Market Quick Take - September 14, 2020

Macro

Ole Hansen

Head of Commodity Strategy

Summary:  Global stocks begin the week on a firmer footing following a strong overnight session in Asia on Chinese data optimism and uplifting vaccine news from Pfizer on the timing of a vaccine and AstraZeneca which have restarted a U.K. trial. The dollar edged lower while U.S. treasuries were little changed. Focus this week being the FOMC meeting on Wednesday while the oil market will look to the IEA and OPEC for guidance in their monthly supply and demand updates.


What is our trading focus?

  • S&P 500 Index (US500.I) and NASDAQ 100 Index (USNAS100.I) – global equities are higher Monday morning led by US equities driven partly by comments from Pfizer CEO that the pharmaceutical company could deliver a vaccine to Americans by the end of the year. S&P 500 and Nasdaq 100 futures are up 1.3 and 1.7% respectively following a horrible last week that saw the hopes of a rebound fizzle. Last week we wrote about the recent pattern of new all-time highs followed by a sharp one-week selloff could lead to a strong rebound if history is any guidance.

  • STOXX 50 Index (EU50.I) – with rising COVID-19 cases and generally the lack of any positive catalysts until the Q3 earnings season, European equities are stuck in its 3,200-3,400 trading range that has now lasted for almost six weeks. The energy building up for a breakout with the probability weighed towards an upside breakout above the 3,400 level.

  • Spot Gold (XAUUSD) - remains rangebound in the $1900’s with focus on the general level of risk appetite - which is looking better following a strong overnight session - and not least the FOMC meeting on Wednesday with its potential impact on the dollar and bond yields. The technical outlook with four lower lows and the flat bottom at $1900/oz points to the risk of a deeper correction and a break above $1966 and $1993 will be needed to remove this short-term risk.

  • WTI Crude Oil (OILUSOCT20) & Brent Crude Oil (OILUKNOV20) - hedge funds dumped energy futures in the week to September 8 according to the latest COT report. Both crude oil and products saw reductions as the market adjusted expectations following the 13% crude sell-off during the week in question. While demand will take longer to recover the overall risk sentiment is likely to be a key driver in the short-term with crude oil trading higher this Monday following a strong equity market session in Asia. Focus this week will be the monthly supply and demand assessments from OPEC today and IEA Tuesday. Also, on tap the OPEC+ JMMC meeting on September 16-17 that will assess the groups production cuts. Key support in Brent the series of lows around $39.30/b.

  • Nikola (NKLA:xnas) - shares dropped another 14.5% on Friday as the CEO and co-founder Trevor Milton had put himself in a corner saying on Twitter that he would make a rebuttal of all the claims by the short seller Hindenburg Research claiming fraud and deception. The market waited anxiously and when the rebuttal finally came it was a generic one from the company’s PR department offering nothing related to the accusations. For those that are not fully aware of what Nikola is and the whole debacle please read our note from last Friday.

  • Oracle (ORCL:xnas) - the Chinese social-media video platform TikTok is rushing to meet the White House deadline on 20 September to find a US buyer or partner. Microsoft has so far been the contender which the market believed would acquire TikTok’s US business, but overnight news media is saying TikTok has walked away from the Microsoft deal and is going with Oracle which is offering a partnership structure instead of outright sale. In our view we do not think the US government will allow this solution, but the nevertheless Oracle shares will be in focus today on this news.

  • Nvidia (NVDA:xnas) and SoftBank Group (9984:xtks) - Nvidia is said to acquire SoftBank Group’s Arm chip division for $40bn (both cash and stock) taking over one of the world’s most lucrative and valuable patent portfolio on semiconductors. This is a crucial acquisition for Nvidia which will decent Nvidia as the most important semiconductor company in the new world of big data, machine learning, cryptocurrencies and self-driving cars. The acquisition comes at a time of rising tensions between the US and China over the semiconductor industry and China Arm is controlled by China and part of the acquisition requires Chinese regulators’ approval so there are obstacles for Nvidia. SoftBank Group shares were up 9% in today’s Japanese trading on this news but also rumours that it is thinking about going private which could happen at a premium to the current share price.

What is going on?

  • The Turkish Lira (USDTRY) - trades close to a record low after the country had its debt rating cut deeper into junk by Moody’s, which warned of a possible balance-of-payments crisis. The lowest grade it’s ever given to the country brought it on par with Egypt, Jamaica and Rwanda.

  • Corn (CORNDEC20) & Soybeans (SOYBEANSNOV20) - Following Friday’s WASDE report soybeans has risen above $10/bushel while corn has reached a five-month high. The report cut the corn and soybeans harvest outlook following adverse August weather while strong Chinese demand is expected to further support a reduction in ending stocks. Ahead of the report speculators had increased their corn long to a one-year high while the soybean long reached a 30-month high.

What we are watching next?

  • US High-Grade bonds supply has reached almost $70bn last week, and underwriters are estimating another $40bn to price this week. Many of the deals have tightened signaling that investors are hungry for more. This week we will come out with an article analyzing the Investment Grade US market to find out that there is a gradual deterioration of credit in this space.

Economic Calendar Highlights for today (times GMT)

  • 0900 – EC Industrial Production
  • 0130 (Tuesday) - RBA Minutes (September meeting)

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