Trading with point and figure

Dentalfloss · Jun 1, 2020

In support

Dentalfloss · Jun 1, 2020

Dentalfloss · Jun 1, 2020

and bounce from our support

Dentalfloss · Jun 1, 2020

Both in rez

Dentalfloss · Jun 1, 2020

Dentalfloss · Jun 1, 2020

Dentalfloss · Jun 1, 2020

Good Morning: The Long & the Short of it and The Bigger Picture - 1 June 2020 - ADM ISI

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Ostwald, Marc

08:33 (13 minutes ago)

to Marc

- Digesting mixed, but overall weak Asia PMIs, Korea Exports slide and
much better than expected Japan Q1 CapEx; awaiting Europe & Americas
Manufacturing PMIs, US Construction Spending and Q1 Flow of Funds;
Whitsun holiday in Europe to thin trading volumes

- World Manufacturing PMIs rebounding, but still weak, and plenty of
grounds to doubt extent and sustainability of recovery

- Slide in Japan Q1 Corporate Profits takes all of the shine from CapEx
jump

- Week Ahead: PMIs and US Auto Sales in focus at start of week; German
Jobs and Orders and US/Canada labour reports top end of week run

- Week Ahead: stet from RBA and BoC; large boost to ECB PEPP volume
anticipated; UK EU Brexit talks; US/China tensions

- Charts: Various S&P500 related; German vs UK new Covid19 cases; Aramco
Asia crude export prices; CME Agricultural Economy Barometer

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** EVENTS PREVIEW **
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The week gets under way with much better than expected Japan Q1 CapEx data (4.3% q/q vs. forecast -5.0%), which implies an upward revision to Q1 GDP, but as noted below, the pointers for Q2 are very inauspicious, and the crash in Corporate Profits reinforces concerns about future insolvencies. Given the scale of the current economic damage from Covid19, South Korea's May Trade data (Exports -21.1% y/y, Imports -23.7%) were in line with forecasts, but with y/y rates deteriorating vs. April, trade will inflict a big hit on Q2 GDP, and the Manufacturing PMI's drift back to 41.3 from 41.6 underlines the point below about initial bounces in PMIs likely losing momentum quickly. While other Asian PMIs bounced, they all remain at very contractionary levels, a pattern which likely repeat in European and Americas PMIs later in the day. With parts of Europe closed for Whitsun, and little else in the way of data aside from US Construction Spending, and the events calendar has little more than the Q1 Fed Flow of Funds report which will likely show some dramatic shifts given the March meltdown in markets, but will obviously see major reversals in Q2. This leaves markets to contemplate the wide scale protests and rioting in the U.S. over the weekend, though judging by the performance of Asian markets overnight, markets appear to be dismissing this, and for all that the lawless vandalism and looting is abhorrent, the salient point is the underlying simmering and suddenly explosive level of discontent, and on the other hand the deep chasm between
markets near complete indifference to what is happening on Main Street USA, both economically and socially.

RECAP: The Week Ahead - Preview:

The Week Ahead - Preview:

A new month begins with markets still riding on a wave of hope that lockdown easing will lead to a 'strong' recovery, an eternal hope of a vaccine being found, and more 'stimulus' (monetary & fiscal) measures, specifically from the ECB this week. The negatives remain all too visible - dire levels of job losses and very high levels of job insecurity, still little visibility on the economic outlook, a sharp rise in US (and many others) political tensions with China, and rising levels of social unrest, above all in the US and Hong Kong. The calendar of data and events has a very familiar start of month feel, with the start of the week dominated by PMIs from around the world, US Auto Sales and German Unemployment, with Japan Q1 CapEx and Australia's Q1 GDP thrown in for good measure, while the week ends with German Orders and US & Canadian labour data.

The govt bond sale schedule is dominated by Eurozone (Germany, Austria, France & Spain) and UK supply, while a light corporate earnings schedule features amongst others: Lukoil, Pigeon Corp, Remy Cointreau, Toshiba and Wirecard, with US looking to Broadcom, Ciena, Dick’s Sporting Goods, Slack Technologies and Zoom Video.

In the commodity / energy space, there is talk of the OPEC+ meeting being brought forward to 4 June, with oil markets also watching what levels Saudi Arabia's Aramco sets its selling prices for crude exports to Asia this month (see chart). Monday sees the official start of the Atlanta Hurricane Season and India's Monsoon season also gets under way, which may perhaps be even more sensitive than ever, given that India's agricultural sector will likely be one of the few bright spots in an otherwise dire Q2 in GDP terms; Tuesday's CME/Purdue monthly US Agricultural Economy Barometer (see chart) will also be closely watched.

Outside of tensions with China, another week long round of EU/UK Brexit trade negotiations gets under way with considerable pre-meeting brinkmanship from both sides. Just as importantly the UK's high risk and politically motivated strategy of easing lockdown measures will require careful monitoring. A simple comparison of the two charts attached of new Covid19 cases in the UK and Germany (Saturday 7-day MA UK 1,948 vs. Germany 472) underlines the scale of the risks being taken, above all given the fact that the UK's Track and Trace system is largely untested. Ahead of the EU leaders meeting mid-month, national and regional (above all 'frugal four' and Visegrad) posturing and statements will offer some signals on a) whether the EU Commission's latest Covid19 recovery fund proposal will get approval, given that 'in principle agreement' is usually reached ahead of EU Council leaders' meetings, b) how much it may be 'watered down', and perhaps critically c) how long before it is actually implemented - in this specific case, any evidence of the EU and Eurozone's habitual 'can kicking' would at best be described as very likely to be toxic.

- Statistically the run of PMI/ISMs are likely to make the same: a) yes there has been a bounce from dire levels in April, more so in Manufacturing than Services as a rule of thumb; b) in many cases readings will be worse than anything seen during the GFC; and c) as the China NBS PMIs on Sunday demonstrated, the key remains while initial bounces are likely to be robust, momentum going forward may well disappoint. US Auto Sales are forecast to rebound to 11.0 Mln in May from an all-time low of 8.48 Mln in April, as lockdown measure were eased, but are and will likely remain way off the 17.0 Mln plus average annual pace seen in the past 5 years. Germany's Unemployment is seen rising 190K after surging 373K in April, with the Unemployment Rate forecast at 6.2% from 5.8%; but this is a total irrelevance given that April saw a record 10.1 Mln on short-time work (aka Kurzabeit), which compares with a prior all-time record of 1.44 Mln in May 2009. German Factory Orders were dire in March at -15.6% m/m -16.0% y/y, and are projected to have been much worse in April at -19.7% m/m -29.9% y/y, and it should be remembered that this is even with 'favourable base' effects, i.e. April 2019 Orders fell 5.3% y/y, which leans heavily against chatter about PMIs and Ifo implying a bounce in coming months. Japan's Q1 CapEx and Australia's Q1 GDP are seen at -5.0% y/y -0.4% q/q respectively, but as elsewhere this is very historical in the current environment. Market reaction to April's catastrophic US labour report was an abject example of heartless nonchalance, with perhaps the most apposite counter being that markets should remember that while wartime comparisons may be largely off the mark, one element that could prove highly relevant, is that the sharp swing of the pendulum from capital back to labour post WWII (above all due to loss of life) via way of the post WWII social contract should probably be borne in mind. Weekly claims data may prove more sensitive than the monthly labour data, with Initial Claims seen decelerating to 1.80 Mln from 2.123 Mln, and more importantly in terms of 're-hiring' trends Continued Claims are forecast to fall to 19.039 Mln from 21.052 Mln. The fact remains that both are incredibly dire, and the recent round of major layoff announcements imply some risk of a spike higher in coming weeks, with public sector layoffs adding to private sector pressures. Payrolls are seen sliding a further 8.00 Mln after April's -20.537 Mln, and those that even contemplate a 'better or worse than' expected reaction should genuinely examine their consciences, even if this does 'guide' the feckless algorithms that control a lot of trading in this day and age, proving that many of these algos are still very much of the old programming adage of GIGO (Garbage In Garbage Out) variety, though doubtless some try to market them as AI - artificial certainly, intelligent only as an 'insult to'.

- Central banks: last Friday's Investing Channel video covers what needs to be said about the Fed at the current juncture - see

, with the FOMC going into its usual 'purdah' period ahead of the June 9/10 policy meeting. Ahead of the ECB, both the RBA and BoC are expected to keep policy settings on hold, perhaps voicing some very cautious optimism that a trough has been reached in their respective economies, but warning that the outlook remains very uncertain domestically and internationally, and underlining that they stand ready to take further action, if necessary. As such, the focal point will be Thursday's ECB meeting, with a minimum EUR 250 Bln to EUR 500 Bln expected to be added to the PEPP QE (currently EUR 750 Bln), with a further downgrade to its economic outlook in the latest quarterly staff update offering the rationale. The press conference will likely see Lagarde stick with the ECB's robust rejection of the German constitutional court ruling on the PSPP, leaving the burden of providing the justification that the court demanded on the Bundesbank, though she will be asked about the preparations the ECB is making in case the Bundesbank is forced to exit the programme. At the same time, being as political as she inherently is, she will look to pile the pressure on the political fraternity to actually deliver a major and credible fiscal package, along the lines of the European Commission proposal, and emphasize that it needs to be delivered and implemented pretty much immediately.