Summary: Markets closed last week on a high note ahead of the most important week of the quarter for this earnings season, with nearly all of the US mega-cap stocks reporting this week. The weekend saw cryptocurrencies firming, but there was a veritable explosion higher overnight in Bitcoin and other cryptocurrencies on an unverified report that Amazon will accept Bitcoin payments later this year. Elsewhere, Chinese shares were down sharply on a crackdown on education companies.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – ahead of a mother lode of earnings reports this week from most of the very largest US companies, the Nasdaq 100 zipped up to new all-time highs on Friday, closing solidly north of 15,000 for the first time, while the S&P 500 also notched a new all time high just north of 4,400. The action was a bit more downbeat in the Asian session on a huge drop in Chinese equities.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) – Cryptocurrencies exploded higher overnight on top of an already solid rally at the weekend, with Bitcoin trading nearly up to 40k at what point after closing Friday closer to 32.5k.The 40-42k area is a major resistance zone. Ethereum grabbed on to Bitcoin’s coattails and enjoyed its own steep rally back toward a key resistance just above 2,400. An unverified story in one UK newspaper that Amazon may look to accept Bitcoin payments later this year and could be interested in creating its own cryptocurrency was credited with sparking the move overnight.
EURUSD – a full week of toying with the key 1.1750-1.1775 support last week and the ECB meeting failed to see the EURUSD resolve lower or attempt any major rally. Perhaps this will be the week for the currency pair to choose a direction out of the key 1.1750-1850 zone as we look forward to an FOMC meeting on Wednesday and interesting inflation and GDP prints noted below later in the week.
AUDUSD – bears remain in business in the AUDUSD pair, as last week saw the pair bouncing from new lows, but unable to challenge even tactical resistance, as the bearish outlook remains intact as long as the pair remains below the 0.7400-50 area and the focus remains lower toward as low as 0.7000, particularly if risk sentiment around reflation and commodities price rolls over again.
Crude Oil – a pivotal week for crude oil after last week’s huge slide and then equally sharp recovery took prices back to key retracement levels – near 74/bbl in Brent and 72-72.50 in WTI as the key focus remains the outlook for the ongoing global demand recovery amidst concerns on the impact of the Covid delta variant.
US Treasuries (SHY:xnas, TLT:xnas, IEF:xnas) The US 10-year benchmark yield topped out below Thursday’s highs on Friday and dipped a couple of basis points overnight as last week’s action underlined the pivotal 130 bps area as an important one to overcome if US treasury yields are to rise further and this week supposedly marks the week in which the US treasury will finish winding down its account with the Federal reserve, which may have suppressed treasury yields over the last few months.
What’s going on?
Chinese shares suffered a weak session on a steep sell-off in private education companies, a fresh sign of an official crackdown on for-profit school tutoring, as China seeks to bank companies that teach standard school subjects for a profit from raising capital abroad or going public.
Researchers are zeroing in on what makes the delta variant of Covid so transmissible – apparently a massively larger count of the virus – by some estimates up to a factor of a thousand – that makes a carrier far more contagious than with other variants and can increase the severity of an infection. The incubation period is also estimated at approximately a third shorter than earlier versions of the virus.
The UK wants to remove China’s CGN from UK power generation projects, which would jeopardize the planned Sizewell C and Bradwell on Sea nuclear power plants and the Chinese company’s 33% involvement in the Hinkley Point C nuclear power plant already in the early phases of construction.
China and US off to rocky start in high level talks in China, with China claiming that China-US relations are in a “stalemate”
What are we watching next?
FOMC meeting on Wednesday. The FOMC meeting this week is one without economic and policy projections, so any clues on changes in the Fed thinking will have to be gleaned from the statement, which usually sees minor alterations, and in Powell’s press conference, here anticipation of a change of stance is low, given his recent dovish performance in semi-annual testimony before Congress, in which he bemoaned the need for substantial further progress in the labor market and insisted that the Fed sees the recent inflation spike as transitory.
CPI and GDP data this week in addition to the FOMC meeting on Wednesday and the most important week for earnings this quarter, we also look forward to a more interesting macro calendar this week, which will include the first estimate of US Q2 GDP on Thursday, together with what is likely to prove the highest GDP Price Index in nearly forty years. Elsewhere, German flash July CPI is also up Thursday, with Germany’s first Q2 GDP estimate on Friday, which also features the June US PCE inflation data point.
Earnings for the rest of this week. This week brings a blitz of nearly all of the largest US info-tech/platform megacaps, with two interesting names up reporting today, including Tesla and LVMH, although both report after the close. Tesla is an interesting bellwether to watch for the EV and speculative space after it has fallen from its late January peak and traded sideways for months.
Economic Calendar Highlights for today (times are GMT)
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2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
