The equity index that stands out above all others is the HK50, which gained 8.8% (the best week since Nov 2011), with the HK cash market closing higher for five straight days – the fact we’ve seen 20 straight days of inflows into HK equity funds from the China mainland is clearly helping.
Following some way behind, the NAS100 gained an impressive 4.2%, and I expect further attention on this index with Apple and Amazon due out with numbers this week. I’d be paying close attention to Amazon given the options market implies a 7% move on the day of earnings, and this is a core holding in almost every investment manager's portfolio. Another case study where the numbers and guidance needs to deliver and deliver in spades, or we could see disappointment.
We’ve heard from nearly half of S&P500 companies this earnings season and so far, 80% have beaten EPS expectations by an average of 9%, while 56% have beaten on sales. You can say that has been supportive of risk and this week we get a further 27% of the S&P500 market cap reporting.
In FX circles, the JPY continues to get the lion's share of attention with the currency undergoing a blanket fire sale on the week – Japanese authorities may say they don’t target levels per se, but they do pay close attention to the trend and the rate of change and at current levels suggest they have to act soon or risk facing a credibility crisis. The FX market is almost taking them on like the bond vigilantes of old, with many looking to hedge out short JPY positions through USDJPY puts. We’ll see, but while USDJPY gets a close inspection, moves in AUDJPY were particularly impressive, with the pair having its best weekly gain since June 2020.
Being short JPY here comes with inherent risk – but for those with no position I can imagine hedge funds setting algo’s with limit orders 400-500 pips under spot to capture an intervention move. Naturally, in the belief that any sharp dip will come back quickly.
On the data front, the Fed meeting takes centre stage on Wednesday, with Jay Powell likely to be pressed hard on the possibility of hiking. We also get the US ECI report, and nonfarm payrolls, where the prospect of further evidence of a hot labour market should be on display.
EU CPI may get some attention and should reinforce the policy divergence trade that is playing out between ECB and Fed interest rate pricing. Staying on the subject of interest rates, locally the debate on the RBA’s next move heats up with Aussie interest rate futures seeing the next move skewed towards a hike. With 3 of the 4 ASX200 big banks reporting over the next two weeks, commentary from the respective CEOs on lending trends and volumes could move the dial. It certainly suggests staying long AUDNZD.
Good luck to all.
The key event risks for traders to navigate in the week ahead:
Monday
Central bank speeches – ECB chief economist Lane speaks (21:15 AEST)
Tuesday
Earnings
Wednesday
Earnings
Thursday
Earnings
Friday
Earnings