Trading with point and figure

Dentalfloss · Jun 3, 2019

scalps

Dentalfloss · Jun 3, 2019

into our rez
stops tight

Dentalfloss · Jun 3, 2019

is it a fake bounce

Dentalfloss · Jun 3, 2019

Good Morning: The Long & the Short of it and The Bigger Picture - 3 June 2019 - ADM ISI

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Ostwald, Marc

08:50 (11 minutes ago)

to Marc

- Manufacturing PMIs dominate data schedule, US Auto Sales and Construction
Spending also due; Fed and ECB speakers, but trade and politics to remain
key influence

- Manufacturing PMIs: Asian readings overall still weak, despite India
bounce; Eurozone readings likely to remain poor ex-France, some downside
risks for UK, mixed survey evidence on US

- Charts: China NBS vs. Caixin Manufacturing PMIs; US illegal immigration

- Audio preview:
https://www.mixcloud.com/MOstwaldADM/adm-morning-daily-macro-and-markets-preview/

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** EVENTS PREVIEW **
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The week kicks off with the usual run of Manufacturing & Services PMIs, which were never likely to offer much comfort on the global economic outlook, given the run of poor 'flash' G7 PMI readings (ex-France), German Ifo & China NBS PMis are anything to go by. The run from Asia has been generally poor, though China's Markit Manufacturing PMI at an unchanged 50.2 was fractionally better than the forecast 50.0, and the NBS PMI at 49.4, and Inida's PMI at 52.7 vs. 51.8, but many others remain in or returned to negative territory. In Europe, the profile is also expected to be weak, with Spain seening a larger than expected fall to 50.1 from 51.8, with Italy likely to remain negative firmly in the contraction zone at 48.5. The risk in the UK given a run of weak surveys (CBI, BDO) is that the Manufacturing PMI posts an even larger than expected fall (median 52.2, April 53.1). The US regional Fed surveys and the Chicago PMI were very mixed, and not as downbeat as the US flash PMIs suggested, with this week's ISM surveys expected to see a marginal bounce for Manufacturing (52.0 vs. 52.8) and no change for Services (55.5). Of the remaining data, the much better than expected Japan Q1 CapEx data (6.1% y/y vs. expected 2.6%, Q4 5.7%) suggest a substantial upward revision to Q1 GDP to perhasp 2.7/2.8% (prov. 2.1% SAAR), with the rebound in Corporate Profits only in part flattered by base effects (Q1 2018 0.2% y/y). Ahead of tomorrow's much anticipated RBA rate cut, the much stronger than expected 0.7% rise in Q1 Inventories is probably best taken negatively (i.e. as an involuntary build-up), even if led by Mining (2.5%), which in part reflects disruptions to exports, but it also saw a 1.9% q/q rise in Retail, which probably owes much to weak consumer spending. The other key item will be US Auto Sales are expected to recover from a rather poor 16.4 Mln SAAR in April to 16.9 Mln, which would imply a boost to headline Retail Sales, even if the underlying y/y trend would remain negative. However, it will be the combative China white paper on US/China trade relations which will be the primary (negative) influence, while political developments in Italy (PM Conte threatening to quite the govt) and Germany (SPD leader Nahles standing down) also cast a long shadow in terms of the Eurozone.

RECAP - Week Ahead Preview

The final month of Q2 commences, with the usual relatively busy schedule of surveys and hard data, as well as ECB and RBA policy meetings, though there is little doubt that these will be very much subordinate to trade tensions and political news, as has been the case for some time. Fed speakers will again be plentiful, with the Fed also publishing its latest Beige Book, and there are a good number of BoE speakers. Ramadan ends on Tuesday with the four day Eid-Al-Fitr holiday seeing many markets closed in the Middle East, Africa and Asia. The corporate earnings schedule is relatively modest, with a number of consumer food companies reporting including 'unicorn' Beyond Meat along with behemoth Kraft Heinz. The Euro area heads the run of Govt bond auctions, with sales in Austria, Finland, France and Spain, while the UK sells 5-yr Index-Linked Gilts. Aside from the myriad of trade tensions, the political week also sees a state visit to the UK by President Trump, ahead of UK PM May stepping down as Prime Minister on Friday. After a torrid week for Oil markets on the back of global trade tensions, the various monthly national output reports will garner plenty of attention, with Shell holding its London & NY Capital Markets Days, KPMG hosting its Global energy conference in Houston, and Russian Energy Minister Novak scheduled to speak at the annual St Petersburg International Economic Forum. The grains sector will continue to be keeping a close eye on the headwinds to crop planting due to continued flooding in the US mid-west .

- US labour data are as ever due at the end of the week, though the report clearly does not have the market moving potential that it once had, with a very 'average' +175K seen for Payrolls, the Unemployment Rate unchanged at its cyclical low of 3.6%, and the primary focus on Average Hourly Earnings that are projected to rise 0.3% m/m for an unchanged 3.2% y/y. Otherwise the US also has Factory Orders, Trade Balance and Consumer Credit.

Eurozone CPI is expected to pile some pressure on the ECB as Easter timing effects unwind, with a large drag from Services (air fares, holidays) expected to pull headline CPI all the way back to 1.3% y/y from 1.7%, and core to 0.9% from 1.3%. German Factory Orders are not seen offering any sign of any meaningful and sustained upturn is on the horizon, and are seen flat m/m after a dead cat bounce of 0.6% m/m in March, with Industrial Production expected to exactly reverse March's 0.5% m/m, and Trade data projected to show Exports down 0.9% m/m (March 1.6%) and Imports down 0.2% m/m (March 0.6%). Industrial Production is also due in France & Spain. A modest schedule in the UK has BRC Retail Sales, with base effects from last year's Royal Wedding predicating some of the expected drop back to 0.8% from April's better than expected 3.7%; Halifax House Prices and SMMT New car Registrations are also scheduled.

A busy week for Japan kicks off with Q1 Capital Spending, which generally dictates the scale of any revisions to provisional Q1 GDP, with headline spending seen decelerating to 2.6% y/y from 5.7%. Household Spending is expected to offer rather more comfort on Personal Consumption than the recent Retail Sales, and is forecast to rise to 2.7% y/y from 2.1%. However Labour Cash Earnings are likely to sustain fears of a setback in consumption, with nominal wage growth expected to fall 0.7% y/y (March -1.3%) and real wages seen down 1.5% (March -1.9%). Down under in Australia, Q1 GDP is forecast to pick up in q/q terms to 0.4% from 0.2%, but drop to just 1.8% y/y from 2.3%, with the drop in CapEx offsetting an expected 0.2 ppt boost from Net Exports. Housing Finance, the MI Inflation Gauge and Q1 Current Account and Company Profits are also due. Canada also looks to its week ending Labour data, with Employment seen suffering a -5K reactive correction to the outsized 106.5K jump in April, with the Unemployment Rate unchanged at 5.7%, and wages seen edging back to 2.4% y/y from 2.6%.

- On the central bank front, the RBA, ECB and India RBI meetings will all be closely watched. The RBA is expected to deliver a long anticipated 25 bps rate cut to 1.25%, predicated on soft inflation data, sluggish wage and GDP growth, and headwinds from its beleaguered housing sector, even if there is some anecdotal evidence that housing sector demand remains healthy, and the primary headwind is due to banking sector woes. The ECB meeting will provide updates on its economic forecasts and is also expected to offer details on the new TLTRO programme that is due to start in September. While recent French and Italian data have offered some welcome upside surprises, Germany continues to give plenty of reason for concern in terms of its growth outlook, and the picture on inflation offers no sign that a move up to the ECB's target of just below 2.0% is a realistic prospect anytime soon, leaving the ECB with a quandary. Markets may be discounting no rate hike before 2021, but the ECB's guidance is not expected to be revised from no rate hikes before the end of 2019, though still emphasizing downside risks to its outlook, while avoiding meaningful downward revisions to its forecasts, given that this would seem to behove the ECB to respond in policy terms. However the ECB's rhetoric is leaning quite heavily against taking action, outside of the fresh round of TLTROs being planned for September, which are primarily to plug the potentially sharp liquidity drain from maturing TLTROs, in other words a technical move rather than a policy move. It would in any case represent a rather embarrassing case of backtracking from the decision to end QE last December, and implicitly suggest that the ECB and its staff misread the economic tea leaves. It is possible that the ECB takes a leaf out of the Bundesbank's playbook of yesteryear to distract from 'inconvenient' inflation data, by highlighting monetary data, above all that second strongest jump since 2009 in Private Sector Credit to Non-financial Corporates, to offer some optimism on the H2 outlook and as a justification for not taking any action. Following on from Friday's sharper than expected India Q1 GDP setback (5.8% y/y vs. expected 6.3%, Q4 6.6%), and the fact that CPI at 2.92% y/y remains well below the 4.0% target, with Unemployment at a 45 year high of 6.1%, the RBI is expected to cut rates by 25 bps for a third consecutive meeting (Repo to 5.75%, Reverse Repo 5.0%). It may well retain an easing bias, even though it will likely stress that it will now wait to see the impact of the recent rate cuts, as well as awaiting details on the re-elected Modi govt's 'big bang' reform plans.

- Politically, trade wars and tensions remain to the fore, along with Brexit and govt concerns in the UK, the Italian govt's budget and growth challenges amid ongoing tensions within the coalition government, and the possibility that the German grand coalition breaks up in the not too distant future. The noises from both sides in the US/China trade war suggest there is little prospect of a resumption of high level trade talks, with China due to publish its white paper on US trade talks on Sunday, along with its black list of 'unreliable' foreign entities. Despite Trump's unexpected threat Friday to impose tariffs on all Mexican imports, both Mexico and Canada continue to work towards ratifying the USMCA trade deal, with Mexico also suggesting on Saturday that it will put forward measures to curb flows of immigrants, and generally taking a much more conciliatory tone than that being peddled in Washington. As can be seen from the attached Reuters graphic, an all out trade war is neither sides interest, and one does wonder whether Trump is really willing to countenance a further sell-off in equities, as well as raising the risk of the US tipping into recession as the US heads into an election year. Be that as it may, politics will continue to be the key influence on markets for the foreseeable future.