Market Quick Take - July 6 2021 Market Quick Take - July 6 2021 Market Quick Take - July 6 2021

Market Quick Take - July 6 2021

Macro
Saxo Strategy Team

Summary:  Asian stocks were mixed overnight with US Treasuries trading softer and gold higher in response to rising oil prices after OPEC+ was plunged into crisis after failing to agree on a production increase from August. The dollar traded softer led by the AUD after the RBA slowed its pace of asset purchases. The short-term market focus may turn to rising energy cost, and the risk of even higher prices fanning inflationary pressures. FOMC minutes on Wednesday in focus as it may provide further context to the Fed's hawkish pivot last month.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – Nasdaq 100 futures powered higher to a new all-time high yesterday with the US 10-year yield breaking lower. Bubble stocks, mega caps, and the NextGen Medicine baskets were not among the best performing basket showing that the technology rally in the US was quite broad-based. This morning in Europe, US equity futures are rolling over following the weak sentiment during the Asian session.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - After a weak day yesterday, Bitcoin is back above USD 34,700 level and Ethereum above USD 2,300 this morning. The London update for Ethereum is one step closer to launch on the Ethereum network after being deployed on a testnet. It will make transaction fees more predictable, as well as reducing the inflation rate - read more here.

Crude oil jumped after OPEC+ failed to resolve their differences. As a result, the global market is facing a period of rising supply deficits and higher prices after planned increases were scrapped, at least in the short-term given the lack of response from non-OPEC+ producers. The breakdown, however, also carries the risk of damaging the groups' long-term ability to control and support prices, as they so excellently have done during the past year. While we see a limited risk of a dump-and-pump price war, rising Covid cases, political pressure from Washington and other major consumers such as China and India may eventually halt the rally and force the group to find common ground.

Gold (XAUUSD) trades higher in response to a softer dollar, increased demand from central banks and not least rising oil prices returning some focus to reflation trades. A development that is also supporting HG copper (COPPERUSSEP21) which has found fresh momentum to trade above its 21-day SMA and reach a two-week high at $4.37. In addition, traders have also responded to weaker Chinese data easing concerns about tightening monetary policy. Returning to gold, speculators meanwhile cut bullish gold bets by 5% to an eight-week low in the week to June 29, mostly due to fresh short selling. It highlights the prospect for a renewed short-covering rally on a break above $1814.

The Federal Reserve will soon need to decide between negative short-term yields or to taper aggressively. We expect the latter (SHY, IEF, TLT). Excess liquidity, the reintroduction of a debt ceiling, and a Treasury General Account drawdowns will put more pressure on the front part of yield curve. However, according to money market guru, Zoltan Poszar, all that money will go to the Fed’s RRP facility. Regardless, the problem is clear: too much money is causing disfunctions in the Bond market and the Fed will need to taper more aggressively than the market expects. It means that the yield curve will bear-flatten further.

Bund yields may break below their support level at –0.25%. However, their long-term trend is to rise (VGEA). German factory orders unexpectedly fell by –3.7% in the month of May versus 0.9% forecasted. Therefore, the ECB will need to keep its accommodative stance to continue to stimulate the economy. European sovereign yields may fall further in the wake of the announcement following the ECB strategy review, which may see the central bank taking a more dovish approach towards inflation target and labor market. Yet, European sovereigns remain vulnerable to a rise in yields in the United States, and the upcoming German election.

What is going on?

Germany’s factory orders unexpectedly dropped in May, suggesting an uneven economic recovery. The month-on-month drop of 3.7% m/m versus an expected 0.9% rise was driven by weak export demand for cars following a steep rise the previous month.

Energy inflation in Europe is gathering pace with anything from gasoline to coal and not least gas and electricity surging. Gas prices, and with that electricity, have climbed to an all-time high with energy demand rebounding at a time of tight supply driven by low stock levels following a cold winter, very little LNG arrivals as prices are even higher in Asia and not least Gazprom signaling no increase in supplies after opting not to book more capacity on the Ukrainian pipeline. The price of Dutch TTF gas for prompt delivery reached a record €38.5 MWh or $13.4/MMBtu. With rising demand for coal to substitute low gas supplies, the cost of pollution permits has also risen to a fresh record.

Ocado beats EBITDA estimates in 1H despite revenue coming in a bit below estimates at 19% growth y/y vs. 21% y/y expected. The world’s biggest pure play on online grocery shopping is maintaining its fiscal year outlook and announcing a partnership with Auchan Retail’s Alcampo including building a new fulfillment center in Madrid. The results were driven by good performance in its retail business while the technology business

China technology rout continues after yesterday’s big selloff due to China regulators saying that the ride-hailing company seriously violated Chinese laws on handling of personal information. The Chinese regulator has ordered the Didi app to be removed until further notice, so that only existing users can use the app. The move by Chinse regulator came only a few days after a successful IPO in US equity markets and has raised questions again in the US about Chinese IPOs. These policy moves by China continue to impact sentiment in Chinese technology stocks with our China Consumer and Technology basket being the worst performing basket this month.

What are we watching next?

French presidential election – An Elabe poll published after the regional elections of 27 June shows Macron and Le Pen are still miles ahead of the pack in next year’s presidential first round, at 29% and 25% respectively. Bertrand, a two-time minister of Sarkozy and current president of the regional council of Hauts-de-France, would be knocked out at the first round. The third man of the election is scored at only 14%. It confirms the view that it is still likely to be a Macron-Le Pen runoff on 24 April 2022. According to the poll, Le Pen would ultimately lose in the second round. She remains in an electoral no-man’s land – able to assemble the 20-odd % needed to reach the run-off – but not the 50% needed to win the Elysée.

U.S. debt limit ceiling focus: Short-term look rates traders are getting ready for volatility ahead, as the U.S. debt ceiling looks poised to return on August 1, while Congress so far has not clear plan to increase it.

FOMC minutes – Will be heavily parsed for the talking about talking about tapering pivot. Traders will be looking for insights on the FOMC’s reasoning, any hints to whether the transitory narrative is wavering, as well as looking for hints on the possible timeline of tapering.

Economic Calendar Highlights for today (times GMT)

  • 0900 – Germany Jul ZEW Survey
  • 1345 – US Jun Markit Services and Composite PMI
  • 1400 – US Jun ISM Services
  • 2300 – South Korea May CA balance

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
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.