Market Quick Take - April 23, 2021

Market Quick Take - April 23, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  US equities traded sharply lower as US President Biden outlined a capital gains tax increase proposal that would nearly double previous rates. The vicious new sell-off in the crypto space was likely triggered by this announcement as well, with Bitcoin dropping below 50k overnight. There was limited contagion from this development in the Asian session.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – More choppy action for US equity traders as yesterday’s proposal from US President Biden to nearly double capital gains taxes for wealthy investors spooked the market. This marks the second change of direction in this choppy weak of trading. If the news continues to weigh on the market ahead of Biden’s speech next Wednesday on this tax and other initiatives, technical focus lower would include the 21-day moving averages (currently 4,080 for the S&P 500 and 13,600 for the Nasdaq 100) and a bit lower, the 4,000 level for the S&P 500 and the 13,350 area for the Nasdaq 100).

STOXX 50 (EU.I) - STOXX 50 futures failed yesterday to erase the loss from Tuesday and post Biden’s new capital gains tax plan the market is a bit wobblier with STOXX 50 futures opening lower. The support level to watch today is yesterday’s low at 3,942, and if broken could send European equities much lower today confirming that momentum has stopped for now and a correction could formalize itself.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - crypto currencies came under heavy pressure and Bitcoin broke down through important technical levels (recent low and 50k) on the news that US President Biden is seeking a dramatic capital gains tax that would impact profits from crypto trading just as any other asset. The price action was also very disappointing for Ethereum traders, as it came tumbling lower from new all-time highs just yesterday, correcting nearly 20% in less than 24 hours.

USDJPY – the USDJPY pair has reached a technical crossroads as it traded down to a nearly exact touch of the 38.2% retracement of the huge rally wave off the January lows at 107.79. The key coincident indicator appears to be the long end of the US treasury yield curve, where the recent consolidation of bond yields has boosted the yield-sensitive yen (which is set to stay very yield sensitive on the Bank of Japan’s capping of 10-year yields at 0.25%). A further drop in US yields would see the focus shift to perhaps the 105.75 area 200-day moving average, where the key 61.8% Fibo retracement also sits, although that would require a considerable further US treasury rally.

USDRUB the ruble rallied sharply on the news that Russia announced an end to its military exercise on the Ukrainian border, which allows a dramatic reduction in the “geopolitical discount” the currency has suffered in recent months. Today, the Russian Central Bank is expected to announce a 0.25% rate hike that would take the policy rate to 4.75%. USDRUB traders near the 200-day moving average just above 75.00 and could be set for a bout of further strength if oil prices stay stable to higher here and the Russian central bank hikes as expected and continues to signal further hikes to come.

Gold (XAUUSD) trades softer after finding resistance ahead of $1800 but still well above the key $1760-65 area of support. The market is finding support from data showing a recovery in physical demand from China and India, the world’s top consumers, while ETF holdings are steady with no redemptions seen for the past week. With gold still in a downtrend since last August, large scale short covering from longer term trend funds has not yet emerged. For that to happen gold as a minimum probably needs to break above $1815.

The European bond market remains in the hands of US Treasuries (IS0L:xetr). Following yesterdays’ European Central Bank meeting, it’s clear that the central will continue to remain accommodative throughout all year, until the bloc is fully recovered from the Covid-19 pandemic. It translates to the fact that European sovereigns will remain vulnerable to rise in yields in the United States.

Sentiment in US Treasuries is about to turn bearish (TLT:xnas, IEF:xnas). Ten-year US Treasury yields fall to hit their 50-days moving average, and momentum is overbought. It is a clear sign that sentiment in the US safe havens can turn negative at any point. As we approach summer, the labour outlook will continue to strengthen, and inflationary pressures will increase putting pressure on US Treasuries, with yields finding their way back to 2%.

What is going on?

US President Biden proposes huge capital gains tax for wealthy - a new proposal from US President Biden would tax capital gains at a rate as high as 39.6% to help pay for the social and infrastructure spending for those earning $1 million or more. Including the 3.8% capital gains tax to pay for Obamacare, this would take the tax rate on capital gains to higher than the highest income tax bracket. President Biden will detail this and other initiatives in his American Families Plan in a address before Congress on April 28.

The European Carbon emissions (EMISSIONSDEC21) contract has broken records every day this week and yesterday it reached a high of €47.36/t to record a 60% gain so far this year. The continued rally came as European lawmakers reached a deal on stricter pollution targets ahead of yesterday’s virtual summit hosted by the U.S. The fact the contract has outpaced the actual implementation of new policies highlights an increased investor/speculative appetite for a market that has shown strong momentum since November when Biden won the U.S. election to signal a change in US policies towards combatting climate change.

Grain prices extended their recent run of gains yesterday with the Bloomberg Grains index reaching a fresh eight-year high after recording an 8% gain this week. Corn (CORNJUL21) jumped by the exchange limit to reach $6.35, soybeans (SOYBEANJUL21) topped $15, and wheat (WHEATJUL21) traded above $7. All these multi-year highs being driven by a combination of already low stock levels due to rampant Chinese demand and a record cold snap delaying U.S. planting while hurting some winter wheat. To top it all up Brazil is recording declining crop conditions due to drought. All three contracts are now well into overbought territory with s/t focus on weather developments

Panasonic is close to acquire AI software firm Blue Yonder. The Japanese technology conglomerate is said to be near a deal to acquire Blue Yonder for $6.5bn following its 20% stake in the company acquired in less than a year. Blue Yonder makes software that predicts product demand using AI.

What are we watching next?

Reception of Biden’s tax proposal and American Families Plan speech next Wednesday – the Biden presidency legacy and the ability of the Democrats to maintain control beyond the 2022 mid-term elections could hinge on whether this kind of program of hefty tax rises for the wealthy and reducing inequality in the US will succeed and pass Congress. Certainly, this plan and the earlier proposed increase for corporate taxes at minimum present hurdles for the kind of equity market gains we have seen in the wake of the Covid outbreak.

Cryptocurrencies are under severe pressure – with Bitcoin trading below 49,000 this morning and Dogecoin down 50% in just three days momentum has reversed and some participants in this market are potentially experiencing margin calls or closing positions to lock in previous profits. Microstrategy which is part of our Crypto & Blockchain theme basket, which was down 5.6% yesterday, is down more than 50% from its highs in February suggesting a lot of repricing. With Tesla, Square and Ark Invest being exposed to cryptocurrencies these stocks could come under pressure today and next week.

Earnings reports this week. Intel Q1 earnings reported after market close were good for the quarter with both revenue and earnings beating expectations. However, the market sent Intel shares down a couple of percent in extended trading as the company’s forecast for Q2 was a negative surprise and investors worried about the company’s falling market share in the important datacenter segment. Snap Q1 earnings were better received with shares up 3% in extended trading as the social media platform said it expected to reach breakeven in Q2 on EBITDA basis.

  • Today:Daimler, American Express, Honeywell International

Economic Calendar Highlights for today (times GMT)

0715-0800 – Euro Zone Flash Apr. Manufacturing and Services PMI

0830 – UK Flash Apr. Manufacturing and Services PMI

1030 – Russia Central Bank Rate Announcement

1345 – US Flash Apr. Markit Manufacturing and Services PMI

1400 – US Mar. New Home Sales

1435 – Bloomberg Climate Panel featuring ECB’s Lagarde, US Treasury Secretary Yellen

 

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

The information on or via the website is provided to you by Saxo Bank (Switzerland) Ltd. (“Saxo Bank”) for educational and information purposes only. The information should not be construed as an offer or recommendation to enter into any transaction or any particular service, nor should the contents be construed as advice of any other kind, for example of a tax or legal nature.

All trading carries risk. Loses 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.

Saxo Bank does not guarantee the accuracy, completeness, or usefulness of any information provided and shall not be responsible for any errors or omissions or for any losses or damages resulting from the use of such information.

The content of this website represents marketing material and is not the result of financial analysis or research. It has therefore has not been prepared in accordance with directives designed to promote the independence of financial/investment research and is not subject to any prohibition on dealing ahead of the dissemination of financial/investment research.

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.