Previous Week Summary
The whole week we saw risk on flows on the back of few positive news as
Theresa May becoming UK’s PM, BoE and BoJ getting ready for more stimulus, Fed
officials expressing patience about rate hikes, pretty good start of earnings season…all
of that pushing stocks strongly higher. For stocks to keep the momentum we would
need to have decent earnings coming in. Meanwhile, bond yields moved higher and
USD got some strength on the back of better US macro data that renewed Fed rate
high thinking.
Monday – BoE
looking at curbing the cash withdrawals from real-estate funds, UK to
strengthen ties with North America invest in infrastructure. Spain &
Portugal may not eventually face the fines in EU budget procedure.
Tuesday – Japan to
end deflation, stimulus by month end, no seize/sources of financing. BoE – will
do all what is needed to secure financial stability after Brexit. Spain &
Portugal under official deficit procedure. EU pushing on UK to trigger Article
50. Philippines-China court ruling on South China Sea – no historic title to
it, would likely negotiate before G20 meeting in Philippines. Bullard (Fed) –
one rate hike in a foreseeable future possible, economy stuck with low growth,
inflation and unemployment, sees 2% inflation and unemployment rate at 4.7% in
2.5 years, monetary policy can’t change productivity, housing market to
improve. US JOLTS job openings at 5.5 mln in June vs 5.85 prior, slight
correction of preferred measure of Fed’s Yellen. UK Parliament may debate as
early as on Sep 5 the possibility of holding a 2nd Brexit referendum
because of 4.1 mln petition.
Wednesday – EZ May
Industrial production worse, previous revised higher. Japan should expand
fiscal/monetary stimulus, should buy bonds not go for negative rates. Scotland
reiterated its intentions to stay in EU. US Mortgage applications lower than
expected, BoC – no change in rates, Q2 GDP – negatives: volatile trade flows,
uneven consumer spending, wildfires. Financial conditions remain accommodative,
lower CAD helps exporters but may not drive growth. Theresa May officially
becoming a new UK PM, Boris Johnson new Foreign Affairs Secretary what may be
joke towards EU but he will not lead the Brexit talks with EU.
Thursday – Japan
discussed perpetual bonds with Bernanke that would be bought by BoJ, thus
underwriting government debt (illegal according to Japanese constitution), JPY
weakened, rumoured JPY 10/20/35 trillion fiscal/monetary stimulus by month end.
Japan Rating Agency JCR cut outlook to negative from stable & affirmed AAA
rating. Schauble-Lew expressed mutual support on Brexit, G20 meeting; Weidmann
(ECB) – EU must have solid foundation. BoE - surprising no change in rates,
getting ready for August. Job offerings lower after Brexit, businesses cutting
investments. US June Final PPI better, Initial Jobless Claims better, previous
revised lower.
Friday – Italian
banking crisis – solution to be found, US funds looking at some buying
opportunities in Italian banks. Japanese banks don’t like idea of borrowing
from BoJ at negative rates. ECB – non-performing loans in Italian banks a
problem but manageable. Weaker JPY an obstacle for helicopter money, UK May
Construction output worse, EZ June CPI in line M/Y, BoE to make a 40 bps cut in
Aug, launch GBP 50 bln QE in Nov (according to Morgan Stanley), US June CPI
lower M/Y, Core CPI higher, June Advanced Retail sales higher, July Empire
Manufacturing better but new orders bad, June Industrial Production better, July
Preliminary Univ of Michigan Consumer Confidence lower than expected, May
Business inventories better. German government to safeguard small investors in
Italian banks, creditors to take losses.
Nintendo shares are up 70% on new application high interest. These
levels are very difficult to justify versus its peers like King Digital or
Zynga. Patience needed before shorting.
Upcoming Week Outlook
Monday – BoE MPC member Weale is out, may provide
additional insights on potential rate cut or QE in August. German Bundesbank to
release Monthly report, a nice piece providing hints on what risks they see.
Tuesday – RBA releasing Minutes that may shed additional light on what RBA
thinks about current situation and possible further easing. UK CPI/PPI – will
be watched by markets as BoE is readying for QE; GE ZEW Economic Sentiment for
July will show us what temperature German economy has. From overseas we will
get Building permits, Housing starts showing us what is the situation in
housing market. Expecting June Housing starts at around 1.17 mln vs 1.16 in
May. June permits show move to approx. 1.16 mln, higher than in May. Also
expecting Home sales to decline to 5.48 mln in June.
Wednesday – CN
Leading index (m/m), UK labor market data will be out, where Claimant count
should rise to 4.1k from -0.4k previously, Unemployment rate should stay
unchanged at 5.0% and Earnings should rise. We should also learn what how
consumers are confident in Europe (Brexit).
Thursday – JP – Industry
activity, UK Retail Sales for June (expecting decline), ECB Meeting (live) but
no rates change or additional QE expected. The rates should stay at -0.40%
(Deposit), 0.00% (Main refinancing) and +0.25% (Marginal lending facility). Definitely
closely watched by the market to get the clue on after Brexit vote actions from
ECB, situation in EZ economy, QE bond buying and what’s next for Italian banks.
Later will have Philly Fed Manufacturing index (expecting rise) and US Jobless
claims to rise to 271k from previous week 254k. Later will have CB Leading
Index (to return to positive territory).
Friday – will be about July Flash PMI data from all
around the world, JP (to rise), FR & GE (both Manufacturing & Services
slightly worse), EZ (both slightly worse), UK Manufacturing PMI (worse), US
Flash Manufacturing PMI (better). Will also have CPI/Core CPI data and Retail
sales from CA (both lower), making the BoC decision makers think whether the
last week inaction was right.
The earnings
will be monitored by market participants as equity markets are making new
historic highs and if they are solid, we may have another shift higher. All
those investors sitting on sidelines and hoarding cash before/after Brexit
referendum are now moving to stocks. The bond yields started to rise again
(risk on outflows) but the likelihood of Fed rate hike, especially due to
stronger US data, may inevitable shake the confidence of stock investors. On
the other hand, what other options than stocks (dividends) do you have in your
hunt for yield?
Event Risk Calendar - Week 29
Good
luck Champs!
Mr
Hawk
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of the past and current economic and capital market environment. It is not an
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