Ever wonder if it matters which day of the week you trade on?
The Credit Suisse research team did some work on the subject and found people prefer to trade when volumes are highest, in order to minimize the impact of their activity.
Thursdays tend to be the most active day of the week, since traders begin to wind down for the weekend ahead. By Friday, most international markets have already closed by the time trading commences in North America.
In addition, corporate earnings releases build towards a peak on Thursday and then taper off on Friday. The chart for this week (below) shows that in addition to the highest trading volumes, Thursdays also tend to have the best returns for U.S. stocks. Monday’s returns tend to be the least favorable as traders react to the many significant (and often undesirable) policy initiatives announced over the weekend. This return pattern has held in both bull and bear markets.
TRADING WEEK AHEAD
This week brings more of the same in terms of central bank policy decisions and the continuing earnings parade. The Bank of England and the Reserve Bank of Australia will try to maintain optimism by keeping their monetary taps open. The Bank of England is unlikely to adjust its policy rate (currently 2.75%) ahead of the appointment of Mark Carney on June 1. The Australian central bank is expected to lower its lending rate by 0.25%, which would drop it to 2.75%.
The economic data calendar is a bit light but in Canada this week, March Building Permits and April Ivey Purchasing Managers will give more insight into the degree to which the Canadian economy has been cooling this spring. Housing sales and price data come out on Wednesday and Thursday. The most important Canadian data point is the April employment report which should see a net positive rebound from the surprising drop in March.
Canadian companies will take over the earnings parade this week. Several key industries will be represented as First Quantum Minerals, Husky Energy, Sun Life Financial, and Agrium report their most recent quarterly results.
On Friday there is a G-7 meeting of finance ministers and central bankers where the debate between pro-growth and pro-austerity forces is likely to continue.
QUESTION OF THE WEEK
The European Central Bank finally delivered a long-awaited interest rate cut this week. Will it help?
A quarter-point cut to interest rates will not change the fragile euro area economic outlook, but the ECB announcement was unique in that it brought the idea of negative deposit rates into the discussion. Currently, deposits left with the ECB earn 0%, but ECB president Draghi confirmed in his press conference that he may be willing to allow that rate to turn negative, where the central bank will begin to charge institutions for leaving money on deposit with them. The goal is to provide motivation to the European banking system to pull money from the ECB and put that money to work through increased lending.
Draghi’s comments on a possible negative deposit rate were a bit ambiguous, and it will likely be up to the market to form its own interpretation. It may be similar to last year’s promise where he offered Outright Monetary Transactions to Eurozone countries needing it. The promise (or threat) has yet to be challenged, as not a single sovereign bond has been purchased under the program. It may be that Draghi is following the lead of the Fed and is using moral suasion to spark the bond and FX markets to push down rates and weaken the Euro currency in an effort to stimulate economic activity.
Draghi seems open to using all the tools at his disposal to provide unlimited funding for as long as necessary. The negative deposit rate comments did send bond yields lower across the Eurozone this week and the euro unexpectedly weakened. But the softer currency could be temporary unless the ECB increases its balance sheet by buying bonds (a.k.a. quantitative easing). With everyone else doing it (U.S., Japan et al.) can Draghi and the ECB avoid it? They will have to consider it if they seriously want European economic and earnings momentum to catch fire.