What is our trading focus?
- US500.I (S&P 500 Index) and USNAS100.I (Nasdaq 100 Index) – Friday saw the major US equities closing near their lows for the week despite intraweek strength that saw the highest levels for the surge off the March lows. The move was driven by disappointing earnings from Amazon and Apple which clearly shifted sentiment among technology and consumer stocks. This creates a bearish weekly reversal candlestick and a focus on consolidation levels lower. For the US S&P 500, the next pivot level is 2717 but it is trading overnight on its 21-day moving average near 2785 as well. For the Nasdaq 100, its 21-day moving average is lower than the overnight lows near 8533 and the pivot low of note from late April is 8342, with the 200-day moving average a bit lower at 8303
- USDCNH – USD versus the offshore Chinese yuan. On Friday, the USDCNH rallied the most it has in a single day since March and, at 7.14, to within a percent of the cycle highs near 7.20 from last summer. The overnight action took the exchange rate higher move took the exchange rate even closer to the Covid19 crisis high near 7.165. Unfortunately, the onshore USDCNY exchange rate has not traded due to a Chinese holiday that will keep that exchange rate offline through tomorrow.
- AUDUSD – we have argued that AUDUSD is the best proxy within the G10 for risk appetite and the exchange rate came under considerable pressure on Friday and overnight, both as risk sentiment weakened, but important, as the newest source of pressure on sentiment is over US-China trade tensions. This makes the pair worth even more of traders’ attention, both as a risk proxy and as a pair that is sensitive to concerns for a renminbi devaluation as noted above. Trading well below the prior 0.6450 pivot area, the pair has now suffered a bearish reversal.
- 10YBTPJun20 – the Italian June, 10-year sovereign bond (BTP) future: the last EU Council meeting produced little besides promises. We have another meeting of EU leaders up this Wednesday that may not offer much on EU Covid19 recovery package plans, as it was originally billed as a friendship meeting between the EU and the Western Balkans, but all signals bear watching here. Italy is widely considered the most sensitive sovereign market to concerns that the EU project is stumbling.
- OILUSJUL20 (WTI) and OILUKJUL20 (Brent): Crude oil’s rally last week ran out of steam after hitting resistance $23.5 on WTI and $28 on Brent. While the outlook has improved with demand picking up and production being cut, the question remains whether a recent surge in speculative buying from hedge funds can and will be justified at this stage. Bloomberg's OPEC production survey for April found that the group, led by Saudi Arabia's ill-timed price war, had raised production by 1.7 million barrels/day to 30.4 million. A very challenging month now awaits in order to make the dramatic cuts the market has been promised as part of the efforts to stabilize the price. Saudi Arabia to announce its official selling prices (OSP) for June, an important gauge as they offer a glimpse into the strategy OPEC’s biggest producer.
What is going on?
US-China tensions are growing as Trump administration officials and the president himself increasingly point the finger of blame at China over both the origin of the Covid19 virus and claims over their lack of transparency during the early phases of the outbreak. Trump raised the idea of tariffs on Chinese goods and on Thursday raised the idea of forbidding US government retirement funds from investing in Chinese equities. A leaked Republican playbook for taking an anti-China stance to score vote.
US investment legend Warren Buffett announced that he has dumped all of his US airline stocks holdings. Buffett’s Berkshire Hathaway held around 10% of the four largest listed airlines and announced that he had sold all holdings at the Berkshire Hathaway annual general meeting (AGM). Buffett said that “The world has changed for the airlines. And I don’t know how it’s changed and I hope it corrects itself in a reasonably prompt way.” Another important point from the AGM was that Berkshire is not looking to do any acquisitions but instead preserving cash as Buffett and Munger talked about this being an unprecedented event that is impossible to forecast with any certainty.
Asian equities were in for a very weak session overnight as they caught up from Friday holiday closures with negative action from in the US Friday and perhaps as they eyed US-China tensions overnight. The Hang Seng index was down almost 4% this morning and India’s Sensex down nearly 5%.
What we are watching next?
Big miners report earnings – Gold giants Newmont Corp (NEM:arcx) on Tuesday and Barrick Gold Corp (GOLD:arcx) on Wednesday to give us further clues on the state of the industry and the precious metal market in particular. Also reporting earnings are Kinross Gold Corp, Iamgold Corp, Pan American Silver Corp. and Kirkland Lake Gold Ltd. Investors will also be seeking clues about how the pandemic will effect growth plans from the world’s top diversified miners such as Anglo American and Rio Tinto Group
More Q1 earnings – this week the most important earnings that could impact sentiment are Disney (Tue), Regeneron (Tue), PayPal (Wed), Shopify (Wed), Uber Technologies (Thu), Booking (Thu) and Siemens (Fri)
US-China relationship – we noted this concern on Friday on several remarks by Trump himself and others in his administration, particularly US Secretary of State Mike Pompeo. The situation on the renminbi exchange rate is potentially the most pressing, with considerable suspense ahead of Wednesday, when China is back from holiday.
US Apr. ISM Non-manufacturing and US employment data. The March-April data cycle will be the worst for the USA in terms of rate of change to the shock of the Covid19 crisis and sets the bar of the shape of the recovery as May will see considerable opening up from shutdowns across the US. We watch the ISM Non-manufacturing survey and subcomponents for benchmarking the state of the US services sector, but even more so the Friday US employment report. Bloomberg expectations for the US Nonfarm Payrolls change for April is running at -22 million, more than 20 times the worst ever single month reading, and the unemployment rate expected to rise to 16.3%. The US April ADP private payrolls survey is up on Wednesday and is expected at -20 million.
Economic Calendar Highlights (times GMT)
- 0715-0800 – Euro zone final Apr. Manufacturing PMI - market more interested in how May data shapes up as we all know Europe was in total shutdown in April.
- 1400 – US Mar. Factory Orders – expected down almost 10% month-on-month.