Market Quick Take - September 3, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Strong global sentiment in equities continues to dominate, with key European indices teasing new highs for the cycle yesterday and the Japanese equity market on an absolute tear this week with a strong extension of its recent rally in the overnight session as PM Suga announced his plan to resign. Offering support for the development are sideways action in US treasuries and a sharply weaker US dollar. Today sees the release of the US August jobs report.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - with US interest rates steady US equities continue to be bid with the Nasdaq 100 futures holding on to the gains from this week’s Monday session. Today is all about Nonfarm Payrolls and if we get a much better than expected jobs report we could see interest rates higher and US technology stocks lower on the interest rate sensitivity angle. The initial support level in Nasdaq 100 on a selloff would be the 15,466 level.

EURUSD – the EURUSD pair continues to grind toward the important next resistance just ahead of 1.1900, with 1.2000 an even larger objective for clearing the way for a test back toward the cycle highs near 1.2350. One factor aside from general USD weakness that could support further upside is the German election, where the momentum in favour of the SPD continues in the polling (recent polls showing SPD several points above the CDU/CSU bloc) on the idea that a more pro-EU Germany government led by the SPD/Greens will bring a commitment to a more sustained fiscal expansion.

AUDUSD – AUDUSD has made a full V-shaped recovery of its recent sell-off and has recovered somewhat in the crosses as well, suggesting that the market has oversold the currency and that the lows may be in for now, especially given the worst possibly conditions on the ground in the country with its comprehensive lockdowns in place unlike anywhere else in the developed markets, safe perhaps for New Zealand, where the situation is improving. It may not take much good news for the AUDUSD to recover more robustly still and take back the key 0.7500-0.7600 zone, which would set the focus all the way back toward the high for the cycle back at 0.8000 in February.

JP225.I (Nikkei 225) - Nikkei 225 futures up 2.2% today as Prime Minister Suga is planning to step down raising expectations for a different policy mix including more fiscal stimulus. The political change in Japan combined with the Covid-19 situation getting better, it could be the starting point of Japanese equities outperforming the MSCI World over the coming year. Nikkei 225 futures trade around the 29,160 level with the next resistance level most likely at 29,612.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) – Ethereum remains bid near the top of its recent sharp rally extension, trading above 3,800 this morning, while Bitcoin is having a difficult time making a decisive move about the obvious psychological resistance at 50,000. The rapidly growing share of altcoins (smaller cryptocurrencies) compared to the whole crypto market is making JPMorgan put out a red flag, and in a note from Wednesday, they state that “it is likely to be a reflection of froth and retail investor ‘mania’ rather than a reflection of a structural uptrend”.

Gold (XAUUSD) - remains stuck in the 20-dollar range established at the start of the week while silver (XAGUSD), as seen through its inability to break 75 on the XAUXAG ratio, is struggling to find enough momentum to shine on its own. The failure to challenge key resistance at $1835 and $24.50 despite supportive tailwinds from a weaker dollar and steady Treasury yields has raised some concerns about another short-term top in the market. Whether or not may be determined by the strength of today’s job report and the signal it may send about the timing of Fed taper.

Crude Oil (OILUSOCT21 & OILUKNOV21) - trades near the top of the recent range supported by a softer dollar, an upbeat demand assessment by OPEC+ and data showing Nigeria and Angola pumped nearly 400,000 barrels/day below their allocated quota last month. Next week China publishes August trade data, including oil imports, on Tuesday while the EIA will publish its Short-term Energy Outlook on Wednesday. Fading virus focus, tightening supplies, rising risk appetite, and reduced speculative length has once again skewed the price risk to the upside.

Non-farm payrolls are key to position ahead of this month’s FOMC meeting (IEF:xnas, TLT:xnas). Job numbers will influence the Federal Reserve’s decision regarding when to begin tapering purchases under the QE program. If job figures exceed expectations and are around 900k like the previous two months, we anticipate a tapering announcement already this month, beginning as soon as October. In that case, we will see yields rising and the yield curve steepening with the 10-year yields rising as high as 1.5% ahead of the Fed meeting. In case job numbers disappoint, tapering may be delayed, giving a boost to US Treasuries. In that case, 10-year yields could drop again to test 1.12%. However, any rally would be short-lived as we expect a revival of reflation trade in autumn.

The spread between 8-weeks and 4-weeks T-Bills continues to widen (BIL:arcx). The spread between 4-week and 8-week Bills widened 3bps during yesterday’s auctions and demand was weaker than usual. Money markets show signs of distress surrounding maturity dates approaching a possible US Treasury default date at the beginning of November. Although default is unlikely, a delay on the debt ceiling decision might mean that the Treasury will need to issue high volumes of debt in a brief time. Thus, money market volatility is poised to increase.

What is going on?

Japan’s Prime Minister Yoshihide Suga said he plans to resign. The news came overnight ahead of a vote for party leader and the general election in the coming weeks (must take place before November 28, but no date yet set). this saw the JPY slightly stronger before it weakened again and Japanese equities celebrated the news. The decision was seen as an admission of failure to bring down the virus numbers and rivals for the leadership of the party are seen as more determined to bring fresh fiscal stimulus.

July EZ industrial producer prices rose more than expected. In the euro area it was out at 2.3% (prior 1.4%) and in the EU as a whole it was out at 2.2% (prior 1.5%). The strong increase mostly reflects a jump in the prices of energy and intermediate goods. If the increase is sustained, there is a real risk that higher producer prices will be passed on to consumers. This hasn’t been the case yet.

U.S. jobless claims continue to fall. Initial jobless claims fell to 340K for the week ending August 28, while continuing claims fell to 2.74 million. The largest increases were in Illinois (+3,832), Florida (+2,545) and the largest decreases were in Michigan (-6,757) and Virginia (-4,670). Currently, there are around 2.74 million people still benefiting from some form of unemployment insurance, but the pandemic-linked special benefits are scheduled to roll off in September.

The commodity sector trades higher for a second week with the Bloomberg Spot Index just below the ten-year high reached in July. While the weaker dollar has provided a general level of support, the gains have primarily been concentrated in the growth dependent sectors of energy and industrial metals. Earlier in the week Goldman Sachs called industrial metals a fundamentally mispriced market while oil benefitted from reduced focus on the delta virus. Grains are lower after US exports from Gulf coast terminals was disrupted by hurricane Ida while precious metals traded sideways ahead of Friday’s job report. Biggest gains seen in natural gas with record prices in Europe on tight supply, increasing demand for coal causing record high carbon emission prices. 

What are we watching next?

U.S. August job report is a key economic release today. At the Fed Jackson Hole Symposium, Reserve Bank of Atlanta President Raphael Bostic hinted that August job gains need to be similar to those in June and July to announce tapering in September. In June/July, job gains averaged 940k vs consensus of under 800k for August. This is still healthy. If confirmed, it could increase the likelihood of a taper announcement at the Fed meeting of 22 September, in our view. Consensus expectations for the payrolls change number is +725k.

ECB meeting next week - this week may have offered the impression that ECB hawks are back. After an overly dovish summer, ECB hawks are sending signals to the market. They are pushing for some kind of exit strategy. Earlier this week, Bundesbank chief Jens Weidmann warned that the ECB shouldn’t disregard risk of higher inflation. It is unlikely to have any impact on the outcome of next week’s ECB meeting, in our view. The ECB will mostly upgrade its staff macroeconomic projections and discuss the pace of bond purchases for the last quarter of this year, which should be slower than previously, given that the ECB had already declared the intent to “front-load” purchases earlier this year.

Earnings to watch next week. The earnings season is slowing down with most major Chinese earnings releases out of the way, so we will see little impact from earnings going forward.

  • Tuesday: Coupa Software, Partners Group
  • Wednesday: Lululemon Athletica, New Oriental Education, Copart
  • Thursday: Sun Hung Kai Properties, Zscaler
  • Friday: Oracle, Kroger

Economic calendar highlights for today (times GMT)

  • 0715-0800 Euro Zone Aug. Final Services PMI
  • 0830 - UK Aug. Final Services PMI
  • 0900 - Euro Zone Jul. Retail Sales
  • 1230 - US Aug. Change in Nonfarm Payrolls
  • 1230 - US Aug. Unemployment Rate
  • 1230 - US Aug. Average Hourly Earnings
  • 1230 - US Aug. ISM Services

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.