Market Quick Take - July 7, 2020 Market Quick Take - July 7, 2020 Market Quick Take - July 7, 2020

Market Quick Take - July 7, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Economist & CIO

Summary:  The Shanghai Composite climbed for a sixth day while stocks in Japan and South Korea retreated. The S&P 500, having closed higher for a fifth day, also slipped while the dollar and Treasuries held steady. Gold closed at its highest in this cycle, supported by COVID-19 angst together with rising breakeven and falling real yields. Crude oil's recently strong positive correlation with stocks faded on a combination of rising demand worries and failure to break resistance. A thin week in terms of economic news will give the market plenty of time to prepare for the U.S. earnings season, kicking of next week.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the S&P 500 had a very strong session yesterday extending into today’s session pushing the futures to as high as 3,184 but resistance has emerged and futures are now lower compared to yesterday’s close. Nasdaq 100 futures are above 10,600 this morning after a strong rally in technology stocks across the board with Amazon shares pushing above 3,000 for the first time ever eclipsing a market value of $1.5trn.

  • OILUSAUG20 (WTI) OILUKSEP20 (Brent) - trades lower after finding resistance at $41/b and $44/b respectively yesterday. It supports our view that oil remain range-bound with rising virus infections across the three biggest fuel-consuming U.S. states and abroad raising concerns about a continued recovery in demand. A survey ahead of Wednesday’s EIA inventory report is looking for a 1 million barrels increase in gasoline stocks while GasBuddy reported a 22% decline in gasoline consumption during the Independence Day holiday compared with last year. The market focusing on EIA’s weekly report Wednesday and the IEA’s monthly overview of the worldwide oil market on Thursday.

  • XAUUSD (spot gold) and XAGUSD (spot silver) - once again failed to establish a decisive break higher with $1800/oz in gold and $18.40/oz in silver being tough nuts to crack. Underlying support however remains firm despite the continued surge in global stocks. A rising virus count, troubled U.S.-China relations, rising breakeven and falling real yields and a softer dollar just some of the current drivers attracting investment demand through ETF’s and futures. Thereby helping off-set dismal physical demand from Asia’s biggest buyers. Trading so close to key resistance the temptation to book some profit however remains thereby forcing another test of support. In gold that area of support remains the 1745-1750 area.

  • AUDUSD – trades lower after once again being rejected at 0.70. The RBA as expected left rates unchanged at an all-time low and said it will support the economic recovery by maintaining its accommodative approach for “as long as it is required”. A recent spike in virus cases in Melbourne and the closure of the NSW-Victorian border are currently challenging the recovery efforts. With strong prices for raw materials offsetting these domestic worries the AUDUSD is for now likely to remain rangebound with support at 0.68.

  • BOO:xlon (Boohoo) - shares were down 23% yesterday on reports of labour issues at its suppliers. The company immediately published a statement saying they are determined to fix the issues and drive up standards. The stock closed at 296.70 yesterday just below the 200-day moving average. Buying the dips has been a powerful strategy the last four months and today’s session will prove whether traders are willing to buy the dip in Boohoo.

  • USDCNH – continues to weaken and has returned to challenge support just above 7. Having seen the pair break below its recent trading range and its 200-day moving average at 7.04, the outlook is technically bearish and favoring additional Yuan strength. The recent moves, both in the HK and Chinese stocks as well as the Yuan are very much opposite the negative headlines and rhetoric seen and heard recently.

What is going on?

  • US Non-Manufacturing Index for June was strong printed 57.1 against 50.2 expected up from 45.4 in June showing the US services sector was back into expansion mode after the lockdowns. While some parts of the report, and especially the headline number, were good the underlying subcomponent on employment was less rosy.

  • US reports highest COVID-19 positive in percent of tested people in more than two months and hospitalizations continue to rise. A nationwide study in Spain showed that only 5% of the 61,000 people that participated had developed antibodies adding little hope for herd-immunity and thus risk of second wave later this year.

  • The secretive data analytics firm Palantir has filed for IPO with the SEC yesterday as the company said it had handed in confidential paperwork preparing the offering which is said to most likely be a direct listing such as Spotify and Slack. The company was last valued to $20bn in a private financing round with leaked documents suggesting $750bn in revenue last year.

  • Berkshire Hathaway announces the acquisition of Dominion’s midstream business as the company is divesting some its assets to become a utility. It’s a bet by Warren Buffett to consolidate the US pipeline industry and take advantage of new regulation that will make it harder for competition to rise in the future. The deal is worth $9.7bn including debt.

What we are watching next?

  • Whether the COVID-19 resurgence extends to hospitalizations and a rise in daily deaths. The US had its worst weekend in terms daily infections with ICU capacity becoming critical in many hotspots across the Sun Belt states such as Arizona, Texas and Florida.

  • Q2 earnings season starts next week which will be the most exciting in many years as 80% of S&P 500 companies skipped their guidance in Q1 leaving investors to fly blind into the storm. With US technology stock valuations at record levels there is little margin for error so any revenue miss could lead to steep declines.

  • Corn traders will look towards the World Agriculture Demand & Supply (WASDE) report on July 10 for confirmation that the recent 10% rally can be sustained. Will the smaller than expected planted acreage announced recently be enough to make up for declining demand from ethanol producers thereby helping to keep inventories under control.

Economic Calendar Highlights (times GMT)

  • 08:00 – Italy May Retail Sales
  • 14:00 – Canada June Ivey PMI
  • 16:00 – EIA's Short-term Energy Outlook (STEO)
  • 20:30 – American Petroleum Institute’s weekly inventory report

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

Apple Sportify Soundcloud Stitcher

Disclaimer

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000
Australia

Contact Saxo

Select region

Australia
Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.