- Risk assets haven’t kicked off the week with a sense of panic, but the leaders on the way up – FANG – is registering pain
- The dollar traced out a range-bound retreat following President Trump’s ‘shutdown’ warnings, but trend awaits FOMC’s approval
- Heavy event risk ahead includes: Eurozone GDP, the BoJ rate decision, US consumer sentiment, Chinese PMIs and Apple earnings.
FANG OUTPERFORMING HEADLINES
It has been more often the case these past months that headlines have trumpeted problems for risk assets and its leaders with reserved market response from the assets in question themselves. That said, the tables may have turned with the most potent symbols of speculative appetite. There were some noteworthy global-macro headlines to digest to start this new trading week, but clearly it wasn’t systemic enough to register a systemic shift in ‘risk’ positioning. Speculative assets from emerging markets to carry to the dollar offered up mixed but reserved performance. There was a notable underperformance for the top performing markets benchmarks over the past years. Tracing performance across sessions, Asian equity markets were mixed Monday led by a moderate decline from the Nikkei 225 while the European indices showed little more clarity or intensity. However, selling pressure started to build traction noticeably in US trade not long after liquidity filled out. What’s more, the retreat was more significant technically and comparatively more aggressive in the hallowed FANG. The market-cap tech giants extended last week’s retreat to secure an unmistakable and uncommon bearish technical break for the group. If the pull of sentiment has already shifted lower, it can amplify the fundamental impact of troubling event risk (like consumer confidence or NFPs) or vague but troubling themes (such as the normalization of monetary policy). It will be telling to see how the market response to Amazon’s earnings when liquidity returns following its post-close release Tuesday.
FAANG Daily Chart
DOLLAR UNWILLING TO COMMIT TO A MOVE ON GOVERNMENT SHUTDOWN WARNING AHEAD OF FED
Fundamentals are a hierarchy. Markets determine what matters most to the greatest range of market participants and follows the rise or fall of that theme. Presently, the dollar is having to sort through many competing fundamental influences to establish what carries the greatest weight for the currency’s future. The global pursuit of trade wars may ultimately prove the most systemic as the risk of a global rebuff builds in equal proportion to the pressure the Trump administration is applying. It has been reported that deputy ministers for the EU, Japan, Canada, South Korea and Mexico are meeting in Geneva Tuesday to discuss the response to the auto tariffs threatened by the US; but the uncertainty is open without a definitive time frame. Another more timely risk on the Dollar’s shoulders was the fresh threat of another government shutdown by the President over the weekend should he not receive funding for border security. Previous shutdowns in 2018 and 2013 rendered questionable results for the Greenback (and risk trends), so it is easy for the market to ignore them for now. The same reticence will likely be applied to otherwise important event risk on the docket for the forthcoming session. The Conference Board’s consumer sentiment survey is important for gauging trade wars and growth evaluations while the PCE deflator is the Fed’s preferred inflation indicator. Yet, with anticipation for Wednesday’s FOMC decision and the general uncertainty with what trend dictating the dollar’s course, the market will not register a clear move without conviction.
US Dollar Index Daily Chart
HEAVY EVENT RISK BETWEEN THE EURO AND YEN
Looking out over the heavy event risk run that begins over the next 24 hours, there are definitely points of concentration. The Japanese Yen has a very dense docket from consumer inflation to industrial production to consumer confidence. That said, the most remarkable scheduled release through Tuesday’s session will be the Bank of Japan’s (BoJ) rate decision. The group is almost certain to leave its benchmark rate unchanged along with its target for the 10-year JGB yield. However, reports last week suggesting the group is considering altering its program in order to make it ‘more sustainable’ has leveraged the markets interest in this monetary policy decision. While 10-year yields have certainly responded to this speculation – leading the BoJ open unlimited purchases of the 5-10 year debt three times in the past week – the Yen has remained relatively aloof. That said, if the group does legitimate change course (even if modestly) the Yen would rally. Alternatively, they can do little to take a more dovish turn and thereby spur a speculative recovery. From the Euro, the slide in consumer confidence this past session was a reflection of growing trouble for the region. Ahead, we will see how system those issues run. The Euro-area 2Q GDP update is due alongside the jobless rate and consumer inflation report (ECB fodder). These are economically and fundamentally important readings, but their market moving capacity is up for debate. I would not presume a robust EURUSD break on this run – much less a trend.