Trading with point and figure

Dentalfloss · Apr 7, 2019

FTSE

Dentalfloss · Apr 7, 2019

DAX
in a horizontal rez area

Dentalfloss · Apr 7, 2019

DAX

Dentalfloss · Apr 7, 2019

SPX updated

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EURGBP

Dentalfloss · Apr 8, 2019

Mornin folks

Dentalfloss · Apr 8, 2019

Dax keeling over...a tad

Dentalfloss · Apr 8, 2019

possible downside count goin to get activated

Dentalfloss · Apr 8, 2019

Dow updated

Dentalfloss · Apr 8, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - 8 April 2019 - ADM ISI

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Ostwald, Marc
08:38 (11 minutes ago)

to Marc

- Statistically a quiet start to a busier week, digesting Japan surveys
and German Trade, awaiting Eurozone Sentix survey and US Factory Orders;
UK House of Lords debate on Cooper-Letwin bill, start of IMF/World Bank
meeting and US/China Trade negotiations chatter

- Japan: new 3 year lows on Consumer Confidence and services survey not
encouraging, focus turns to Machinery Orders later in the week

- Germany: worse than expected exports underline extent of headwinds from
China

- Charts: US bank earnings beats and misses history; China's changing
debt structure; Japan Consumer Confidence

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

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

What is a busy week for economic data gets off to a rather slow start, with the Japan Economy Watchers (services) and Consumer Confidence surveys along with German Trade the key points from the overnight run, while the rest of the schedule is limited to the Eurozone Sentix Investor Confidence and US Factory Orders. A busier day in event terms has the UK House of Lords debating the 'Cooper-Letwin' Bill (the one which passed by one vote) which is designed to block a no deal Brexit, though in practice it does not, as it does not contain a clause to revoke Article 50 on the (any) Brexit day deadline, and in addition also requires the European Council (unanimously) to approve an extension. Precisely what that extension would be remains undecided, with opinions on the council still divergent, amid a good deal of rancour about EU Council president's Tusk handling of the Brexit process, particularly last week's 'flex-tension; even if it remains clear that most countries are against a 'hard' Brexit. Be that as it may the IMF/World Bank Spring meetings kick off with press conferences with Lagarde and Georgivea, and China Premier Li will be attending the 21st China-EU summit, and there is central bank speak from ECB, Norges Bank and Riksbank officials, as well as expected no change rate decisions in Sri Lanka and Israel.

In terms of the run of overnight data, the overall message was not positive. Japan's Consumer Confidence continued its increasingly steep descent dropping to 40.5, the weakest since February 2016 (see chart), while the Economy Watchers survey Current Assessment dropped to 44.8, the weakest since July 2016. German Trade data were also not encouraging, with both Imports dropping 1.6% m/m vs. an expected -0.6% and February's 1.4%, while Exports fell 1.3% m/m vs. a forecast of -0.5% and February's 0.1%, continuing to underline the degree of chilly economic winds blowing from Germany, which accounts for no less than 7% of all German Exports. Elsewhere, Libya's escalating civil war continues to underpin the oil price, with some mixed messages from the GCC, on the one hand Saudi Energy Minister Al Falih noting that the OPEC JMMC meeting will be key in determining the future of production cuts and seeing little need for further cuts (though that does not mean any increase), while the UAE Oil Minister noted that inventories have still not fallen to their 5 year average. Cynics way well wonder whether Al Falih's comments were more a case of offering a fig leaf to Trump's demands, as well as trying to boost demand for this week's jumbo Aramco bond issue. According to Al Falih demand is already north of $30 Bln (for a mooted $10 bln size), though it should be added that this is primarily dictated by the expected inclusion of GCC issuance in the JPM EM Bond index, which given its very substantial overall size will behove fund managers to rebalance their portfolios accordingly.

RECAP - Week Ahead Preview

It will again be the case that there is no escaping politics this week, with the focus on the 'emergency' EU summit and the Brexit deadline on Friday, while the US/China trade talks will naturally be the other focal point. That said, there are also an ECB meeting, the March FOMC minutes and the IMF/World Bank Spring meetings, while the US, China and the UK all have busy statistical schedules. This includes inflation data from China and the USA, Trade data in China and the UK, which also sees a raft of monthly activity data including monthly GDP and Industrial Production. India kicks off its protracted general election process (and also has CPI and Industrial Production), OPEC and IEA publish monthly oil market reports, and there is also the 21st China-EU summit. The US Q1 earnings season gets under way with the usual of 'money centre' (or G-SIB) bank earnings, with overall S&P500 earnings expected to fall 4.2% y/y according to FactSet, which would be the first yr/yr decline since Q2 2016. A relatively busy week for govt bond auctions has $78 Bln total of US 3, 10 & 30-yr, 10-yr in the UK, with six Eurozone countries holding sales (Germany 5-yr and I-L, multi maturity sales in Italy, Spain, Austria, Finland and Portugal) in a typical pre-Easter rush. It is worth noting that Easter kicks off a very protracted period of holiday impaired market trading volumes and liquidity, which will include the longest ever Japan Golden Week (28 April to 6 May), May Day around the world (an extended holiday in China this year), with Ramadan due to commence on 5 May.

- Following Friday's very muted reaction to US Payrolls, it remains to be seen whether this week's US CPI, PPI and Import prices garner more of a response. For headline CPI energy prices are once more on the rise, with an expected 0.3% m/m set to push the y/y rate back up to 1.8% y/y from 1.5%, gradually putting paid to the Fed and market chatter about a more protracted period of below target inflation, which is in any case not true of core CPI, where a 0.2% m/m rise is forecast to sustain the y/y rate at 2.1%, with housing and medical costs the key pressure points, though airfares could be something of a wildcard. A very similar profile is seen for PPI (Consensus sees unchanged headline 1.9% adn core 2.5%). Eminently this puts no pressure on the Fed in terms of upside risks, but equally it offers no grounds for easing either, despite Trump's attempts to torpedo Fed independence with his latest nominations for the Fed board, and his seemingly incessant verbal interventions. Other items potentially catching markets' attention include JOLTS Job Openings, NFIB Small Business Optimism, Treasury Budget, and an opportunity for markets to indulge their 'de nouveau' bad habit of recycling old news (cf. last week's Eurozone PMIs), via way of the embellishment to Durable Goods that is Factory Goods Orders.

Over in China, lunar new year base (LNY) effects are likely to account for much of the rebound in both CPI and PPI in y/y terms to 2.3% from 1.5%, from 0.5% and 0.1% respectively, this despite a forecast of -0.2% m/m for CPI. But this is unlikely to have much impact on PBOC rate policy, given its efforts to stimulate credit demand are via targeted liquidity injections, though this seems unlikely to stem the now very rapid rise of banks' non-performing loans, for which pushing on the interest rate lever is of little or no use. Trade data will as ever garner the most attention, despite the fact of the already well documented violent swings due to LNY effects. But these which are expected to see Exports rebound to +7.3% y/y from -20.8%, and Imports to post a less negative -1.3% vs. February's -5.2%, with the Trade Balance seen at a still modest $8.8 Bln from $4.1 Bln; the probability of outliers looks to be high.

Talking of violent swings, this week's rather moot run of UK data is projected to show monthly GDP stalling (flat m/m) after unexpectedly jumping 0.5% m/m in January, leaving the 3mth/3mth measure unchanged at 0.2% q/q, and as ever much will depend on the Index of Services which will likely slow from 0.3% in January. Industrial Production and Manufacturing Output will also likely slow to 0.1% m/m and 0.2% m/m respectively after unexpected strength in January, though base effects from last year's 'beast from the East' implies y/y rates improving modestly, but remaining negative at -0.8% and -0.6%. The ever volatile Construction Output will also likely stall m/m after a surprsing 2.8% in January. BRC Retail Sales and the RICS House Price Balance are also due, and are both likely to remain weak/heavily negative.

Elsewhere Singapore will be 'first out the door' with a flash estimate of Q1 GDP, projected at 1.2% q/q and a rather sluggish 1.5% y/y as against 1.4%/1.9% in Q4. Japan's Machinery Orders are forecast to rebound 2.5% m/m, though this follows an abject -5.4% m/m in January and would still see the y/y drop even more sharply (-5.2% vs. prior -2.9%), in part again, due to LNY timing effects. Norway has monthly GDP which may well accelerate from January's 0.2% m/m, thus steeling Norges Bank's slightly more hawkish policy stance, even if CPI is expected to ease modestly to 2.8% from 3.0% y/y, with 'underlying' measure dipping to 2.4% from 2.6% y/y, but both still firmly above target. Australia's Housing Finance data will likely re-confirm the stiff headwinds in the local housing markets, while Swedish CPI is seen just below target on headline and core CPIF.

- Brexit, as they say, is a gift that keeps on giving, though judging by the increasing non-reaction of the GBP and local asset prices, there is an increasing unwillingness both from funds and specs to play in what is a deeply treacherous spot/cash market, and rather looking at options related strategies, which are rather better suited to the still very binary risks. More votes (perhaps another on May's WA), and more 'negotiations' between Conservatives and Labour, even if politicking looks to be the still dominant meme rather than any sign of a real push towards some form of compromise, as has been the case throughout this atavistic process, and this despite the now very immediate threat that Hard Brexit looms on Friday, with the April EU summit the even more immediate hurdle. The noises on US/China Trade have been much the same for the past 6 months, they are making some very belaboured progress, and fortunately thus far there is no sign that either party is going to 'throw all the toys' out of the pram, however a deal still looks some way off.

- This week's ECB meeting will probably deliver little in the way of further detail on the TLTRO III plans, and the ECB would leave itself hostage to even more criticism were it to hint at further forecast downgrades, even though that is where its own stated balance of risks lie, even if there has been some data which has surprised on the upside in recent weeks. Indeed it is worth noting the point that the March minutes that leans against any further easing: "Concerns were voiced that over time the effects of persistently low rates could depress banks’ interest margins and profitability with negative effects on bank intermediation and financial stability in the longer run. It was recalled that the consequences of low rates differed across the maturity spectrum and across banks, depending on their business models and the structure of their assets and liabilities." Obviously many speakers and other reports have raised this many times before, but it was the first time it has been cited in the ‘accounts; of a policy meeting. Overall this does emphasize that the ECB now finds itself with a very similar dilemma to the Bank of Japan, effectively admitting that 'whatever it takes' has not delivered the results that it intended, and whose side effects are creating problems, and unable to move away from its accommodation, but facing a downturn in activity, which ostensibly demands it takes 'action'. The US March FOMC minutes are unlikely to offer any major fresh insights into its assessment of the economy or the policy outlook, but will be scrutinized for details on its plans for bringing its balance sheet reduction programme, given that such issues as the average maturity of its portfolio, the target for bank reserves held at the Fed, and whether the balance of Treasuries relative to MBS in its portfolio has as yet not been clarified. There are numerous G20 central bank speakers this week, above all given that many will be attending the IMF / World Bank / G20 meetings, which will of course also see an update to the IMF's forecasts, which will as ever be very 'rear view mirror', though a further relatively sharp cut to growth forecasts will inevitably garner some reaction.