European Open - 30.10.2015

Good Morning and TGI-F! 

Asian equities mostly positive although there was initial downside after the BoJ stood still, and did not add any further easing. Japanese CPI also came out in line with expectations, which gave strength to the BoJ's stance. Wild swings seen in the Jpy obviously, but the recovery after the initial dip was due to a headline saying that "Japan Considers Extra Budget of More Than JPY3tn".  Jpy pairs are messy so no trade there today. US equities remain bid however, so risk appetite is easier played straight on equities.

BoJ press release here: http://www.boj.or.jp/en/announcements/release_2015/k151030a.pdf

Be aware of Month end flows today:  US equities are up 9% month-to-date, so we can expect some broad USD selling, which would impact the current trends in FX. 

Looking ahead: we have EU Unemployment and CPI (respectively expected to stay firm at 11% and rise to 0% vs. -0.1% prior) which will keep the Euro in focus. Then for the US we have personal income and spending, Chicago PMI and UoM. Cad Gdp is also released today. I am not a fan of establishing fresh positions on Friday afternoons however.

Chart for today:

European Open - 29.10.2015

Asian equities has much to digest overnight, after FOMC, RBNZ, Chinese data and Japan industrial production (which surprisedthe market at 1% vs -0.6% expected). This is a turnaround from August’s 1.2% drop. This of course is another piece to the BoJ policy puzzle but 1 piece of data is not likely to change a policy maker's mind. UsdJpy bids are reported around 120.50 and offers 121.50 for what it's worth. The tone is decisively bullish on equities today.

FOMC has given new life to the USD rally, stepping up the tone and leaving the door open for December, cutting the previous reference to "global economic and financial developments", and adding that  "household spending and business fixed income investments increasing". So USD is a clear buy on dips again and EurUsd, GbpUsd and AudUsd look like the clearest situations to target.

As an update from China's plenum session, Chinese Premier Li Keqiang said an annual 6.53% growth in the next five years until 2020 is needed in order to meet the government's target of building a moderately prosperous society. The PBoC added that QE is not on the table currently, but further policy measures are available to sustain the economy if needed.

Looking ahead, the BoJ policy announcement is most eyed, but today we get German Unemployment & CPI, Eurozone Economic Confidence, US Initial Jobless Claims & Q3 GDP. Furthermore, Atlanta Fed President Lockhart speaks today as well as ECB's Constancio.

Charts for Today:

S&P Mini - Daily Chart

European Open - 28.10.2015

Asian equities struggled to recover lost ground overnight, after risk appetite was hit yesterday through lower Crude prices and tension as the markets await the end of the Chinese plenum, the FOMC, the BoJ. The ASX was the underperformer due to an earnings miss from NAB, and lower CPI which also hit the AUD.

Not much cross-influence on FX though. The Jpy pairs saw short-covering ahead of the FOMC and macro bids between 119.90 and 120.10, due also to a large op-ex in that area.  The only notable mover overnight was the Aussie as a softer than expected CPI raised rate-cut expectations to 80% for December.  I don't feel like chasing this move, given also the amount of space travelled already today. Also, I do not expect much movement in USD-pairs pre-FOMC.

Looking ahead, we have  central bank announcements today. Not only the FOMC (19.00 CET), which many expect to be a volatile but less important event (unless Yellen surprizes everyone with either an uber-dovish view or an uber-hawkish view) but the Riksbank (9.30 CET) and RBNZ (21.00 CET) decisions are less clear. The market is expecting to hear dovish comments from both CB's, so anything different will be quite a surprize. 

We also have some ECB speakers today: Hansson speaks at 10 CET, Praet speaks at 10.15 CET and Constancio speaks at 15.45 CET. Finally, the US DOE inventory data will be crucial for Crude and Cad traders alike.

No Charts for today - wait & see mode for me.

European Open - 27.10.2015

Quite a dull session in Asia, as market participants keep calm before the Central Bank meetings this week. So nothing to note from the Asian session except a wider September Trade Deficit for Nzd. However the Bird was hardly shaken by the news and remains one of the stronger currencies out there. Stops seen building below 6920s and traders more aware that the higher Kiwi rises, the more incentive there is for the RBNZ to talk it down.

Looking ahead, we have UK data today, with the Q3 Advanced GDP which is expected to slow to 0.6% from 0.7%. Gbp however isn't all that weak on the crosses so the best bet to play any weakness is to pop into GbpUsd. However, if GDP surprizes the market to the upside, GbpCad longs or EurGbp shorts look like a decent play.

Durable goods are the data highlight for the US session, along with central bank speakers: BoC’s Lane (speaks on inflation targeting),  ECB’s Nowotny and Coeure, and BoE’s Shafik.

Charts for Today:

European Open - 26.10.2015

Asian equities continued to hold onto recent gains overnight, although doubts on the health of the Chinese economy have also encouraged profit taking. China kicks off its fifth plenum today (Oct 26-29) and all eyes are on the GDP growth target. Consensus is looking for an avg growth target of 6.5% from 2016-2020 but downside risks remain - hence the PBoC's cut last week is deemed to have little impact.

Looking ahead, Germany’s IFO survey is out today with analysts looking for a small retracement on all measures. US new home sales are also due, but will have much less impact. Usually Monday mornings are a "wait & see" but given the shift from the ECB, and given the IFO this morning, I think today is an exception.

I continue to favour shorts in Euro vs. Usd and Nzd (being cautious however of not loading up too aggressively vs. USD as there is considerable uncertainty over this week's FOMC statement).

Charts for today:

Weekly Game Plan - 25.10.2015

FYI: Europe has switched back to normal time from daylight savings time, while the US remains on DST for another week.

1. Themes for the week

- USD will be back in focus this week. The FOMC will most likely stand pat (as the market expects). There is no scheduled press conference but watch the statement for any hints about any potential ‘liftoff’ in December. Aside from the Fed, we'll also see Q3 GDP, which is expected to fall slightly alongisde ISM manufacturing, which could fall below 50 in either October or November as it has seen weakness recently. We also get the Fed’s preferred measure for the wages (employment cost index, which is expected to rebound) & inflation (PCE, with core expected to increase and headline to remain soft). 

- The Euro will continue to be in focus also. Monday we will see the IFO business survey which is expected to weaken, with sentiment possibly affected by the Volkswagen scandal. This might very well add pressure to the already weak Euro. EU & German unemployment figures, instead, are not expected to generate much commotion. 

- Risk appetite remains strong, after the message from the ECB gave a boost to pretty much all assets: stocks, credit, peripheral bonds and sovereign bonds. If China also continues to show resilience, the Vix could remain below 20 and allow stocks and Jpy crosses to surge even more...

- Unless the  Bank of Japans throws a wrench in the Jpys. The BoJ monetary policy meeting will take centre stage this week, as any near-term easing would catch the market very off guard (hence producing a sizeable reaction in FX space). Even if the BoJ stands pat, but hints at lower inflation or activity, it would be seen as a strong signal of an intention to ease further, given the recent optimism that has been expressed.

- Don't forget "the Bird". The RBNZ will also decide what to do/what to say after the recent rally in the Kiwi. No change is expected, so the accompanying rhetoric will make the difference. 

2. Charts in line with these Themes

S&P Mini

European Open - 23.10.2015

TGI-F!

Asian equities posted another QE-driven rally overnight (as rate hike expectations get pushed back more) after the dovish ECB conference yesterday and speculation on whether the rest of the world will follow Mr.Draghi or not. Jpy pairs also pushed higher in sympathy, with some hope that the BoJ will soon follow suit.

Quite evidently, the Euro remains quite weak across the board - but personally I do think it's risky to pursue fresh entries today on the Euro, given the amount of space travelled already this week. Also, despite all this action, Aud remains also on the back burner as NAB and ANZ have increased mortgage lending rates, following Westpac and Commonwealth, which is a signal towards the RBA. It makes it easier for the RBA to cut rates.

Looking ahead, we have Euro area October flash PMIs today. They will be interesting to watch as we will gauge to what degree weakness in external demand may be spilling over into domestic Euro area activity; what lasting impact VW  is having, ahead of Germany’s IFO survey next week. The reaction to the data may be mixed: good news might dampen the new & improved "easing expectations" that the market has created since yesterday. Shorts are really hoping for worse news today, in order to continue selling.

Later in the day, we get Canadian CPI which is expected to soften on the headline but show a 0.1% increase on the core. A miss will most likely have the most impact, with more weakening after the rather dovish jawboning from Poloz earlier in the week.

Charts for Today:

European Open - 22.10.2015

Asian equities generally followed Wall Street lower, although the Nikkei continues to hold onto recent key levels. S&P does appear to have lost more of it's shine in comparison. The pullback in equities has influenced Jpy pairs, although there is not yet a "risk off" theme to play. 

More important is the dovish slant we had anticipated ahead of the Bank of Canada meeting. Poloz noted that a "material slack" persists in the economy and pointed to lower oil prices and further declines in the terms of trade. Governor Poloz suggested that a change in fiscal policy (i.e. Trudeau's new government) could impact the outlook, but that the BoC would have to wait to assess the impact. The canadian dollar does look weak now, especially vs. Nzd, Usd and Gbp. Further depreciation will also depend on the colour of today's Retail Sales (14.30 CET).

Looking ahead, today's main focus will be on the ECB. Consensus would be for both a pushback against the level of the currency and some signal on further QE. The bar has been placed rather high for Draghi, and as such there is a possibility that the ECB will disappoint, and the Euro will pop higher. The press conference at 14.30 CET is a "must watch". Euro strength looks good vs. Cad today, and Euro weakness vs. Nzd.

The only other relevant data this morning comes from the UK: comments from BoE’s Cunliffe and the release of retail sales. While Cunliffe’s remarks may not shift perceptions of the BoE’s policy stance, further growth in retail sales  seems likely in September. The market is expecting 0.4% on the headline vs. 0.2% prior, and a stable 0.1% on the core.

Finally, we have US Existing Home sales  and Leading index at 16.00 CET - both high impact items, 

expected 5.39 M vs. 5.31 prior and 0% vs 0.1% prior respectively.

Charts for today:

European Open - 21.10.2015

Overnight, asian equities were higher on the back of a consensual "bull market" as investors are calling it, and also some worse Japanese data which is generating more expectations for additional stimulus by the BoJ. This has injected some life into Jpy crosses, but not enough to generate any appetizing plays.

One of the best recent movers has been halted. For the first time in 2 months, dairy prices declined, dragging NZD down. The extent to which the milk auction has a lasting impact on NZD will probably be contingent upon the broader swings in the dollar. A sustained pullback in milk prices could threaten the somewhat more optimistic tone from the RBNZ, but policymakers are likely to remain on hold for the time being.

Looking ahead: Cad will be in the spotlight today. Markets love majorities Justin Trudeau's Parliamentary majority should be supportive of the Cad. A rebound in oil prices also helped the move. However, that won't dampen the likely dovish tone from Poloz today. Since the last BOC meeting, unemployment increased, core retail sales dropped, consumer prices dropped, GDP slowed, manufacturing activity slowed. And Cad is stronger now then it was in September. Poloz might want to "talk the Cad down" today.

UK public finances data and this evening’s speech by BoE's Carney will be the other focal point for today. On the latter, press reports suggest that Mr Carney will talk about the impact of the UK’s membership of the EU on monetary policy and financial stability. 

After that, we will have Fed member Powell (neutral) on the wires, and the US DOE data for crude. 

No charts for today - nothing inspiring this morning.

European Open - 20.10.2015

Very dull session overnight, with no relevant data outside of the RBA minutes, which were also in line with expectations. Policymakers also refrained from talking up or down the AUD. The markets paid little attention but Canada’s Liberal Party, led by Justin Trudeau, has decisively won parliamentary elections, ending nine years of Conservative rule. CAD weakened a tad on this, but nothing special.

Today will be another dull day on the macro front, so trading will be technical. We only have some jawboning later on. MPC hawk McCafferty speaks this morning (11.45 CET), though his views on an early rate hike are well known. Later, BoE Governor Carney appears before the Treasury Select Committee (12.00 CET) to discuss the legislation required to cut the number of MPC meetings from 12 to eight a year, though the discussion may well deviate into broader policy issues. Carney speaks again tomorrow evening. Finally, later in the day at 15.00 CET, FED's Dudley and Powell will be on the wires, and Yellen will be due 2 hours later.

Evidently, Gbp looks "in play" again today, strong vs. USD, Eur and Jpy.

Charts for Today:

European Open - 19.10.2015

Chinese GDP and retail sales beat, while industrial production missed. So dull performance in asian equities overnight. Despite being "mixed" vs. expectations, China did post the weakest quarterly economic growth since the global financial crisis, raising pressure on policymakers to cut interest rates further and roll out other support measures to avert a sharper slowdown. So I will not be looking to position early into the European session. I would like to see a more evident reaction as participants digest the data and make up their mind.

On the bright side, NZD September  PSI printed 59.3, highest since November 2007. So Nzd vs. Usd, Jpy and Eur remains at the top of my watchlist for the week.

Nobody really cares, but today we have the Canadian Federal Election. Polls suggest the base case is that the Liberals will fare well enough to at least form a minority government, but with support for the Liberals skewed towards younger voters. Of course, if the convervative party gains traction, that could be negative for Cad. Otherwise, hardly any impact expected.  

Japanese Finance Minister Aso noted in an interview Friday that the BoJ was unlikely to expand easing for the time being. Investors may take this as a signal that the Japanese government does not favor a move from the BoJ as of yet.

No immediate action is called for this morning - so please refer to yesterday's Game Plan for the charts.

Weekly Game Plan - 18.10.2015

1. Themes for the week

- Official Chinese data (Monday) is expected to reassure markets on the state of the economy. The recent boost in government spending since August, has raised the likelihood that China’s 7% 2015 target will be met.  Of course this will impact risk-appetite and the S&P looks like the place to be for playing risk-on sentiment. NzdJpy and/or AudJpy might also be a good place to look. Vice versa, if data disappoints I would look to the European indices for shorts, and also EurJpy possibly.

- Earnings Season to Continue (and this will of course influence equity markets)

-  ECB to stand pat (Thursday), but signal that further QE remains possible. Economic indicators have weakened recently, despite the Euro's bullish price performance being dictated by momentum-models. Watch the press conference for any further clues...but I still prefer to play Euro weakness on the crosses (vs. Aud, Nzd, Gbp) rather than the major, especially if Draghi leans on the dovish side.

-  US focus remains on FOMC policy differences. No US data on tap this week, but we do have fedspeak Monday, Tuesday and Wednesday to keep us alert. USD poised to be a spectator rather than a protagonist this week.

- Bank of Canada to stand pat (Wednesday). UsdCad still one of the stronger currencies out there. Caution before the meeting.

2. Charts in line with these themes

European Open - 16.10.2015

Vix is back to recent lows around 16 and equities are poised for another positive weekly close after possible rate hikes got pushed into the future & better earnings from Citigroup held up risk appetite. S&P has finally pushed above September highs, so it's logical to expect a final sprint into the weekend.

During the Asian session, we saw NZD CPI which was better than expected, but failed to inspire any further gains in Kiwi. This price/sentiment divergence has me neutral on the Kiwi today, especially after the rise we've seen already this week. Some analysts are now thinking that the RBNZ will remain on hold in the October meeting, whereas the RBA might cut rates, pointing at further downside in AudNzd. 

Looking ahead for today, we shall see BoJ's Kuroda on the wires in just over 30 mins; then we have EU CPI which is expected to remain stable from the prior reading; this afternoon we have Cad manufacturing sales (expected to deteriorate) & finally US industrial production (expected better at -0.2% vs -0.4% prior) and UoM confidence figures (expected better at 89 vs 87.2 prior).

S&P Mini

European Open - 15.10.2015

Overnight, Asian equities completely reversed the flow from late NY after poor US retail sales pushed further into the future any possible rate hike scenario. Nikkei in the black ove 1%, ASX also positive, along with Hang Send and Shanghai.Equities however are still not yet flowing on positive momentum/sentiment so no action is recommended there.

The USD is the weak one again. Both headline and core retail sales missed expectations, despite FOMC's Lacker downplaying the significance of the data. However, recent US data disappointments will  feed concerns that the US economy may be decelerating and question policymakers' ability  to respond to a slowdown. If concerns intensify, we could see further USD weakness alongside safe-haven flows.

AUD didn't really respond to weak jobs data, which is overall quite bullish. The Aud might want to play catchup with other majors vs. USD. Nzd, Gbp & Cad are still looking stronger vs. USD however.

Looking forward, there are no data releases during Europe, but during the US session we will have the all-important CPI figures, along with Jobless Claims, Empire State, Philly Fed AND some Fedspeak! UsdJpy is poised for a downwards break out of it's long lasting range...today's data could be the key to a rather important move.

Charts for Today:

European Open - 14.10.2015

US equities stumbled yesterday and asian equities followed suit with Nikkei down over 1.5%. Seeing as how this uncertainty happened right at September highs on the S&P, there is room for a larger correction if today's  retail sales disappoint.

Overnight, the Kiwi sold off after RBNZ Governor Wheeler reiterated his easing bias, but also noted that data has improved (higher dairy prices in recent auctions). Hence, I cannot see any new evidence that suggests unexpected dovishness.

On the other hand, Aud was hit by the story in AFR saying that Westpac is lifting mortgage rates on residential property by 0.2%, for owner occupiers and property investors effective November 20th.

Looking ahead we have the UK Unemployment figures (& wages) to look out for, and this will no doubt attract attention. The market is expecting a rise in Average Earnings, and a decline in the claimant count. Recently the tone on Gbp is dovish, so upwards surprizes will most likely generate more of a response than downwards surprizes.

We also have Eurozone Industrial Production before the main event of the day: US retail sales (14.30 CET). The market is expecting stability in the headline number (0.2%) but a decline in the core reading (-0.1% vs 0.1% prior).

No charts for today - these waters are a little too choppy for me at the moment.

European Open - 13.10.2015

A little late delivering the note today - so will keep it short & sweet. Crude dips, comm-dolls wobble. At the same time, mixed (not bad) Chinese data weighed on risk-appetite, while the BoJ failed to deliver any significant novelty.  

To be honest, equities are still rather "dull" and are not inspiring quite yet.  Much clearer remain Aud, Nzd and Gbp vs. USD for the moment. Cad instead has been hit harder as Crude has dipped aggressively.

 Looking forward GBP traders will be watching UK CPI (expected to drop slightly)& McCafferty (on the wires at 12.30 CET). The markets have been pricing in lower UK rates so many expect negative  surprizes to impact pricing less than positive ones.

In the EU, we've already seen German CPI (unsurprisingly dull) and we will see the ZEW later on (expected to drop fiercely, not least on the Volkswagen woes).

Finally, at 14.00 CET, FOMC's Bullard will be on the wires.

No charts for the EU open - Gbp MIGHT be interesting post-CPI. Wait & see mode for now.

Systematic Equity Screening

It's been a while since I've shown any work on equities. So today I'll show some tests that I've done, using some old-but-good screeners. The screener is useful to find ideas in a systematic way. Then the schools of thought diverge: on one side, there are the believers in pure systematic investing; on the other side there's the group that believes in a more thorough understanding of the screen's results. It's already clear though, that going more in-depth will not necessarily enhance results...it might however build further confidence in the screener.

So here are a few easy screens to cut your teeth with, if looking to invest some capital in equities.

1. Deep Value Investing

Let's start with a classic filter: screen all US equities (non ADR, non-chinese firms, non-otc) for stocks with TTM P/E less than 5. Hold for 1 year. Limit to 30 stocks (let's keep things realistic).

As you can see, the screen can produce great results BUT the drawdowns can also be tremendous.

In equities, it DOES seem that filtering the market state (bull/bear) is important, and there's where "discretion" can be applied, to smooth the equity curve.

2. Piotrosky's Best Criteria

I appeal to Piotrosky's general thoughts and his main screening system. However, I must agree with the studies done by Old School Value: amongst 9 criteria, which ones really make a difference? 

Well, here's what came out:

We should note the drawdowns are much less pronounced than

on the classic P/E screener. Hence, the sharp ratio of this pure 

systematic screen is much higher.

Again, the portfolio was limited the 30 stocks, and a yearly rebalancing.

3. Graham's Number

Finally, onto the last screener for today: the good old Graham Number.

Here are the criteria:

Again, quite a simple screener, that yields impressive results.

Again, the portfolio was limited the 30 stocks, and a yearly rebalancing.

I would suggest doing your own homework on these screens, viewing the selection of stocks that the screen would have chosen each year...get to know the nature of the beast...then apply common sense for decision making.

European Open - 12.10.2015

Good Morning Traders! Rather dull start to the week, with Japan & Canada away and the US bond markets closed. Also, there's nothing on the macro calendar until this afternoon (Lockhart speaking at 14.10 CET, Evans speaking at 16.30 CET, Poloz speaking past the London close at 19.30 CET & Brainard speaking at 22.30 CET).

The only action overnight was UsdCad, thanks to Crude holding it's recent bid tone. AudUsd & AudJpy also showed a tad of interest, as the market is hinting at a strong Aussie labour report this Thursday. 

For charts, refer to the Weekly Game Plan issued yesterday. No fresh entires are likely to be seen from me today. Monday mornings are already choppy in the best of times, not to mention when major players are absent.

Good luck this week!

Weekly Game Plan - 11.10.2015

1. Themes For The Week

- September readings to show low headline inflation in UK (tuesday) and US (thursday). In the US this will keep rate-hike-uncertainty at high levels, especially with the manufacturing conditions expected to remain weak while retail sales (wednesday) are expected to be strong. USD still a sell on rallies for now, but the USD's fate is as data-dependant as the Fed is. 

The Fedspeak calendar is also filled as Lockhart, Evans and Brainard all speak on Monday. On

Tuesday and Thursday we hear from Bullard again (no shift in tone expected). Finally on Thursday we wrap up with Dudley and Mester.

- UK labour market appears to be continuing to tighten, but the BoE is ignoring this for the time being, and is focusing instead on inflation. Gbp is weak on the crosses which look easier to play than the major at current levels.

- ZEW (Tuesday) & Industrial Production (Wednesday) to provide further evidence that euro area economic activity has slowed; the Volkswagen fraud will have impacted this figure no doubt. Euro is not exciting for the time being. We'll see if the spotlight rotates during the week.

- Chinese data will be watched closely (especially export data on Tuesday). Risk appetite will evidently be influenced by this piece of data, as will the Aussie.

- The third quarter earnings reporting period is upon us, but the EPS growth projection from S&P Capital IQ indicates third quarter EPS is expected to decline by 5.1%. Sure, equities have been dandy leading up to this, particularily because: historically, actual EPS growth has almost never been as bad as expected; most of the decline is led by the energy sector (which is slightly better than before); the August sell-off, Chinese matters and EM seem to be weighing less now with Vix back under 20. But definitely pay attention to earnings.

2. Charts in Line with these Themes

S&P Mini - caught at  September highs..

earnings key for future direction.

European Open - 9.10.2015

TGI-F traders! Asian equities were positive overnight, as the FOMC minutes revealed a more dovish tone than market participants had discounted, and the Vix below 20 for the third day in a row. Furthermore, some FOMC members were apparently "afraid of losing credibility" if they raised rates prematurely. It seems that external factors (China & EM) are weighing more than Yellen admits.  Kocherlakota even said that the Fed should go negative (!) adding that a rate hike would be appropriate only in 2017. Of course, the USD has weakened even more on these comments, and Crude is pushing higher again.

Today we have the UK Trade Balance (expected -10 Bln vs -11.08 prev.), US Import/Export prices (expected -0.5% and -0.2% respectively, vs. -1.8% and -1.4% prev.), CAD Employment Change (expected 10K vs 12K prior) and unemployment rate (expected to drop to 6.9% vs 7% prior), and finally FOMC's Lockhart (which many economists want to hear).

I think it might be easier to play equities today given the risk recovery (US indices are probing last month's highs already), and also because we have travelled quite a lot already on the currency pairs most useful to play the short USD theme (like GbpUsd, NzdUsd, AudUsd). So no fresh positions today for me in FX.

Charts for Today:

ES (S&P mini)