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Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities rebounded sharply after pushing to new local lows below tactical support, a ray of hope for bulls looking for a recovery after a wobbly week, particularly for the median stock and small caps. Minor resistance for the S&P 500 index comes in at 3,926 ahead of the 3,978 top. The support is now yesterday‘s low, at 3,844 (coincidentally within a point of the 50% retracement of the rally. The Nasdaq 100 has its work cut out for it to shift the focus back higher, needing to take out the significant line of resistance near 13,300 to bring any thoughts of a test of the highs into view. Yesterday’s low in the Nasdaq 100 index near 12,610 is an important support as it was almost a precise test of the 61.8% retracement of the rally off the 12,200 low.
Hang Seng (HK50.I) - despite many ongoing challenges and negative sentiment around China these days Chinese equities are rebounding 1.5% following a 11% drawdown that began in mid-February and has impacted broader sentiment on emerging market equities. The ongoing regulation of the technology sector will continue to negatively impact sentiment and potentially lift equity risk premium on Chinese equities.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin has so far survived the attempt to break the 50k level, finding support just above there yesterday before trading around 52.5k this morning. Ethereum seems passive to the direction in Bitcoin in recent session. A rally and hold above about 56k in Bitcoin and 1,750 in Ethereum would go a long way to neutralizing the tactical downside threat.
USDJPY and JPY crosses – US yields stabilized and rebounded slightly yesterday after a 7-year US Treasury auction saw weak demand. This and the rebound in risk sentiment in the US and Asia helped apply fresh pressure on the JPY, with USDJPY trading right on the cycle highs this morning near 109.30 and eyeing the critical 110.00 level, while other JPY crosses have likewise rebounded. The JPY bears watching into the transition to a new Japanese financial year at the end of this month, with global long yields an important coincident indicator.
EURUSD – the EURUSD pushed to new lows yesterday well south of 1.1800, but the set of conditions that support the late USD rally have eased overnight, save for a stronger growth outlook for the US (risk sentiment has rebounded strongly while yields are sideways), so it will be curious to see whether the EUR joins the JPY in weakening across the board as risk sentiment has revived here a bit and sovereign bond yields possibly rise again, or if this pair can rebound rather than testing all the way to the next obvious support at 1.1600. A strong rally above 1.1900 would be a first step.
Gold (XAUUSD) just like most other metals had a bumpy ride yesterday. Early weakness led by the stronger dollar reversed on comments about Bitcoin’s future – or not – before losing steam as another weak 7-year notes auction ticked in. Still on course for its best week in three, gold has struggled all week with dollar strength being offset by lower yields. We remain short-term neutral below $1765 with the risk of additional weakness below $1720. Silver (XAGUSD) meanwhile saw a bad day turn better after the slump below $25 was met with strong buying interest.
Crude oil (OILUKMAY21 & OILUSMAY21) coming to the end of a volatile week where the market tried to gauge the impact of the Suez blockage, a pandemic that refuses to go away thereby impacting the demand growth trajectory, speculators risk adjustments and the general level of risk appetite being signaled via yields and dollar movements. All this ahead of next Thursday’s OPEC+ meeting where production targets will be set for May and possibly beyond. Tonight's COT report from the CFTC will show how much money managers cut longs during the latest correction. For now, the market remains stuck in a $60 to $65 range.
Insufficient foreign demand in US Treasuries auctions leaves them vulnerable to a deeper selloff (TLT, IEF). This week’s Treasuries auction failed to show a sensible pick up in foreign demand, leavening Treasuries vulnerable to further selloff. Despite foreign demand picked up to 57% from 38% prior during yesterday’s 7-year auction, it’s still the lowest since August 2019 leaving the market wonder who would pick up increased issuances of Treasuries ahead. At the same time, Biden is planning to present a massive infrastructure bill which is going to inevitably lift inflation expectations making US Treasury bonds eve more volatile.
What is going on?
US weekly initial jobless claims fell sharply to a new cycle low - after an unsettling sharp rise in initial claims the prior week, yesterday’s latest weekly data showed US initial claims coming in at 684k vs. 780k last week. The reading was the lowest since before the pandemic lockdowns of a year ago an we will need for this indicator to quickly head well below 400k as we head into the summer to suggest that the US labor market is rapidly normalizing as the vaccine rollout proceeds apace.
Container ship still blocking Suez Canal – Some 10% of world trade flows, including 2 million barrels/day of oil and products remain disrupted as the Egyptian authorities scramble to release the 400 meter long Ever Given which has been blocking the channel since Tuesday. The rescue effort could take a week and with more than 150 ships now waiting for passage, ship owners are increasingly faced with the costly and extra time-consuming decision to divert their ships around South Africa instead.
What are we watching next?
U.S. growers may plant their largest area since 2014 this coming summer. During the past year the Bloomberg Grains index has jumped by more than one-third with soybeans and corn reaching seven- and eight-year highs. The U.S. Department of Agriculture will release its key Prospective Plantings outlook on March 31, and weather permitting, a bumper crop is expected with surveys pointing to increased acreage allocation for soybeans (+8.3% to 90m acres), corn (2.6% to 93.2m) and wheat (+1.4% to 45m). Speculators hold a near record long so expect increased volatility before and especially after the release.
US Feb. PCE Inflation data - as we watch for signs of inflation starting in the coming months (the well-known year-on-year effects will be in place due to the year-ago collapse in prices, but the month-on-month levels can tell their own story in the meantime. The last two headline readings were 0.4% and 0.3%, while the last two core PCE readings were 0.3% and 0.25%, with the February reading expected at 0.3% for the headline and 0.1% at the core.
Earnings to watch - another batch of earnings announcements out of China today, including e-commerce giant Meituan with analysts looking for 31% revenue growth y/y.
- Today: China Construction Bank, China Petroleum & Chemical, China Shenhua Energy, Bank of Communications, Longfor Group, Meituan
Economic Calendar Highlights for today (times GMT)
0900 – Germany Mar. IFO Survey
0900 – Norway Mar. Unemployment Rate
1230 – US Feb. Personal Income and Spending
1230 – US Feb. PCE Inflation
1400 – US Mar. Final University of Michigan Sentiment
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