Market Quick Take - March 8, 2021

Macro 4 minutes to read

Summary:  Equity markets sold off heavily all night in Asia, a disappointing start to the week after a snap-back strong finish to the week in the US on Friday, perhaps due to bond yields tumbling after reaching new cycle highs. The mood is low despite the US Senate passing a version of the $1.9 trillion stimulus bill soon set to become law. Elsewhere, an unsuccessful attack on Saudi Arabia oil facilities sent Brent crude prices above $70.


What is our trading focus?

Nasdaq 100 (USNAS100.Iand S&P 500 (US500.I)US equities ripped back higher Friday to close the day near session highs and reversing much of the losses on Thursday, but the rocky start to the week in Asia has seen US equity futures tumbling again overnight. The Nasdaq 100 found resistance at the pivotal 12,750 area that was a key support before being broken last week. The next levels lower there are 12,070, the last major Fibonacci retracement of the rally from November lows, and then 11,665, the 200-day moving average. The resistance overnight in the S&P 500 was near the 61.8% retracement of the sell-off (3,870 area).Looking lower, the recent low is 3,720 and the next major level is perhaps 3,656, a major prior low.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - cryptocurrencies found some support over the weekend after a few wobbles last week, perhaps boosted by the Senate passing the stimulus bill. Bitcoin is trying to maintain the price action above 50,000 in the Asian session overnightwhile the price action in Ethereum was more forceful, with the price bolting above 1,700 for the first time in almost two weeks.

EURUSD – last week, EURUSD fully took out the prior 1.1950 area low and could be set to explore the range all the way back to 1.1600 or even 1.1500 in the weeks ahead as long as rising US yields are driving increased market volatility and a preference to steer clear of the lowest yielding (longer yields) currency areas, as evidenced by the recently tumbling yen and Swiss franc, for example. EURUSD may eventually find support on the realization that US stimulus will likely drive strong US inflation and low real rates, but the question of who buys the US treasury issuance remains unsolved.

AUDUSDthe AUDUSD is making a bid to find support after breaking well below 0.7700 last week, reversing most of the prior rally wave from early February lows. Resilient commodity prices are the key leg of support for the AUD in the crosses, but if commodities roll over for a consolidation as well here, on top of weak risk sentiment, the Aussie could be in for a further drubbing against the US dollar, back toward 0.7400, with risk of a move to even 0.7000 on a more significant setback from global markets. Bullish hopefuls will need for the 0.7564 low to hold this week and for a new sharp rally back above 0.7800-0.7850 to start.

Gold (XAUUSD)trades back above $1700 after finding support at $1688 on Friday. The recovery, apart from short-coveringbeing the prospect for Biden’s $1.9 trillion Covid-19 relief plan further adding to inflationary pressures while an attack on key Saudi Arabian crude oil terminal bumped oil above $70 drove some haven demandThe latest weekly COT report showed a one-third drop in the futures long held by funds to just 57,900 lots, a 22-month low while ETF holdings has shrunk to lowest since last June. Multiple layers of gold resistance remain with the first one being at $1765 while support remains the key $1670-88 area.

Crude oil (OILUKMAY21 and OILUSAPR21)An already strong price momentum following last week’s surprise OPEC+ decision to roll-over current production levels instead of hiking, was given an additional boost after key Saudi crude terminal, the world’s largest, was attacked over the weekend. The return of a risk premium to oil saw Brent smashing through $70/b with WTI not far behind at $67.40. Tight market conditions and rising oil prices

This week’s events could pushUS Treasury yields higher (TLT, IEF).Inflation numbers and US Treasury auctions are the focus of the week and might be catalyst for a deeper selloff in Treasuries. Last week the overnight repo rate fell into negative territory indicating that the market expects higher yields ahead.The 10- and 30-year bondauctions on Wednesday and Thursday are going to be a focus as in the recent 7-year auction foreign demand fell dramaticallyA key level to monitor is the 1-65% in yield, as it could trigger another squeeze in the mortgage-backed security (MBS) market provoking a fast rise in yields-

Today’s European Central Bank’s bond purchases data will set the tone in European sovereigns (BTP10, IS0P).The data will be crucial in order to understand whether the central bank is supporting of European sovereigns as US Treasuries continue to sell off. If the data show that the ECB didn’tstep up its purchasing effort, it may trigger a selloff of European sovereigns leading the ECB to act more decisively during this week’s monetary policy meeting.

What is going on?

The US Senate passed a version of the $1.9 trillion Biden stimulus billIn a straight party vote, the bill passed with minor alterations like reducing the weekly supplemental federal unemployment benefit to $300 per week from $400 and lowering the income ceiling for stimulus checks. The House is likely to approve the bill this week and send it to President Biden’s desk for final approval quickly, as some benefits under the previous programme are set to run out at the end of this week.

The weekly Commitments of Traders report found that speculators made their biggest one-week reduction in bullish commodity bets since mid-November. Despite reflation focus and strengthening fundamentals the bond market rout and a stronger dollar led to fresh concerns that deleveraging could spread to commodities. The total net long across 26 major commodity futures was cut by 4% to 2.7 million lots, representing a nominal value of $132.3 billionAll but a handful of contracts were sold with the biggest reduction hitting gold, soybeans and corn while the most noticeable buying interest benefitted cocoa and wheat.

What are we watching next?

Can market nerves calm: hyper-sensitivity to US treasury yieldsand key Treasury auctions set for this week -the sell-off in US equities last week was arguably driven by the market throwing a tantrum in the wake of Fed Chair Powell not signaling more concern on the recent rise in US yields, a rise that was initially triggered by a weak 7-year treasury auction the week prior (and possibly other factors like liquidity issues in money markets linked to the  US treasury shifting huge funds currently parked at the Fed). The treasury market bears close watching this week as it is a key drive of volatility after recent events and two key auctions are up this week – a 10-year Treasury auction Wednesday and a 30-year T-Bond auction on Thursday.

China February PPI - as the world’s factory of consumer goods the price index of Chinese producers is a leading indicator for global inflation. The latest figure for February is scheduled to be released this Wednesdaywith expectations at 1.4% y/y figure up from 0.3% y/y in January, and –3.7% y/y in March 2020 at the low point of the pandemic.  With basing effects of those year ago price drops rolling into view this month and next, the index will likely risesignificantly further in coming months.

US technology stocks drawdown– Nasdaq 100 futures are only down 10% from the intraday peak in February and sentiment has been shaken a big among growth investors. Our assessment is that the buy-the-dip framework has not been shaken enough and that many growth investors are betting heavily on a strong rebound. This means that the psychology of the equity market will be intricately linked to the drawdown of technology stocks, but even more importantly, the length of the drawdown. This is something we will closely monitor going forward.

Earnings releases to watch this week:

A new week of earnings outside the standard quarter calendar with the most important earnings releases highlighted in read. Chinese Pinduoduo and JD.com are obviously important for sentiment e-commerce stocks and the wider emerging marketequities. DocuSign is part of the bubble stocks segment and will thus be another test of how much strength there is left among growth investors. Adidas and Inditex both represent European retailing and have been hit hard by the pandemic, but on the flipside will do well when the economies open again. Xpengreporting today is among the new EV-makers that have gone public and given the weak outlook from NIO last week this earnings report could be important for Tesla and NIO sentiment.

  • Monday:China Tower Corp, XPeng

  • Tuesday: China Telecom Corp, Deutsche Post, JDE Peet’s, Continental

  • Wednesday: AdidasGeberit, Oracle, Franco-Nevada, Inditex, Legal & General Group

  • Thursday: Pinduoduo, Jardine, Matheson, MTR Corp, Jardine Strategic, China Unicom Hong Kong, Sunac China, Swire Properties, Hannover Rueck, JD.comDocuSignStoneCo,GoodRx, Wheaton Precious Metals, Assicurazioni Generali

  • Friday: China Mengniu Dairy, EssilorLuxottica, Fortum, AIA Group

 

Economic Calendar Highlights for today (times GMT)

1000 – UK BoE Governor Bailey to Speak on Economic Outlook
0000 – New Zealand Mar. ANZ Business Confidence/Activity Outlook survey
0030 – Australia Feb. NAB Business Survey

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

Apple Sportify Soundcloud Stitcher

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
Beethovenstrasse 33
CH-8002
Zürich
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 series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed here or 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.