Market Quick Take - June 2, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Markets are rather quiet after a modest rally in US equities fizzled and saw the major indices closing with minor losses on the day. In the US, a major meat supplier was shut down by a new ransomware based cyber-attack. Gold is finally consolidating after its recent steep run higher and a breakout attempt higher in crude levels partially reversed in the wake of an OPEC+ meeting.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – compared to the rest of the equity market the Nasdaq 100 does not seem to like rising commodity prices as it increases expectations of higher interest rates which is bad for growth stocks. If we are right about rising inflation, then we could see for the rest of the year Nasdaq 100 doing much worse than the broader equity market. The 13,600 level in Nasdaq 100 futures is still the key support level to watch on the downside.

Euro STOXX 50 (EU50.I) - European equities were strong yesterday defying signs of more commodity inflation with Brent Crude breaking out higher. This confirms what we have been saying that European and emerging market equities will do better under a new commodity supercycle and inflation due to the index composition relative to US equities which have an overweight of technology and high duration stocks. STOXX 50 futures are trading above yesterday’s close and will in the absence of any adverse news push towards the 4,100 as the news flow and the general sentiment is improving on European equities.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). The latest rally attempt in the crytpo-space fizzled yesterday after the major coins posted four day highs, with volatility in Bitcoin dropping, while the Ethereum rally fell well short of the key 3,000 area that would renew hopes that it is leading a charge back higher toward the cycle highs in May well above 4,000.

GBPUSD and EURGBP sterling stumbled badly after very briefly poking at the highs of the year yesterday, a sign that USD traders may be unwilling to push the US dollar over the edge for now, and perhaps not until the other side of the FOMC meeting next Wednesday, although much of the move yesterday in GBPUSD was sterling weakness rather than USD strength as EURGBP move sharply higher from range lows. The pattern reversal points to the risk of a consolidation back toward the 1.4000 area in GBPUSD, the current key support.

USDCNH – yesterday, USDCNH rose further from the three-year lows posted at the beginning of the week, as China is sending further signals that it would like to see the CNH at least not strengthen further, if not outright weaken. Overnight, the PBOC told Chinese lenders that they would need to hold more foreign currencies in reserve, a move that allows the bank to push “intervention” onto their shoulders rather than showing up in official reserves. The next key level for USDCNH is 6.400 the cycle low from back in February.

Gold (XAUUSD) trades around $1900 with overbought market conditions and optimism over the economic recovery being offset by focus on inflation, not least following the latest rally in energy prices. Focus remains on Friday’s U.S. job report and its potential impact on yields and the dollar. With RSI’s hovering above 70 for the past two weeks, gold increasingly needs a period of consolidation with key support levels being $1863 followed by $1845. Silver’s (XAGUSD) period of outperformance proved short-lived as it got knocked down after reaching a two-week high.

Crude oil (OILUSJUL21 & OILUKAUG21) trades steady but off the highs reached before yesterday’s OPEC+ meeting. The group, as expected, decided to stick to its planned July increase but in weighing up a continued demand growth and uncertainties about an Iran nuclear deal, the group refused to give any hints about their next move. Improved fundamentals in the U.S. oil market have seen WTI reach a 2018 high and being the leader in the current rally. The market will now turn its attention to the weekly stock report, starting with API tonight, and followed the EIA Thursday. Next key levels of resistance being $70 in WTI (psychological) and $72 in Brent (recent highs).

Ten-year Gilt auction in focus as sentiment surrounding the economic recovery continues to improve in the UK (IGLT). Since the end of February, ten-year Gilt yields have been consolidating within a tight range between 0.70% and 0.85%. However, as the economy reopens and the housing market gets increasingly hot, the Bank of England will start to look at paring back stimulus for the economy. That’s why today’s 10-year Gilts auction will provide an insight into investors' appetite for Gilts at current yield levels, which, although quadrupled since the beginning of the year, remain among the lowest ever seen. The debt management office has announced yesterday’s that it will issue 2071 Gilts next week, putting even more pressure on investors’ demand for duration.

What is going on?

The US grain market marked the official start of the 2021 U.S. growing season by surging higher with the Bloomberg Grains index rising 2.4%, thereby retracing more than half the mid-May correction. A combination of strong export sales and a drier trend in parts of the U.S. growing areas is receiving some attention although it is not yet a worry. At least not compared with the water crisis in Brazil where the worst drought in 91 years has sent prices of key crops and coffee soaring. CBOT corn (CORNDEC21) jumped 4.5% followed by a 4% rally in wheat (WHEATDEC21) 

A major US meat supplier shutdown by cyber-attack. The world’s largest meat producer, Brazil’s  JBS, saw its US operations completely shutdown yesterday in a ransomware cyber-attack. The company is responsible for processing approximately one fourth of US beef and announced this morning that it is reopening the “vast majority” of its facilities. The attack also affected facilities in Australia and Canada and was traced to a Russia-linked hacking group, according to Bloomberg sources. This attack comes less than two weeks before the Biden-Putin summit mid-month.

The May US ISM Manufacturing stronger than expected, but employment sub-index alarmingly low. The headline looked positive in yesterday’s May ISM Manufacturing release, which registered a robust 61.2 versus 61.0 consensus expectations and versus 60.7 in April, with New Orders at a very strong 67.0 and Prices Paid at 88.0 versus 89.5 expected, still showing extreme inflationary pressures. The one significant weak point in the release was an Employment sub-index reading of only 50.9, vs. 54.6 expected and 55.1 in April.

What are we watching next?

A new tone from China in international relations? Yesterday, China’s president Xi Jinping told officials to create a “trustworthy, lovable and respectable” image for the country, a move that suggests a push-back against the more aggressive stance and language in its diplomatic approach that has developed in recent years and as the relationship with the US, among other countries, has deteriorated. More from Bloomberg.

Earnings reports this week. Investors were relieved that Zoom released strong Q1 earnings with EPS at $1.32 vs est. $0.99 and lifting FY guidance on EPS to $4.56-4.61 from previously reported $3.59-3.65. The video conferencing software maker is showing that it can continue to onboard new large clients despite rising competition from Facebook and Microsoft which should give investor confidence in the company’s future prospects.

  • Today: Varian Medical Systems, Splunk
  • Thursday: Lululemon Athletica, Cooper Cos, Broadcom, Crowdstrike, DocuSign, Slack Technologies

Economic Calendar Highlights for today (times GMT)

  • 0830 – UK Apr. Mortgage Approvals
  • 1230 – Canada Apr. Building Permits
  • 1600 – US Fed’s Harker (non-voter) to speak
  • 1800 – US Fed Beige Book
  • 2130 – API Weekly report on US oil inventories
  • 0130 – Australia Apr. Trade Balance
  • 0130 – Australia Apr. Retail Sales
  • 0145 – China May Caixin Services PMI

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
Zurich
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 and 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.