chart chart chart

Broad markets rally for 2nd week. Curb your enthusiasm or consider crouching into champion commodities and FX?

Equities 7 minutes to read
APAC Strategy Team

Summary:  Global markets lift after long term interest rates aka bonds yields fell after a weaker than expected jobs report came through. But do not get too comfortable and consider potentially building in downside protection, as yields are expected to rise later this year. Markets remain delicate ahead of Q2 earnings numbers being weak, with Microsoft being one of the biggest companies out of the gates to downgrade forward quarterly earnings. So who is next? Aside from that, commodity FX currencies pick up and Asia Pacific equities rally with ASX mining giants pushing up for the 3rd week. Plus, what to watch this weekend and next week, that could see volatility creep up.


What’s happening in markets that you need to know?

The S&P500 and Nasdaq trade higher for the second week but caution is in the air, so considering curbing long term enthusiasm. US stocks were buoyed on Thursday by tech stocks, consumer spending and economic reopening names rallying. Positive news hit the street from the likes of Apple (AAPL) upgrading its iPad software, and Lululemon (LULU) upgrading its yearly sales forecasts. Although, markets lifted after long term interest rates fell (measured by bonds yields) after a weaker than expected jobs report, yields are expected to rise later this year. Plus, markets still remain delicate; Q2 earnings numbers are tipped to be weak. Microsoft (MSFT) downgraded forward earnings numbers for the quarter, blaming an unfavorably high US dollar.

Square (SQ, SQ2) announced it’s working with Apple (AAPL) to enable tap to ‘Pay on iPhone’. This makes it easier for smaller retailers to use Square’s point of sale system. So instead of retailers having the famous white Square tap and go system, a retailer say, in fresh food market for instance, can receive payment for goods or services via a new iPhone app. Early access for select retailers starts today, while mass market rollout is later this year. Square earns over 70% of its money from Bitcoin transactions so its shares not only move with tech stocks but with typically with Bitcoin as well.

Lululemon (LULU) upgraded its guidance for the year as earnings and sales beat expectations in Q1. It sees full year 2022 net revenue rising to $7.61 billion to $7.71 billion. The market also estimates earnings growth of 26% in 2022. Lululemon is one of the most bought stocks across Saxo globally, and has a higher representation of women on its board, so it’s featured in our in our Women in Leadership basket.

Asia Pacific equities trade mostly higher for the last trading day of the week; 

Australia’s 
ASX200 trades higher for third straight week. In company news a new entity, Woodside Petroleum (WDS)was born on the ASX and became the world 10th biggest oil company. Woodside effectively took over BHP’s (BHP) oil assets (with BHP retaining a a smaller stake). But stepping back and looking at the best performers, who are gaining the most momentum, you can see Mining and Energy sectors rising up 3% week to date, continuing to stand out as this years best performers. This weeks push comes after China’s biggest city reopened; meaning Aussie iron ore, copper and aluminum and coal exports can flow more freely to China. This is why large sellers of these commodities, like South32 (S32), Fortescue Metals (FMG) and BHP (BHP) are trading about 5% higher week to date, anticipating earnings to increase, which will likely support long term share price growth

China markets are closed while Japan’s Nikkei 225 (JP225.I) trades up 1% following a strong US close with gains led by Fast Retailing (9983) and Tokyo Electron (8035). The weak ADP print overnight has ignited some caution over the NFP due later today, although it isn’t usually a good leading indicator of how NFP will do. But a miss in NFP will give the Fed some reason to slack off in its fight against inflation. Singapore’s STI index (ES3) however only saw minor gains as some of the key REIT players slid.

Crude prices (OILUKAUG22 & OILUSJUL22) were eventually bid. Crude prices pared some of yesterday’s weakness as markets questioned whether OPEC will be able to handle the increased production quotas over July and August. As a reminder, they're aiming for 648k b/d while they have been undershooting production quotas at the initial 432k b/d monthly output hikes.

USD weakened across the board. The risk-on tone ahead of NFP saw the USD plunge overnight. AUDUSD touched 6-week highs of 0.7283 as it rides the commodity gains especially with iron ore resuming a fresh uptrend. EURUSD has reclaimed 1.0760 with ECB hawkishness gaining an edge after record high inflation prints. The December ECB meeting is now priced for more than 100 basis points of rate hikes in total, meaning rising odds that one meeting will see a larger than 25-bp rate hike, assuming no June lift-off.


What to consider? 

ADP jobs report underwhelmed. US ADP posted a much-smaller-than expected rise of 128k jobs last month and revised the prior reading down from 247k to 202k. This was below the expected 300k. Jobless claims fell more than expected and, at 200k, continue to signal tight conditions in the labor market. While ADP isn’t a reliable indicator of NFP, there is some sense of caution.

Fed hawkish commentary continues. Fed's Brainard said it is hard to make the case for a September pause while Mester reiterated that it is difficult to predict how high rates will need to go but she agrees with 50bps hikes at the next two meetings before considering the appropriate pace.

RBA to rise rates next week, get even more hawkish. Next week, the RBA holds its June interest rate meeting, and the market expects rates to rise from 0.35% to 0.6% after receiving stronger than expected economic news this week. Plus we know Australia’s export income surged to a record high and that will only improve with Shanghai emerging from lockdown this week. Plus the Australian Labor Government’s new childcare policy will result in more employees being added to the labour market, adding to Australia’s ‘full employment’. This means wage price inflation is likely to rise, which will feed the fire of RBA hawkishnessMeaning, expect more rake hikes than the market has baked in (with consensus expecting rates will end the year just shy of 3%).

Singapore May PMI at record highs, so is South Korean CPI. S&P global PMI for Singapore rose to a record high of 59.4 from 56.7 in April. Output and new orders are both up, which is especially remarkable given that China was in lockdown and that might have impacted some manufacturing activity. Meanwhile inflation in the region continues to rise with South Korea reporting a 14-year high inflation print of 5.4%, coming in higher than the highest estimate.

Potential trading and investing ideas?


Cybersecurity earnings impress. CrowdStrike Q1 earnings delivered a beat with revenue up 61% and adj. EPS at $0.31 vs. $0.23 expected. Q2 forecasts were at adjusted earnings of 27-28 cents a share on sales of $512.7-516.8 million, above consensus of 24 cents a share on sales of $510 million. Other players such as Okta and Secureworks reported a loss but subscription revenue is on the rise and both also beat expectations. Overall, we remain bullish on cybersecurity theme basket amid rising demand for data security especially after the Ukraine invasion.

How to trade the NFP? NFP remains a key mover for the forex markets. With consensus expecting a slowdown in trend from 428k posted last month to expectations of 320k for May, the scope for surprise is more on the upside. Key data points to watch are also the unemployment rate (which is expected to fall to 3.5% in May from 3.6% last month) and average earnings growth (which is expected to slow down to 5.2% from 5.5% earlier). A positive surprise, or better than expected jobs numbers, lower unemployment or higher average earnings growth, would be a hawkish surprise meaning that the Fed can continue to tighten aggressively and that will be positive for the USD and possibly negative for equities. EURUSD and USDJPY will be key.



For a weekly look at what’s on the radar for investors, and traders this week;
read, watch or listen to our Monday Saxo Spotlight.

For a global look at markets – tune into our Podcast. 

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research 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. To the extent that any content is construed as investment research, you must note and accept that the 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 under relevant laws.

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

Saxo Bank (Schweiz) AG
The Circle 38
CH-8058
Zürich-Flughafen
Switzerland

Contact Saxo

Select region

Switzerland
Switzerland

All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law.

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.