What is our trading focus?
S&P 500 Index (US500.I) and NASDAQ 100 Index (USNAS100.I) – traders saw a narrow trading range in US equities yesterday, where early weakness was brushed away and the major indices closed at new cycle highs. The US technology sector measured by NASDAQ 100 is continuing its momentum overnight with futures hitting new all-time highs ahead of the European session.
DAX.I (German DAX Index) - European equities were unable to sustain the rally yesterday and remain rather divergent technically from the picture presented by major US indices. For the DAX, the technical hurdle remains the 13,000 area that has been pivotal since the market posted a top near that level in early June. The strong rebound in the euro may have weighed on sentiment yesterday.
Spot Gold (XAUUSD) and Spot Silver (XAGUSD) - gold and silver both rocketed higher in unison yesterday, with spot gold soaring through $2,000/oz and trading above 2,030 overnight, while silver managed to stick its highest daily close, right at $26/oz. This reinvigorates the bullish momentum for the precious metals and to maintain bullish sentiment tactically, traders will want spot gold to continue to trade above the psychologically important 2,000 level.
Brent Crude Oil (OILUKSEP20) and WTI Crude Oil (OILUSSEP20) - crude oil rebounded yesterday, closing close stronger after probing the key cycle top resistance near 45 dollars/barrel for Brent and 42.50 for WTI. The latest US DoE inventory data is on tap today as the market gauges the supply/demand balance amidst virus resurgence threats impacting the demand side while supply to the market is set to rise after the date set for OPEC production to rise was this Monday.
AUDUSD – this key USD pair has rallied back toward the 0.7200-area high close for the cycle as the US dollar weakened and iron ore futures notched yet another new cycle high in China. This has taken the pair back farther away from the crucial chart pivot zone between 0.7000-0.7050 that would suggest the risk of a larger consolidation lower.
USDJPY – USDJPY has teased local resistance levels in the 106.00-50 area over the last couple of sessions after probing the pivotal 104.50 area and bouncing vigorously from there. The bullish reversal attempt has so far failed to find confirmation and the USD was broadly weaker yesterday as the JPY got a boost at the margin from US yields pushing to new record daily lows from 2 years out to 10 years.
SQ:xnys (Square) - shares rose 11% in extended trading as Q2 net revenue came out at $1.92bn vs $1.13bn up 64% y/y with gross payment volume at -15% y/y vs est. -29% y/y. The main driver was increased online orders due to COVID-19 and the company’s new Cash App saw a massive uptake during the quarter bolstering the view on Wall Street that a new business segment is emerging fast.
DIS:xnys (Disney) - shares up 5% in extended trading as the company posted FY20 Q3 adj. EPS of $0.08 vs est. $-0.63 despite revenue falling slightly short of expectations. The new streaming service Disney+ hit global subscriber base of 57.5mn vs est. 59.4mn, but on the earnings call management said subscribers globally were already past 60.5mn. This means that Disney+ is fast approaching a significant size relative to Netflix.
What is going on?
US sending high level official to Taiwan in decades - In a notable provocation of China, the US is sending Health and Human Services Secretary Alex Azar and a delegation to Taiwan to discuss health and pandemic issues. It is the first cabinet-level visit to Taiwan in six years and a rare move that is a sign of the escalating tensions between the US and China.
Turkey and the Turkish lira – the situation for the Turkish lira remains tense after overnight implied yields for overnight TRY positions rose to over 1,000%, making it difficult for traders to hold short TRY positions and roll them over, but also a sign of a dysfunctional and illiquid market. Overnight implied yields dropped back sharply to below 200% this morning after the spot rate moved way from the 7.00 level late yesterday. Several recent news stories in prominent media note Turkey’s fragile financial position and “net negative reserves” as the country mobilizes USD deposits in its banking system (as it has run dry of central bank reserves) to intervene and keep the USDTRY level below 7.00 level. Contagion fears across EM could rise if Turkey’s intervention efforts fail and the market prices in higher default risks.
What we are watching next?
Where’s the next round of US stimulus? This is the still the most important question hanging over US markets this week, as many benefits of the initial round of US stimulus expired on Friday, most importantly the $600/week federal unemployment benefit. As noted above, the latest noise from both sides is that talks are amicable, but the stakes are high here less than 100 days before Election Day on November 3.
Dissonance as equities and bonds continue higher in unison - while from a valuation model standpoint, low rates allow a rerating higher of equity multiples, it is a bit tough to put together a narrative to square buoyant risk sentiment with US yields in the belly of the yield curve, from two and out to as long as 10 years slipping to an all-time low daily close (only a single day in March saw a spike to even lower levels intraday).
US July ISM Non-manufacturing – the overall survey has bounced back well above 50 as the US services sector began expanding again in June and is expected around 55 today, but the employment sub-component is a concern, registering a level of 43.1 in June – this level needs to bounce back well above 50 to suggest the labour market in the key services sector in the US is expanding again.
Economic Calendar Highlights for today (times GMT)
0745 – Italy Jul Services & Composite PMI
0900 – Eurozone Jun retail sales
1215 – ADP Employment Change Jul
1230 – US Trade Balance Jul
1400 – US ISM Services Jul
2100 – Fed's Mester discussion on the Economic Outlook