Global Market Quick Take: Europe – July 18, 2023

What is our trading focus?

US equities (US500.I and USNAS100.I): S&P 500 and Nasdaq reach new highs

The S&P 500 and Nasdaq 100 reached new highs for the cycle, with the S&P 500 climbing 0.4% to 4,522 and the Nasdaq 100 rising 1% to 15,713. Among the sectors, information technology and financials emerged as the top performers within the S&P 500. Intel (INTC:xnas) experienced a significant surge of 3.7%, while Nvidia (NVDA:xnas) gained 2.2% as their CEO engaged in discussions with Washington officials to oppose potential new chip bans on China. Prior to the commencement of earnings reports from regional banks, the SPDR S&P Regional Banking ETF (KRE:arcx) bounced by 1.7%. On the other hand, telecom stocks declined as public outcry intensified following a Wall Street Journal investigation that exposed the presence of toxic lead cables left behind throughout the country. AT&T (T:xnys) tumbled 6.7% while Verizon (VZ:xnys) plummeted 7.5%.

FX: USD in focus after a tough week

The US dollar rolled back over to the weak side late yesterday and overnight, with EURUSD testing new highs for the cycle even as other USD pairs trade within the range. The JPY firmed after USDJPY tested above 139.00, trading 139.41 before rolling over to back below 138.50 coming into early European trading this morning. AUDUSD found support just below 0.6800, but its bounce has proven so far modest, perhaps as sentiment on the Chinese outlook remains subdued and copper prices registered a sharp drop yesterday. NZD traded on the weak side across the board yesterday as traders eyes the Wednesday Q2 CPI release. UK reports June CPI tomorrow morning early at 0600 GMT, a key focus for sterling traders.

Crude Oil: weighed by weak Chinese data

Crude oil prices slumped some 1.5% yesterday as China’s activity data mostly came in below expectations and supply issues at the Libyan oil field were also resolved. The focus turns to US retail sales and earnings season from here.

Base metals: China’s property sector woes weigh

Base metals slumped after weak economic data added to fears of lacklustre demand. Weakness in property investment in China also weighed. Copper fell 2.3% to test support at $3.82 while iron ore was down 1.6%. Low stockpiles are however likely to limit the downside of any selling. Aluminium inventories on the LME fell to their lowest level since 11 April, with large drawdowns in Asia. Copper inventories are down nearly 25% this month and sit just above its 18-year low.

Treasuries (TLT:xnas, IEF:xnas, SHY:xnas): Yields fall modestly by 2-3bps

Treasury gained modestly with yields falling 2 to 3 bps across the curve, in the absence of headlines. The weaker-than-expected data out of China added a bit to the Treasury market sentiment positively while Treasury Secretary Yellen’s optimism toward the US economy had muted reactions from the market. The 2-year yield slid 2bps to 4.74% while the 10-year yield fell by 3bps to 3.81%.

What is going on?

Russia terminated Ukraine grain deal

Adding further concerns on the global food supplies after the weather vagaries, now Russia has formally withdrawn from a UN-brokered deal to export Ukrainian grain across the Black Sea, potentially imperilling tens of millions of tonnes of food exports around the world. Reasons cited were the drone strike that damaged a bridge to Crimea and non-fulfilment of agreement to allow Moscow’s agricultural exports. Recep Tayyip Erdogan said he'd try to persuade Vladimir Putin to reconsider. Wheat futures spiked on the announcement before erasing the gains later.

NY Fed manufacturing survey remains in expansion

The NY Fed Manufacturing survey for July remained in expansionary territory at 1.1, but slower than June's 6.6 albeit still above the forecast of a contraction print of -3.5. New orders saw a marginal increase to 3.3 from 3.1, while shipments cooled to 13.4 from 22 (moderating after June’s jump from -16.4). Prices continued to moderate, prices paid cooled to 16.7 from 22, indicative of rising prices, but at a slower pace than the prior month, while prices received eased to 3.9 from 9.

Tesla begins Cybertruck production

Tesla (TSLA) finally began production of its electric pickup truck, the Cybertruck, after nearly four years since its initial prototype was revealed. The automaker is also planning to double the size of its factory near Berlin to produce up to one million electric cars a year, which could make the plant the largest auto manufacturing facility in Germany, according to WSJ citing documents filed in recent days. Meanwhile, Ford (F) lowered its F-150 Lightning prices and said it is taking advantage of increased plant capacity, continued work on scaling production and cost, and improving battery raw material costs. Tesla reports earnings on Wednesday.

Technical Analysis Update

• S&P 500. Potential upside to 4,546 – 4,635. But uptrend short-term very stretched
• Nasdaq 100. Upside potential to 16,000 but uptrend stretched
• DAX Bounced from support at 15,482. Resistnace at 16.210 needs to be broken to confirm uptrend
• AEX25 above key resistance at 777. Likely move to 802
• CAC40 Range bound between key resistance at 7,403 and key support at 7.080.
• EURUSD uptrend. Likely short-term correction but room to 1.1485.
• GBPUSD broke strong resistance. Expect minor correction before moving higher
• USDJPY Correction overdone. In consolidation area. Support at 137.85. Likely rebound to around 140
• EURJPY correction bouncing from rising trend line and 153. Resist at 156.
• EURGBP bouncing from 0.85 level. Double Bottom?
• Gold bounced to 0.382 retracement at 1,963. Expect minor setback before next attempt higher
• Silver above resistance at 24.50. Next resistance at 25.85-26.45

What are we watching next?

US retail sales and industrial production to shed further light on soft-landing narrative

June retail sales and industrial production are up later today. Higher car sales following price cuts could drive retail sales and manufacturing activity higher, although expectations for industrial production remain muted with softening manufacturing PMIs. Bloomberg consensus expects retail sales for the control group (which feeds into the GDP) to increase by 0.3% MoM from 0.2% MoM in May, while industrial production is expected to be flat from -0.2% MoM in May. In-line data could keep the soft-landing narrative alive but strong upside surprises could reinforce Fed’s higher-for-longer message and disrupt the recent dollar downtrend if yields rise.

Earnings to watch

The pace of the Q2 earnings season picks up this week before peaking over the next couple of weeks, with more US banks reporting today after a rebound in financial stocks yesterday from Friday’s weakness. The first two major regional banks of note – PNC Financial and Western Alliance are among banks reporting. Tomorrow, Tesla, Netflix and ASML are in focus.

Earnings this week:

• Tuesday: Bank of America (1045 GMT), Novartis, Morgan Stanley (1130 GMT), Prologis (Before open), Lockheed Martin (Before open), Charles Schwab (Before open), PNC Financial (1030 GMT), Bank of NY Mellon (1030 GMT), Western Alliance Bancorp (After close)
• Wednesday: Tesla, ASML, Netflix, IBM, Elevance Health, Goldman Sachs, United Airlines,
• Thursday: TSMC, Johnson & Johnson, SAP, Blackstone, CSX, ABB, Freeport-McMoran
• Friday: American Express, Schlumberger

Economic calendar highlights for today (times GMT)

• 1215 – Canada Jun. Housing Starts
• 1230 – US Jun. Retail Sales
• 1230 – Canada Jun. CPI
• 11315 – US Jun. Industrial Production
• 1400 – US Jul. NAHB Housing Market Index
• 2245 – New Zealand Q2 CPI
• 0600 (Wednesday) – UK Jun. CPI