone Manufacturing PMI predicts a rise to 55.0 from 54.9, while the services reading at 53.7, which should lift the composite to 54.5 from 54.4 and leave projections for robust growth in Q1 intact.
UK – EU Membership Court Ruling – The United Kingdom’s High Court is due to announce a ruling regarding the government’s ability to bypass parliament and initiate the Brexit by triggering Article 50 of Lisbon Treaty, at the Royal Courts of Justice, in London. The expectation is that the UK Parliament WILL have a vote on the procedures surrounding Article 50.
US Existing Home Sales – Forecast to rise just 0.2% to 5.62 mln in December following the 0.7% gain in November.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 25th January 2020.

MACRO EVENTS & NEWS OF 25th January 2020.

European Outlook: Japanese stock markets moved higher, led by Japanese bourses as the country managed to snap a 14-month long run of falling exports, which helped the Nikkei to close with a 1.4% gain (over 19,057.5), despite a stronger Yen. Better than expected corporate earnings are underpinning a rise in global growth optimism that already saw U.S. and European bourses closing higher yesterday and continued to back markets in Asia and the rise in U.S. and FTSE 100 stock futures this morning. The broad improvement in stocks and amid a wider rise in risk appetite already sent yields higher on Tuesday and are likely to continue to put pressure on bond futures today, especially as survey indicators in the form of the German Ifo and the U.K. CBI industrial trends survey are expected to have improved again at the start of the year, with no signs so far that the looming Brexit is weighing on growth in Europe on either side of the channel. Australian Inflation rose to 1.5% from1.3% last quarter, but missed expectations (i.e. 1.6%). AUDUSD fell overnight from 0.7600 and currently trades at 0.7520.

US data: U.S. reports revealed a surprising 2.8% December existing home sales drop despite mild weather in November and early December that sometimes lifts sales with a lag, though Q4 sales overall were boosted by weather, and we have an upwardly-revised 5.65 (was 5.61) November cycle-high and a remarkably lean 1.65 mln December inventory level. The Richmond Fed rise to a 10-month high of 12.0 from 8.0 in December and 4.0 in November, as the producer sentiment climb gains steam with the ongoing factory sector rebound. An employment index bounce to 8.0 from -1.0 adds to the upside risk for our a 190k January nonfarm payroll estimate.

The UK’s Supreme Court ruled against the government in the Brexit case, concluding in the appeal trial that the notification of Article 50 must be subject to a parliamentary vote. The Court also ruled that Scotland and Northern Ireland do not have a veto. The government is now expected to quickly put through a succinctly-worded bill through the House of Parliament and the House of Lords. No one expects that either House will stand in the way of the will of the people, but the concern is that it will be subject to amendments, which could draw-out the start of the formal process that will take the UK out of the EU. The ruling on Scotland and Northern Ireland suggests that the government won’t face any obstacle in pushing through with its intention for a “hard” Brexit. The pound, already under pressure ahead of the ruling, extended losses, though has since recouped some lost ground. Sterling is presently showing an average 0.2% decline versus the G3 currencies.

US Treasury Secretary nominee Mnuchin said too-strong a dollar may hurt the economy in a letter to a Senator asking about a hypothetical 25%-dollar rise, according to a Bloomberg report late Monday. He said, “From time to time, an excessively strong dollar may have negative short-term implications on the economy.” That came in contrast to his confirmation testimony in which he said the “strong dollar is important over the long term,” though he considered it “very, very strong.” The report may have added to the dollar’s wobble yesterday, though it has since recovered from lows. It also suggested that Trump may hold off formally labeling China a “currency manipulator” until after consulting with them first.

Main Macro Events Today

German IFO – It is expected to show a further improvement in sentiment and a rise in the headline reading to 111.3 from 111.0 in December. ZEW investor confidence also improved at the start of the year and even if yesterday’s services reading was a tad weaker than hoped, it i clear that the German recovery remains intact for now, even if Brexit and global political risks mean there is heightened uncertainty going ahead.
New Zealand CPI- Quarterly Inflation figures expected to rise to 0.3% from 0.2% last time.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Stuart Cowell
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 26th January 2020.

MACRO EVENTS & NEWS OF 26th January 2020.

European Outlook: The global stock rally continued in Asia overnight and the Nikkei closed with a 1.81% gain. The fact that the DOW managed to finally pass the 20000 mark has boosted investor confidence and banks, insurers and brokers led the Toix higher. Rising long term yields are creating a better climate also in Europe where the DAX managed to close above the 11800 mark Wednesday. U.K. and U.S. stock futures are still moving higher and further gains on bourses will likely keep upward pressure on yields and support a further steepening of the yield curve. The FTSE 100 is likely to continue to underperform as Sterling moves higher. OIl prices are also picking up and the front end WTI future is trading above USD 53 per barrel.

BOE Carney Risk in Fintech Boom: Reuters reported, the fast-growing financial technology (Fintech) sector could hold big “systemic risks” for the banking sector and the broader economy which need to be addressed by bank regulators around the world, Bank of England Governor Mark Carney said on Wednesday. “The challenge for policymakers is to ensure that Fintech develops in a way that maximises the opportunities and minimizes the risks for society,” Carney said in his speech. ” After all, the history of financial innovation is littered with examples that led to early booms, growing unintended consequences, and eventual busts.”

New Zealand: The dollar rose to a 2 ½ high after inflation climbed back into the Reserve Bank’s target band, effectively scrapping the prospect of further rate cuts. Government figures yesterday showed that CPI rose 0.4 per cent in the December quarter for an annual increase of 1.3 per cent as the recovery in global oil prices pushed up local petrol costs and as the rampant housing market continues to drive rapid house price gains. The local currency climbed as high as 73.12 US cents, the highest since November 9, and recently traded at 73.07 cents from 72.70 cents immediately before the release, while two-year swaps rose 4 basis points to 2.42 per cent.

German IFO: Unexpectedly drops in January. The headline reading fell to just 109.8 from 111.0 in the previous month, the lowest number since September. The decline was driven largely by a huge drop in expectations reading, which fell back to 103.2, the lowest since August and down from 105.5 in December. The current conditions indicator improved slightly to 116.9 from 116.7 in December. The breakdown showed that contrary to the improvement in the manufacturing PMI yesterday, the manufacturing reading in the Ifo declined, although this was in a broader down move across all sectors. The overall reading remains at high levels, consistent with ongoing growth, but at least the Ifo suggests that growth dynamics have slowed down somewhat at the start of the year.

Main Macro Events Today

UK GDP – Quarterly GDP figures expected to fall to 0.5% from 0.6% last time.
USD Home Sales – December new home sales data expected to show a 2.0% headline decrease to a 580k pace from 592k in November and 563k in October. Other housing measures have been mixed. The NAHB jumped to 69 from 63 in November and starts improved on the month but existing home sales slowed to 5.490 mln from 5.650 mln in November.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

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Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

MACRO EVENTS & NEWS OF 27th January 2020.

FX News
European Outlook: Asian stock markets mostly moved higher overnight, with Nikkei and Topix was trading close to levels last seen in December 2020 as the Yen weakened. The Hang Seng is slightly down, but Asian markets are still heading for a weekly gain, even as the global stock market rally is running out of steam as concerns over a trade war start to dampen global growth optimism. In Europe, only the DAX managed to close with modest gains yesterday, while other markets ended in the red. U.K. stock futures are moving higher this morning as the Pound falls back again, but U.S. futures are narrowly mixed. Against that background, we could see a stabilization of long yields, which continued to move higher this week, although it remains to be seen whether the pressure on Eurozone peripherals eases. The calendar today has German import price inflation at the start of the session as well as confidence data out of France and Italy and Eurozone M3 money supply growth.

Japan: The BOJ CPI rose by 0.1% in December. This came in as expected but lower than Novembers 0.2% rise. The increase in global and domestic demand was based on rising stocks, which lead Japanese exporters into a better position. Furthermore, BOJ’s announced a major JGB (Japanese Government Bonds), had a negative influence on the Japanese Yen.

US: reports revealed modest upside surprises for December trade and wholesale inventories, though with a modest December retail inventory shortfall, alongside a 22k initial claims surge in the MLK week to 259k that still left a tight claims trend despite holiday volatility. We also saw a big 10.4% December drop for new home sales to a lean 536k rate led by weakness in the Midwest, as we unwound a likely weather-boost in November, though we also saw a 4.3% median price spike to a $322,500 all-time high with a 4.0% new home inventory rise to a 7-year high of 259k. We saw a big 0.5% U.S. December leading indicators rise that leaves a sharp climb in this measure since March. The day’s mix of data lifted our Q4 GDP estimate to 1.7% from 1.6%, though we trimmed our Q1 GDP forecast to 2.2% from 2.3%. We still expect a 190k January nonfarm payroll rise.

UK: Above-forecast preliminary GDP for Q4 cast little market impact, being released after Cable had already made its high. Her Majesty’s pound remains the week’s outperformer out of the currencies we track, presently showing an average 1.6% advance versus the G3 currencies. Cable support is at 1.2623-24, while the December-6 high at 1.2774 provides an upside waypoint. We still see sterling gains versus the dollar as opportunity to establish fresh short positions given Brexit-related uncertainties versus expectations for more Fed tightening and bold economic policies of Trump.

Main Macro Events Today

US UK – President Donald Trump meets Prime Minister Teresa May.
US GDP and Durable goods – Quarterly GDP expected to fall to 2.2% from 3.5% in Q3 but above the 1.4% pace in Q2. After a string of contractions, inventories turned positive in Q3 and therefore positive turn back is again expected. December durable goods data expect a 2.0% increase for orders with shipments up 0.7% on the month and inventories up 0.2%. This compares to respective November figures of -4.5% for orders, 0.1% for shipments and 0.2% for inventories.
Michigan CSI – The second release on January Michigan Sentiment is out today and expected to be revised up slightly to 98.2 from 98.1 in December. The IBD/TIPP poll for the month posted an improvement to 55.6 from 54.8 in December and we expect Consumer Confidence to tick up to 114.0 from 113.7 last month.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 30th January 2020.

MACRO EVENTS & NEWS OF 30th January 2020.

Politics will remain omnipresent near term, but economic data and monetary policy will be back in view. There are policy meetings from the FOMC, BOE and BoJ, though they should be uneventful. While it can be debated whether Trump’s bombastic force was the catalyst for the burst in animal spirits, it’s a fact that the Dow is 9.6% higher since Election day, and has crossed the 20k barrier for the first time ever. The German Dax is up a mighty 12.7%, while Japan’s Nikkei has risen an impressive 13.4%. Even the FTSE is up 7.2% despite worries Brexit would cause a crash. Consumer and business sentiment indicators (including PMIs) from around the world have increased measurably. The FOMC meets for the first time this year. There’s no press conference or release of estimates this time, so the focus will be exclusively on the policy statement. No one anticipates any action at this point, but we’ll be looking for clues on the timing of the next rate hike.

United States: This week’s heavy data slate is loaded with key releases, headlined by Friday’s January nonfarm payroll report. Jobs are forecast rising 190k after the disappointing 156k December increase. The unemployment rate is seen steady at 4.7%, while earnings should rise 0.3%. Income and consumption for December (Monday) will be closely monitored as it a gauge of potential consumer spending. Q4 employment costs (Tuesday) are seen posting a 0.6% pace of growth the same as in Q3. January consumer confidence is projected at 114.0 (median 113.0) from 113.7 in December. Also due this week are manufacturing (Wednesday) and services (Friday) ISMs. Each is expected to be unchanged. January vehicle sales will be awaited, along with the ADP private employment survey (both Wednesday).

This week’s earnings news could also help support the bullish tone in equities. Positive news from industrials, financials, tech, and IT helped propel the Dow to 20k and the S&P to 2,295. About one-third of the S&P has reported so far, (68% have beaten estimates). Tuesday has Apple, Pfizer, Exxon, UPS, and Sprint. On Wednesday, there is Facebook. Thursday includes Amazon, Visa, ConocoPhillips, Royal Dutch Shell, Merck, GoPro, and Philip Morris.

Canada: November GDP (Tuesday) will be important for the global growth outlook. Also of note is the December industrial product price index (Tuesday). Governor Poloz (Tuesday) speaks at the University of Alberta School of Business, which will be followed by a press conference.

Europe: The frenzy of data releases this week is likely to add to Draghi’s problems as the recovery continues, while inflation is jumping higher and could even top the ECB’s 2% limit in Germany. The week starts with German inflation data (Monday), where we see headline HICP rising to 2.1% y/y with overall Eurozone number (Tuesday) at 1.6% y/y. A major difficulty is that the divergence across countries is rising again. Preliminary readings for Q4 GDP are expected to be relatively robust, with overall Eurozone GDP growth is also expected to have improved to 0.4% from Q3’s 0.3%. At the same time, confidence indicators for January have generally shown that the recovery continues, and the final manufacturing and services PMI readings are expected to be confirmed at 55.1 and 53.6 respectively. However, the decline in German jobless numbers is likely to have slowed at the start of the year. The data calendar also has German and Eurozone retail sales, as well as French consumer spending data for December, along with December Eurozone PPI. Events include ECBspeak from Draghi, Praet, Coeure, Nowotny and Mersch among others.

UK: The BoE’s Monetary Policy Committee conducts their February meeting this week (announcement Thursday), and publishes its latest quarterly Inflation Report (also Thursday). Expectations are widespread for the nine members to vote unanimously for unchanged policy, which would leave the repo rate at its historic low of 0.25%, and leave the prevailing QE total unchanged. The minutes and inflation report are expected to convey a continued wait-and-see stance. The data calendar is heighted by January Gfk consumer confidence (Tuesday), expected to dip to -8 from -7 December. There’s also the monthly lending data from the BoE (Tuesday), and the January PMI surveys, starting with Wednesday’s manufacturing report and concluding with Friday’s services report, with construction due Thursday.

China: New Year Holidays until Thursday however, the official CFLP PMI (Wednesday) is expected to dip to 51.1 from 51.4. The Caixin/Market index (Friday) is projected falling to 51.5 from 51.9.

Japan: The BoJ begins its 2-day meeting (Monday). No change in policy is expected. December retail sales (Monday) up 1.7% y/y overall. Tuesday’s calendar is full unemployment is expected unchanged at 3.1%, December personal income and PCE are on tap too,. December industrial production, housing starts and construction orders are also due. January manufacturing PMI (Wednesday) is seen slipping to 52.3 from 52.4, and January auto sales are also due Wednesday. Thursday has January consumer confidence, which is forecast to dip to 43.0 from 43.1. The services PMI is due Friday. The minutes to the December BoJ meeting are also out on Friday.

Australia: Trade report (Thursday), expected to reveal an A$2.2 bln surplus. Building approvals (Thursday) are seen 3.0% firmer in December after the 7.0% gain in November.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Stuart Cowell
Senior Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 31st January 2020.

MACRO EVENTS & NEWS OF 31st January 2020.

European Outlook: The selloff in equities continued in Asia overnight. Hong Kong and China remained closed for New Year celebrations, but elsewhere market remained weary of Trump related policy risks. The BoJ left policy unchanged as expected and there was no sign of tapering, despite an upward revision to the growth forecast, but this failed to limit the selloff in Nikkei and Topix as it underpinned a stronger currency. U.S. stock futures are also down, but FTSE 100 futures are managing slight gains, despite a stronger Pound. The European data calendar is packed today, with the highlights including Eurozone inflation and GDP data, as well as German and Eurozone unemployment numbers and BoE lending data out of the U.K. There are also a number of ECB speakers, which are expected to play down the importance of the latest uptick in inflation.

Japan: Japanese household Spending came in unexpectedly at 0.3% lower than December’s 1.5%. Unemployment rate matches analysts’ predictions, since it came in at 3.1%, which consider being unchanged based on December’s rate. Furthermore, BOJ’s announced that monetary policy will be kept steady.

US data reports: The U.S. income report revealed a 0.3% December income rise after a small November boost that tracked assumptions, but a firm 0.5% consumption increase with a solid 0.3% “real” rise that modestly beat estimates. We saw a lean 0.2% December chain price rise that lifted the “real” consumption gain, while the savings rate fell to 5.4% from 5.6% (was 5.5%) in November. The firm close to Q4 consumption signaled slight upside risk to our 2.0% Q1 GDP estimate, which we left intact for now despite a small boost in our Q1 real consumption growth forecast to 2.2% from 2.1%, after a 2.5% Q4 clip. The savings rate has considerable room to fall as we eventually unwind the lofty 6.1% Q1 average and 6.2% figure last March, as the rate is well above the 4.6% cycle-low from November of 2020. The Confidence spike since the U.S. elections may indeed signal a further savings rate drop into early-2020 that boosts consumption relative to income. U.S. pending home sales bounced 1.6% to 109.0 in December after falling 2.5% to 107.3 in November from October’s 110.0. But, compared to last December, pending sales are down 2.0% y/y versus the 1.4% y/y gain for November.

Germany: German inflation data led the way for an uptick in the Eurozone rate, to 1.6% y/y from 1.1% y/y in December. Base effects from energy prices are the main driving factor and with even the German rate holding below the ECB’s 2% limit, the central bank is unlikely to change its course on the back of the numbers. Given that spreads are already widening, it will be crucial for Draghi and Co to send a very clear message to markets in coming months. German Dec retail sales came in, early today, much weaker than anticipated at -0.9% m/m. Expectations had been for a rise of 0.6% m/m as a rebound from the slump in the previous month and the data are more than disappointing, and at odds with very strong consumer confidence figures and the Bundesbank’s full year 2020 growth estimate, which suggested a strong last quarter also thanks to consumption. However, official retail sales cover only a part of overall consumption, so the gap between the official data and the consumption numbers in the GDP measures seem to be widening

Main Macro Events Today

Draghi’s speech – ECB President Mario Draghi speaks in ECB and European Commission conference.
Eurozone GDP – Quarterly GDP growth is expected to come in at 0.4% q/q, from 0.3% in the previous quarter and with a slight upside risk. Growth is broadening and confidence indicators suggest ongoing improvement in economic activity ahead, helped to a large extend by consumption and domestic demand. Risks remain tilted to the downside and come mainly from the political sphere inside and outside the Eurozone. For now, though the recovery remains on track.
US ECI & Consumer Confidence – Employment cost data expected to come in at 0.6%, matching the pace of growth that we have seen last time. The y/y pace of growth should tick up to 2.4% after holding at 2.3% for the past two quarters. January consumer confidence is expected to edge higher to 114.0 from 113.7 in December and 109.4 in November. Since the election various confidence measures have been topping highs set last winter during the oil price plunge.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 1st February 2020.

MACRO EVENTS & NEWS OF 1st February 2020.

European Outlook: Asian markets were mixed overnight. Japan managed to close with gains as markets started to focus on corporate earnings, while stocks in Hong Kong were under pressure as markets reopened, with U.S. policy concerns weighing on confidence. A weaker yen underpinned Japanese markets. Japan’s final manufacturing PMI was revised slightly down, but business sentiment was still at a 31-month high and Chinese PMIs held steady and point to ongoing expansion. In Europe, the calendar holds final Eurozone PMI readings as well as the U.K. CIPS manufacturing PMI. Germany auctions 5-year Bobls, but political events will remain at the forefront as U.S. President Trumps seems to promote a breakup of the EU.

Japan: Final Manufacturing PMI came in slightly down at 52.7 from 52.8 in December. As HIS Markit / Nikkei reported, Japanese manufacturing sector started 2020 with operating conditions improving at the sharpest rate in 3 years’ time. Both Production and new order rose in January, with the latter rising at the quickest rate since December 2020.

China: Chinese PMIs held pretty steady with 51.3 from 51.4 last period (expectation at 51.2) and point to ongoing expansion. Also, indicates that steadiness in Chinese economy will continue.

US data reports: revealed modest shortfalls across the Q4 ECI data and the January figures for consumer confidence and Chicago PMI, though the shortfalls did nothing to change the outlook for GDP growth of 2.0% in Q1 after a 1.9% Q4 rise. A 0.5% Q4 U.S. ECI gain undershot the 0.6% increases of the last three quarters, and we saw a restrained 0.5% wage and salary rise that defied the steeper hourly earnings uptrend, and we expect a firm 0.3% January hourly-earnings rise fueled by minimum wage hikes, alongside a 190k payroll rise. We saw a Chicago PMI drop to 50.3 from 53.9, which may reflect the 4% drop we expect in the January vehicle assembly rate given this index’s sensitivity to the auto sector. For consumer confidence, we saw a drop to a still-firm 111.8 from a 113.3 (was 113.7) December cycle-high, though confidence is still at its highest levels since the 9-11 terrorist attack in 2001. Inflation expectations bounced sharply in January after an odd December pullback, as gauged by both the Consumer confidence and Michigan sentiment surveys.

Canada: BoC’s Poloz continued to highlight uncertainty in his prepared remarks and his Q&A with the press. In his Q&A, he said “The way we think of it now is uncertainty has risen in the wake of the election and that is likely to feed through to investment thinking.” In his speech, he championed the importance of judgment in setting policy, noting that uncertainties such as geopolitical risk limit the effectiveness of economic models. On the currency, he said that some rise in the loonie is premature given excess capacity. The energy crisis (plunge in oil) has left Canada with persistent excess capacity. As for Trump, the impact of the new president is not knowing what to expect. No change for an extended period remains the base case scenario.

Main Macro Events Today

UK Markit PMI – UK Markit Manufacturing PMI expected to fall to 55.9 from 56.1 in December.
FOMC & Fed’s Rate – Monetary policy announcement coming today, while there will not be any press conference or release of estimates. No policy changes are expected at this point. Fed’s Interest Rate will also be decided later today.
US ISM – January ISM is out today and should reveal a 54.5 (median 55.0) headline that remain unchanged from the post-revision level set in December. Other measures of producer sentiment have mostly improved for the month and hence the ISM-adjusted average of all measures expected to climb to 55 from 53.2 in both December and November and 51.9 in October.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 2nd February 2020.

MACRO EVENTS & NEWS OF 2nd February 2020.

European Outlook: Asian stock markets mostly headed south ( Nikkei closed own -1.22% at 18, 914) ongoing concerns about am emerging global trade war, and as the dollar weakened after the Fed failed to signal a rate hike as early as March, which some expected after yesterday’s data round. Oil prices fell back and investor confidence ebbed. Meanwhile the tense transatlantic mood and the apparent desire by the new U.S. administration stir discord in the Eurozone and the EU with the aim of breaking up of the union, should keep Eurozone spreads on a widening path. This backdrop, if it sustains, this will make it less likely that the ECB will end its very accommodative monetary policy, and keep the euro on the back foot. The UK parliament voted in favour of the government to trigger Article 50 and today the Brexit White Paper will be released.

Australian Trade – A Record Surplus: Imports rose to 1% from 0% last time and Exports fell to 5% from 8% which grew the trade balance much more than expected to record AUD 3,511Million from AUD2, 040 million last time and an expected figure of AUD2, 200million. The record trade balance was due mainly to significant increases in commodity prices and prevented Australia slipping into a “technical” recession for Q4 2020.

The FOMC Statement: FOMC said inflation “will rise to 2%” over the medium term, and that economic activity continued to expand, while the labor market continued to strengthen. There was no change in rates, as projected. The FED also gave itself maximum flexibility to act in March, or not, if it deems it necessary as the policy statement neither put the markets on notice, nor did it signal the all-clear. Many factors will go into the policy decision next month. While stronger data and rising inflation pressures may push some of the more hawkish Committee members to argue for a 25 bp hike, the current voters, including Evans, one of the most dovish participants, along with the centrist Kashkari would likely prefer to delay, especially if political uncertainties remain high and if fiscal stimulus looks to be farther out the timeline. Additionally, the markets could be shaky ahead of Brexit, as the UK moves closer to triggering that event, and the March 15 general elections in the Netherlands. With this backdrop, Fedspeak should be closely monitored. USD sagged following the announcement and overnight Cable touched 1.2680, the Euro perked to 1.0795 and Japanese yen traded down to 112.46. The US Dollar index is currently trading significantly under 100 at 99.43.

US data: U.S. ADP reported private payrolls surged 246k in January after a 151k gain in December (revised from 153k). The service sector climbed 201k from 147k previously (revised from 169k), while employment in the goods producing sector rose 46k from December’s 4k gain. The U.S. ISM surge to a 2-year high of 56.0 from prior highs of 54.5 in December and 53.5 in November lifted January nonfarm payroll estimates to 200k from 190k, as the index continues to climb steeply from the 47.9 expansion-low in December of 2020. The jobs component surged to a 29-month high of 56.1 from an 18-month high of 52.8 in December.

Main Macro Events Today

BoE Super Thursday – Today the BOE announce it interest rate decision, (very likely to remain unchanged) along with its asset purchase facility (again likely to be unchanged) the minutes and votes from their last meeting and also the Quarterly Inflation report (the most interesting data) The minutes and inflation report are expected to convey a continued wait-and-see stance, repeating that policy could go in either direction this year. Finally governor Carney and members of the MPC hold a press conference regarding the Inflation report (likely to be by far the most interesting).
ECB President Draghi Speech – The speech in Slovenia may be more interesting and market moving than his speech on Monday but markets seem to be in a Trump On / Trump Off mood rather than Risk On / Risk Off.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Stuart Cowell
Senior Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 3rd February 2020.

MACRO EVENTS & NEWS OF 3rd February 2020.

European Outlook: Asian stock markets were mostly down overnight. The Nikkei managed to close with a marginal gain as the Yen declined, but elsewhere markets remained in a sombre mode, after mixed closes in the U.S. and Europe yesterday. Chinese stocks fell on the first trading day of the week. The Caixin manufacturing PMI came in weaker than expected, even though it remained in expansion territory, and the central bank raised interest rates in open market operations. Meanwhile international markets continue to look nervously to the U.S. and Trump’s new policies. U.S. and U.K. stock futures are also heading south. European yields came off yesterday and if the cautious mood prevails should remain underpinned going into the weekend. European spreads mostly narrowed yesterday, but France underperformed amid political concerns as the presidential elections draw nearer and Le Pen gains in the polls. The European calendar has final services PMI readings out of the Eurozone, as well as the U.K. CIPS services PMI.

China: China’s central bank sends tightening signal by lifting short term rtes. The first trading day after the long New Year holiday started with a bank in China as the bank lifted rates on open market operation repos by 10 basis points, effective today. Another signal that authorities are focusing on trying to control a real estate bubble, but some see it also as a way to try and halt the depreciation of the yuan, even if the rate rise focuses on reverse repos. According to Reuters two sources said authorities also raised the lending rates on its standing lending facility (SFL) short term loans.

UK: Sterling has followed Gilt yields lower in the wake of the BoE policy announcement and Inflation Report, which left the repo rate and QE settings unchanged, and detailed upgraded growth forecasts, as had been widely anticipated. The BoE retained its neutral policy bias, saying that the next move could be “in either direction”. The growth forecast has been lifted compared to the November inflation report, but the bank suggested that the equilibrium unemployment rate has dropped, which means the BoE can afford to accept a lower rate of unemployment without having to tighten policy. So, despite the better growth outlook, the bank remains firmly in neutral mode, leaving the door open to both further easing, or more tightening, depending how developments unfold. Cable had lifted from its lows, benefiting from the generally soft path of the dollar, though at 1.2575 bid presently remains a net 0.7% lower yesterday. The pound had remained heavier relative to the euro and yen, and although also off from earlier lows is still down by an average 1.1% versus the G3 currencies. A remark from BoE governor Carney during the BoE MPC’s post-meeting press conference, that “we think the economy can run with a lower rate of unemployment without us having to adjust policy” has been feeding a sterling-bearish narrative. Next domestic focus will be today’s December services PMI report, expected to dip to a 55.8 reading after 56.2 in December.

US: The dollar shrugged off the better jobless claims and productivity outcomes, leaving EUR-USD static just over 1.0800, and USD-JPY idling near 112.25. Yields were little changed, while equity futures remained moderately underwater. The 14k U.S. initial claims drop to 246k in the last week of January after climbing 23k to 260k the week before (revised from 259k). Claims are entering February on a tight trajectory following a 2-month period of holiday volatility that ended with last week’s report. Claims are averaging just 248k in January, versus higher prior averages of 258k in December. U.S. productivity posted a preliminary 1.3% growth rate in Q4, versus 3.5% in Q3. Furthermore, a 170K January nonfarm payroll rise expected in today’s report.

Main Macro Events Today

Us Non-Manufacturing ISM – January ISM-NMI is out today to close out the January producer sentiment releases and it is expected to tick down to 57 from 57.2 in December. Most measures of producer sentiment managed to post gains in January and the ISM-adjusted average of all measure looks poised to finish at 54 for the month, up from 53 in December and November.
US Employment – It is expected to post a 200k headline, up from 156k in December and about matching the 204k headline in November. The unemployment is expected to hold steady at 4.7% from November. The balance of risk is firmly to the upside as claims, consumer confidence and producer sentiment have all continued to strengthen in January.
EU Markit PMI – Expected to be unchanged since last time i.e. 53.6.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

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Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 6th February 2020.

MACRO EVENTS & NEWS OF 6th February 2020.

February is starting off on an optimistic front after a solid beat from the January jobs report, and generally good news from the ISMs. Data calendars are pretty light around the world, though there will be a number of central bank meetings in Asia. Trade reports will highlight globally, especially from Germany, which has caught the ire of President Trump. The UK will also continue to wrestle with its Brexit dilemma, with the focus on the freshly published white paper on its negotiating stance before Article 50 is invoked next month.

United States: The economic calendar is a relatively lean one this week, with GDP and payrolls in the rear-view mirror now. Monday is empty, while the trade deficit is forecast to narrow to -$45 bln (Tuesday). JOLTS job openings and consumer credit are also due (Tuesday), with credit seen expanding by $20 bln in December from $24.5 bln in November. The MBA mortgage applications and EIA energy inventories are the only offerings (Wednesday). Initial jobless claims may rise 249K from 247K for the week ended February 2 (Thursday), while wholesale sales may rise 0.7% in December and inventories increase 1.0%. The Spartan week rounds out with import prices and export prices forecast unchanged in January (Friday), while preliminary Michigan sentiment is expected at 97.9 vs 98.5 last time. The January’s Treasury budget will also come out on Friday. The earnings season is coming to an end, but there are still a few key announcements due. So far 66.4% of the 274 S&P500 companies that have reported have revealed positive earnings news, while 20.8% have given negative surprises, with 12.8% in line.

Canada: The Canadian calendar is one of the few with a hearty spread of economic data this week after the paltry offerings last week. The employment report (Friday) is the main course, with total jobs projected to rise 5.0k in January after the 46.1k surge in December. The trade report (Tuesday) is expected to show a further expansion in the surplus to $1.2 bln in December following the surprise shift to a $0.5 bln surplus in November. Crude oil prices were sharply higher in December, which should provide a hefty boost to export values. The usual pairing of building permits (Tuesday) and housing starts (Wednesday) is expected to show moderation in Canada’s housing sector as Federal government measures impact. The Ivey PMI (Tuesday) is expected to fall to 58.3 in January on a seasonally adjusted basis from 60.8 in December. A 0.1% increase in the new housing price index (Thursday) is anticipated following the 0.2% gain in November.

Europe: The data calendar dries up this week and with the central bank meetings out of the way, the markets will have plenty of time to focus on the political risks that seem to be hitting the Eurozone from the inside and the outside. The French presidential election (first round April 23) remains a factor for markets, and it will be key to see how the Eurozone and the EU will react to the fact that the number of those who would love to see the unions fail is rising. Against that background and with the U.S. administration criticizing the weak EUR, which in turn is adding to Germany’s push for QE tapering, Eurozone spreads are likely to remain volatile and to continue to widen. Ironically that in turn puts Draghi in a difficult position and fears of a revival of the debt crisis will mean the ECB president will continue to send dovish signals at his comments at the European Parliament hearing next week.

The highlight of the data calendar is German manufacturing orders today (Monday), which came out at 5.2% from the -2.5% m/m decline in November. The sharp correction in orders in November, will likely keep a lid on December industrial production numbers (Tuesday) which are expected to rise to 0.2% m/m, following the 0.4% m/m in November. German December trade data (Thursday) may attract more attention than usual, not because of the monthly figure, but because it will likely show that Germany is the world’s leading exporters, which at the current juncture will only add to the arguments of German critics, especially Mr. Trump. Interestingly though, GDP numbers for this year already indicated that net exports detracted from overall growth and that the German recovery has been mainly underpinned by domestic demand and consumption. Additionally, the event calendar has ECBspeak from Draghi, Mersch, Weidmann and others and a German 10-year Bund sale on Wednesday.

UK: The calendar is fairly quiet this week, highlighted by industrial production and trade figures for December (Friday). The January BRC retail sales report is also up (Tuesday), along with the RICS house price balance for the same month (Thursday). The narrower manufacturing production gauge is expected to expand by 0.3% m/m from 1.3% last time. Data in-line with expectations should not affect sterling markets. Brexit focus will be on the government’s freshly published white paper on its negotiating stance before Article 50 is invoked. The paper will be subject to parliamentary approval, and is widely expected to pass without too much trouble. The government has pledged that Article 50 will be triggered by the end of March.

China: The January services PMI missed expectations since came out at 53.1 from forecast 53.6, while the January trade surplus is expected to balloon to $49.8 bln from 40.8 bln. January loan growth and new yuan loans are due Friday.

Japan: Japan’s docket kicks off with the December current account (Wednesday), where the surplus is expected to narrow to JPY 1,100 bln from 1,415,5 bln. January bank loan data are also due. December machine orders (Thursday) should rise 3.2% m/m from the prior 5.1% decline. January PPI (Friday) is penciled in at -0.1% y/y from -1.2% in December, while the December tertiary industry index is also due Friday.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 7th February 2020.

MACRO EVENTS & NEWS OF 7th February 2020.

European Outlook: Asian stock markets fluctuated after weaker sessions in the U.S. and Europe yesterday. Especially Eurozone markets were under pressure on Monday and spreads widened sharply, despite Draghi’s confirmation that the central bank will continue with its QE schedule and maintains an easing bias. This was followed up by Coeure telling La Parisien that the EUR is at an appropriate level. However, with the ECB continuing to keep the EUR down with a very expansionary policy the political risks facing the Eurozone externally and internally are rising and markets are reaction nervously to the rise of anti-EMU, far right parties in the polls. Especially France is in focus and the spread over the German benchmark has risen sharply in recent weeks. Political risks continue to overshadow the data calendar. Already released U.K. BRC retail sales for January unexpectedly dropped. German production numbers are due at the start of the session, followed by French trade data and U.K. house price numbers from Halifax later in the day.

ECB’s Coeure: EUR is appropriate level for the economy. The Executive Board member said in an interview with La Parisien that “since its last peak in 2020, euro has depreciated by almost 30% against the dollar”, adding that the single currency is “now at a level that is appropriate for the economic situation in Europe”. Coeure told said the “single currency has adjusted as a consequence” of necessary ECB policies designed to support the economy. Asked about Le Pen’s push for France to leave the EU Coeure said this is not what the French want as “when asked if they think the EUR is a good thing, the answer is an unambiguous yes”. He also played down arguments that the 3% debt limit in the Maastricht Treaty is a straightjacket, as “France has not respected the criterion once since 2007”. Meanwhile, ECB chief Draghi confirms easing bias and QE schedule at his hearing before the European Parliament, saying that the ECB policy is a key contributor to the Eurozone’s economic improvement and that financing conditions have to remain accommodative. He confirmed the QE scheduled of EUR 60 bln worth of asset purchases from April to December. The ECB president once again played down the importance of the recent uptick in headline inflation. Draghi repeated that the ECB will look through transient price increases and that the risks to the economic outlook remain tilted to the downside, and relate mainly to global factors.

Fedspeak: Philly Fed’s Harker did not discuss monetary policy in his prepared remarks on “Regulation is Key to Safeguarding Fintech, Consumers.” He did say it’s still an open question, who should supervise fintech lenders. We’ll see if he says anything policy related in Q&A. March should be considered on the table in terms of possible rate action, he told reporters in answering questions. Indeed, never take any meeting off the table, he warned, though he also advised he hasn’t made up his mind yet. It will depend on the evolution of the economy and fiscal policy. He still supports the FOMC’s three, quarter-point tightening trajectory and wants to make sure the Fed doesn’t fall behind the curve. Harker is on the hawkish side of the spectrum and is a voter this year.

Australia: Reserve Bank of Australia held rates at 1.50%, matching widespread expectations. They appear to be comfortable, for now, with inflation that “remains quite low.” Inflation is expected to “remain low for some time.” Governor Lowe said “Headline inflation is expected to pick up over the course of 2020 to be above 2 per cent, with the rise in underlying inflation expected to be a bit more gradual.” He said that the board “judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.” They appear content to stay on the sidelines and let the easing from 2020 percolate through the economy.

Main Macro Events Today

US Trade, JOLTS & Consumer Credit – The trade report, expected to reveal to narrow to -$45 bln in December from the -$45.2 bln in November. JOLTS job openings and consumer credit are also coming out today, with credit seen expanding by $20 bln in December from $24.5 bln in November.
CAD Trade Balance – The trade report, expected to reveal an expansion in the surplus to C$1.2 bln in December from the C$0.5 bln in November.
CAD Exports, Imports & Ivey PMI – Crude oil prices were sharply higher in December, which should provide a hefty boost to export values. Exports are seen rising 2.0% m/m in December after the 4.3% surge in November. Imports are projected to increase 0.5% in December after the 0.7% gain. Building permits and the Ivey PMI are also due out today, but will take a back-seat to the trade report.

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 8th February 2020.

MACRO EVENTS & NEWS OF 8th February 2020.

European Outlook: Asian stock markets moved mostly higher, with property developers and automakers leading the way in China, but gains in Japan trimmed later in the session by a stronger Yen and the ongoing slump in oil prices. The front end Nymex future is currently trading at USD 51.76 per barrel, after data showing a rise i U.S. stockpiles, fuelling concerns that rising supply from the U.S. will offset cuts by OPEC. U.K. futures are moving higher, U.S. stock futures are narrowly mixed. In Europe only DAX and FTSE 100 managed to close with gains on Tuesday, while other markets were in the red. Yields declined as bond futures advanced and the French 10-year for once managed to outperform the German equivalent, but the Eurozone remains in the shadow of election jitters and mounting political risks inside and outside the union. The local data calendar today is pretty empty and with only business confidence data from the Bank of France on the agenda, political risks will remain a focal point.

US: U.S. December trade deficit narrowed 3.2% to -$44.3 bln after rising 7.1% to -$45.7 bln in November. Imports rose 1.5% versus the 1.2% gain previously, while exports were up 2.7% versus -0.2% in November. The “real” goods trade balance was -$62.3 bln compared to -$63.9 bln as imports rose 1.5% while exports increased 3.6%. U.S. JOLTS report showed job openings dipped 4k to 5,501k in December after rising 54k to 5,505k in November (revised from 5,522k). Also, the rate slipped to 3.6% from 3.7%. December hirings rose 40k to 5,252k following November’s 52k increase to 5,212k. The rate was flat at 3.6%. Quitters dropped 98k to 2,979k in December after rebounding 54k to 3,077k in November. The rate fell to 2.0% from 2.1%. The JOLTS report an important indicator for Fed Chair Yellen, particularly the quit rate, so the data will be slightly disappointing, but not really market moving.

Canada: GoC were ultimately little changed to firmer, with the long end of the yield curve outperforming. Equities managed to maintain a small gain late into the session, despite a drag from energy sector shares amid a tumble in crude oil prices. The loonie saw modest improvement against the U.S. dollar, despite the oil price decline and the not exactly surprising news that Canada ran a second consecutive trade surplus in December. Canada’s trade surplus narrowed to C$0.9 bln in December, which was better than expected and modestly below projection of C$1.2 bln. The November surplus was revised higher to C$1.0 bln from the original C$0.5 bln, leaving a narrowing in December despite what was a firm figure. Exports improved 0.8% m/m in December after a revised 5.1% surge in November (was +4.3%), driven by higher prices on energy products. Imports grew 1.0% on the heels of a revised 0.2% dip in November (was +0.7%), with December’s gain mostly due to an increase in aircraft and industrial machinery.

Fedspeak: Fed’s Kashkari said yesterday, it’s better the Fed errs on the accommodative side than on being more restrictive, in an essay he wrote to explain his vote on February 1. He noted that he “avoids making predictions about when our next rate change will be and how many changes I expect in a given year, in order to minimize confusion and because the Fed doesn’t know for sure how the economy will evolve, where he also acknowledged the Fed has often been wrong. He also added that there are too many uncertainties, including the fiscal policy outlook. Inflation is expected to remain well anchored, with the strong dollar likely to restrain price pressures. Wages aren’t showing much inflation either. In conclusion, he said from a risk management standpoint, “we have stronger tools to deal with high inflation than low inflation.” Hence, he voted to keep rates steady.

Main Macro Events Today

CA Housing Stats – Canada’s Housing starts are expected to slow to a 200.0k unit pace in January from the 207.0k rate in December. Permits grew at a 233k to 235k pace over the three months spanning October, November and December.
NBNZ Rate – Reserve Bank of New Zealand’s meeting, expected to result in no change to the 1.75% rate setting.
NZ MPS & Conference – RBNZ will publish today the Monetary Policy statement. Afterwards a press conference will also be held by Reserve Bank Governor regarding monetary policy.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 9th February 2020.

MACRO EVENTS & NEWS OF 9th February 2020.

European Outlook: Japanese stock markets headed south despite a weaker Yen, as investors held back ahead of tomorrow’s meeting between Trump and Abe. ASX, Hang Seng and Chinese bourses meanwhile moved higher after U.S. equities managed to claw back losses and close with gains on Wednesday. In Europe markets also came up from lows in late trade and markets closed narrowly mixed, with FTSE 100 and Italian MIB outperforming. FTSE 100 futures are posting marginal gains at the moment and U.S. futures are narrowly mixed, as investors await further guidance on U.S. policies. Yields continued to head south in Asia but after Bund and Gilt futures rallied yesterday and Eurozone spreads narrowed markedly as peripherals outperformed it remains to be seen how far down yields can go. Already released the U.K. RICS house price balance improved slightly. Still to come Germany releases December trade data, Switzerland has unemployment numbers and Norway Q4 GDP.

New Zealand: RBNZ held rates at 1.75%, matching widespread expectations. The statement by Governor Wheeler was cautiously upbeat as he said “Growth in New Zealand has increased as expected…” and “The outlook remains positive…” As for inflation, it has returned to the target band as past oil prices declines fall-out of the annual calculation. They remain of the view that inflation will gradually return to the midpoint of the target band. On the currency, he said that “A decline in the exchange rate is needed.” But while the growth and inflation outlook may be looking somewhat better, Wheeler ended his statement with “Monetary policy will remain accommodative for a considerable period. Numerous uncertainties remain, particularly in respect of the international outlook, and policy may need to adjust accordingly.”

US: WTI crude has rallied to session highs following the EIA inventory report which revealed a large 13.8 mln bbl increase in crude stocks. The contract has topped at $52.65 after bottoming at $51.51 after the data. The market had sold off on the API report on Tuesday, and with today’s EIA report’s corroborating, it appeared short covering was the driver behind the fairly sharp rally. In addition, gasoline and distillate stocks came in lower than expected, a bullish development.

Canada: Yields have extended declines amid risk off trades, with the firm January housing starts report overlooked in favour of global developments, since they have been improved slightly to a 207.4k rate in January from a revised 206.3k clip in December (was 207.0k). Also, the government’s measures to temper the housing market are projected to gradually slow sales and construction. Hence, a firm starts report to begin the year is not likely to worry the BoC. The 10-year GoC has fallen to a session low 1.652%, leaving a 3.5 bp drop from Tuesday’s close. The 2-year is at 0.724%, also a session low, which is good for a 1 bp decline relative to yesterday’s close. Equities have turned (slightly) negative, according to the S&P/TSX 60 index futures after a nearly unchanged perch earlier.

Germany reported: a sa trade surplus of EUR 18.4 bln in December, down from EUR 21.8 bln in the previous month, as exports slumped 3.3% m/m, after a very strong November rise of 3.9% m/m, while imports were unchanged in December. after rising 3.5% m/m in November. Unadjusted data show a total trade surplus of EUR 252.9 bln in 2020, up from EUR 244.3 bln in 2020, as imports rose 1.2% and imports 0.6%. Imports as well as exports stood at record highs, but this is nominal data and impacted by exchange rate and oil price developments and official estimates for 2020 GDP reported a negative contribution from net exports to overall growth last year, which highlights the impact of price movements, but also that for once it wasn’t actually export strength that underpinned the recovery last year.

Main Macro Events Today

US Jobless Claims – Initial claims data for the week of February 4 is out today and should reveal a slight headline increase to 250k from 246k last week and 260k the week prior to that. Claims have been striking a tight path lately and we expect a February average of 250k, up slightly from 248k in January but down from 258k in December.
Canada NHPI – A 0.1% increase in the new housing price index is anticipated following the 0.2% gain in November. Bank of Canada Deputy Governor Schembri speaks today at Western University, London, Ontario.
BOE Gov. Carney – BOE Governor Carney speaks at the Bank of England Reception in London.
Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 10th February 2020.

MACRO EVENTS & NEWS OF 10th February 2020.

European Outlook: The global stock market rally that was sparked by President Trump’s reference to “something” on the tax cut front in the next 2-3 weeks that would be “phenomenal”, continued in Asia overnight. The Nikkei closed with a more than 2% gain as a lower Yen gave an additional boost, especially to automakers. Markets have also welcomed a perceived softening of Trump’s rhetoric on tariffs on imports from China. The Abe-Trump meeting remains in focus today. U.S. and European stock futures are also moving higher after Trump’s remarks also underpinned closing gains yesterday. Today’s data calendar focuses on the December round of production numbers from the U.K., France and Italy, too backward looking to really change the outlook, leaving the focus on the political arena. Meanwhile the BoE announced that hawk Kristin Forbes, who recently said the BoE may have to hike soon, will leave the MPC after a single term on June 30.

US: Trump signed 3 more executive orders aimed at crime including measures to crack down on transnational crime and drug cartels, reduce crime domestically and prevent violence against law enforcement. This coincided with Sessions being sworn in as Attorney General. The dollar is still higher, however, after Trump’s reference to tax cut announcements in 2-3 weeks, which the markets have been braying for. Additionally, U.S. reports revealed robust wholesale trade and initial claims reports alongside a spike in the weekly Bloomberg consumer comfort index to a new cycle-high that lifted prospects for GDP and payrolls. For wholesale trade, a 2.6% December sales surge that was only partly price-related, and the inventory-to-sales (I/S) ratio plunged to 1.29 after a prior recession-sized climb from 1.20 in mid-2020 to a 1.37 expansion-high in January of 2020. For claims, a 12k drop to 234k in the first week of February left a super-tight path over the three weeks since the end of holiday volatility, with a reading that challenges the 43-year low of 233k in the Veteran’s Day week.

FX Update: USDJPY led the broader dollar rally sparked by Trump’s hint yesterday that “something” on the tax cut front in the next 2-3 weeks that would be “phenomenal,” which was followed-up by an unexpected phone all between Trump and his Chinese counterpart Xi, where Trump said that he would respect the “One China” policy, helping ease tensions. This sparked a risk-on trade and a dollar rally, and USDJPY extended in Tokyo to a nine-day peak of 113.80, which is over two big figures up on Tuesday’s 10-week low at 111.59. Japanese stocks, liking the weaker yen and risk-on vibe, surged; the Nikkei 225 closing with a 2.6% gain. Focus will now turn to the meeting between Trump and Abe, later today, which comes little more than a week after Trump accused Japan, along with China, of currency manipulation. In theory, the risk of fresh vitriol from Trump on exchange rates presents downside risk to USDJPY, though his diplomatic tone with China’s Xi may well be repeated with Abe. Elsewhere, EURUSD consolidated in Asia after tumbling back under 1.0700.

Canada: New housing price index improved 0.1% m/m in December after the 0.2% gain in November. By region, gains in Ontario and Alberta led the way higher for the total index. The new housing price index grew at a 3.0% y/y pace in December, matching the 3.0% rate in November and October. The index saw a cycle low 1.1% y/y growth rate in April of 2020, and has tracked higher since as sales and prices have gained momentum. Moreover, the 3.0% growth rates in the final three months of last year were the strongest annual gains since June of 2020’s 3.3% rise. The government housing measures implemented late last year will eventually temper sales and construction, but the impact should be gradual.

Main Macro Events Today

GBP Man. Production & NIESR GDP Estimate – December round of production numbers from the U.K are coming out, with manufacturing production for December to fall by 1% (i.e. forecast at 0.3%) after the 1.3% in November. Industrial production on the other hand expected to be 3.2% y/y, and 0.2% m/m.
Canada Employment Rates – Net Change in Employment, Participation rate and unemployment rate will be out today. Employment gains for January expected to be out today, after the 53.7k surge in December. Canada posted employment gains from August to October of last year, and saw a decline in November.
US Trade price data & Budget Statement – January’s import prices expected to be up 0.1%, with export prices unchanged. This compares to December figures which had import prices up 0.4% and import prices up 0.3% for the month. Oil prices continue to climb which should lend support to the headline however the pace of gains slowed in January. The Monthly Budget statement by FMS is also out today.
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Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

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Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

Date : 13th February 2020.

MACRO EVENTS & NEWS OF 13th February 2020.

“All politics is local,” quipped Tip O’Neill. But, as seen in recent election results, politics have become a very global affair and have underscored President Obama’s line, “elections have consequences.” Indeed, politics have dominated the landscape since the June 24 Brexit surprise and then the November 8 Trump shocker. So far, the ramifications have been a boon for investors as expectations for a more business friendly environment have manifest in hefty equity gains. While politics will remain a major risk ahead, especially with Brexit negotiations on the immediate horizon, and upcoming elections in the Netherlands (March 15), France (April 23) and Germany (September 24), monetary policy will be at the forefront this week as Fed Chair Yellen presents her Monetary Policy Report (Tuesday).

United States: Fed Chair Yellen should headline this week when she goes the Senate Banking Committee (Tuesday), after which she’ll go to the House Financial Services Committee (Wednesday). Key for the markets will be her outlook on the normalization path, including the balance sheet. The data calendar will be of importance too, led by January CPI and retail sales, which will have longer run implications for Fed policy. Production and housing figures also awaited (all due Wednesday). Price pressures have been on the rise as oil prices have stabilized higher, though the trajectory is still rather shallow, thanks in part to the firmer dollar. Remember too that the February 1 FOMC statement even dropped its mention of transitory effects capping inflation. CPI is forecast rising 0.4%, thanks to higher energy costs, with the core rate up 0.2%. Retail sales are expected to inch up 0.1% in January versus December’s 0.6% jump. February manufacturing reports also are due this week. The Empire State manufacturing index (Wednesday) is projected rising 2.5 points back to 9.0 after slipping 1.5 points to 6.5 in January. The Philly Fed index (Thursday) should tumble to 15.0 after increasing 3.9 points to 23.6 in January, which was the strongest since December 2020. January housing starts (Thursday) should hold steady at the 1.226 mln pace, after rebounding 11.3% to that rate in December. The February NAHB homebuilder sentiment survey is also on tap (Thursday).

Canada: The Canadian calendar has manufacturing and housing data feature on this week’s docket. The January Teranet/National Housing Price Index is due Tuesday. January existing home sales (Wednesday) are projected to expand 3.0% y/y after the 5.0% y/y drop in December. The international securities transactions report for December is due Friday. The Bank of Canada is silent this week. Prime Minister Trudeau meets President Trump in Washington D.C onMonday.

Europe: As pressure on the EU and Eurozone increases and political risks from the inside and outside mount it seems officials are trying to close ranks, at least on the monetary front. ECB’s Mersch signaled that the central bank may drop the reference to the possibility of another rate cut, while Germany is scaling back its ambitions to get the G20 to push for less accommodative policies. Both moves may reflect pragmatic decisions in the light of strong data and a changed global political landscape, but they also bring Draghi and Merkel closer together. At least current leaders seem eager to try and convince the world that while differences of opinion remain, they will fight hard to keep Europe’s unions together beyond what is promising to be a challenging year.

The raft of data releases this week will mainly be backward looking and confirm the picture of an ongoing recovery and rising inflation. The most interesting number may be German ZEW investor confidence for February, which will show how unsettled investors are by the mounting political risks and the growing tensions between the new U.S. administration. The data is releases on Tuesday, which will include German and Eurozone Q4 GDP numbers as well as final German inflation data for January. Italian GDP meanwhile continues to trail behind and expected to be unchanged. This combination should see overall Eurozone Q4 GDP confirmed 0.5% q/q, with domestic demand the main driving factor as the ECB continues to lend a helping hand. The full calendar also includes Eurozone production, trade and current account data for December, but with the focus on the Q4 GDP numbers these are unlikely to move markets or change the outlook. There is also ECBspeak from Nowotny and Coeure, which will be scrutinized for a change in tone.

UK: The UK calendar is highlighted by January inflation data (Tuesday), where a rise in the headline rate to 1.9% y/y is expected, after 1.7% y/y in December. In-line data would be consistent with BoE projections, based on y/y gains in energy prices and the significant y/y decline in sterling. The central bank reaffirmed in the February edition its quarterly Inflation Report that it expects CPI to top out at 2.8% y/y in the first half of 2020. Hawkish-leaning BoE MPC member Forbes subsequently warned that the inflation risks might be higher than the BoE’s projections suggest, although she also said that growth risks might quickly resurface when EU exit negotiations start next month. The monthly labor market report is also due (Wednesday), covering November and January. The headline claimant count is expected to rise by 1.1k in December after falling 10.1k in November. The official November ILO unemployment rate is expected to continue at the cycle low of 4.8%. Average household income in the three months to November is expected at 2.8% y/y growth, unchanged from the rate seen in the prior month. Official retail sales data for January is also up on Friday.

China: China’s docket starts with January loan growth and new yuan loan reports (tentativelyMonday) with the former seen up 13.6% y/y from 13.5% y/y, and the latter expected up CNY 2,000 bln from 1,040 bln. January CPI (Tuesday) is expected to heat up to 2.4% y/y from 2.1% y/y, while PPI is seen accelerating to 6.0% y/y from 5.5% y/y in December

Always trade with strict risk management. Your capital is the single most important aspect of your trading business.

Please note that times displayed based on local time zone and are from time of writing this report.

Click HERE to access the full HotForex Economic calendar.

Want to learn to trade and analyse the markets? Join our webinars and get analysis and trading ideas combined with better understanding on how markets work. Click HERE to register for FREE!

Click HERE to READ more Market news.

Andria Pichidi
Market Analyst
HotForex

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in FX and CFDs products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.

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