What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)–signs of divergence again yesterday, as the big gap open for the most speculative and growth stocks yielded to selling for most of the session, while the broader market was relatively resilient and closed higher, and value-associated indices closed at a strong new record high (for example, the Russell2000 value index). The resistance levels for the Nasdaq 100 are yesterday’s high just shy of 13,00 and then perhaps the 21-day moving average near 13,150 and the 61.8% retracement of the sell-off from the top at 13,243. For the S&P 500, most local resistance levels have been taken out, leaving only the all-time high near 3,950 (for the cash index, it should be noted).
STOXX 50 (EU50.I) - the leading European equity index is now only 1% from exceeding the levels before last year’s Covid-19 sell-off indicating that investors are becoming more optimistic about Europe. European equities are benefitting more relatively from rising interest rates and rising commodity prices as the equity indices have a higher concentration of financials and cyclical stocks.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin seemed ready to make a charge for record highs yesterday but came up about 1,000 short of the all-time highs of 58,350 and consolidated back toward 55,500 as of this writing, actually retracing more than half of yesterday’s rally. That cycle high will be the key technical focus for further upside. The action in Ethereum was largely sympathetic with Bitcoin in directional terms, though in percentage terms, Ethereum is farther from it’s all time high.
EURUSD – an ECB meeting is up later today (preview below) and EURUSD, meanwhile, has consolidated back higher after touching as low as 1.1836 this week. The 1.1950-1.2000 area is the key zone of resistance as we both watch ECB developments (more dovish could mean more pressure to the downside at the margin) and watch US treasuries for direction for this supermajor – a dovish ECB combined with new highs from here in US yields would be the most potent combination for possibly driving EURUSD toward 1.1600, while if the ECB takes no action at this time, begs for more fiscal and US yields continue to consolidate lower, EURUSD may try a reversal back higher.
AUDUSD–the Aussie jumping to attention overnight again, posting a new four-day high above 0.7750 as the Chinese equity market staged a solid bounce and more importantly, iron ore and other metals surged as well with a backdrop of solid risk appetite. AUDUSD continues to trade in the shadow of the huge tumble from the 0.8000+ top that unfolded on the sharp rise in US treasury yields, which makes the bullish case a tough one until at least a significant period of time has passed with no new lows, or if the price action takes the pair sharply higher again – at least to 0.7900. For now, the chart is tactically neutral to bearish, with resistance up to as high as 0.7860, the 61.8% retracement of the sell-off from the top.
Crude oil (OILUKMAY21 & OILUSAPR21) - trades higher on stimulus prospects and after the weekly EIA report showed another large draw in gasoline stocks amid rising demand from motorists. Refinery disruptions during the Texas freeze has triggered a two week jump in crude oil stocks of35.3 million barrels while gasoline and distillate stocks have slumped by more than 40 million. Today OPEC will release its Monthly Oil Market Report and following another downgrade in global oil demand from EIA earlier in the week, the market will be looking the groups take on recent supply and demand developments.
Gold (XAUUSD) - rallied yesterday after Biden’s $1.9 trillion stimulus package and lower bond yields, following a successful10-year bond auction, helped offset a weak US CPI report. Ten-year real yields dropped to -0.75% while breakeven, a measure of inflation, reached another cycle high at 2.27%. Having found support in the key $1670-90 area, the attention now turns to golds ability to recover further and challenge key resistance at $1765. Silver (XAGUSD), gold’s high beta brother rallied morein response to higher industrial metals where HG copper (COPPERUSMAY21) trades higherwith Biden’s infrastructure plan receiving some attention.
Today’s 30-year US Treasury auction remains at risk after mediocre 10-year auction (TLT, IEF). The yield on 10-year treasuries yesterday fell to 1.5% on the back of an ok 10-year Treasury auction.The auction drew a yield of 1.523% versus the 1.513% when issued, showing that there is still bearish sentiment in Treasuries. Indirect bidders fell compared to the auction of February the 10th showing that foreign demand is still lacking. It leaves today’s 30-year Treasury auction at risk, although a dovish ECB might be able to boost sentiment and limit volatility.
What is going on?
US House passes $1.9 trillion stimulus bill – President Biden to sign on Friday - this marks the most aggressive fiscal stimulus for any country in the world by a long shot and comes on top of the $900 billion package signed by Trump before he left office. And all of it as the US is set to open up from Covid lockdowns in the weeks and months ahead. Let’s recall that the US is the country that already provides the largest end demand for consumers. Unique for the stimulus packages since the pandemic outbreak, the spending isaimed squarely at supporting lower income citizens, in stark contrast to the Trump Tax Cut and Jobs Act, which favored corporations and the wealthy (even if it punished higher income people in mostly Democratic states with high local income taxes
US yields drop on orderly 10-year Treasury auction, and US Feb. CPI rising less than expected. The US Feb. CPI rose sharply month-on-month by 0.4% as expected, not a major surprise given a sharp rise in oil prices, but the core CPI rose merely 0.1%, less than the 0.2% expected and the year-on-year rate dropped to 1.3% vs. 1.4% expected and 1.4% in Jan. US treasuries were firm on this development and the orderly 10-year US Treasury auction later in the day that saw almost no change from the prior auction’s Bid/Cover ratio and indirect bidding percentages (foreign interest) within the long term range. The US 10-year Treasury benchmark yield eased back lower to 1.52% after rising earlier in the day.
Italian BTP auction leading to ECB’s interest rate decision today (BTP10). This afternoon the ECB will release the economic forecasts for the euro area and reveal its interest rate decision. Despite European sovereign yields have stabilized in the past few days, the auction of Italian 2- and 7-year notes this morningwill lead European bond market sentiment into the ECB’s meeting. Recently, demand for 5-year BTPs was weak amid rising yields in the US. Higher yields could push the ECB to increase monetary stimulus and in particular purchases under the PEPP program.
What are we watching next?
ECB meeting and press conference today -the ECB has sent confusing signals recently on its level of concern about rising yields at the longer end of the curve, indicating strongly at one point a high level of concern, but later, some sources indicated that now was too early for action on yields. Some believe that the ECB could bring forward some of their purchases under the emergency bond-buying programme or take other steps to indicate it would like to keep long rates lower. If it does so and yields continue rising elsewhere, this could be rather negative for the euro. The fact that the EU is concerned at all when rates out to 10 years are still below zero for core yields shows how weak the EU economy is and is expected to remain – a problem only a new large fiscal impulse can really do anything about.
Earnings releases to watch this week:
After yesterday’s mixed results and outlook from Adidas (good) and Inditex (bad) it is today all about Chinese e-commerce giants Pinduoduo and JD.com which we expect to still be benefitting from the mobility restrictions tailwind. DocuSign has been one of the darlings in the past year also benefitting from Covid-19 as more businesses are forced to become more digital, and especially when it comes to signing documents.
Today: Pinduoduo, Jardine, Matheson, MTR Corp, Jardine Strategic, China Unicom Hong Kong, Sunac China, Swire Properties, Hannover Rueck, JD.com, DocuSign, StoneCo,GoodRx, Wheaton Precious Metals, Assicurazioni Generali
Friday: China Mengniu Dairy, EssilorLuxottica, Fortum, AIA Group
Economic Calendar Highlights for today (times GMT)
1245 – ECB Meeting
1330 - ECB President Lagarde Press Conference
1330 – US Weekly Initial Jobless Claims and Continuing Claims
1530 – EIA’s Weekly Natural Gas Storage Report
During the day: OPEC’s Monthly Oil Market Report
1830 – Canada Bank of Canada’s Schembri to speak
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