A review of the week past
and the week ahead

Welcome to City Index with Tony Sycamore

Monday 10th December 2018


What mattered last week:

  • It was all about volatility again last week. After global equities rallied strongly on Monday following an agreement between the U.S. and China to declare a 90-day truce in the trade war, investor concerns turned to;
  • The inversion of the U.S. yield curve. Specifically, the 2-year yield is higher now than the 5-year yield. An inversion in the yield curve has traditionally been one of the best indicators to forewarn of recession. However, we note the more reliable guide to this is the spread between the Feds Funds rate and the 10-year yield which remains positive.The arrest in Canada of Huawei Technologies Co’s Chief Financial Officer, Wanzhou Meng provided a reminder that the trade dispute is but one aspect of an increasingly complex relationship that also encompasses such issues as Taiwan, the South China Sea, technology theft, and 5G.
  • Federal Reserve speakers Bostic and Kaplan both delivered dovish messages, suggesting that lower inflation could potentially allow for greater patience in relation to future rate hikes.
  • As a result of the factors mentioned above, the S&P500 tested and rejected both the upper and lower extremities of its roughly 2820 – 2600, 8% range, before closing the week near to the lows, which sets up a critical week ahead.
  • The lead up to the Brexit vote this coming week, saw the Government defeated on several votes in parliament. PM Theresa May’s plan looks destined to be rejected.
  • OPEC agreed to cut production by 1.2m barrels a day which followed on from Canada’s announcement earlier in the week to also cut production. The bounce in the oil price was less than might have been expected as global growth concerns overshadowed.
  • In Australia, Q3 GDP was much lower than expected at 0.3% q/q and this has sparked calls for interest rate cuts in 2019.
  • The combination of the weak Australian Q3 GDP data and weak U.S. equities saw the AUDUSD close the week back near .7200c. While the ASX200 etched out a 0.25% gain for the week to close near 5681.

For the week ahead, the key events are:

Australia: Home loans (Monday), NAB business confidence, house price index, Westpac consumer confidence (Tuesday), consumer inflation expectations (Thursday).

New Zealand: Business PMI (Thursday).

China: Industrial production, retail sales, fixed asset investment, new yuan loans (Friday).

Japan: PPI (Tuesday), Tankan survey (Thursday), capacity utilisation, industrial production (Friday).

U.S.: JOLTS job opening, consumer inflation expectations (Monday), PPI(Tuesday), CPI (Wednesday), retails sales, industrial production, Markit manufacturing flash PMI (Friday).

There are no Federal Reserve speakers ahead of the December 19 FOMC meeting.

  • CPI (Wednesday): The sharp drop in gasoline prices is expected to result in a flat m/m read on headline CPI. Core CPI is expected to rise by 0.2% for the month resulting in a 2.2% y/y rate.
  • Retail Sales (Fri): The fall in gasoline prices is like to result in a modest 0.2% gain in headline retail sales, with retail sales ex-autos expected to also rise 0.2%.

Canada: Housing starts, building permits (Monday), new housing price index (Thursday).

Euro Area: German and EA ZEW sentiment index (Tuesday), EA industrial production (Wednesday) ECB interest rate meeting (Thursday), German and EA Markit flash PMI’s (Friday).

  • ECB interest rate meeting (Thurs): The ECB is likely to confirm an end to quantitative easing this month and remind that interest rate hikes remain unlikely for some time.
  • EA ‘flash’ PMIs (Fri): Are likely to confirm that Euro area momentum has slowed in line with weakening global demand. Somewhat surprisingly market expectations are for a small rise from last month’s number to 52.8.

UK: GDP and industrial production (Monday), employment and the UK parliament vote on Brexit (Tuesday), PPI and CPI (Wednesday), Bank of England interest rate meeting, consumer confidence (Friday).

  • UK parliament vote on Brexit (Tue): On Tuesday the UK parliament votes on whether to accept the Withdrawal Agreement and Framework for the Future Relationship that the UK government has agreed with the EU. The prospects of the bill being approved appears remote which may then result in any number of outcomes including the possibility of revisions to the deal or the more extreme possibilities of a snap election, Theresa Mays ousting or even a second referendum.

About TECHFX TRADERS

The session will be run by Tony Sycamore founder of TECHFX TRADERS. Tony has over 20 years’ experience trading primarily at Goldman Sachs and he also worked in senior Institutional roles at Commonwealth Bank and BNP Paribas. His experience has allowed him to see and work with some of the biggest global traders.

Finalist – Best Bank FX Research & Strategy
Tony was the only Australian finalist nominated for Best Bank FX Research & Strategy at the 2016 Technical Analyst awards.

Finalists: Commonwealth Bank of Australia – Tony Sycamore, Director Institutional FX • Banque Pictet & Cie • Credit Suisse RBC Capital Markets • Royal Bank of Scotland • Scotia Bank

Tony Sycamore

Disclaimer

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