What is our trading focus?
US500.I (S&P 500 Index)and USNAS100.I (NASDAQ 100 Index) – After managing to pull to new highs for cycle last week, the S&P 500 has now traded four days within a relatively tight range with the 200-day moving average at $3000 being the support. The Nasdaq 100 meanwhile closed at a new cycle high on Monday at $9599, just 1.4% below the February record high. Both futures trading softer this Tuesday as the market after President Trump promised to deploy large numbers of troops to quell social unrest across the country.
- OILUSJUL20 (WTI crude) and OILUKAUG20 (Brent crude) - Both crude oils hold steady near the highest levels since March. Focus on the signals being sent from the virtual OPEC+ meeting later this week when delegates are to discuss a potential extension of the current production cuts. The group’s promise to cut production by 9.7 million barrels/day in May and June together with voluntary and not least involuntary cuts from others, including the U.S. helped support last month's surge. A Bloomberg production survey for April found that OPEC had implemented three-quarters of the cuts with overall performance once again being marred by Iraq and Nigeria, the usual laggards.
- XAUUSD (Spot Gold) - looking a bit tired after failing to break higher in response to a weaker dollar, lower U.S. real yields, social unrest in U.S. and Hong Kong and U.S.-China tensions. XAGUSD (Sport Silver)has outperformed strongly during the last period but after seeing the XAUXAG(Gold-silver ratio) reach 95, the metal increasingly needs tailwind from gold to challenge key resistance above at $18.50 and $19
- TWTR:xnys (Twitter) and FB:xnas (Facebook)- both stocks will be in focus today with the ongoing dispute between Trump and Twitter over fact-checking labels of content, but also Facebook CEO Zuckerberg’s call yesterday with US civil rights groups which left frustrated due to Facebook hands-off approach to moderation of various content.
- EURUSD – the euro is continuing its climb higher reaching its local highs from late March driven by stronger narrative in Europe as more and more countries are opening up ahead of the important summer tourism season.
- USDCNH – the main currency cross to watch in relation to the ongoing US-China tensions has moved lower from the 7.1750 levels which came at the high point of recent tensions. The stronger EUR and CNH are both feeding into risk appetite despite the US riots.
What is going on?
Riots in the US risks Trump deploying large-scale military personnel in the streets to control the situation. Riots are said to be the voice of the unheard and they show a society where the social contract is broken. The violent situation in the US will be a key test of technical sentiment in US equities that seems to be holding up this morning.
CBO (US Congressional Budget Office) says it could take 10 years for the economy to catch up after the COVID-19 economic shock which is basically a mirror image of what we observe in dividend futures on S&P 500 pricing in prolonged economic pain and low corporate profitability for years to come.
COVID-19 outbreak seems to be slowing down in some countries but WHO says this morning that evidence does not suggest that the virus is slowing down globally. Countries such as India and Brazil are both having problems bending the curve.
What we are watching next?
Chinalargest state-run agricultural companies halting US farm imports – Following comments from President Trump relating to China’s actions in Hong Kong, state-owned traders Cofco and Sinograin were ordered to suspend purchases of US soybeans and pork. Other sources have mentioned the import pause may also extend to US cotton. The move signals tensions between the US and China are flaring once more and the impetus to withhold trade commitments is waning. This puts the long-awaited Phase 1 trade deal in the firing line as China were already a long way from reaching purchase targets with the added economic pressures resulting from the COVID-19 pandemic.
Civil unrest – How will the large-scale protests in the US and curfews in some states play into the optimism relating to the US economy reopening. Risks of rising infection rates and ongoing business interruptions resulting from riots/curfews may have the capacity to dampen economic optimism.
Expectations are rising for ECB to expand its bond-buying programmes on Thursday to add stimulus while the political impasse in Europe continues to put the recovery at risk. The current €750bn ECB bond-buying programme PEPP (Pandemic Emergency Purchase Programme) will run out of bonds to buy by October in which the recovery will still be in a fragile recovery.
Civil unrest is mounting in the US, a scene that further exhibits the cratering divide between Main Street vs. Wall Street realities. Whilst not directly linked, the palpable anger relating to the death of George Floyd and the suffrage of Black Americans has likely been exacerbated by the depression era unemployment levels accelerating dissatisfaction with the prevailing establishment. However, these forces are complex, deep-seated and contain multiple moving parts, rendering both the cause and effect on society at large, as well as economies, rife with uncertainty.
Economic Calendar Highlights (times GMT)
0730 – Switzerland PMI Manufacturing (May)
0800 – Norway PMI Manufacturing (May)
1200 – Riksbank's Ohlsson gives speech
2230 – Australia Construction Index (May)