Market Quick Take - July 23, 2021

Macro 5 minutes to read
Saxo-Strats
Saxo Strategy Team

Summary:  Markets are in a positive mood today as strong results from two US social media companies boosted the sentiment for the US megacaps yesterday, while a dovish ECB yesterday underlined the feeling that the central banks will provide accommodation as far as the eye can see. One central on a very different page, however, is the Central Bank of Russia, which does not see inflation as transitory and is expected to hike rates today by the most since 2014.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equity markets maintained a relatively even keel yesterday, with modest non-threatening dips intraday, with sentiment surging in later trading after hours on the very strong results from Twitter and Snap, which suggest the online advertising business remains strong. This boosted the share prices for the Facebook and Alphabet megacaps, taking the Nasdaq 100 futures to within striking distance of 15,000 and its all-time highs, with the S&P 500 Index likewise less than a half percent of the all-time high mark near 4385 after yesterday’s action.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) – the technical situation is improving for the crypto-currency bulls, and another nudge higher in Bitcoin well clear of 33k would begin to suggest a break of the downtrend since June, while Ethereum similarly needs to punch a bit higher still to reverse the recent bear move, though it is trading well clear of 2,000 this morning after a couple of failed attempts to close above this level in the prior two days.

EURUSD – the market seemed to think that the ECB meeting (more below) checked all the dovish boxes yesterday and EU yields plunged to new cycle lows, keeping the pressure on the key sub-1.1800 area lows after a brief attempt to pull higher yesterday. The price action is impossibly congested as we wait for a proper break of the recent 1.1750 lows to point to potentially 1.1600 (near the major low late last year) as a first step. A sharp rally that rejects the recent price action would be needed to alter the impression that this super-major trades heavily.

AUDUSD – besides EURUSD above, which failed to rally clear of the recent price congestion yesterday and is danger of falling, we watch for signs of USD strength returning in AUDUSD as well, as the rally off the lows earlier this week failed to take out any resistance levels of note, keeping bearish expectations pointed toward 0.7000 in the weeks ahead and a particularly weak performance for this pair, given the revival of risk sentiment this week.

Crude Oil the rally yesterday extended the sharp recovery off the lows and took Brent and WTI crude oil prices well back into the prior range before the breakdown at the start of the week in the wake of OPEC+ agreeing to increase production. But the rally has stopped at the classic 61.8% retracement level in Brent just below 74/bbl and for WTI just below 72/bbl.

US Treasuries (SHY:xnas, TLT:xnas, IEF:xnas) The snap-back higher in US yields yesterday was disrupted to a degree by fresh lows in EU yields on the back of the ECB meeting and sets up a pivot point for whether yields can make a comeback on forward inflation concerns and/or a re-brightening of the economic outlook. Next week could prove pivotal for treasuries at is the last week before August rolls into view, when the US treasury is set to halt run-down of its general account with the Fed, which could provide less support for the treasury market. As well, an FOMC meeting is on tap next Wednesday.

What’s going on?

Intel (INTC:xnas) reported after the close yesterday and showed a 20% drop in server chip sales to key cloud customers, although the company guided for double-digit growth in data center sales in the second half of this year. The overall top-line estimate for Q3 was slightly lower than consensus at  $18.2 billion and the adjusted gross margin estimate for Q3 of 55% also disappointed. Intel’s shares dropped 2.8% in late trading.

Twitter (TWTR:xnas) and Snap (SNAP: xnas) posted far stronger top-line growth than expected, suggesting that the on-line ad business remains very strong despite the end of Covid lockdowns and concerns that online advertisement spending could come under pressure.

ECB meeting produces few surprises – yesterday’s ECB meeting was the first after an extensive strategy review, with President Lagarde declaring yesterday that the Bank has learned from its past mistakes and won’t move too early to withdraw support for the economy. The new monetary policy stance includes a “symmetric” inflation target in which it said that 2% is the target and that this could include “transitory” periods of inflation moderately above target. As expected, dissenting voices disagreed with the wording of the new statement, including the Bundesbank president Jens Weidman and Belgium’s Pierre Wunsch although ECB President Lagarde said an “overwhelming majority” support the change. The consensus is that the ECB’s September meeting could include forward guidance on fresh asset purchases once the PEPP emergency purchases linked to the pandemic wind down at the end of Q1 next year.

US weekly initial jobless claims spike higher to 419k – this was versus 350k expected and is a sudden sour note with the highest reading since mid-May after a solid string of lower claims numbers over the last few weeks and despite evidence that employers are having a hard time filling open positions. Still, the summer months see erratic claims numbers and it would take a handful of readings moving in the wrong direction to suggest something is amiss here.

What are we watching next?

Russia key rate announcement – a 100 bps hike in store? The consensus has shifted to the Russian Central Bank hiking a full 100 basis points to take the key rate to 650 basis points, up from 4.25% as recently as the beginning of this year as the central bank’s focus is on tempering inflation, which has surged this year in Russia to year-on-year levels of 6.5%. Unlike central banks elsewhere, the Russian Central Bank has said that factors pushing up inflation are likely to last. Any hike of 75 bps or greater would be the largest rate hike since 2014, when the ruble was tumbling due to sanctions linked to Russia’s annexation of Crimea.

Earnings for the rest of this week. A few large US companies expected to report today, including the oil services giant Schlumberger (SLB:xnys), which has faltered nearly 25% from its early June highs ahead of today’s report before the market opens, while the aerospace and industrial tech company Honeywell and American Express trade near all-time highs ahead of their respective earnings reports today.

  • Friday: Honeywell, American Express, Schlumberger

Economic Calendar Highlights for today (times are GMT)

  • 0715-0800 – Euro Zone Flash Jul. Manufacturing and Services PMI
  • 0830 – UK Flash Jul. Manufacturing and Services PMI
  • 1030 – Russia Key Rate Announcement
  • 1230 – Canada May Retail Sales
  • 1345 – US Flash Jul. Markit Services and Manufacturing PMI

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