Summary: US equities rose broadly to new record highs, while Asia also posted a reasonably positive session overnight as earnings season is set to kick off in earnest today. The first names of note reporting the major US banks and financial services companies. Elsewhere, US treasury yields edged higher ahead of the US CPI data later today and testimony before Congress from Fed Chair Powell Wednesday and Thursday.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – new all-time highs for the major US indices yesterday, which rose modestly on top of Friday’s significant snap-back rally. Earnings season kicks off in more earnest today, with our general expectation that earnings reports will solidly beat expectations, with the chief interest in company guidance as well as whether the market remains comfortable in adding to the steep run-up of late that has seen almost not consolidation.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome)- Bitcoin limped back lower after poking at 1-week highs yesterday. Ethereum likewise dropped on the day, trading a bit heavier than Bitcoin and back near the 2,020 level and thus at its lowest in more than two weeks. The key downside levels on a daily closing basis for the two cryptocurrencies are 30k for Bitcoin and about 1,750 for Ethereum.
USDJPY – an important day to establish whether the recent USDJPY sell-off was a major reversal that points to lower levels or merely a brief wipe-out caused by the significant consolidation lower in US treasury yields. The pair crept back higher yesterday as US Treasury yields rose on lower demand at the US 10-year Treasury auction and ahead of today’s US CPI release. The technical setup still looks bearish if USDJPY continues to close below perhaps 111.00. But the pair still needs to take out the 109.00-25 area to confirm the bearish setup and show a more thorough breakdown.
AUDUSD – the recent AUDUSD sell-off took the pair to the key 0.7400 area, which was a prior major top in September of last year and an important line in the sand as one of the first levels for the recent US dollar rally, as most commodity currencies have dropped versus the US dollar since the June FOMC meeting.0.7600-50 is the major upside swing area. Overnight, Australia’s NAB Business Conditions survey saw a sharp drop for June and the largest drop since the pandemic outbreak, if from historically elevated levels, likely on renewed restrictions in Australia due to the spread of Covid variants.
August US Natural Gas rose yesterday to its highest daily close for the cycle, with prior intraday highs a bit higher still near 3.80 as gas trades at the highest level for this time of year since 2014 amidst higher demand and a storage build that has seen the average drop further below the 5-year average in recent weeks. Some weather services tout cooler weather forecasts as a possible bearish development.
Gold (XAUUSD)as the USD dropped and breakeven inflation levels rose sharply again yesterday ahead of today’s US CPI report, gold has pulled slightly higher toward 1,1810, with the local high a few dollars higher and the 200-day moving average around 1,827, while the steep wall of the June FOMC inspired sell-off from above 1,850 offers the key challenge for gold bulls here.
US Treasuries weakened slightly on demand at US Treasury Auction. (SHY:xnas, TLT:xnas, IEF:xnas) The lower yields since the prior auction seemed to do their part to restrain demand at yesterday’s US 10-year Treasury auction, although treasuries actually rallied slightly on the auction result. The next critical tests for the US Treasury market is the June US CPI data up today as well as Fed Chair Powell testimony tomorrow and Thursday. A 30-year T-Bond auction is up later today.
What is going on?
China’s export growth far higher than expected in June. This despite port disruptions in southern China and other signs that China’s recovery is losing speed. In USD terms, exports rose 32.2% year-on-year versus +23% expected and imports rose +36.7% versus 29.5% expected. The overall trade surplus was the highest since January at +$51.5 billion for the month.
Protests in South Africa cloud the outlook, shake the Rand. Violent protests against the jailing of former South African president Jacob Zuma have resulted in several deaths, road closures and widespread business closures as more than 200 shopping centres were looted in what current president Ramaphosa described as “opportunistic looting”. AT the same time, the country is in the midst of a fresh and deadly Covid resurgence.
French president Emmanuel Macron announces compulsory Covid vaccines for some. From August, a health pass (being fully vaccinated or a recent PCR negative test) will be needed to get access to some public spaces: cafes, trains, museums and large events (50+ people). In addition, France will make Covid-19 vaccination mandatory for healthcare workers.
What are we watching next?
U.S. CPI data up later today. A recent narrative has developed that inflationary pressures are decelerating, and today’s June US CPI data is a key test on that front. The headline month-on-month figure is expected to drop back to +0.5% month-on-month versus +0.6% in May and the cycle high of +0.8% in April, while the core “ex food and energy” measure is expected at +0.4% month-on-month versus the +0.7% in May and remarkable +0.9% in April. The YoY expectations for the CPI data are +4.9% for the headline and +4.0% for the core, vs. 5.0%/3.8% in May.
RBNZ meeting tonight - no hike of the NZ central bank’s Official Cash Rate is expected at tonight’s meeting, but the RBNZ is expected to be one of the first G10 central banks to hike rates, with current expectations for a hike at the November meeting. Tonight’s meeting also includes the results of the bank’s monetary policy review.
Earnings to watch this week. The Q2 earnings season starts this week with the usual US financials starting the season. Our expectation is that companies will continue to deliver upside surprises against a consensus that is still too pessimistic on the rebound on revenue growth and profitability. The theme of margin squeezes from higher commodity prices are more likely a Q3 or Q4 story.
Economic Calendar Highlights for today (times GMT)
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