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Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)–US equities rebounded sharply, with the S&P 500 posting its best session since June, perhaps buoyed by the most immediate threat to equity valuations – rising bond yields – not applying any further pressure at this time. A notable resistance line in the Nasdaq 100 near 13,350 was probed yesterday, and above that, the important 61.8% retracement of the recent sell-off is up at 13,414, just below the 210-day moving average a few points higher. The S&P 500 index, on the other hand, has already popped back above its 21-day moving average around 3,880 and is within 2% of the all-time high of 3,959 posted two weeks ago.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - cryptocurrencies generally rallied yesterday in line with most risky assets, although the 50,000 level proved a bit much overnight for Bitcoin, which retreated below 49,000 as of this writing, while Ethereum trades above 1,550 after weekend volatility took it as low as 1,327.
EURUSD– EURUSD remains heavy, with the pivotal 1.2000 level nearing again. A break below could suggest a deeper consolidation back into the 1.1600-1900 zone and thus a more extended neutralization of the longer-term up-trendthat started late last spring and over the summer.
AUDUSD–the RBA meeting overnight produced little fuss (see details below) and the AUDUSD traded sideways after recovery from the lows on improved risk sentiment in the North American session. But a key support for the Aussie in the recent cycle, industrial metals, is now becoming a bit more of a headwind, as copper prices suffered another weak session overnight. Given the climactic reversal in AUDUSD and other AUD pairs, a further consolidation lower remains a prominent risk if AUDUSD remains below perhaps 0.7800-7850, with notable chart points lower including the 0.7655 pivot low from early February followed by the major high back in September of last year at 0.7414.
Gold (XAUUSD)remains in trouble and after failing to break back above the $1760-65 resistance area, it has continued lower to reach an eight-month low, thereby returning to a consolidation area seen between April and June last year. Renewed risk appetite for stocks, stabilizing bond markets and subdued inflation expectationsand the stronger dollar have all helped trigger the latest weakness. The next key level of support being $1690, the 61.8% retracement of the March to August rally.
Crude oil (OILUKMAY21 and OILUSAPR21) trades lower and just like most other commodities it has yet to recover from last week's bond market routwhich has triggered some, perhaps long overdue, consolidation across the sector. Key focus remains the OPEC+ meeting on Thursday where the group is expected to raise April production by between 0.5 and 1.5 million barrels/day. The market is struggling to match up conflicting signs with the futures marketpricing tight conditions at a time where demand from Asian refineries seems to beslowing while India is considering cutting fuel taxes in order to quellprotests about surging prices and rising inflation. First support level of interest in Brent being$62, the 21-day moving average and recent low.
Ark Innovation ETF (ARKK:arcx) - yesterday’s rebound in equities and especially technology stocks were a delightful surprise to Ark Innovation ETF and a relief as it provided the fund with a risk rally where they could reduce some illiquid positions. Despite the bounce back, the risk cluster Tesla-Bitcoin-Ark risk cluster could still induce volatility in equities so we will continue to monitor the situation closely.
What is going on?
US Feb. ISM Manufacturing registered a strong 60.8 reading, Prices Paid highest since 2008 - the survey suggests robust growth in the US manufacturing sector and the prices paid number of 86.0 points to the fastest rise in pricing pressures since the spring of 2008, when oil prices had ramped to well over 100 dollar/barrel for the first time.
China’s top banking regulator voices concerns on asset bubbles - both in foreign financial market and in the China’s property sector. Earlier this week a large Chinese property developer announced it would be late in servicing over half a billion dollars in debt, and China seems unwilling to extend full support to the property market, maintaining a relatively tight policy, especially relative to the rest of the world. China’s equity market put in another very weak session overnight
Australia’s RBA meeting produces little drama as RBA sticks to current policy measures - Australia’s central bank (the RBA) merely underlined its commitment to its 3-year yield target of 0.25% and still forecast that it would not raise rates until 2024, citing subdued wage and price pressures and a still-large output gap. On its QE programme, it merely mentioned that it had “brought forward” bond purchases to “assist with smooth functioning of the market” and said it would increase QE if necessary, although some $126 billion in purchases are already promised. The wording on the exchange rate was not alarmist (merely a comment that the Australian dollar is in the “upper end of the range of recent years.”
The ECB slowed its bond purchases last week despite warnings on rising yields – last week’s net purchases totaledsome EUR 12 billion compared to EUR 17.2 billion lastweek, with the bank citing unusually large redemptions as one factor. The data, however, do not reflect new orders arriving Thursday and Friday, so this week’s data may look rather different. (Late Thursday, it should be recalled, was the day US treasuries suffered enormous volatility).
Q4 earnings from Zoom, MercadoLibre, and NIO - Zoom Video Communications was the big surprise yesterday up 10% in primary trading session before adding another 8% gain on Q4 earnings delivering EPS of $1.22 vs est. $0.79 and revenue of $883mn vs est. $811mn. Guidance revenue in Q1 is $900-905mn which was much better than the $830mn expected, but also showing that the business is slowing down. MercadoLibre finally reported Q4 earnings with net revenue at $1.33bn vs est. $1.21bn and an adjusted EPS of $-0.08 vs est. $-0.32. The South American e-commerce giant announced big investment plans in Brazil to accelerate and strengthen its market position. Shares of MercadoLibre were down 3% in extended trading. NIO shares were down 5% in extended trading as the company missed on its earnings forecast and slowdown in revenue q/q.
What are we watching next?
Will the Fed to an Operation Twist to tamp down longer US treasury yields?-with the shortest end of the US yield curve pushing at the zero bound, in part due to the US Treasury drawing down its account at the Fed, and the longer end of the curve suffering significant volatility and even widening bid-ask spreads suggesting poor liquidity, many observers suggest it is time for the Fed to launch a new “Operation Twist” in which it shifts some of its balance sheet away from shorter-term T-bills and Treasuries and purchases longer maturity treasuries to tamp down on recent yield rises. It is uncertain how banking stocks (which have generally risen on the steepening yield curve) and overall risk sentiment might react to such a move.
Earnings releases to watch this week– yesterday was the big earnings release day this week and today the only important one for market impact is Sea, which is the fast-growing e-commerce and mobile gaming company in the Southeast Asia region and part of our ‘bubble stocks’ basket.
Today: Flutter Entertainment, Ross Stores, Veeva Systems, Sea, Target, Autozone, Ashtead Group
Wednesday: Prudential, Kuehne + Nagel International, Techtronic Industries, Peugeot, Brown-Forman, Snowflake, Videndi, Okta, Marvell Technology, Trip.com, Splunk, Dollar Tree
Thursday:Vonovia, Merck, CRH, Costco Wholesale, Broadcom, Kroger
Friday: Canadian Natural Resources, GSX Techedu
Economic Calendar Highlights for today (times GMT)
0855 – Germany Feb. Unemployment Change / Claims
1000 – Euro Zone Feb. CPI
1200 – Norway Norges Bank Governor Olsen to Speak
1330 – Canada Dec. GDP
1340 – ECB's Panetta to Speak
1800 – US Fed’s Brainard (Voter) to Speak
1900 – US Fed’s Daly (Voter) to Speak
0030 – Australia Q4 GDP
0145 – China Feb. Caixin Services PMI
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