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

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/en-gb/legal/disclaimer/saxo-disclaimer)

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 Markets is a registered Trading Name of Saxo Capital Markets Ltd (‘SCML’). SCML 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.

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 Markets 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.