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Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – The US equity market was broadly weak yesterday, with the S&P 500 Index reversing hard after teasing new all-time highs in the futures prior to the market open. The latest price action overnight is teasing the 21-day moving average area again, currently near 4,167, and below that the first notable level is perhaps the 38.2% retracement of the recent sharp rally down at 4.087. The Nasdaq 100 sold –off toward the key 13,350-300 area into the close yesterday and broke below that overnight in the futures market. The next level is the 61.8% retracement of the rally from the March lows just above 12,900.
Euro STOXX 50 (EU50.I) - yesterday’s opening higher and positive sentiment turned lower with US equities and especially driven by technology stocks created a negative hammer formation, which has been followed through this morning with a gap lower and STOXX 50 futures trading close to the lows from last Thursday. German Wholesale prices for April also show the strongest inflationary pressures in Germany since 2010 causing risk to come out of the market with the key downside level being 3,949.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). Bitcoin is looking technically weak after once again selling off sharply from the 59k area yesterday, although it has yest to follow through lower after the big sell-off in April that bottomed out near 47k. The 50k area is likely the next key psychological level from here. In Ethereum, more two-way volatility has arrived after yesterday’s strong new highs yielded to a huge air-pocket in the price action overnight, with prices tumbling below 3,700 after reaching 4,200 late yesterday. The 3,600-3,800 zone looks important on the daily close for whether a more significant consolidation lies ahead.
USDJPY and JPY crosses – yesterday showed once again that the “JPY safe haven” isn’t what it used to be, as an ugly shift in risk sentiment failed to bring notable buying pressure for the JPY, although it did firm. One thing holding the JPY back was likely the very long end of the US yield curve, where yields rose once again after rising in the wake of the weak US jobs report on Friday. But if commodities continue correcting, risk sentiment remains weak and longer US yields stabilize or head back lower, the JPY could prove mispriced and rally sharply across the board, perhaps more so in crosses where it has lost so much ground for the cycle, like AUDJPY or especially CADJPY recently.
EURUSD and AUDUSD – the weakening risk sentiment we saw yesterday did bring some support to the USD after it weakened very sharply in the wake of the US April jobs numbers released Friday, but the USD would have to rally further to threaten any unwinding of that move. The AUDUSD is closer to suffering a reversal with its tendency for more risk-sensitivity, and industrial metals prices are showing far more two-way volatility here – a move sharply back below 0.7800 in AUDUSD would suggest that the break higher was a red herring – the next couple of sessions look pivotal for establishing direction there. For EURUSD, the price action would have to cut well below, and close below 1.2100 to suggest that the latest rally leg is at risk of reversing.
Copper (COPPERUSJUL21) trades just below the record high reached yesterday while the iron ore (SCOc1) futures, traded in Singapore, has softened after the Dalian Commodity Exchange stepped in to raise trading limits and margin requirements in order to cool an exuberant raw materials market. These developments shows that the current rally is being driven not only by real physical demand but probably even more by speculators in FOMO mode. Beijing recently and so far, unsuccessfully pledged to strengthen controls on commodities to help contain costs for manufacturers, something that was strengthened overnight after China said its factory prices rose 6.8 percent year-on-year in April.
Gold (XAUUSD) remains stuck just below key resistance at $1850, the 200-day moving average and 68.2% retracement of the January to March selloff. Focus on a cross-market contagion risk aversion as seen through the sell-off in technology and green transformation stocks. The Treasury market continues to price in higher inflation head of Wednesday’s US CPI data while the dollar trades near a six-week low. However, despite this overall supportive backdrop gold investors have not yet returned to ETF in any size while shorts held by futures funds have yet to be rattled, hence the focus on a potential reaction above $1850. Silver’s uptrend channel is currently providing resistance at $27.9.
Inflation expectations rise to new highs. US Treasury auctions and the CPI release can be catalyst for another selloff in US Treasuries (TLT, IEF). Today the Treasury is starting off by issuing 3-year notes. We expect bidding metrics to be solid as the short part of the yield curve is controlled by the Federal Reserve. However, we will look at indirect bidders’ demand to spot any weakness ahead of the 10- and 30-year auctions tomorrow and Thursday. We believe that the bond market remains vulnerable to inflation readings despite the job market points to more stimulus. Yesterday, the 5-year Breakeven rose to 2.8%, the highest since 2005, putting more pressure on rates. The CPI readings tomorrow can be a catalyst for yields resuming their rise to 2%.
HM Treasury is issuing 2061 Gilts today. Watch out for bidding metrics ahead of GDP data (IGLT). The Scottish election failed to give direction to Gilts. Ten-year yields remain around 0.80% and well below their resistance line at 0.85%. As the economy strengthens yields should resume their rise and break above their resistance to rise to 1%. Today’s 2061 issuance might provide an insight over GDP numbers’ expectations. Interestingly, 40-year Gilts pay less yield than 30-year Gilts. It makes it more likely for investors to demand a higher return on this maturity if higher growth is expected, renewing the selloff in Gilts.
What is going on?
China Apr. PPI out at 6.8% year-on-year, vs. +6.5% expected and 4.4% in March. This number is arguably a key gauge of global inflation and the rise above expectations suggests that inflationary pressures are on the rise, no surprise given runaway gains in some commodity markets, but also physical shortages in a market like semiconductors and shipping costs.
The grain market rally has paused ahead Wednesday’s key U.S. supply-demand estimates (WASDE). Corn (CORNJUL21) trades near a one-week low as rapidly progressing U.S. planting weighed on the market. The weekly planting progress report published last night showed the following: Corn (67% planted, 46% last week & 65% a year ago), soybeans (42%, 24% & 36%), Spring wheat (70%, 49% & 40%). The declines, especially in corn prices was limited by expectations of lower output in Brazil. Wheat meanwhile extended its worst loss since 2019 as rains in U.S. and northwest Europe have eased output concerns. Despite rallying 30% during April speculators held a net wheat short in week to May 4 while soybeans and corn was also net sold, despite strong price action.
What are we watching next?
Fed speakers and tomorrow’s US CPI – we are not expecting any new guidance from the Fed, but a couple of heavy-hitters on the Fed are up speaking today and tomorrow – Brainard today on the US economic outlook and Clarida tomorrow on the same, with the latter considered influential in setting Fed policy. The US April CPI out tomorrow is expected to show a headline reading of +3.6% year-on-year (which would be the highest in nearly 10 years) and a core reading of +2.3% year-on-year.
Earnings reports this week. Palantir Technologies and Unity Software are key earnings to watch today as they are connected to the bubble stocks segment and thus can move sentiment for this network of stocks. Electronic Arts is important for the gaming segment and will thus also be highly anticipated.
- Tuesday: KBC Group, E.ON, SoftBank Corp, Takeda Pharmaceutical, Nissan Motor, Electronic Arts, Palantir Technologies, Unity Software
- Wednesday: Verbund, Fortum, EDF, Allianz, Merck, Bayer, RWE, Toyota Motor, SoftBank Group, Compass Group, Iberdrola, Li Auto
- Thursday: Brookfield Asset Management, Alibaba, Walt Disney, Bilibili, Xpeng, Airbnb
- Friday: Honda Motor, JD.com
Economic Calendar Highlights for today (times GMT)
- 0900 – Germany May ZEW Survey
- 1000 – US Apr. NFIB Small Business Optimism
- 1400 – US Apr. JOLTS Job Openings
- 1430 – US Fed’s Williams (Voter) to speak
- 1600 – US Fed’s Brainard (Voter) to speak on US Economic outlook
- 1600 – EIA’s Short-term Energy Outlook
- 1700 – US 3-year Treasury Auction
- 1700-1830 – US Fed’s Daly, Bostic, Harker, Kashkari to speak
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