Two major themes continued to stand out this week:  the first is that global stimulus continues to pour into the world economy in response to the slowdown because of the coronavirus.  Japan approved a JPY 177 trillion supplemental budget and the European Commission proposed grants and loans worth 750 billion Euros.  This week we have Central bank meetings from the RBA, ECB, and BOE.  The other ongoing theme is the US-China conflict.  While China says they are readying for military combat with Taiwan if necessary, the US did not certify Hong Kong’s autonomy.  On Friday, US President Trump spoke and said China is in violation of its treaty obligations.  He also blamed China, again, for “covering up” the coronavirus and allowing it to spread.  Watch for more comments and retaliation this week!

Japan, the EU, and China all took measures to increase stimulus and help those who need financial assistance.  The primary aim seemed to be to help small and medium sized businesses. Japan’s JPY 117 trillion package was the same size as Aprils and brings the combined total to 40% of Japan’s GDP.  The EU plan proposes additional and revised language to the France/Germany plan proposed last week in order to accommodate Austria, Denmark, the Netherlands and Sweden who opposed solely grants.  The new plan includes 500 billion Euros in grants and 250 billion Euros in loans. The plan still needs to be voted on.   Fed and BOE comments last week both insinuated that although negative rates are always an option, there are many tools these central banks have left in their toolkit before reaching negative rates.  This week, comments will be watched closely as the RBA, BOC and BOE all meet.  Although the long-term policies will remain in place, markets will be watching closely to see if there are any hints of “less dovishness” from the central banks, such as reducing the amount of daily bond purchases.

China is stepping up its efforts to gain control over Hong Kong.  As a result of the national security law China imposed on Hong Kong last week, the US did not certify Hong Kong’s autonomy, which therefore, endangered Hong Kong’s trade status with the US.  Trump said that China is in violation of their treaty obligations and that actions against China regarding the Hong Kong situation will be strong and meaningful.  Among other things, Trump stated that China “covered up” its knowledge of the coronavirus and allowed it to spread throughout the world.  Because of this, the US is terminating its relationship with the World Health Organization.  In addition, the US is suspending entry to certain foreign nationals from China and forming a working group to study differing practices of Chinese companies listed on US stock exchanges.  However, in an odd series of events, before a press conference on Friday, a representative said that Trump was not pulling out of the trade deal with China.  Stocks and oil, which blasted higher and didn’t look back the rest of the day, only seemed to care about the trade deal and went bid into the day/week/month close!  For all of the accusations that Trump made against China, there was no specific responses, and more importantly to the markets, no new tariffs!

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With Monday bringing in the first day of June, we have a whole series of important economic data points to be released this week, culminating with payroll data for both the US and Canada on Friday.  April’s data was miserable as countries were shut down.  Although not fully reopened, countries and US  states are opening their economies and adjusting to the new normal we must face.  The risks are clearly to the downside for May’s data releases.  Anything weaker than previous is sure to disappoint the markets.  For example, US Non-Farm Payrolls for May are expected to be -8,250,000 (which is still horrible) vs April’s print of -20,500,000. If May’s number is worse than April’s, markets will not be happy.  Below are major economic data releases for the week:

Saturday

  • China: NBS Manufacturing PMI (MAY)

Monday:

  • Australia: CommBank Manufacturing PMIs (MAY)
  • China: Caixin Manufacturing PMI (MAY)
  • EU/UK/US: Markit Manufacturing PMI (MAY)
  • US: ISM Manufacturing PMI (MAY)

Tuesday:

  • New Zealand: Trade Data QoQ (Q1)
  • Australia:  HIA New Home Sales (APR)
  • Australia: RBA Interest Rate Decision
  • UK: BOE Consumer Credit (APR)
  • UK: Mortgage Lending (APR)

Wednesday

  • Australia: CommBank Services PMIs (MAY)
  • Australia: GDP Growth Rate QoQ (Q1)
  • Australia: RBA Chart Pack
  • China: Caixin Services PMI (MAY)
  • EU/UK/US: Markit Services PMI (MAY)
  • Germany: Unemployment Change (MAY)
  • EU: Unemployment Rate (APR)
  • US: ADP Employment Change (MAY)
  • Canada: BOC Interest Rate Decision
  • US: ISM Non-Manufacturing PMI (MAY)
  • Crude Inventories

Thursday

  • Australia: Trade Balance (APR)
  • Australia: Retail Sales (APR)
  • EU: Retail Sales (APR)
  • EU: ECB Interest Rate Decision
  • Canada: Trade Balance (APR)
  • US: Trade Balance
  • US Initial Claims

Friday

  • Germany: Factory Orders
  • Canada: Employment Change (MAY)
  • US: Non-Farm Payrolls
  • US: Average Hourly Earnings (MAY)

Chart of the Week: NASDAQ 100 (monthly)

Source: Tradingview, FOREX.com

There were so many charts to choose from this week as it was month end.  However, there is really only one word to say about this chart, and it is “WOW”!  The NASDAQ 100 closed May at its highest monthly close EVER!  Even with unemployment at -14%,  payrolls at the worst levels ever, and PMIs continuing to be in the 30s (under 50 is considered contractionary), market participants are choosing to look past all that and believe that “things” will be better sooner than later with the coronavirus, and that problems with China will be resolved.  The NASDAQ 100 cash index closed at 9581, its highest monthly close ever.  If the index can take out February’s highs at 9752, it will be an all time high.

Stocks don’t close at all-time highs on monthly timeframes in bear markets.  As much as it may not make sense, it doesn’t matter.  This is the beauty of technical analysis:  it takes away all the noise and focuses on one thing: PRICE.  Sure, price can pull back from here, but that’s why traders use stops.

Monday rushes in a new day, a new week, and a new month.  Depending on China comments over the weekend, we may continue to see “risk-on”, as new money gets put to work.  However, if central banks threaten to reduce QE too soon, markets may become wary.  But as we saw in the Chart of the Week, it may not matter.

Please continue to be safe and always wash your hands!

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