Market Quick Take - October 19, 2021 Market Quick Take - October 19, 2021 Market Quick Take - October 19, 2021

Market Quick Take - October 19, 2021

Macro 5 minutes to read
Saxo Strategy Team

Summary:  US equities closed on a strong note after a brief stumble yesterday as the seasonals are very supportive from here, with softening crude oil prices and bond yields perhaps also behind the improvement in sentiment yesterday. Overnight saw a rare sharp move in the US dollar as the Chinese yuan strengthened through a key level in USDCNH, broadening the US dollar weakness.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities managed to shake off early weakness yesterday and rally to new cycle highs, perhaps aided by oil prices retreating from new cycle highs and treasury yields easing back lower after threatening at new cycle highs on the shorter end of the yield curve. Optimists will note that this is the beginning of the historically strongest seasonal period for equities into year end. With the latest action, the S&P 500 is closing in on the all-time highs, which are less than 2% from yesterday’s close. The pivotal support remains the 4,400-20 area. The Nasdaq 100 rally yesterday was sharper and took the index through major Fibo retracement levels, with the last resistance perhaps around 15,390 ahead of the all-time highs into 15,700.

USDCNH – a big move yesterday for a pair that has been very bogged down in a range in recent weeks as USDCNH dropped down below the clear range low around 6.426 that had defined the range since back in June as the US dollar dropped sharply across the board overnight. The move in this currency pair may be the culprit and if China allows the exchange rate to drop below the cycle low near 6.35 from earlier this year, it could be a signal that the yuan will be allowed to strengthen toward the multi-year low from 2018 close to 6.235.

EURUSD – the US dollar is generally weak, but the key EURUSD rate has yet to back up through key levels. With USD support falling nearly everywhere outside of this pair and USDJPY, the EURUSD pair in particular is influential for establishing whether we are in a broader USD bear market, perhaps driven by a Fed that is seen as too far behind the curve with its current forward guidance. With the overnight rally toward 1.1650, the pair is entering an important zone of resistance that stretches to perhaps 1.1700, above which the odds of a sustained bullish reversal rise. Only a strong rejection of this overnight rally can put the bears back in business tactically.

Copper – industrial metals deserve considerable focus here as copper has traded up against all-time highs near 480 cents/pound yesterday and the London Metals Index has ripped to significant new all-time highs, led by zinc and aluminum and even copper to a degree. Supply challenges are behind much of the recent rise, as spot prices are far beyond what even the very elevated futures prices are showing – with the spread at a 27-year high, according to Bloomberg.

US Treasuries (IEF, TLT). Yield curves are flattening aggressively as central banks and market participants continue to ratchet expectations for rate increases higher, led by huge moves in the anticipated rate hike path for the RBNZ and the BoE this week. US short rates have been slower to react and the long end of the US yield curve still looks pinned below key levels like the 1.75% level in the US 10-year and the 30-year is lifeless well south of the recent 2.17% high in the yield there. Will the end of the debt ceiling stand-off (with recent measures delaying the situation until December 3) finally see these long yields bursting higher or could an improved economic outlook do the same? Otherwise, if short rates continue to rise rapidly, the market is pricing a gloomy forward growth outlook.

What is going on?

US Fed Chair Powell reportedly sold $1-5 million in stocks in October of last year in a transaction that was approved by ethics oversight, but one that casts a further shadow over the Powell Fed in the wake of stock-trading scandals involving two regional Fed presidents and even Richard Clarida of the Fed’s Board of Governors. Odds of Powell being renominated to the Fed are falling and US President Biden is running out of time to make a nomination whether for Powell or Brainard or someone else before Powell’s term ends in February.

Natural gas prices eased again after a significant rally intraday in Europe yesterday, with prices in the US tumbling south of $5 on the outlook for milder weather. Russia’s Gazprom has declared late last week that it is ready to boost production if it can sign long-term ga deals, while overnight, the company said that it had filled the first portion of the Nordstream2 pipeline with gas that makes the pipeline technically ready to deliver gas to Germany if regulators there can make a decision to accept delivery.

Alibaba unveils new server chip – that is based on technology from Softbank-owned Arm and marks an important milestone in China’s aim for self-sufficiency in semiconductors. The chip will reportedly be manufactured using the most advanced 5 nanometer process that arguably  only Taiwan’s TSMC can produce.

Apple unveils new MacBook Pros that are based on own chips – this is the first time the company is using its own chips in higher end laptops after using its own M1 chips only in lower end laptops previously. Apple reports Q3 earnings next Thursday.

What are we watching next?

Big USD move lower here? - a more significant US dollar breakdown could accelerate volatility in the FX market and see commodities prices ripping further as commodity markets and the US dollar are often “co-dependent” in major market moves, as was the case in the massive run-up in commodities prices in 2002-08. The Bloomberg spot commodity index has posted record highs this month and a sharply weaker US dollar could aggravate the move and eventually require that the Fed makes a significant course correction if it suddenly realizes it is behind the curve and inflation is accelerating, though that moment could lie significantly farther down the road.

Hungary rate decision today - an interesting one as EURHUF sits at the top of the range and the central bank hiked less than expected the last time around. If guidance is insufficiently hawkish, HUF could break the range and fall further, an outcome the central bank will want to prevent to maintain credibility on inflation which has reached above 5% year-on-year in recent months.

Earnings Watch an interesting haul of earnings today, as Netflix trades near all-time highs after the success of its Squid Game series, Procter & Gamble’s guidance on costs and supply chain issues ahead of the US open could be revealing (they report before the market open), and Halliburton is one of the largest oil services company, so its guidance on how the boost in oil prices has affected its outlook on investment from oil majors will be in focus.

Today: Netflix, Johnson & Johnson, Procter & Gamble, United Airlines, Halliburton, Kansas City Southern

Wednesday: Tesla, Verizon, IBM, ASML, Lam Research, Biogen, Canadian Pacific Railway

Thursday: Barclays, AT&T, Intel, Union Pacific, Snap, Whirlpool, American Airlines, Southwest Airlines, Freeport-McMoRan, Nucor, Genuine Parts, Tractor Supply

Friday: Honeywell, American Express, Schlumberger

Economic calendar highlights for today (times GMT)

  • 0915 – ECB's Rehn to speak
  • 1000 – Poland Sep. PPI
  • 1000 – UK BoE’s Mann to speak
  • 1100 – ECB's Centeno, Elderson to speak
  • 1200 – Hungary Central Bank Rate Decision
  • 1200 – ECB's Panetta to speak
  • 1205 – UK BoE Governor Bailey to speak on climate change
  • 1230 – US Sep. Housing Starts and Building Permits
  • 1300 – UK Bank of England’s Pill to speak
  • 1400 – ECB's Lane to speak
  • 1500 – US Fed’s Daly (voter) to speak
  • 1615 – US Fed’s Barkin (voter) to speak
  • 1850 – US Fed’s Bostic (voter) to speak
  • 0130 – China Rate Announcement

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.