Weekly Game Plan 1 Mar 20

You can always find my weekly analysis in the FXRENEW Blog each week, along with articles and thought leadership pieces. Our best pieces can be found in one placehere. If you want to get an idea for how I trade trends, this webinar will help. If you want to know how I Trade the News, this plan will help. 

Here is this week's Game Plan

China manufacturing PMI plunged to 35.7 from 50 in January, the fastest pace monthly contraction on record. While non-manufacturing PMI plunged to 29.6 – the lowest reading on record.  The extremely weak PMIs will shock markets on Monday morning and the fact that China reported the terrible numbers will also be surprising to many.

Be aware of emergency central bank intervention, which could keep volatility elevated. On Friday, stocks rallied to cut more than half the extreme losses in the last hour of trading following hints from Fed Chair Powell that the Fed was "ready to act as appropriate".

Themes for the Week Ahead:

• Inter-Meeting FED Reaction:  FED's Powell issued this brief statement on Friday. This seems like an anticipation of some kind of imminent action on their behalf. The markets do expect the FED to step in and ease policy with emergency rate cuts.
• COV-19 and PMIs: markets are awaiting Chinese and US PMI data this week, in order to gauge the initial impact of the COV-19 on the economy. Over the weekend, China issued the official numbers which were dismal: official manufacturing PMI at 35.7 vs 50.0 in Jan, market was expecting 46; Non-mfg PMI at 29.6 vs 54.1 in Jan, lowest on record.
• Fiscal Spending: China and South Korea area already 2 nations that have started fiscal stimulus (government support to the economy) to counter the COV-19 effects. Pressure is mounting in Germany of all places, to do the same. Fiscal stimulus will definitely be a theme going forward, and should be beneficial to risk-assets including stocks and commodities, as well as inflationary.
• OPEC: more cuts will likely be discussed this week, with Crude tumbling over 30% since the start of the Year.
• Super-Tuesday:  14 US states go to the polls on Super Tuesday - the largest single-day delegate haul in the nomination fight. Investors will be looking to see whether progressive Senator Bernie Sanders consolidates his lead (which would be negativefor risk assets and the USD) or if moderates such as former Vice President Joe Biden or former New York Mayor Michael Bloomberg can make inroads. While investors have been more consumed by the coronavirus developments, election-related headlines have jostled some parts of the market.
• Central Banks: beyond the expected FED emergency cut, this week we will see whether Bank of Canada and RBA are willing to ease policy. BOC is expected to ease, but the RBA would surprize the markets if they were to do so.

Data in the week ahead:

• CNY Caixin PMI (will be influential)
• US ISM PMI (could be better, given rise in Empire State & Philly Fed)
• RBA Decision (markets are expecting no change & dovish commentary...but there is a chance of a surprize rate cut given the Cov-19 impact on markets)
• AU GDP Q/Q (no real bias, will depend on RBA slant)
• BOC Decision (rate cut expected as Crude Oil is down 30% from earlier in the month, lower GDP, COV-19 issue)
• US ISM NMI (will depend on ISM Manuf.)
• OPEC Meeting
• AU Retail Sales
• Cad Employment
• US NFP

On the Radar:

Volatility is expected, so my forecast is based on the continuation of risk-off, along with last week's performance. I remain short on Dax moreso than US equities, I remain biased short on Crude, I remain short on Aud/Nzd/Cad vs. JPY and EUR