Market Quick Take - November 19, 2020 Market Quick Take - November 19, 2020 Market Quick Take - November 19, 2020

Market Quick Take - November 19, 2020

Macro 6 minutes to read
John J. Hardy

Chief Macro Strategist

Summary:  The market mood has turned a bit more cautious yesterday and overnight, with equity markets generally losing steam after a recent run higher, although US small cap stocks remain an outlier on the strong side. US Retail Sales in October showed the weakest growth in six months, suggest a more cautious attitude and that the stimulus effects from the spring are fading.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities suffered a late downdraft yesterday, perhaps on the announcement that New York City will close all schools from today after the Covid-19 positive test rate hit 3%. Subway and bus service are also set for reduction. The sell-off took the S&P 500 index to an important local pivot zone between 3,575 and 3,550, a failure of which could bring on a test of 3,500 or lower, while the Nasdaq 100 never managed as robust a rally recently and if it continues to slip its hold on the 12,000 area that has held it back, could be in for a test of the important 11,500 area support.

  • Bitcoin EUR (BITCOIN_XBTE:xome) - the Bitcoin (XBTUSD) rally is reversing a bit in today’s session with lower high and trading well below 18,000. Trading below 17,640, which is the prior session’s open, is most likely a key level do watch for further short-term selling pressure. Longer term it seems more institutional investors are considering Bitcoin as an alternative next to gold in portfolio as a new way to create anti-inflation and debasement components with low covariance to other risky assets.

  • NVIDIA (NVDA:xnas) - shares were down 2% on FY21 Q3 earnings (ended on 25 October) despite strong revenue growth of 57% y/y and adjusted EPS of $2.29 up 57% y/y. Q4 revenue guidance at $4.8bn vs est. $4.4bn was also better than expected. However, it was the company’s guidance on the Data Center segment expecting revenue to be slightly down in Q4 that set the market reaction off. As we indicated in our earnings preview of NVIDIA, the rise in Bitcoin price will drive more crypto mining which will undoubtedly benefit NVIDIA’s earnings and our view is that NVIDIA putting out their data center guidance to be conservative.

  • AUDUSD - for the US dollar outlook, we prefer to focus on its strength or weakness against the currencies more sensitive to risk appetite, like AUD. The AUDUSD pair has bobbed back toward the 0.7300+ area but has been unable to follow through higher for a test of the cycle top above 0.7400. Australia reported very strong jobs data overnight, but the AUD remains sensitive to risk sentiment, which took a beating late yesterday in the US, and China, as noted below, is disgruntled with a number of Australian policies. Technically, the AUDUSD doesn’t begin to show weakness until a failure of 0.7225/00 area support.

  • EURJPY – JPY crosses are heating up across the board, with USDJPY trading below 104.00, but as is often the case, with other JPY crosses showing a higher beta to the JPY strength, like EURJPY and AUDJPY. Today we note EURJPY, as it has taken out the entire rally that materialized suddenly in the wake of the initial news of the success rate of Pfizer’s vaccine candidate last Monday. The last major Fibonacci retracement (61.8%) was tested this morning at 122.96. A further decline in risk sentiment and  firm safe haven bond market could see the pair testing the cycle lows below 122.00. The Euro may also prove sensitive to signs that it continues to have trouble getting its new budget and recovery package passed.

  • Gold (XAUUSD) trades lower for a fourth day as a steady reduction in ETF holdings and a short-term bearish technical formation weigh on the market. Despite a softer dollar and bond yields, sentiment has received a knock from the recent vaccine news, this despite an ongoing surge in Covid-19 cases potentially leading to more stimulus announcements. Platinum’s discount to gold has dropped to a five-month low at $930 on robust demand from automakers and investors through ETF’s. Gold remains technically challenged by an emerging bear flag with a break below $1850/oz potentially signaling a deeper correction to $1790/oz, the 200-day moving average.

  • US Treasury yield curve stable as coronavirus cases rise in the US (10YUSTNOTEDEC20). The Treasury sold $27bn at a yield of 1.42%. Even though demand was lower compared to previous auctions, price was in line with the market Investors covered some of their short bond future positions as coronavirus cases are rising and New York is imposing new lockdown measures. There might be more upside for Treasuries before the yield curve resume its steepening.

  • As Hungary and Poland block EU debt plan, there is more scope for ECB’s intervention (10YBTPDEC20, FBONZ0). In case the recovery fund gets delayed, we can expect the ECB to continue printing money in order to desperately support the economy. We therefore see upside for the periphery with Italian BTPs to be the main beneficiaries as they trade richer than their peers.

What is going on?

  • Australian Prime Minister pushes back against Chinese grievances - Australia Prime Minister Scott Morrison pushed back against a document delivered to the Australian media outlining 14 grievances and accusing Australia of “poisoning bilateral relations”. Morrison vowed that “Australia will continue to be ourselves.” Recently, as a sign that China is leveraging its point with soft economic sanctions, it has reduced iron ore imports from Australia and this month ordered a halt to the purchase of Australian copper ore, wine and other products.

  • Soybeans (SOYBEANSJAN21) has reached a four-year high in Chicago with U.S. sourced beans now relatively cheap as the driest three-month period in Brazil, the world’s biggest producer, continues to threaten production there. Chinese demand look set to remain strong due to rising feedstock demand and as the Chinese currency continues to strengthen. At $11.75/bushel, the front month January contract is getting close to $12.08/bushel, the June 2016 high. The same focus on Brazil dryness together with recent BRL strength has also helped boost Arabica coffee (COFFEENYMAR21) to a two-month high.

What we are watching next?

  • US initial and continuing claims. US claims data are noisy but still our best real-time indicator on the economic activity level on the ground. US claims data are a core component of the new NY Fed Weekly Economic Activity Index which is currently at -2.77% for the week ending 14 November down from -2.24% the week before indicating that the US economy is still lower from a year ago. Despite the lack of new US stimulus, the private sector seems to be healing at a good pace most likely bringing the US economy back to growth in January.

  • Next steps for the EU after Poland and Hungary vetoed the proposed EU budget - the two CEE countries, although standing to benefit far more than most other EU nations from the proposed 2021-27 budget and special pandemic relief package, torpedoed the proposal on the first vote, as the two countries object to stipulations that would only allow the outlays if the recipients followed a number of “rule of law” principles. Today, EU leaders are set to meet via video today, but the path forward looks impossible with these rule of law limitations.

  • Turkish Central Bank to raise rates, already in the TRY price? After Turkish president recently signaled that he is willing to accept the “bitter medicine” necessary to stabilize the country’s currency, the Turkish lira strengthened sharply, by more than 10% against the US dollar in the space of a week recently. Today is the next step for the currency as the Turkish central bank is meeting today to announce the new policy rate, with consensus eyeing a move of 400-500 basis points, to bring the headline rate to 15.00% (that would require a 475-bps hike).

Q3 earnings season continues this week. The list below shows the largest companies reporting this week:

  • Today: Tokio Marine Holdings, NetEase, Ross Stores, Intuit, Workday, Knorr-Bremse

Economic Calendar Highlights for today (times GMT)

  • 0830 – Sweden Oct. Unemployment Rate
  • 1100 – Turkey Central Bank Rate Announcement
  • 1330 – US Fed’s Mester to open Financial Stability Conference
  • 1330 – US Weekly Initial Jobless Claims and Continuing Claims
  • South Africa SARB Interest Rate Announcement (no time given)
  • 1500 – US Oct. Existing Home Sales
  • 1530 – US Weekly Natural Gas Storage
  • 2330 – Japan Oct. National CPI

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

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.