Trading with point and figure

Dentalfloss · May 21, 2020

Dentalfloss · May 21, 2020

trend break

Dentalfloss · May 21, 2020

In rez

Dentalfloss · May 21, 2020

Good Morning: The Long & the Short of it and The Bigger Picture - 21 May 2020 - ADM ISI

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Ostwald, Marc

08:32 (10 minutes ago)

to Marc

- Ascension Day in parts of Europe as 'flash' PMIs likely to dominate data
schedule, digesting Japan & Korea Exports, US Claims and Existing Home
Sales also on tap; ECB minutes, all Fed 'top brass' to speak; Turkey &
South Africa rate cuts seen; auctions in Spain, UK and US

- PMIs: rebound expected, but still de fact very contractionary, durability
of rebounds shrouded in fog

- US weekly claims seen falling but still way off the dial historically,
continued claims to jump again

- Charts: US IG, HY, HY Energy & JPM EM bond credit spreads

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** EVENTS PREVIEW **
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It's Ascension Day in parts of Europe and elsewhere, which kicks off a run of holidays that includes the Ramadan ending Eid Al-Fitr starting tomorrow and Monday's Memorial Day in the USA. A relatively busy schedule of data has the Japan April and South Korea May 1-20 Trade data to digest, with the 'flash' PMIs in Australia and the G7 likely to capture the most attention, with the UK CBI Industrial Trends survey, US weekly jobless claims and Existing Home Sales also slated. The Fed's 'top brass' (Powell, Clarida, Williams and Brainard) follow on from last night's FOMC minutes, with the end April ECB minutes also on tap. In the EM space, the surprising aspect is that two of the most beleaguered economies (and as a consequence currencies) - South Africa and Turkey - are expected to see further relatively aggressive rate cuts of 50 bps, following in the footsteps of Brazil's BCB, in what increasingly appears to be a case of a 'damned if we do, damned if we don't' approach to monetary policy in many of the most fragile EM economies. A slightly quieter day in terms of govt bond auctions sees the UK offering 8-yr Index-linked and 12-yr conventional Gilts, while Spain holds a multi-maturity sale, with the US rounding off with 10-yr TIPS. Corporate earnings highlights include South Korea's Kia Motors, Samsung SDI and SK Hynix, while the run of US retailer reports continues with JC Penney, Ross Stores and TJX Companies. Whether any of the above engenders much market reaction beyond the epic level of 'wilful blindness' and 'wishful seeing', a plague like form of Pavlovian positivism that attests both to an equally epic level of financial repression being peddled by central banks. In terms of US weekly jobless Claims, a further deceleration to a 2.40 Mln pace from the prior week's higher than expected (and upwardly revised) 2.981 Mln, whereby a) the 2.40 Mln would remain an astronomical pace seen relative to any previous occasion by a factor of x3, and b) the downward momentum sadly appears to be slowing, implying upside risks relative to forecasts. The former point is underlined by expectations of another large jump in Continued Claims to 24.25 Mln from 22.83 Mln. April Existing Home Sales are unsurprisingly expected to tumble sharply by 19.9% m/m to 4.22 Mln, almost exclusively due to lockdown measures, and if the rebound in the NAHB index is any guide will likely rebound quite quickly once movement restrictions are eased substantially.

** G7 - May 'flash' PMIs **
- April's PMIs were a case of 'how low can you go', above all Services headline and Manufacturing output indices. Forecasts for the May 'flash' readings assume a rebound, primarily due to the underlying characteristics of diffusion indices, e.g. if in April 85% of companies surveyed reported a drop in orders, output, etc, and "only" 65% report a contraction in May, then this will result in a very sizable rebound in the PMIs and sub-indices - the salient point however remains that 65% of companies have reported a further contraction in activity. Per se the expected 10 to 15 point rebounds in Services readings in the Eurozone and UK would still leave indices at levels that point to a huge contraction in activity, and even readings just above 50.0 would also point to a sharp overall contraction in activity in Q2, because of the late March / April collapse. As has already been seen in China, above all in Manufacturing, a bounce is no guarantee that these rebounds will be sustained in coming months. But with markets still being pumped full of central bank money printing, and a very mindless ongoing focus on 'better / as / worse than expected' still driving algo dictated reactions to incoming data, as long as it is 'better than', and throwing anything 'worse than' under the bus of a Panglossian 'that's already discounted' or 'that means more central bank and/or fiscal stimulus', but above all riding over any critical or lateral thinking reaction with a planet sized steamroller.