What is our trading focus?
- Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)- the major US equity indices suffered their worst sell-off in almost a month, with the selling more intense in the megacap-heavy Nasdaq 100, which sold off more than 2% on the day, led by Moderna, Tesla and Zoom. The sell-off took the Nasdaq-100 below the old high of 12,420. A more important support level awaits at 12,000, and a proper breakdown of the recent rally would require a retreat below perhaps 11,600. The S&P 500 sell-off was shallower, with the first zone of importance for maintaining an upside focus down between 3,550 and 3,600.
- Facebook(FB:xnys) - while the news that the US Federal Trade Commission and 46 US states have brought antitrust cases against Facebook dominated headlines yesterday, the stock’s performance yesterday was not particularly weak relative to the broader market, as the stock closed down around 2% after being down over 4% intraday. The antitrust suit is said topossibly result in a demand to breakup of the company, for starters most likely meaning a forced spin-off of Instagram and WhatsApp.
- AUDUSD and EURUSD – while the USD perked up yesterday on a bout of weak risk sentiment, the boost wasn’t particularly well maintained overnight. The EURUSD is a bit cautious ahead of today’s ECB meeting (see more below) after reversing yesterday’s rally attempt – the key 1.2000 area remains the support of note to keep the focus higher. The AUDUSD, meanwhile, bounced back more vigorously from its sell-off yesterday as iron ore prices are shooting the lights out with another huge surge to record levels overnight. Still, deepening tension in the correlations across markets if global equities suffer a setback,as this wouldnormally weigh on the AUD.
- EURGBP and GBPUSD– after the top level dinner last night between the British PM and EU Commission President failed to result in a breakthrough, the new “next steps” deadline for this Sunday sets up perhaps three scenarios: 1) a breakthrough between now and then (most likely only possible on a major surrender from the UK side on state aid provisions), 2) a delay on key portions of the trade relationship, and 3) a cliff-edge Brexit that would see the UK-EU trade relationship switching to WTO terms. A “breakthrough” could also take hybrid forms with a “delay”,including hiding the fact that significant negotiations will actually continue on key issues beyond the end of the year. Regardless, retaining some optionality or protection into Monday after the Sunday deadline passes will be a high priority and GBP will trade nervously from here on the headline risk over the weekend. GBPUSD 1-week implied volatility has jumped to more than 18%
- Brent crude oil (OILUKFEB21) and WTI crude oil (OILUSJAN21) were left unscathed by a 15.2-million-barrel stock increased, the biggest since April and a continued slowdown in demand for gasoline and distillates as the pandemic continues to spread. Part of the glut was explained the largest ever weekly decline in exports, some of it due to bad weather at the Houston Ship Channel. It also highlights the markets ability to look through short-term challenges towards anexpected vaccine-led recovery in the new year. Brent remains stuck in a tight range just below $50/b with focus on U.S. stimulus news and the dollar.
- Gold (XAUUSD) tumbled back below $1850/oz thereby highlighting a metal that together with silver (XAGUSD) remain troubled by speculation that a vaccine-led recovery will drive bond yields higher. Against this the pandemic which continues to grow in strength, and which may call for additional stimulus to be introduced by governments and central banks. Gold support at $1820/oz and $1807/oz while a move back above $1850/oz would ease some of the current nervousness. Also, worth noting that we have entered the time of year where profits are being defended and where lack of momentum can cause some major price swings. Markets currently lacking momentum are precious metals and more recently also platinum while copper has yet to break levels that may cause a sweat.
- European sovereigns to get a boost from the ECB meeting today(FBONH1, 10YBTPMAR21, 10YOATMAR21). The ECB is going to unveil its monetary decision today and the market is expecting more stimulus. If the central bank doesn’tdisappoint, we can expect European sovereigns to benefit from it. After Portuguese 10-year yields dived below zero, we can expect Spanish 10-year yields to go negative today or tomorrow.
- Treasuries steady as stimulus talks do not progress and coronavirus cases are rising(10YUSTNOTEMAR21). Yesterday’s 10-year auction went well even if the Treasury has issued a record size of $38 billion notes, $3bn more than last reopening in October. Today the Treasury will sell 30-year bonds and we expect it to go well as it is clear that a steepening of the US yield curve is paused for as long as the stimulus talks are stalled, and coronavirus cases rise.
- DoorDash (DASH:xnys) - shares started trading yesterday after a successful IPO and opened at $182 up 78% above the IPO price.During the trading session there was a lot of interest in the shares and they were bid up ending 4% higher. There is a lot of headlines on DoorDash, being the largest US food delivery company, which will continue to build attention among investors and the company only represents the first option for a pure play on US delivery services.
- Airbnb (ABNB:xnas) -the home-sharing platform has priced its shares in the IPO at $68 which is significantly above the IPO range of $56-60 per share that was also lifted substantially from the initial IPO price range. This underscores the high demand for technology stocks and we expect the speculative nature will carry into the first day of trading today with secondary investors bidding up the price.
What is going on?
- Poland and Hungary remove their veto of the EU budget - ahead of the EU Summit today. The lifting of the veto was agreed in return for a delay in the potential sanctioning of the two countries for violations of “rule of law” provisions connected to the disbursement of funds. It still means the risk of a confrontation down the road on governance issues like independence of the judiciary and freedom of the press and other issues, but there was never really any strain priced into the market (chiefly HUF and PLN) on this matter.The European Court of Justice will be involved in ruling on the legality of sanctions – meaning the entire issue could be punted another 12 months down the road.
- US stimulus talks are ongoing. Not much to update here, but a 1-week stopgap bill is said to be likely to pass to keep the government funded, while Democrat Pelosi and the White House’s Mnuchin made positive comments on the prospects for a deal, while Democratic Senators will try to break the logjam with a proposal addressing the liability protection for businesses issue that has held up some on the Republican side from agreeing to a $900+ billion bipartisan package.
- The grain markets await the monthly supply and demand report (WASDE) from the U.S. Department of Agriculture today at 17:00 GMT. It is expected to show smaller South American crops and tighter U.S. corn and soybean supplies. The report comes after profit taking hit the market this past week following a very strong surge higher since August.
- US antitrust case against Facebook heats up while EU talks about fines. A new federal lawsuit filed by the FTC is seeking to break up Facebook’s social media empire by carving out WhatsApp and Instagram which according to FTC were acquisitions specifically designed to compress competition. Facebook shares were down 2% in yesterday’s trading session indicating that investors for now are not too worried about the prospects of this antitrust case. In Europe, regulators are planning to tell large technology platforms, those with more than 45mn users, to better at policing the Internet or else face fines up to 6% of annual turnover.
What we are watching next?
- Brexit situation -after a long dinner meeting and “frank discussion” of the issues between UK Prime Minister Boris Johnson and EU CommissionPresident Ursula Von Der Leyen, who established Sunday as a new deadline for making decisions on next steps for the Brexit negotiations by the two sides. Official sources were quoted maintaining that the gaps between the two sides’ positions remain very large, and it is unclear whether these can be bridged. UK Prime Minister Johnson is willing to pursue any route to a deal.
- The ECB meets today and is expected to bring significant new easing. The ECB is thought ready to expand its bond-buying programmes, the “standard” APP (QE) and emergency PEPP, by some half a trillion euros and to extend the horizon of the purchases at least to the end of 2021. More cheap long-term financing for banks, or LTROS, possibly at an even more deeply negative interest rate, is thought to be on the agenda as well. The ECB’s moves have been thoroughly flagged, so surprises may be wanting in today’s ECB press conference.
Earnings releases expected this week. It is a thin week on earnings as we are outside the earnings season but earnings from Lululemon Athletica and Adobe are worth watching as both companies are priced for perfection and thus carry an intrinsic skew for a negative surprise.
Today:Costco Wholesale, Oracle, Broadcom, Lululemon Athletica, Adobe
Economic Calendar Highlights for today (times GMT)
0830 – Sweden Nov. CPI
1245 – ECB Rate Announcement
1330 – ECB President Lagarde Press Conference
1330 – US Weekly Initial Jobless Claims and Continuing Claims
1330 – US Nov. CPI
1530 – US Weekly Natural Gas Storage Change
1700 - USDA's World Agriculture Supply and Demand Estimates
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