Market Quick Take - November 27, 2020

What is our trading focus?

• Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities are exhibiting low energy due to Thanksgiving holiday and thus we do not expect big moves in today’s session. Yesterday’s low at around 3,615 is a key support level in S&P 500 futures, if the market wants to test risk-off today.
  
  
• Bitcoin Tracker ETN (BITCOIN_XBTE:xome) and Ethereum Tracker ETN (ETHEREUM_XBTE:xome) - Bitcoin was down 16.8% at the lows yesterday compared to the high the day before as the market sold off heavily on comment from the CEO of Coinbase (digital currency exchange) voicing concerns over potential regulatory crackdown. This combined with the high leverage positions in the crypto market caused a violent drop. Bitcoin is up 6.3% from yesterday’s lows and up 1.2% from yesterday’s close. We have no firm on the direction but expect volatility to remain high. The positive session in Chinese equities could add some support to crypto currencies.
  
  
• EURUSD – EURUSD is grinding higher again today as risk-on continues to build momentum across all markets. EURUSD sits at 1.1930 in early European trading and if the high from yesterday at 1.1941 can be taken out then the 1.2000 level is psychologically in sight for traders.
  
  
• China A50 Dec (CNZ0) - Chinese main equity index up 1.5% in today’s session driven by a positive reaction to government statistics showing industrial profit was up 28.2% y/y in October up from 10.1% y/y in September suggesting profitability is even stronger than before Covid-19 underscoring the country’s success in controlling the pandemic. The strong momentum in Chinese equities will most likely lift sentiment among all emerging market equities.
  
  
• Brent crude oil (OILUKJAN21) and WTI crude oil (OILUSJAN21) have paused ahead of next week's crucial OPEC and OPEC+ meetings starting on Monday. Following the strong vaccine-led rally some profit taking has emerged ahead of the meetings amid signs of division. The recent rally has, despite a continued surge in coronavirus cases, been driven by expectations for a vaccine-led recovery in global fuel demand. Despite objections from Iraq and UAE, the group needs to postpone the planned January production hike. Failure to do so could hurt sentiment and recently established long positions.   
  
  
• HG Copper (COPPERUSMAR21) surged to a near seven-year high at $3.40/lb in Asian trading on a continued plunge in global inventories amid China’s economic recovery. Adding to the current strong momentum, which is being lent considerable tailwind by speculative buying interest, is the market’s belief in a post-pandemic pickup in demand outside Asia. A weaker dollar against the yuan, strong Chinese demand and falling inventories combined with copper’s importance in the green transformation have all been part of the story that has seen the metal rally 70% from the March low.
  
  
• Portuguese sovereigns fell below 0% in yield, Spanish sovereigns soon to follow (FBONZ0). Portuguese sovereigns are to be added to the negative yielding pile of debt that is constantly growing. The only European sovereigns offering a yield above 0% in 10-year notes are now Spain, Italy and Greece, Spanish Bonos will most likely join the negative yielding club soon as the ECB is expected to add more stimulus at the next monetary policy meeting.

What is going on?

• U.S. 10-year real yields are falling and are pushing investors to higher-yielding junk. We find that US high-yield corporate bonds offer a higher buffer against rising inflation compared to emerging market bonds. US investment-grade corporates which provide an average real yield of around 100bps are barely protecting investors from overshooting inflation. The Federal Reserve's average inflation targeting framework (AIT) might prove a dangerous monetary policy as the economy recovers. See link
  
  
• E-commerce stocks are up 67% this year in USD terms and are showing no sign of ending their momentum. But rising global container rates hitting levels 84% above the long-term average since 2011 and bottlenecks in last-mile delivery are pushing up logistics costs for e-commerce businesses. Q3 earnings releases from JD.com and Zalando are confirming these observations with EBITDA margins under pressure. Could this be a negative surprise in the making in Q4 that investors are completely overlooking? See link
  
  
• AstraZeneca plans new global trial over initial trial uncertainty. Investors and regulators have been confused over AstraZeneca’s trial data related to their Covid-19 vaccine as it indicated better efficacy with lower doses, but the company acknowledged production errors while running the trials which were shared with regulators. However, the confusion has created uncertainty which is not good for the planned rollout of the vaccine, so AstraZeneca is planning a new global trial.
  
  
• Amazon unions in several countries are planning protests on Black Friday. Around 40,000 workers are expected to strike today demanding better working conditions at Amazon fulfillment warehouses including higher pay.
  
  
• Chinas hit on Australian wine exports is the latest escalation in an ongoing diplomatic rift between the two countries. Diplomatic tensions between the two countries have mounted as Australia called for an investigation and inquiry into the COVID-19 breakout. Since then, Australia has refused to be strong-armed by Chinese threats and as a result, the tensions have not cooled. Already coal, barley and other agricultural products have been caught in the crossfire. The tariffs of more than 200% on some Australian wine the latest in the feud. Winemakers have long relied on Chinese demand and China is the largest purchaser of Aussie wine.

What we are watching next?

• Commodities are increasingly looking towards the post-pandemic recovery in global growth and demand. In addition, the sector has already benefitted from a strong recovery in Asian demand led by China while weather concerns have lifted agriculture commodity prices. Investors are also focusing on the impact of continued fiscal and monetary spending and with that the risk of a weaker dollar and rising inflation. While the spot market fluctuates with short term demand and supply developments, the forward curves are increasingly pointing towards a strong 2021 for commodities. See link
  
  
• Winner and losers among retailers over Black Friday weekend. Next week the market will digest numbers over the Black Friday weekend deciding which retailers and brand did well. Historically, these analyses have moved retailers quite a lot so expect trading opportunities next week.
  
  
• Venezuelan rum maker Santa Teresa didn’t proceed with the issuance of US dollar bonds yet. The rum company would have been the first Venezuelan private company to issue debt in USD. Emerging markets are in a honeymoon and in the past few weeks they were able to extend their debt maturities and lock in low interest rates, however it is unclear whether investors will be attracted to highly risky instruments such as Venezuelan private debt. We expect the EM bond bonanza to continue until Christmas with Santa Teresa testing the market as soon as next week.

Economic Calendar Highlights for today (times GMT)

• 0745 – France CPI Nov (P)
• 0830 – Sweden Q3 GDP
• 0900 – Italy Consumer and Manufacturing Confidence Nov
• 1000 – Eurozone Economic Sentiment Nov

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