Trading with point and figure

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Dax chart
Courtesy of kalott

 

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aand bounce from our support

 

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Sellers need to keep it under the red trendline

 

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A better chart

 

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supp/rez worked a treat

 

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Mornin folks 🤪 🤪 🤪 😷😷😷😷😷💋💋💋🤓🤓🤓😃

 

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Good Morning: The Long & the Short of it and The Bigger Picture - 13 May 2020 - ADM ISI

Inbox

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Ostwald, Marc

09:08 (34 minutes ago)

to Marc

- Busy schedule on all fronts: digesting UK GDP and monthly indicators,
Sweden CPI and Turkey Current Account; awaiting Eurozone Production,
US PPI and Brazil Retail Sales; Fed's Powell and ECB's Lane speak;
OPEC oil market report; hefty run of govt bond sales, some key
Corporate earnings

- Markets: focus on flows not on back-fitting macro narratives

- UK: Q1 GDP bad but better than expected, but likely revised lower and
Q2 will be much worse, as indicated by crash in BRC total Retail Sales

- Powell likely to lean against negative rates yet again; ECB's Lane
and de Guindos to push back against German constitutional court ruling

- US PPI: as with CPI, energy to pace headline fall, Food to offset;
trade services and health care the wild cards

- Charts: WTI Crude; VIX, V2X, CVIX & MOVE volatility indices: US HY
Energy credit spreads vs. WTI second month future

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** EVENTS PREVIEW **
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The mid-week schedule has plenty to ponder in terms of data, events and earnings, with a raft of govt bond auctions also on tap. South Korea Unemployment, Japan's Economy Watchers (services) survey, a mega dump of UK data including Q1 GDP and very divergent BRC Retail Sales outturns, Turkey's Current Account and Swedish CPI are on the 'to digest' list. Meanwhile Eurozone Industrial Production, US PPI and Brazilian Retail Sales lie ahead. On the central bank front, New Zealand's RBNZ held rates as expected, but hinted at negative rates and doubled its QE programme, while Powell's quite heavily anticipated speech at the Peterson Institute is accompanied by two outings for ECB chief economist Lane, who will doubtless have been tasked with a further rebuttal of the German Verfassungsgericht QE/OMT ruling, above all as a constraint on ECB policy, along with V-P de Guindos. On a very busy govt bond auction schedule are sales in Italy, Norway, UK, Germany, Portugal, Canada and the US, while oil markets await OPEC's monthly oil market report, which seems likely to see further demand estimate downgrades following 'sources' saying that OPEC+ wants to keep the 9.7 Mln bpd of cuts beyond June, with no scaling back. Interestingly this comes as oil prices have settled into a sideways trend, with the drop in volatility probably less a reflection on the oil demand/supply outlook, and more a function of the purge of speculative positions, and a long overdue restructuring of fund (ETF/ETP) strategies in terms of their allocations to the futures contract calendar. Amongst the corporate earnings highlights are: Tencent, Sony, Rosneft, AP Moeller-Maersk, Pirelli and Cisco. Comments from Germany in the past 24 hours require attention, with Merkel briefing party lawmakers on the need for Germany to help other Eurozone/EU countries to get back on their feet, while still ostensibly resisting any form of debt mutualization. Comments from German Constitutional Court judge Huber that EC legal action against the court / Germany "would weaken or endanger" the bloc in the long-run, and underlines the need for Merkel and her govt to quickly use diplomatic back channels to de-escalate the situation before it gets out of control.

In market terms, it is interest how the mainstream media narrative has changed horses to suggest markets have suddenly become fearful of a second round spread of Coronavirus, when the obvious point is that with the Fed offering less support in terms of purchases (on net balance, given the reduction in UST purchases from April's outsized $993 Bln to $200 Bln), and huge increases in US and other govt borrowing effectively crowding out flows to other assets, notwithstanding outsized levels of corporate borrowing, Questions about the ECB's ability to increase its QE, only add to concerns that flows are no longer as favourable as they were in April. In other words, keep focussed on flows, not on spurious back fitting of macro explanations to market price action.

** U.K. - Q1 GDP / BRC Retail Sales **
- Q1 GDP was bad at -2.0% q/q -22.% y/y, though note as bad as the forecast of -2.6% q/q . However the ONS preliminary estimate is based on roughly 45% of necessary data inputs, and with Q1 Business Investment estimated at a scarcely credible flat q/q, it is not difficult to suggest that revisions are likely to be lower. Indeed as the economy only started to shutdown from March, Q2 will inevitably be much worse. There is as such no point in a deeper drill down into this preliminary report. As for BRC Retail Sales, the 5.0% y/y increase in like for like sales is meaningless given that this measure excluded stores that have been 'temporarily' shut down, while on the other hand including online sales; the record -19.1% y/y slide in total Retail Sales is therefore a better and very unsurprising proxy for sector activity.

** U.S.A. - April PPI / Powell **
- As was the case with yesterday's CPI (energy down >20% m/m), today's PPI will also see a big drag from energy, with an offset from food prices, the interesting aspect will be how trade services play out, given that lack of demand has also seen supply bottlenecks emerge. The consensus sees a drop of 0.5% m/m in headline PPI, with the ex-Food & Energy seen flat m/m, within which medical / health care could also be another wild card. As with CPI, the sharp jump in capacity 'slack' appears likely to continue to be a considerable drag in coming months. The key question for Powell's speech today is how much push back there will be on markets discounting negative official rates in H2 2020 and beyond. Arch dove Bullard opined yesterday that "negative rates were not a good option for the U.S.' (adding that a more formal QE target would be a better option), and this has been the Fed's position for a considerable period and likely to remain so, regardless of Trump's incessant rambling about negative rates, because 'they are negative in other countries' (cue the same from Brazil's Bolsonaro?? Ed.)

========================== ** THE DAY AHEAD ** ===========================

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Bigger rez comes in @10700 area

 

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