Trading with point and figure

ae8l7t.gif
 
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10730 to 10770........then on to10800 could be strong rez....horizontal
poss mega rez in 10880
pullback areas marked
see above chart
 
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happy labour day

we could get a decent day'''lower volume with lots of volatility
or
a go nowhere day
lets see
 
- Services PMIs dominate holiday thinned session; Japan Labor Cash
Earnings, BRC Shop Prices to digest ahead of Swedish Output, Turkey
inflation; German state election result, G20 meeting, and Japan Inc
Brexit "to do" list

- Italy Services PMI: seen little changed, Manufacturing PMI fall imparts
downside bias

- UK Services PMI: bounce expected, but more of the 'correction variety
than Manufacturing

- Germany: state election result more than just a blow for Merkel, but
warning shot for all parties as participation rate surges

- Govt bonds: upward drift in JGB and Treasury yields requires attention;
post payrolls Fed 'comfort factor' marred by low ECB/BoJ expectations,
expected seasonal surge in corporate issuance?

- Charts: 10-yr JGB & Treasury yields, Mecklenburg-Vorpommern results

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

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

While the US and Canada are closed for Labor Day, the statistical schedule is busy, with Services PMI dominating, though there are also the Japan Labor Cash Earnings (much stronger than expected at 1.4% y/y vs. forecast 0.4%) and UK BRC Shop Prices (dropping to 2.0% on Food prices) to digest ahead of Turkish inflation, Swedish Output readings and Eurozone Retail Sales. On the policy side of the equation, there are the various statements and declarations from the G20 meeting in China, though the most significant would appear to be the US/Chinese ratification of the Paris Climate Agreement, and Japan's very comprehensive list of quasi demands for the UK and the EU regarding Brexit negotiations. The latter should be something of an embarrassment to both the UK and EU, in so far as Japan Inc would appear to have conducted a far more forensic analysis of issues and processes than either of the protagonists; even if the EU's long history of backroom 'diplomacy' and often monumental fudges should make this unsurprising. That said, the Japanese have sent a powerful shot across the bows of both parties. On the subject of warning shots, the Mecklenburg-Vorpommern state election will leave Mrs Merkel under intense pressure to change her tact on her asylum/refugee policies, after the CDU were beaten into third place by the AfD, with Bavarian CSU leader and state PM Seehofer likely to view this as strengthening his hand in terms of throwing his hat in the ring to be Chancellor at next year's General Election. The state is not necessarily the best proxy for trends across the republic, given still relatively high levels of unemployment and low living standards relative to West Germany. However it is not just the CDU which comes out of the vote weakened, the SPD lost slightly less votes relative to 2011, and the two 'people's parties' will be have to continue their local coalition given that the Greens failed to achieve 5% of vote. Most alarmingly for all parties, the participation rate leapt to over 60% from just 50.1% at the 2011 vote, underlining that the AfD not only took votes from all other parties, but that a large proportion of its votes came from previous non-voters. A close eye also needs to be kept on govt bond yields as 10-yr JGB yields threaten to return to positive territory for the first time since March, and with US longer dated yields also edging higher as corporate/HY/EM bond issuance are expected to see a major boost after the summer level.

** World - August Services PMIs **
- As ever, many of the national Services surveys will probably engender little reaction, with the focus on Italy and above all the UK, once the China readings have been absorbed. The Italian reading is expected to be fractionally lower at 51.9 (vs July 52.0), despite the very discouraging drop below 50.0 for the Manufacturing sector. While BTPs have been highly insensitive to Italy's renewed political woes and upcoming risks, as well as a clear loss of momentum in the economy thanks to the ECB's QAE purchases, PM Renzi now looks far more vulnerable. As previously noted in the case of the UK, it was the steep fall in the Services PMI, which the MPC highlighted as its biggest concern, and by extension its (dubious) primary justification for its aggressive (though not necessarily effective) August policy actions. The consensus looks for a significant rebound to 50.0 after July's 47.4 from 52.3, though this would obviously not be as impressive as the Manufacturing PMI. The outcome will likely predicate some of the lines of questioning when Carney & Co testify to the Treasury Select Committee tomorrow.

Recap with additions: The Week Ahead - Bullet point highlights: 5 to 9 September 2016

- A relatively busy week for data kicks off with Services PMIs worldwide, and works through China CPI, PPI, FX Reserves and Trade Balance; Japan wages, revised Q2 GDP and Economy Watchers Survey; UK BRC Retail Sales, RICS House Prices, Industrial Production and Trade; German Factory Orders, Industrial Production and Trade; Australia Q2 GDP & Current Account; Canada Unemployment and what is a very light week for US statistics: JOLTS Job Openings and Wholesale Inventories.

- ECB tops a busy week for central bank meetings, though as with the RBA, Bank of Canada, Riskbank, Bank of Korea and Poland's NBP, no changes in rates are expected. There is some speculation about some changes to the ECB's QE programme, with a widening of the corporate bond buying programme to include senior bank paper, a move away from the "Capital Key" for Govt bond purchases, the latter we consider to be highly improbable at this stage. A decision on extending the QE timeline will be deferred to Q4. The ECB's staff economic forecast update should keep forecasts unchanged, though the risks to the forecasts will continue to be emphasized as being to the downside. Any downward revisions to forecasts, above all for CPI, will doubtless be construed as markets as signalling that policy will likely be eased in Q4.

- BoE's Carney, Cunliffe, Forbes and McCafferty will testify to the Treasury Select Committee on the Q3 Inflation Report, and seem likely to be on the receiving end of some quite awkward questions about their policy measures and the BoE's forecasts.

- There are a few Fed speakers during the week, and the Fed will publish its Beige Book for the Sept 20/21 FOMC meeting; markets have pushed back on the chances of a September rate move, but will be sensitive to Fed speakers' narrative, after some notably more hawkish comments from Lacker last Friday.

- The G-20 meeting outturn will need to be digested, as will the results of the state election in Germany. There are also meetings of the Eurogroup, with Greece once again emerging into the spotlight, given media reports that there will be a delay in the disbursal of the next tranche of its bail-out until further reforms are enacted, and there is also an ASEAN meeting, to be attended by all TIPP country leaders.

- Government bond supply is relatively light: the UK sells 10-yr Gilt, German also sells 10-yr Bund and 10-yr Inflation-linked, Austria offers 7 & 10-yr Bunds, and Ireland will sell a long-dated bond. There is no coupon supply from the US, while Japan offers 5- and 30-yr JGBs.


from Marc Ostwald
 
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