Trading with point and figure

SPX into the open

2ewcjf4.png
 
horizontal supp area goes down to 2610#
rez starts at 2655

2660...a real hummer yesterday
no big sell...uneless 2630 becomes rez on a bounce
 
From Marc Ostwald


- Busy day for data and events, but alleged Trump decision to exit Iran
nuclear deal and likely little in the way of results from US/China
trade talks likely to cast long shadow

- UK & US Services PMI/ISM, Eurozone & Turkey CPI, US Claims, Factory
Orders & Q1 Productivity accompany raft of ECB, Riksbank & SNB speakers,
Spain, France and UK to sell debt; corporate earnings still plentiful

- Eurozone CPI: Germany and Italy miss suggest downside miss on headline
and core, Easter effects a factor, but underlines rationale for ECB
policy caution

- UK Services PMI: upside risks given sharp Construction PMI jump,
gives greater credence to Q1 GDP slump being most weather related

- FOMC: inclusion of 'symmetric', jettisoning of 'near-term' from risk
assessment and no mention of trade tensions imply Fed very much on
auto-pilot and taking the long view

- US Non-manufacturing ISM: expected to dip further, but still signalling
robust pace of expansion

- Norges Bank rate decision: likely to stick to end Q3 rate hike signal

- Czech rate decision: forecast update set to narrow large gap between
market and CNB rate trajectory

- Charts/tables: FOMC statement comparison, Fed rate probabilities,
USD/TRY, EUR/NOK, NOK/SEK and EUR/CZK

..........................................................................

********************
** EVENTS PREVIEW **
********************

Today's schedule looks busy, but in truth looks rather looks to be rather short on genuine market movers. Statistically there are the Australian Trade data to digest, while ahead lie Services PMIs from the UK and USA, Eurozone and Turkish CPI, along with US weekly jobless claims, Q1 Non-farm Productivity, Trade Balance and Factory Orders. On the events side of the equation, the FOMC statement is to be digested, the European Commission updates its economic forecasts, and the US China trade talks are under way, with some ECB, SNB and Riksbank speakers thrown in for good measure, and an expected no change rate decisions in Norway, Czech Republic & Chile. Per se the story doing the rounds that Trump is set to exit the Iran nuclear deal, and the expectation that the China/US trade talks will yield little in the way of concrete results will likely be the cloud that once again casts a long shadow over markets, which are in something of a rather treacherous sideways 'churn', outside of the USD rally and the now more discernible widening in EM credit spreads. France, Germany and the UK hold govt bond auctions, while the corporate earnings schedule has amongst others: Adani Ports, Larsen & Toubro, NAB, Vedanta; Adidas, Bayer. Ferrari, Fresenius SE & Co, Infineon Technologies, Logitech, MTU Aero Engines, OMV, Solvay; Becton Dickinson, Cardinal Health, CBS, Cigna, DowDuPont, Fluor, ICE, Kellogg, PG&E, Xerox; Bombardier, Brookfield Renewable, Canadian Natural Resources & SNC-Lavalin. Yesterday's US quarterly refunding was in line with market expectations, lifting next week's 3, 10 & 30-yr supply to a total of $73 Bln from Q1's $66Bln, with the front end bearing the brunt of the additional supply via way of an increase of $5 Bln in the 3-yr, and $1 bln each to 10 & 30-yr; other maturities (when they are sold) will also see an increase of $1 bln, and Q2's coupon issuance increase will thus total $27.0Bln, which will of course come on top of the $30 bln per month rolling off the Fed's balance sheet. This will naturally only add to the curve flattening pressure, and perhaps begs the question, whether the Fed should consider a 'reverse twist' operation to maintain a modest upward slope to the curve, perhaps all the more so, given the fact that financial conditions remain very loose.

Just published Turkish CPI underline exactly why the TRY is the EM 'whipping boy' on FX markets, with CPI again rising more than expected 1.87% m/m 10.85% vs. a forecast of 1.5% m/m 10.45% y/y, in no small part on a combination of the weakness of the TRY and rising oil prices, and also reversing some of the drop from November's 13.0% y/y CPI peak. In broader EM terms, a glance at the attached charts of JPM EM Bond average spread underlines that the pressure from a much firmer USD is now taking to take its toll, with that spread now far above both its 100 and 200 day Moving Averages.

In respect of the Fed statement, the strongest message came via use of the term "symmetric" in respect of their inflation target, effectively sending the signal that there is quite a high bar to the FOMC upping or slowing their current 'auto-pilot' policy tightening path. In principle this suggests that as long as the PCE deflators remain in a 1.5%-2.5% y/y, and are not threatening to breach either end, then there would be no need to respond to incoming inflation data. The rest of the statement was an exercise in acknowledging the softer Q1 activity data and the rise in inflation, while immediately dismissing these as factors that might alter the near term rate trajectory. The other notable omissions were the dropping of 'near-term' from the risk assessment, again underlining the auto-pilot view on the rate trajectory, and as significantly there was no mention of trade tensions, which in a certain is wise. That is from the aspect that they will either crystallize or not, and there is precisely nothing the FOMC can do, until they are a fact, and then once the fall-out is observable, it can assess how it might need to respond.

** Eurozone - April CPI **
- Given the holiday related publication delay relative to national readings, the provisional Eurozone CPI data will pack rather less of a punch than usual, notwithstanding the sensitivity for the currently seemingly beleaguered EUR. The risks relative to projections of 1.3% y/y headline and 0.9% y/y core (vs. March 1.3% and 1.0%) look to be to the downside, given a sizeable miss on Italian HICP (0.6% vs expected 0.8%) and Germany (1.4% vs. projected 1.5%). One can certainly argue that the ECB was clearly discounting this in the message that it sent at last week's policy meeting, but with a still sizeable EUR long, a miss on headline and core would doubtless exercise some further pressure.

** U.K. / U.S.A. - April Services / ISM **
- Yesterday's stronger than expected rebound in the UK Construction PMI to a five month high of 52.5 (from March's 47.0) bodes well for today's Services PMI, as well as offering a reasonably strong hint that last week's Q1 GDP stall was indeed heavily weather impacted, even if it is also clear that the UK economy has lost considerable momentum since 2015 (i.e. well before the referendum). As such, a stronger than expected bounce to 53.5 from March's 21 month low of 51.7 now appears quite probable. Today's US schedule looks busy, but with the Trade Balance and Factory Orders merely embellishing on last week's Goods Trade, Durable and Q1 advance GDP, and Claims dwarfed by tomorrow's monthly labour report (even if Claims did post a 49-yr low of 209K last week), much of the schedule looks to be of the genus 'roadkill'. The US Markit Services PMI is seen unrevised at 54.4 (vs March 54.0), thus remaining locked in the tight 53.3-56.0 range of the past 12 months. The Non-manufacturing ISM is seen slipping a little further to 58.0, but remains much closer to January's post-GFC cyclical high of 59.9 than the 2017 low of 54.3, and clearly indicative of a robust pace of growth; the Employment sub-index will be watched for signals for tomorrow's payrolls, though it has in principle been uncorrelated with the latter for a considerable period, the Prices Paid (last 61.5 vs February 61.0) will also attract attention.

** Norway / Czech Republic - Rate decisions **
- Given that many central banks in Europe still appear to be light years away from any policy tightening moves, the Norwegian and Czech central banks are ostensibly in the hawkish vanguard, though neither are expected to hike rate today. This a non-monetary policy report meeting for Norges Bank (next update at its June 21 meeting), as such it will stick to the guidance that rates will start to rise 'gradually after the summer', which points to a first rate hike in 7 years at its September meeting. Unlike the neighbouring Riksbank, Norges Bank has been far less sensitive to any NOK strength, and indeed to any dips in CPI (March headline 2.2% y/y, core 1.2%), placing more emphasis on strength in the non-oil economy (Q4 Mainland GDP 0.6% q/q) and increasing capacity utilization. The Czech National Bank has been pleasantly surprised that the CZK has not sky-rocketed since it removed the 27.00 floor last summer, and instituted 3 rate hikes totalling 70 bps to the current 0.75%, with rates on hold today, and a 25 bps hike being discounted by markets for the August 2nd meeting. But that implies a steeper rate trajectory than the CNB was projecting in its last set of staff forecasts (which implied a December rate hike), which will be updated today, and will be the focus for currency and rates markets today.
 
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