Market Quick Take - January 18, 2021
Summary: Markets are starting the week on a cautious note after a weak close on Friday and even as China chalked up a positive GDP growth number for 2020 in its Q4 growth tally overnight. Wednesday this week will market the transition to incoming US President Biden, and he is set to issue a flurry of executive orders from day one. Today, US markets are closed for a national holiday.
What is our trading focus?
- Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities were weak on Friday heading lower into the weekend and are continuing their weak sentiment in early trading. The 21-day moving average in the S&P 500 has been a key support level multiple times over the past month and this morning S&P 500 futures are trading at 3,752 just above the 21-day MA of 3,740, so traders should have this level on the radar if equities continue lower.
- Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - the Bitcoin price continues to triangulate after the major higher just short of $42,000 was posted on January, followed by the low since then near $30,300. Since then, the price has posted lower highs and higher lows, as we await a break-out in either direction. The Ethereum price has traded closer to the top of the range since peaking out early this month and was near $1,200 this morning.
- EURUSD - the US dollar strength continued on Friday and overnight as risk sentiment wobbled, and so far the situation is one of a normal consolidation after a long run lower for the greenback. The first major retracement level near 1.2065 (the 38.2% retracement of the rally wave from early November) was reached and if the consolidation continues, the next levels are 1.2000, the psychological support and a notable resistance level on the way up, but more importantly for the overall status of the rally is the 1.1900 area.
- USDRUB – the ruble has traded in a cautious range in recent weeks versus the US dollar despite the strong backup in oil and natural gas prices that might have been expected to give the currency a boost. Investors in Russian assets will be warily watching the incoming US President Biden for signs of whether he plans to clamp down on Russia with further sanctions, after accusations of Russian involvement in a recent large-scale cyber operation against US government agencies and as the Democratic party’s attitude against Russia is seen as more aggressive than the Republican’s attitude on charges of election interference in 2016. Russian opposition leader Navalny returned to Russia yesterday from Germany and was arrested on arrival.
- Gold (XAUUSD) and silver (XAGUSD) extended their Friday slump on the Asian opening before bouncing strongly to trade higher on the day. On top of last week’s dollar and yield strength a comment from incoming Treasury Secretary Yellen, that the administration is not seeking a weaker dollar, further spooked the market in early trading. The impact of recent gold weakness was visible in the COT report covering the week to January 12. It found speculators had cut bullish gold bets by 31% to near the lowest since June 2019. With real yields back below –1%, the short-term outlook hinges on the dollar with gold facing resistance at $1855/oz.
- Crude oil (OILUSFEB21 & OILUKMAR21) trade softer but so far without breaking any significant levels. In the tailwind from the surprise Saudi production cut speculators increased crude oil longs to a one-year high in the week to January 12 and it has almost doubled since the early November vaccine announcements. Hopes about a speedy recovery in fuel demand continues to be challenged by lockdowns and the continued rapid spreading of Covid-19. Focus this week on IEA’s Oil Market Report Tuesday and Biden’s inauguration and how soon he can roll out his fiscal stimulus plan. Support in Brent at $54/b the trendline from the November low.
- The political crisis in Italy, Netherlands and Estonia might force the hands of the ECB to increase stimulus (10YBTPMAR21). The spread of the countries’ sovereigns has widened against the Bund last week but started to stabilize on late Friday. Even though the political hurdles that these countries are facing are isolated events, they can add to the instability of the European democracy. In case the ECB decide that more stimulus is needed to support the European bloc, we can expect the Italian BTP to benefit the most as it one of the few to still offer above zero yields. Today and tomorrow Italy’s Prime Minister’s Conte is meeting with the parliament and the Senate in order to secure a new majority. If he fails to do so, early elections can push Italian BTP further down providing even more upside to bond investors.
What is going on?
- China’s economy expanded 2.3% in 2020 – according to Q4 growth data released overnight, making the nation the only major economy to avoid contraction in the remarkable year of 2020. Retail Sales posted sluggish growth in December of only 4.6% year-on-year in December.
- CDU nominated Armin Laschet as its new leader – after many saw businessman Friedrich Merz as the front-runner (he also beat Laschet by a few votes in the first round of voting, only to lose in the run-off). Laschet is seen as the candidate most in favour of continuing Merkel’s style, but it is not yet known if he will run as the candidate for Chancellor in the elections this fall. Staying the course would seem the most logical for the CDU/CSU if one has a look at the state of polling, as the CDU/CSU party has received a massive vote of confidence in the polls since the outbreak of the pandemic, this spring, polling at some 37-38%.
- Samsung heir Lee gets 2.5-year sentence for bribery. Samsung shares were 3% lower in today session on news that the company’s heir is sentenced for bribery is corruption scandal that has shocked South Korea illuminating the relaxed relationships between the government and business.
What are we watching next?
- US Treasury Secretary nominee Janet Yellen set to testify tomorrow – the former Fed Chair is set to testify in a nomination hearing tomorrow and officials close to hear say she will express a belief in a market-determined dollar level (and explicitly not in favour of a weaker US dollar for competitive advantage). Supporting a strong, or at least stable, dollar has been the role of the US Treasury Secretary for decades, even under Trump’s Secretary of Treasury Mnuchin when Trump was often railing against the Fed and USD strength. For Yellen specifically, USD support is doubly ironic as she was a very dovish Fed chair and was at the helm of the Fed during the famous pivot in Fed guidance in early 2016 to delay hiking rates after a period of brutal US dollar strength.
- US public unrest risks ahead around Biden inauguration Wednesday? - Loud concerns for widespread protests of the election results across the US over the weekend amounted to practically nothing, suggesting that the storming of the Capitol Hill on January 6th by a pro-Trump mob may have been a one-off perfect storm that may not repeat, although we’ll need to get to the other side of this Wednesday’s Biden inauguration for a sense of whether the Capital Hill riots were a sideshow of extremists that don’t enjoy more widespread popular backing.
- Vaccine impact on Israeli Covid-19 infections – Israel has now vaccinated 26% giving insights into the inflection point when they begin to work lowering transmission and new infections. More broadly the tracking of vaccinations across the major countries will be an important tracker for sentiment in equities as the vaccine rollout is key for a quick rebound in the economy.
Q4 2021 earnings season kicks into gear this week.
- The list below highlights all the most important earnings to track this week.
- Tuesday: Charles Schwab, Bank of America, Goldman Sachs, State Street, Netflix
- Wednesday: Interactive Brokers, Kinder Morgan, ASML, Fastenal, Morgan Stanley, Discover Financial Services, P&G, UnitedHealth, US Bancorp, Bank of New York Mellon
- Thursday: Gilead Sciences, Sandvik, Investor AB, Fifth Third Bancorp, Intel, IBM, Intuitive Surgical, CSX, PPG Industries, Truist Financial, TAL Education, Travelers Cos
- Friday: Schlumberger, New Oriental Education & Technology
Economic Calendar Highlights for today (times GMT)
- 0900 – Switzerland Weekly SNB Sight Deposits
- 1315 – Canada Dec. Housing Starts
- 1330 – UK Bank of England Governor Bailey to Speak
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