Market Quick Take - January 19, 2021

Macro 4 minutes to read
Saxo Strategy Team

Summary:  The market mood has shifted back to the positive side after a strong session in Asia overnight, with the notable exception of China. US Secretary of Treasury nominee is set for a confirmation hearing today and will tout the need for the large $1.9 trillion Biden stimulus plan. In Europe, soaring shipping costs are grabbing headlines after a tripling of container prices in just two months.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities are rebounding this morning erasing all of yesterday’s decline with the S&P 500 extending back to the 3,800 level. If this level is broken to the upside, then the next congestion area of resistance could be around 3,815. The market seems to be renewing its reflation trades with US yields climbing as well. The $1.9trn stimulus in the US waiting to be negotiated in US Congress has the potential not only to end the deceleration in economic activity but likely also kickstarting demand-driven inflation.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - while the Bitcoin price continues to gyrate in the range well below $40,000, Ethereum has pulled to a new cycle- and all-time high well clear of $1,300.

EURUSD - the US dollar has eased back lower after EURUSD tested the 1.2050 area yesterday as bulls hope to see the global equity rally back on track and the reflation trade returning (both of which generally support a weaker USD) after a rather sharp consolidation of the large rally wave from early November to the 1.2349 top at the start of trading this year. Italy looks to avoid any further political turmoil after prime minister Conte survived a confidence vote in the lower house, with a Senate vote up today that will determine whether the government coalition can continue to rule.

USDJPY – the price action in USDJPY has been maintained near the 104.00 area after the pair poked at the resistance provided by the top of the descending trend channel has dominated the USDJPY chart for months (around 104.50). The return of stronger risk sentiment overnight has seen US treasuries selling off and taken USDJPY back above 104.00 again – the pair will bear watching for more JPY weakness (likely to be even more pronounced in other JPY crosses) if long US treasury yields pull back toward the recent highs – just below 1.20% in the case of the US 10-year benchmark.

Gold (XAUUSD) is still trying to stabilise following the latest sell-off with focus on Treasury Secretary nominee Janet Yellen’s comments on the dollar and stimulus when she testifies on Capitol Hill today. Gold bulls will be looking for comments that may pause the recent dollar and yield rise. 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 while Monday’s drop to almost $1800/oz helped trigger a strong buying response.

Crude oil (OILUSFEB21 & OILUKMAR21) is holding up well and have yet to break any downside levels that could signal a deeper short-term correction. This despite recent dollar strength, fading demand for reflation hedges – as seen through gold - and increased nervousness about fuel demand amid signs of resurgence of the coronavirus in Asia, the world's biggest importing region. The International Energy Agency will release its monthly Oil Market Report later today with the market focusing on its demand outlook. Support in Brent at $54.10/b the trendline from the November low.

Conte secured a confidence vote in the lower house, but he still needs the vote of the Senate (10YBTPMAR21). Conte has won the confidence vote in the lower house, and today he will be seeking another confidence vote at the Senate, which, if successful, will see the continuation of government led by Conte. If the vote at the senate is unsuccessful, there is the risk for early elections in June. In the meantime, yields rose slightly yesterday indicating that the market believes a vote in summer will not be necessary, which would otherwise cause a deeper selloff.

What is going on?

European wheat prices continued to surge higher yesterday with the Paris milling wheat contract (EBMH1) rising to €235.75/t, the highest close in more than seven years. The rally has been attributed to two Russia factors. One being a wintry blast with temperatures dropping below minus 25 Celsius raising concerns for additional winterkill. Most important however is the recent introduction of Russian export duties in order to curb sales from the world’s largest exporter at a time of already tightening supplies. Chicago traded wheat (WHEATMAR21) meanwhile trades at $6.84/bu, near highest since May 2014.

Soaring shipping costs for containers finally getting headlines, especially for the China-to-Europe route, where prices have more than tripled to a record in the space of two months. The piling up of empty containers in Europe and the US on the disruptions in trade last spring from the Covid-19 outbreak have meant a shortage of empty containers in China where many imports of manufactured goods are sourced. The rising cost issue is mostly for the China-Europe route, as China intervened to cap rates to US-bound shipments in October. Signs of rising input prices abound in Europe, but have yet to affect CPI, though that will bear watching in coming months.

UK leader Boris Johnson creating new alliance to rival G-7? Johnson has invited South Korea, India and Australia to the G-7 meeting in June, a move that Italy, Germany, France and Japan oppose, but likely one that is intended to expand the G-7 and reduce the proportion of EU powers in the alliance.

What are we watching next?

US Treasury Secretary nominee Janet Yellen set to testify today – the former Fed Chair is set to testify in a Senate nomination hearing today 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). The appearance will give a sense of her ability in a new, far more political role. According to Yellen’s prepared remarks, she believes that now is the time "act big” with a large stimulus while yields are low. She also bemoaned the K-shaped recovery and the need for “more prosperity for more people”. Any questions related to China will also prove important as the Secretary of Treasury has often been a prominent economic policy figure in contact with China.

US President Elect Joe Biden to bring a very different attitude toward oversight President elect Biden will arrive with an entirely new style than his predecessor and an entirely different attitude toward governing, including especially more oversight and the usefulness of regulation, an aspect of the Biden administration’s stance that the market may be underestimating. The new choice to head the SEC, Gary Gensler, is likely a more activist presence than his predecessor and will scrutinize everything from retail trading platforms like Robinhood, to cryptocurrency trading players, with a focus on investor protection. Biden has chosen Rohit Chopra to head the Consumer Financial Protection Bureau. He is an acolyte of Elizabeth Warren, who was instrumental in creating the CPFB, an institution that was largely dormant under Trump.

Q4 2021 earnings season kicks into gear this week
Netflix reports Q4 earnings today after the market close following a disappointing Q3 earnings release where Netflix mitigated some of the disappointment by issuing very positive expectations for Q4. The stakes are therefore high tonight for one of the large entertainment and technology stocks in the US. The list below highlights all the most important earnings to track this week with the ones marked in red being the one with the most impact on macro and sentiment in equities.

  • Today: 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)

  • 1000 – Germany Jan. ZEW Survey
  • 2330 – Australia Jan. Westpac Consumer Confidence
  • 0130 – China PBOC Rate Announcement

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook 2024 Q4

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • 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

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Head of FX Strategy

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Head of FX Strategy

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

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

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.