Trading with point and figure

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No guarantees that overbought will get unwound

 

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vertical
These intense trends cannot be maintained for long periods

 

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Change inputs

 

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change inputs

 

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and bounce

 

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Good Morning: The Long & the Short of it and The Bigger Picture - 30 April 2020 - ADM ISI

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Ostwald, Marc

08:59 (32 minutes ago)

to Marc

- Digesting raft of data from Japan, China, France, Germany and Spain;
focus on ECB, Eurozone GDP & CPI, US Claims, ECI, Personal Income/PCE &
Chicago PMI; further flood of corporate earnings

- Month end and long weekend in much of the world likely to subdue
volumes, see some anomalous price action

- China PMIs: manufacturing underlines challenges to rebound from shutdown
elsewhere, Services more encouraging - sustainability unclear

- Eurozone Q1 GDP: France and Spain impart clear downside risks; CPI set
for smaller than expected fall

- ECB: how much more PEPP? More easing in collateral / refi / TLTRO terms?

- US Claims: set to slow further, but continued claims seen close to
20.0 Mln

- US ECI: downside risks to headline due to compositional effects

- Charts: US IG vs. HY Credit spreads, VIX Volatility index

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

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

Today's calendar has so much, with the ECB meeting vying with a deluge of economic data and a further flood of corporate earnings, all of which may be subsumed by month end (with some hefty index extensions in fixed income) and what will effectively be the end of the week, with much of the world closed for May Day tomorrow. Be that as it may, there are the following to digest: Japan Retail Sales & Industrial Production, China's NBS PMIs, French & Spanish Q1 GDP and CPI; ahead lie: German Unemployment, Eurozone & Italian Q1 GDP & CPI, Mexican Q1 & Canada February GDP, US Weekly Jobless Claims, Personal Income/PCE, Q1 ECI and Chicago PMI. Among the corporate highlights in Europe are likely to be: BBVA, Caixabank, Danske Bank, Erste Group and Lloyds, and among non-financials: BASF, Sainsbury, Nokia, Orange, Shell, Suez, Swiss Re & Virgin Atlantic; while in the US: Apple, Cinga, FNMA, Fortune Brands, Gilead Sciences, Goodyear, Kellogg, Kraft Heinz, McDonald's, Molson Coors, Moody's, Twitter, Western Digital and Whirlpool. But with the looming long weekend liquidity gap, market reaction may be somewhat anomalous.

Of the overnight data, both French and Spanish GDP were even worse than expected, and imply a downside risk to the the consensus for Eurozone GDP, the more so given obvious downside risks to the Italian reading. China's official NBS PMIs highlight a couple of unsurprising points, a) Manufacturing drifted back from its March rebound, which given the extensive shutdown elsewhere, underlines the challenges for its Manufacturing sector to return to more normal levels of output given the slide in export order demand. By contrast the Services PMI picked up a little more from March, the question is whether the gradual re-opening of the leisure sector (restaurant, bars, cinemas, etc) will see 'footfall' return to more normal levels, or whether the sector will reflect rather more trenchant psychological scars on consumers due to lockdown. As for Japan's run of data, Production was a little better than expected, while Retail Sales fell largely in line with forecasts; with the Production data perhaps also seeing the same sort of boost from displaced China output that was evident in the Korean data yesterday.

** Eurozone - Q1 advance GDP / April CPI **
- Following on from the record plunge to record lows in the EC Confidence surveys, and the modestly worse than expected US Q1 advance GDP contraction of -4.8% SAAR, today has the advance reading for Eurozone GDP, which is seen falling -3.7% q/q or in SAAR terms -14.8%. Eminently the fact that Europe moved into lockdown much earlier in Q1, this is a case of a non like for like comparison, though it obviously offers some pointers for the US in Q2, not that Eurozone Q2 GDP is likely to be any better despite some tentative moves to start easing lockdown measures over the next month. As for CPI, the stronger than expected German CPI 0.8% y/y vs. forecast 0.5% was still very low and sharply lower than March's 1.3%, with sharp falls in petrol and household energy prices offset to some extent by a jump in food prices, but it does impart some modest upside risks relative to a forecast of 0.1% m/m 0.1% y/y (vs. March 0.7% y/y), but it will likely turn negative in May, and remain negative well into Q3.

** Eurozone - ECB meeting **
- The ECB rounds off this week's run of G3 central bank meetings, with some more complex questions to answer than either the BoJ or the Fed, as ever primarily due to the fact it is not a national central bank, and therefore always having to operate with additional constraints. Given the speed at which its PEPP (Pandemic Emergency Purchase Programme) for 2020 that currently totals EUR 1.1 Trln, of which 60% is devoted to sovereign debt purchases, most estimates suggest it will exhaust the "pot" by October, and therefore it will need to increase the size, as even the more hawkishly inclined council members have hinted at. It has already relaxed some of the rules on collateral eligibility to 'fallen angels', but may well have to broaden that to include some better rated outright High Yield ('junk') debt, and there is also some speculation about the inclusion of ETFs, a route long adopted by the BoJ and more recently the Fed. The latest relaxation of bank capital rules by the European Commission could also facilitate some further easing of Refi and TLTRO terms, though at the same time there will be an offset for a likely sharp rebound in non-performing loans forcing a sharp increase in credit loss provisions. As much as some are speculating that the ECB might have to take on some of these NPLs, that is simply not going to get enough support on the council, above all given the tensions over debt mutualisation at a political level. Thus far, the ECB has been rather vague on what exactly it is buying in terms of non-govt debt, focussing on how much rather than what, and there may be some questions on when (even if) it may provide some details. As for its forecasts, these are basically moot and a moving target as long as the outlook on when the various economies will be free to return to more normal levels of activity remains very much shrouded in fog. Reuters graphic: How long can the ECB's emergency bond buys last? https://fingfx.thomsonreuters.com/gfx/editorcharts/gjnvwmlyvwr/index.html

** U.S.A. - - Q1 ECI, March Personal Income / PCE, Weekly Jobless Claims **
- The consensus looks for the Q1 Employment Cost Index to rise 0.6% q/q, which would fit with the average hourly earnings data, though the latter has a well-known big drag from lower paid sectors, which is typically not as much of an influence in the ECI, and per se the risk look to be to the downside of the consensus, even if this will swing in the opposite direction in Q2 given that the largest volume of layoffs have been less secure and lower paid jobs. Weekly Jobless Claims are forecast to slow further to a still spectacularly large 3.50 Mln pace from a prior 4.267 Mln and the end March peak of 6.867 Mln, which would take the cumulative volume of layoffs to more than 30.0 Mln, though Continued Claims are seen at 19.476 Mln vs. prior 15.976 Mln. The latter is significant as it covers Payrolls survey week, which would imply a headline Unemployment Rate around 12.0%. Personal Income / PCE are seen down 1.5% and 5.0% m/m respectively, though as ever this data has been largely pre-empted by yesterday's Q1 GDP data, per se not offering much in the way of fresh insights.

 

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watch for a bad bounce

 

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