Market Quick Take - July 1, 2020

Market Quick Take - July 1, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  Equity markets ended the second quarter with a flourish of strength, extending the rebound of the prior day. Sovereign bonds were generally weak and the US dollar rather sideways. Gold pulled to new multi-year highs, this time accompanied by a punchy rally in silver, helping the gold bulls with a bit of confirmation.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the US major equity markets veered further away from recent downside pivot levels, but while the downside danger may appear averted for the moment, the S&P500 still need to take out the big overhead resistance line around 3,150, while Nasdaq 100 traders have the all-time top just short of 10,300 in their sights again and may eye the 21-day moving average as the key trend support after this has twice survived recent sell-off attempts. That moving average is moving persistently higher with the trend and is now at 9,921.

  • XAUUSD (Spot Gold) and XAGUSD (spot silver) - Gold reached another new high for the cycle with $1800/oz now within striking distance, a level that the futures contract (GCQ0) has already reached. The break higher looks intact as long as the daily closes remain north of 1,745-1,750. Silver has outperformed gold this week with the XAUXAG ratio falling below 98. With copper racing higher on virus related supply worries, silver’s short-term upside potentials could be better than golds. Especially on a break above the March high and trendline resistance around $18.40/oz.

  • CORNSEP20 (Corn) and SOYBEANSAUG20 (Soybeans) - rallied strongly on Wednesday after a U.S. government report showed a big reduction in the planted acreage. U.S. farmers entered the fields this spring at a time of peak uncertainty with low prices, poor outlook and the pandemic raging. As a result they reduced the corn acreage to 92 million acres (95.1 expected) and soybeans to 83.8 from 84.8 expected. A separate USDA report however showed that domestic quarterly grain stocks were bigger than expected, due to lower demand during the lockdown. Corn’s dramatic turnaround from a $3.15/bu low on Monday to a $3.45/bu high today could force continued buying from funds holding an elevated short position. Support now at $3.39/bu.

  • OILUSAUG20 (WTI crude oil) - trades higher, but within the established range, after the American Petroleum Institute reported a stockpile drop last week of 8.2 million barrels. If repeated by the EIA in their weekly report at 14:30 GMT it may offer some additional support to a market currently worried by the demand impact from renewed lockdowns and the surging number of virus cases in the U.S. With this in mind, today’s report will be watched closely for signs of a renewed weakness in gasoline and diesel consumption. Just as the July 4th holiday signals the beginning of the U.S. summer driving season.

  • FDX:xnys (FedEx) - shares up 9% on its Q4 earnings release as EPS came out at $2.53 vs est. $1.53 as shift to online spending throughout lockdown has fed directly to FedEx bottom line. FedEx conference call reiterated that this shift has not only been accelerated by COVID-19 but will remain in place post pandemic shifting the environment for retail and ecommerce.

  • TSLA:xnas (Tesla) - shares jumped 7% yesterday surpassing $200bn in market value making the carmaker more valuable than Exxon Mobil. The driver was a leaked email from the CEO Elon Musk indicating that the carmaker could deliver a profit in Q2, but it would be tight. It seems that it’s the new factory in China that has made the difference in Q2. With 10.3% of the float shorted the short sellers are still smelling an opportunity and with Tesla’s current valuation the margin for error is very small.

  • EURUSD – still our general barometer for the US dollar as we have discussed in previous days – the drama around EU existential questions has faded, but EURUSD has been unable to extend the rally, while speculative longs have built aggressively. Tactically, we are closer to the key downside level of 1.1175-1.1200, a break of which could trigger capitulation of long positions.

  • GBPUSD and EURGBP – sterling retraced sharply back higher yesterday no real news on the current round of Brexit negotiations (see below) while Boris Johnson announced an enormous infrastructure plan. The rally took EURGBP back below the prior high of 0.9080 at one point, with a move below 0.9000 needed there to indicate a more profound reversal. GBPUSD pulled back above the prior low around 1.2336 but is still in a well-defined descending channel, needing a rally to 1.2500 or higher to show a more determined reversal back higher.

  • USDRUB - despite a benign session for risk appetite and oil and a US dollar generally on the defensive, the USDRUB exchange rate rose sharply on the intensifying focus on accusations from US intelligence services that Russia paid bounties to Taliban forces to kill US troops. Trump has dismissed the US intelligence service claims. The USDRUB yesterday cleared 70.50 resistance and is trading this morning well north of 71.00.

What is going on?

  • Mixed news on the Brexit negotiations as the EU negotiator Barnier rejected the UK’s plans for post-Brexit banking relationship and said that UK banks would lose their “passports” to offer their services in the EU. Barnier did make other more positive noises on the general prospects for a deal.

  • US June Consumer confidence numbers were far stronger than expected, showing a rebound in both expectations (to 106 vs. 97.6 in May) and the Present Situation (to 86.2 vs. 68.4 in May).

  • China to announce reciprocal restrictions on US media branches in China – according to China’s Global Times, after the US reduced the number of personnel for Chinese media outlets deemed to have a link to the Chinese state. The general noise level on tit-for-tat measures has increased recently.

What we are watching next?

  • Trajectory of the Covid19 outbreak in the US – the COVID-19 case count in the US continues to accelerate with US health official Fauci fretting the risk of 100,000 cases daily within a few weeks, but the death count remains very low relative to the prior trends, one of the factors that may be preventing this latest surge in the outbreak from impacting market confidence. Developments in hospitalization rates and mortality are key for the degree to which this latest surge will impact behavior, with some of the latest information from restaurant bookings looking far from promising.

  • US employment numbers and sentiment – the strong showing in the US May Nonfarm Payrolls change data was cause for cheer last month and the June tallies are set for release this Thursday due to a Friday holiday for US Independence Day. The speed of declines of US initial jobless claims and continuing claims continues to be in the spotlight this week, as well as the June payrolls change data as the US faces a growing risk of slowing down the resumption of economic activity due to the latest acceleration in Covid19 numbers.

Economic Calendar Highlights (times GMT)

  • 0715-0800 – Euro Zone Final June Manufacturing PMI
  • 0730 – Sweden Riksbank Interest Rate
  • 0755 – Germany Jun. Unemployment Rate and Change
  • 0900 – Sweden Riksbank Press Conference
  • 1215 – US Jun. ADP employment change
  • 1400 – US Jun. ISM Manufacturing
  • 1430 – US Weekly DoE Crude Oil and Production Inventories

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

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