Gas

3 major catalyst for markets US CPI, US earnings, covid cases in China. Plus why you can’t ignore Aussie & US dollar vs Yen

Equities 5 minutes to read
Saxo Be Invested
APAC Research

Summary:  This week we could either see the equity rally validated or stunted, bringing back a heavy risk off tone. The major concern is that inflationary pressures are creeping back up again, gas supply has been limited for 10 days, and agriculture demand is overtaking supply again. We see three main catalysts for equites this week; the US CPI read on Wednesday, US earnings season kick off for Q2 which is likely to disappoint and thirdly covid cases in China beginning to rise again. We pull apart APAC equities moving, cover what could be next for Musk Vs Twitter, and why the AUDJPY is a focus ahead of key Aussie jobs data. Plus why USDJPY is key ahead of US inflation numbers.


What's happening in markets?


Food and energy inflationary signals creep back up again

The Bloomberg Commodity Index up 5% off its 2022 low, fueled by Corn prices rising almost 6% in the Asian session, and Wheat prices rising 6.6% in the American session as demand growth is now back in focus, reminding market participants of lack of supply. Meanwhile Gas prices jump 5.3% as gas supply to Europe is reduced for the next 10 days. We think this issue will likely cause a premium in risk in gas prices this week.

Twitter shares tumble on Musk wanting to terminate takeover. Beware of Titanic legal battle

Elon Musk now officially wants to terminate the $44 billion agreement to buy Twitter (TWTR), which sent its shares 5% lower after hours. This is something we at Saxo expected and wrote about last week. Given Musk might not be making the financial outlay, Tesla (TSLA) gained ~2.3% after hours. However, now a legal battle will be on the cards with Twitter Chairman Bret Taylor reportedly going to take the matter to court this week. If the judge rules against Musk, Elon could be forced to pay $54.20 a share. If the ruling in his Musk’s favour, he might walk away with having to pay a $1 billion breakup fee.

Slim trading in APAC, most markets trade lower. Singapore and Malaysia closed for public holidays

Australia's ASX200 started the trading week in the red, down 0.9% while Japan’s market (NIKKEI) trades up 1%. Also weighing on broad sentiment is that the US jobs report on Friday was stronger than expected, which gives the Fed ammunition to rise rates by 0.75% at its next July meeting. Meanwhile, it also seems optimism is fading on some US tariffs being reduced on Chinese imports into the US, with a decision still being in limbo. However in the ASX sessioncoal miners lead with New Hope (NHC) and Whitehaven (WHC) up 3% and 2% after coal Newcastle futures rose to new highs. On the downside, tech businesses listed on the ASX bleed heavily with EML Payments (EML) seeing the biggest drop of 21% after its CEO walked

Stocks in mainland China and Hong Kong decline amid worries of Covid-19 outbreaks and new shutdowns

For Sunday July 10, mainland China reported 352 new locally transmitted cases, including 69 cases in Shanghai. After finding the first case of more contagious BA.5 sub-strain of the omicron variant, Shanghai announced for another round of mass testing. Separately, Macao reported 93 bases for Saturday and announced most businesses, including casinos will close for 7 days.  Macao gaming stocks plunged 5% to 6% across the board.  Internet stocks declined following China’s State Administration for Market Regulation fined Alibaba (09988.xhkg) and Tencent (00700.xhkg) for past monopolistic actions. While the amount of the fines were negligible, the actions remined investors about regulatory risks over Chinese internet companies.  Alibaba fell 6% and Tencent declined 3%.  Hang Seng Index (HSI.I), Hang Seng TECH Index (HSTECH.I) and CSI300 (000300.I) lost 2.7%, 3.9% and 2% respectively. 

 

What to consider?


Fed and ECB moves to be overshadowed by Russia’s next move on Gas

The fate of Europe and the global economy, hinges of the future of Russian gas flows. As per our Saxo Spotlight released today, this weeks focus will be on (US CPI data out Wednesday).Next week will be the ECB and the Fed policy decision the week. But they arguably matter much less to global markets and then if Russia instigates a sudden energy shortage in Europe. As such, we expect the European regions assets to trade with a risk-premium until there is further clarity and developments. The gas pipeline will be turned off for 10-days maintenance. But nervousness remains till the pipeline is turned back on as scheduled. Reprieve came from Canada at the weekend, agreeing to make a sanction exemption to export the key ingredient needed. However the largest overhang is if Russia shuts down its oil exports for a month.

China’s PPI and CPI numbers released on Saturday were broadly in-line 

PPI slowed to 6.1% in June (vs Bloomberg consensus: 6.0%) from 6.4% in May.  CPI rose to 2.5% in June (vs Bloomberg consensus: 2.4%) from 2.1% in May.  In our view, the rise in CPI in China, plus aggressive overseas central bank hiking, will limit the room for the PBoC to cut rates.  The key channel of easing going forward will remain being through urging banks to lend. 

Aussie dollar vs Japanese Yen roars to 7-year highs ahead of key Australian data this week

With divergence between Australia and Japan’s policies get wider, at Saxo, we remain focused on the AUDJPY, which is closely watched by those in Australia and Japan. Today, Japan received another indicator which give the BOJ ammunition to keep rates at record lows. Japanese Machinery orders fell for the first time in three months, which suggests Japanese firms might be delaying spending due to rising energy and costs. In Australia we believe this week, the RBA will gain more ammunition to aggressively rise rates over the coming months. Last week we observed Australian exports surging to a record all-time high. While coal futures pushed higher again in the Asian session today. We see no signs of Australia’s most profitable export (now coal) slowing down, which supports the price of the AUD. This week business confidence data out tomorrow, and consumer confidence out the day after (Wednesday) will be closely watched. But the important unemployment data out on Thursday will be watched like a hawk. June’s unemployment rate is likely to fall to brand new monthly record low of 3.8%, which gives the RBA room to rise rates over 0.5% at its August meeting. This supports the AUD moving higher yet again against the JPY (AUDJPY)

 

Potential trading and investing ideas to consider?


USD/JPY ready for a fresh two-year high

The USD/JPY may again be the easiest cross to see dollar strength in after several weeks of consolidation. Until mid-June the long USD/JPY was the dollar trade of 2022. But then recessionary risks rose again, which prompted shifts. As mentioned in our Q3 outlook, inflation is the Feds greatest threat right now, which means higher US yields are coming. In such an environment, the yen is typically pressured lower. And this might mean the USDJPY looks it will be favoured again

----


For our weekly outlook  - read/watch Saxo Spotlight   

For our global podcast - listen to The Saxo Market Call



Quarterly Outlook

01 /

  • Equity outlook: The high cost of global fragmentation for US portfolios

    Quarterly Outlook

    Equity outlook: The high cost of global fragmentation for US portfolios

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: Commodities rally despite global uncertainty

    Quarterly Outlook

    Commodity Outlook: Commodities rally despite global uncertainty

    Ole Hansen

    Head of Commodity Strategy

  • Upending the global order at blinding speed

    Quarterly Outlook

    Upending the global order at blinding speed

    John J. Hardy

    Global Head of Macro Strategy

    We are witnessing a once-in-a-lifetime shredding of the global order. As the new order takes shape, ...
  • Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Quarterly Outlook

    Asset allocation outlook: From Magnificent 7 to Magnificent 2,645—diversification matters, now more than ever

    Jacob Falkencrone

    Global Head of Investment Strategy

  • Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    Quarterly Outlook

    Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?

    John J. Hardy

    Global Head of Macro Strategy

  • Equity Outlook: The ride just got rougher

    Quarterly Outlook

    Equity Outlook: The ride just got rougher

    Charu Chanana

    Chief Investment Strategist

  • China Outlook: The choice between retaliation or de-escalation

    Quarterly Outlook

    China Outlook: The choice between retaliation or de-escalation

    Charu Chanana

    Chief Investment Strategist

  • Commodity Outlook: A bumpy road ahead calls for diversification

    Quarterly Outlook

    Commodity Outlook: A bumpy road ahead calls for diversification

    Ole Hansen

    Head of Commodity Strategy

  • FX outlook: Tariffs drive USD strength, until...?

    Quarterly Outlook

    FX outlook: Tariffs drive USD strength, until...?

    John J. Hardy

    Global Head of Macro Strategy

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

None of the information provided on this website constitutes an offer, solicitation, or endorsement to buy or sell any financial instrument, nor is it financial, investment, or trading advice. Saxo Capital Markets UK Ltd. (Saxo) and the Saxo Bank Group provides execution-only services, with all trades and investments based on self-directed decisions. Analysis, research, and educational content is for informational purposes only and should not be considered advice nor a recommendation. Access and use of this website is subject to: (i) the Terms of Use; (ii) the full Disclaimer; (iii) the Risk Warning; and (iv) any other notice or terms applying to Saxo’s news and research.

Saxo’s content may reflect the personal views of the author, which are subject to change without notice. Mentions of specific financial products are for illustrative purposes only and may serve to clarify financial literacy topics. Content classified as investment research is marketing material and does not meet legal requirements for independent research.

Before making any investment decisions, you should assess your own financial situation, needs, and objectives, and consider seeking independent professional advice. Saxo does not guarantee the accuracy or completeness of any information provided and assumes no liability for any errors, omissions, losses, or damages resulting from the use of this information.

Please refer to our full disclaimer for more details.

Saxo
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo is a registered Trading Name of Saxo Capital Markets UK Ltd (‘Saxo’). Saxo is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo assumes no liability for any loss sustained from trading in accordance with a recommendation.

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. Android is a trademark of Google Inc.

©   since 1992