What is our trading focus?
- US500.I (S&P 500 Index) and USNAS100.I (Nasdaq 100 Index) – after a steep sell-off that continued in early Monday hours, the US equity markets have bounced hard and taken the high-beta Nasdaq 100 back beyond the 50% retracement of the sell-off, with the next focus on the 61.8% at 8920. The broader and less buoyant S&P500 index has not yet reached its 50% retracement at 2868, with the 61.8% up at 2890.
- GER30.I (DAX Index) – the leading German stock index is fighting to close the Monday opening gap vs. Friday’s close at 10,851. Today’s decision of the German constitutional court at 0800 GMT is key risk for whether the rebound can continue but otherwise it’s a day of flows as no important macro figures are out in Europe today.
- USDCNH – things have gone quiet again in USDCNH after a large Friday surge higher that was difficult to interpret with China out on holiday through today. With rising US-China tensions, however, this most important of exchange rates bears watching as a sign of any possible intent by China to devalue the renminbi to beyond 7.20 versus the USD.
- AUDUSD – the AUDUSD remains the FX trader’s way to trade risk appetite and bounced in line with US Tech stocks overnight and after an RBA meeting that produced nothing of note. The key resistance level for whether the bears can maintain their current tactical case is the psychological 0.6500 level, just above the 61.8% retracement of the sell-off.
- 10YBTPJun20 – the Italian June, 10-year sovereign bond (BTP) future: The German constituational court is set to rule on the legality of the ECB’s asset purchase programme. In the past, this court’s decisions have raised considerable attention, especially during the EU sovereign debt crisis, but in the end there was no decisive showdown and a ruling against ECB activities would send the government scrambling and could cause considerable volatility in Italian BTP futures.
- OILUSJUL20 (WTI) and OILUKJUL20 (Brent): Crude oil’s rally continue as more countries and regions move towards easing lockdowns while production cut announcements continue to emerge. Also supporting the market was a report from Genscape saying that the pace of stock build at the Cushing slowed last week. The futures market is looking beyond the coming weeks which remains challenging with regards to lack of storage. Instead focusing on the recovery phase. Next key focus will be Wednesday’s EIA stock report.
What is going on?
US is trying to open up with the US’ most populous state California announcing that it will reopen this week, or at least ease Covid19 restrictions.
Australia’s RBA was out with a very positive forecast for the Australian economy, as it offers a baseline scenario of a 6% drop in GDP this year, but a full rebound in 2021, estimates the peak unemployment rate in Australia will be about 10% in the coming months.
Adecco CEO sees ‘early signs’ of stabilization, across key labour markets in Spain, Italy and France but the visibility is still poor in many countries. Latin American and Japan were strong in Q1.
Fed announces purchase programme of ‘eligible’ ETFs in early May following the footsteps of Bank of Japan reinforcing the support for the market.
What we are watching next?
German constitutional court ruling on the legality of the ECB purchase programe. As noted above on the comments on Italian BTP futures, the court’s ruling doesn’t necessary create a new crisis if they rule negatively, but certainly could create volatility. The risks generally run one way, i.e., a ruling in favour would likely not garner as much positive attention as a negative ruling generates negative attention in the form of possible BTP and Euro downside (for the later, still focusing on EURUSD and EURJPY.)
Big miners report earnings – Q1 earnings from gold giants Newmont Corp (NEM:arcx) on Tuesday and Barrick Gold Corp (GOLD:arcx) on Wednesday to give us further clues on the state of the industry and the precious metal market in particular. Investors will also be seeking clues about how the pandemic will effect growth plans from the world’s top diversified miners such as Anglo American and Rio Tinto Group.
More Q1 earnings – this week the most important earnings that could impact sentiment are Disney (Tue), Regeneron (Tue), PayPal (Wed), Shopify (Wed), Uber Technologies (Thu), Booking (Thu) and Siemens (Fri).
US-China relationship – this is a critical additional layer to this crisis, as a further falling out between the world’s two largest economies and renewal of trade tensions or worse will add another level of seriousness to concerns that the recovery will stumble. USDCNH, noted above, is a key market barometer, but new Trump tariffs, etc., would also dent confidence broadly.
US Apr. ISM Non-manufacturing and US employment data – The March-April data cycle will be the worst for the USA in terms of rate of change to the shock of the Covid19 crisis and sets the bar of the shape of the recovery as May will see considerable opening up from shutdowns across the US. We watch the ISM Non-manufacturing survey and subcomponents for benchmarking the state of the US services sector, but even more so the Friday US employment report. Bloomberg expectations for the US Nonfarm Payrolls change for April is running at -22 million, more than 20 times the worst ever single month reading, and the unemployment rate expected to rise to 16.3%. The US April ADP private payrolls survey is up on Wednesday and is expected at -20 million.
Economic Calendar Highlights (times GMT)
- 1230 – US Mar. Trade Balance - the US trade deficit has been rapidly shrinking since early 2019 and lower consumption could see it shrink further – an interesting test of “USD as reserve currency” status in the long run, because the reserve currency country must always be in deficit to send its currency to the rest of the world. No market impact on release, however.
- 1400 – US Apr. ISM Non-manufacturing – as noted above, will set the bar as the worst reading for the cycle, as May can only improve from total April lockdowns.
- 2245– New Zealand Q1 Employment – NZ has one of the most aggressive lockdowns, but this will show up more in Q2 data.