Amplify Weekly Strategy: 25th - 29th March 2019

Amplify Weekly Strategy: 25th - 29th March 2019

Updated: Apr 26, 2019

CALENDAR HIGHLIGHTS


Monday: SP PPI, GE Ifo Business Climate, UK Inflation Expectations (tentative), Parliament MPs debate & Vote on Amendable Motion, US Chicago Fed National Activity Index, Dallas Fed Manufacturing Business Index, NZ Trade Balance, Fed's Evans, Harker, BoJ's Harada, RBA's Ellis to speak


Tuesday: JN BoJ Core CPI, GE GfK Consumer Climate, FR GDP, GE 2-yr Govt Auction, UK Gross Mortgage Lending, Brexit Meaningful Vote (tentative), US Housing Starts, Building Permits, House Price Index, CB Consumer Confidence, Richmond Fed Manufacturing, Weekly API Inventories, 2-yr Govt Bond Auction, NZ RBNZ Interest Rate Decision, Fed's Rosengren, Harker, RBA's Kent to speak


Wednesday: FR Consumer Confidence, PPI, SP CPI, IT Business/Consumer Confidence, Trade Balance, GE 10-yr Govt Bond Auction, UK Distributive Trades Survey, Brexit Meaningful Vote (tentative), SP Business Confidence, US Trade Balance, 5-yr Govt Bond Auction, Weekly DoE Inventories, 5-yr Govt Bond Auction, CA Trade Balance, ECB's Draghi, Praet, De Guindos, Mersch, Fed's George to speak


Thursday: UK Nationwide HPI, Govt to Push Through Brexit Postponement (SI), SP HICP, EU Business Climate, Consumer Confidence, M3 Money Supply, IT 5yr & 10-yr Govt Bond Auction, GE CPI, US GDP, Real Consumer Spending, Corporate Profits, Pending Home Sales, KC Fed Manufacturing Index, 7-yr Govt Bond Auction, Fed's Clarida, Bullard to speak, US Trade Secretary Lighthizer and Treasury Secretary Mnuchin visit China


Friday: JN Industrial Production, Retail Sales, Unemployment Rate, Housing Starts, UK Gfk Consumer Confidence, Official Brexit date (postponed?), GE Import Price Index, Retail Sales, Unemployment Rate/Change, FR CPI, SP GDP, Retail Sales, UK GDP, Business Investment, Current Account, M4 Money Supply, Mortgage Lending/Approvals, IT CPI, US Core PCE, Personal Income/Spending, University of Michigan Sentiment, Chicago PMI, New Homes Sales, Baker Hughes Rig Count, CA GDP, Fed's Quarles to speak, US Trade Secretary Lighthizer and Treasury Secretary Mnuchin visit China



The return of growth fears...


Last week finished on a negative footing with the S&P 500 closing at the 2,800, marking the worst day for the index since January. The trigger point was the release of the surprisingly weak manufacturing PMI data out of Germany where the latest reading pointed to the steepest pace of contraction in the sector since August 2012, as new export orders fell for a seventh month in a row and at the quickest rate for over six-and-half years. 


The number was followed up by the US where the manufacturing PMI fell to 52.5 the lowest expansion since June of 2017 amid softer rises in output, new orders and employment. The combination of these news items reignited lingering concerns over global growth conditions, resulting in the 10-yr US yield falling below the 3-month rate for the first time since 2007. 



When combining this with the dovish surprise from the Fed last week, and the fact money markets are pricing in a potential rate cut this year, treasury yields are now eyeing one of the biggest March quarter drops of the past two decades.



Although the weakness in the German PMI data was a clear catalyst for risk off trade last week, this morning the latest German Ifo reading contradicts the notion that the engine of European growth is stalling, printing at 99.6, above market expectations and prompting former ECB watcher Frederik Ducrozet to tweet "more evidence that this manufacturing PMI was a bit of an outlier, close to inflection point". 


For new traders it's important to understand the difference between hard and soft data here, particularly with a market obsessed at looking at indicators such as bond yield spreads to be the definitive marker for a looming economic downturn. As a reminder, Ifo business climate measures entrepreneurs' sentiment about current business conditions but importantly their expectations for the next 6-months, so when looking at the last 12 headline readings for Ifo it does suggest Ducrozet's comment has some merit.



May holds firm for now...


UK Prime Minister Theresa May must be used to having her leadership challenged by now as it's been a recurring theme since day one of her tenancy at No.10. The Sunday papers this weekend sparked renewed rumours of an imminent resignation to break the Brexit impasse with David Lidington and Michael Gove tipped as interim replacements, but senior cabinet officials were quick to defend her position with Chancellor Philip Hammond stating that removing May would not help whilst giving his backing to the PM's Brexit plan. 


Probably the most fitting quote I heard yesterday came from Lidington himself and certainly goes some way as to explain why May has stood the test of time despite apparent criticism from all sides. 


"One thing that working closely with the prime minister does is cure you completely of any lingering shred of ambition to want to do that task"


This week is an important one in the process with the formal date for the expiration of Article 50 still due for this Friday. This commences a busy political calendar with cabinet meetings happening this morning with the PM reportedly considering offering lawmakers so called indicative votes to find a way to break the deadlock, according to the Telegraph. 


Rather than go into all the nuances of political process I strongly suggest for those interested to read this detailed article from the parliamentary correspondent Mark D'Arcy of the BBC HERE and to refer to the infographic below for the decision tree over the coming weeks.



No collusion, no obstruction, complete and total EXONERATION. KEEP AMERICA GREAT!...


No, I haven't quite lost my mind yet or forgotten to take the caps lock off my keyboard - this is in fact the last tweet from US President Donald Trump. 


His latest comment comes after he has claimed vindication on rumours and speculation that has dogged his presidency since assuming power in the Oval office in 2016. In the short-term this is of little consequence but long-term it means the race for 2020 and the reappointment of Trump for another term just got a little more interesting. As you would expect the democrats have vowed to press on and have demanded full disclosure of documents used in the investigation, but one would imagine the President will now be more fired up than ever now that the on-going witch hunt has failed to pin anything of substance to him.


Moving forward, the more pressing story for market participants is the conclusion of the trade negotiations between the US and China. Reports in the FT this weekend suggested that China is not conceding to US demands to ease curbs on technology companies, citing three people briefed on the discussions. This comes ahead of US trade representative Robert Lighthizer and treasury secretary Steven Mnuchin travelling to Beijing to continue talks on Thursday and Friday this week. As always, headlines on this matter will be key for ascertaining intraday sentiment to be ready for more on this towards the end of the week.


An overview of technical charts with fundamental considerations noted for the week ahead...







TRADE IDEAS FROM THE TEAM


Sam North (@snorth19) - S&P 500 and GBP/USD futures



Despite Friday's sell off in global equities, I still favour a push to the upside. Technically, if we can get above 2825 on the futures, which has been very well respected on multiple days - then I think we can get a further run to the highs of the year. I expect some positive trade talks to be filtered into the market over the coming days. 



Using the trend-line as a resistance, a break above that would give me confidence that sentiment has shifted to the upside. However, with Brexit comments becoming more and more common I would be looking to make any trade risk free as soon as possible. I feel a break and close above the trend-line & rectangle area of Thursday/Friday highs would be enough to see us rise higher.


Charlie Hyett (@CO_Hyett) - EUR/USD futures



Technically we are in a downwards trending market here in the Euro. I believe that after the negative data from the Euro-zone on Friday, we could see a continuation of this move. Also despite, the Fed being overly dovish, their outlook for 2019 is still bullish, for now maintaining USD strength in the short-term in my view.



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