Market Quick Take - June 28 2021

Market Quick Take - June 28 2021

Macro
Saxo Be Invested
Saxo Strategy Team

Summary:  US indices closed last week near the all-time highs, with Europe poised not far from cycle highs as well as we watch this week whether a solid uptick in US treasury yields on Friday develops into a more significant move after a long period of long yields providing little more than background noise. The macro data focus for the week will be US June payrolls data out on Friday ahead of a long holiday weekend.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities ended last week on a quiet note following a strong rally and new all-time highs. This morning in Europe, Nasdaq 100 futures are unchanged and boxed into a small intraday trading range. Friday’s close at 14,339 is the natural initial support level in Nasdaq 100 futures with the next level at 14,313. On the upside, the first resistance level for Nasdaq 100 futures is at 14,367.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). The cryptocurrency space is dodging a string of negative headlines, for example, the Binance crypto exchange being banned in the UK and a Fed official saying that the stablecoin Tether is a financial stability risk. After poking toward support into trading at the weekend, Bitcoin and Ethereum have lifted well away from the lows, with Bitcoin bouncing as high as 35k this morning and Ethereum having a go at 2,000.

EURUSD – spent all of last week in a very compressed range after the FOMC meeting the week before last triggered a sharp sell-off. Technically, this supermajor of currency pairs is in a limbo as traders watch whether the price action will complete the right “shoulder” of a head-and-shoulders like formation with a neckline just below 1.1800, or reject the sell-off with a steep rally back above 1.2100. Key macro data this week includes June flash inflation data from Germany and the EU and payrolls data from the US (the ADP private payrolls on Wednesday and Nonfarm payrolls on Friday.)

JPY crosses – the Japanese yen is at a crossroads here after coming nearly full circle in the wake of the FOMC meeting that first saw it stronger as US treasury yields at the long end of the curve fell, and then weakened again when that development was reversed. This, despite inflation levels in Japan showing that real yields there are quite stable near 0%, compared with steeply negative real yields in the US due to the spike in inflation. USDJPY managed a modest new high late last week above 111.00 but failed to maintain and the focus there is on the rising channel that has supported the price action since April, with current support near 110.00.

Crude oil (OILUSAUG21 & OILUKAUG21) trades steady near the highest since 2018 with market participants expecting OPEC+ will keep supplies tight enough to support current levels. The group meets on Thursday to decide production levels from August and beyond, and the market is currently pricing in an increase of 500,000 barrels per day. With virus uncertainties due to the highly contagious delta strain (see below) and questions about an Iran nuclear deal hanging over the market, the group may opt for caution, hence the current price strength. Brent support at $74.5 while it would need to break below $72 before signaling risk of a deeper correction.

Gold continues to consolidate below $1800 with a break above $1820 probably needed to attract short-covering and fresh buying interest. Before then the market remains focused on the dollar and its recent price adverse strength and whether inflation is indeed transitory, as signaled by central banks, or becoming more entrenched. Many speculators threw in the towel following the hawkish FOMC meeting on June 16 with the latest COT report showing a 33% reduction in bullish gold bets to a seven-week low. Driven by a combination of long liquidation and rising short-selling interest.

US Treasury yields struggle for direction ahead of the nonfarm payrolls (SHY:xnas, TLT:xnas, IEF:xnas). Hawks will be looking for signs that inflation is not as transitory as the Federal Reserve says. Economists forecast that wages have risen 3.6% YoY, the highest in 12 years showing that inflation might be persistent. If wages surprise on the upside, yields could resume their rise, but will not break above 1.7%. We expect yields to break above this level only once tapering talks accelerate and interest rate hikes are pushed forward. If we see a jobs miss, there is also the possibility that yields fall back below 1.50%. However, we still believe that in the second half of the year the yield curve is meat to shift higher amid more aggressive monetary policies.

European sovereign yields rise amid long-term bond supply concerns (VGEA, BTP10). On Friday, news about long-term government bond issuance from Italy, France and Spain caused a selloff within European government bonds. This week’s CPI report might also provoke volatility, but we expect it to be contained. To see European yields higher we will need to see yields increasing and the European Central Bank being less accommodative. Both are unlikely now, suggesting that European government bond yields will most likely trade rangebound until the German election.

What is going on?

Australia races to get ahead of new Covid outbreaks of the Delta variant that is far more contagious than previous strains and is the driver of fresh outbreak concerns globally. An outbreak in Sydney has found 130 cases and the virus has been found elsewhere, while the vaccination level in Australia is extremely low at under 15%.

Bets on rising commodities prices were cut by 6% in the aftermath of the hawkish FOMC meeting on June 16 which triggered a stronger dollar and lower inflation expectations. According to the latest Commitments of Traders report covering the week to June 22, speculators made big cuts in their gold, silver and platinum exposures, as well as agriculture products such as soybeans, bean oil and sugar. Crude oil meanwhile was almost left unscathed with current fundamentals not warranting any major reductions. In forex futures the stronger dollar helped trigger a 31% reduction in bearish dollar bets to a seven-week low at $13 billion.

What are we watching next?

Flash June CPI out of Germany tomorrow and EU on Wednesday. Inflation data bears watching for any surprises after German headline inflation number of 2.5% year-on-year in May matched the highest levels since the oil price spike in 2008 and after the last six months of month-on-month readings showing inflation running at greater than 7%, annualized. The Euro Zone CPI number is running a bit cooler, not quite reaching its 2018 high with a 2.0% YoY reading in May and expected to dip to 1.9% in June, while the core CPI is expected at 0.9% YoY after 1.0% in May.

In Sweden, Prime Minister Löfven as until midnight tonight to put together a new government coalition or he will have to allow the opposition to form a coalition or call snap elections. The Swedish krona has not been particularly volatile after Löfven lost a confidence vote as political polls suggest low prospects that elections would bring any notable shift in government policy as the blocs remain evenly matched.

Earnings to watch this week. This week’s most important earnings come from Micron Technology on Wednesday which is one of the world’s largest makers of computer memory chips and data storage. Analysts expect Micron Technology to deliver 32% growth on revenue. On Thursday, H&M will report FY21 Q2 earnings which will show how profitability is progressing. Nike showed last week that retailers have reduced inventories and stopped promotions, so our expectation is that H&M will show the same trend.

  • Monday: China Gas
  • Tuesday: Alimentation Couche-Tard
  • Wednesday: Nitori, Micron Technology, Constellation Brands, General Mills
  • Thursday: H&M, Walgreens Boots Alliance, McCormick

Economic Calendar Highlights for today (times GMT)

  • 1200 – Euro Zone ECB’s Weidmann to speak
  • 1300 – US Fed’s Williams (voter) speaks on BIS panel
  • 1600 – US Fed’s Barkin (voter) to speak on inflation risks
  • 1710 – US Fed’s Quarles (voter) to speak on digital currency
  • 2330 – Japan May Jobless Rate
  • 2350 – Japan May Retail Sales
  • 0410 – New Zealand RBNZ Governor Orr to Speak

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

Content disclaimer

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Bank A/S and its entities within the Saxo Bank Group provide execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer and notification on non-independent investment research for more details.

Saxo Bank A/S (Headquarters)
Philip Heymans Alle 15
2900
Hellerup
Denmark

Contact Saxo

Select region

International
International

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.