What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – Weak US jobs data initially saw a very strong knee-jerk reaction from more speculative stocks on Friday, but the move weakened into the close, resulting in less than a 1% gain for the Nasdaq 100, which found resistance in the important 13,800 area that is a key Fibo retracement and near the 21-day moving average at 13,830. The S&P 500 managed to rally clear of the prior high and established a new high-water mark above 4,225. The key support there of late has been the 21-day moving average, currently near 4,167. The logic of “hurray for bad data, because it means more monetary policy and fiscal support” will be tested in early trading this week.
Euro STOXX 50 (EU50.I) - Friday’s big risk-on move pushed European equities higher with STOXX 50 futures finally closing above the 4,000 level signaling that despite weakening momentum over the past couple of weeks, the value and cyclical rotation is not done yet. We maintain a positive view on European equities vs US equities as long as commodity prices continue to rise.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). Bitcoin is pounding on the key 59k area resistance again, the last major area ahead of the 64.9k top that is nearly a month old, while Ethereum shot to new heights over the weekend and cleared 4,000 this morning and is up nearly 50% for the still-young month of May, and up more than 400% for the year.
GBPUSD and EURGBP – the Scottish Parliament election at the weekend saw the SNP gaining less support than anticipated (more below) and is leading to a relief-rally for sterling as any new Scottish independence referendum is not seen as an imminent threat. GBPUSD has cleared the important 1.4000 level and EURGBP dropped, edging away from the important 0.8700+ area. With the break above 1.4000, this becomes the tactical bull/bear line, as is the 0.8700-25 area in EURGBP.
EURUSD and other USD pairs – the reaction to the weak April US jobs numbers on Friday was rather unequivocal if we look at the weaker US dollar and the reaction at the shorter end of the US yield curve, as the market perhaps sees this as buying the Fed more time to not react to any hot inflation data and indicate nothing new at the June FOMC meeting. But looking at the longer end of the US yield curve, the T-bond yield rose to a new local high by the close of trading – creating some tension for the USD outlook if long yields continue higher (this is what originally spooked USD bears earlier this year). For EURUSD, the focus after the strong surge on Friday is on maintaining the price action above 1.2100 for a follow-up rally on the highs of the cycle near 1.2350.
Copper and iron ore rip to new highs: copper followed through to new all-time highs in USD terms in Monday’s session after the break of the $10,000/ton, as there are no chart levels above that level. Iron ore futures were limit up in China, in part on demand from steelmaking, but possibly on ongoing diplomatic tensions with Australia, the largest source of iron ore for China.
Gold (XAUUSD) followed through higher on Friday, nearing its 200-day moving average on the reaction to the US jobs data and a weaker US dollar. Support for gold can be found in the recent drop in US real yields, as inflation expectations have picked up to new cycle highs. On that note, long end of the US yield curve bears watching relative to inflation expectations for whether the precious metal can find further support from this source as long US yields (ten-thirty years) actually rose into the close on Friday.
US yield curve steepens in the wake of US April jobs data. An interesting reaction in the US yield curve to the weak US payrolls data on Friday, as yields at the short end of the curve actually fell as the market perhaps anticipated that this data buys the Fed more time to sit on its hands and not react to incoming data, while yields at the longest end of the curve, at 30 years, closed higher and are at a one-week high in early trading this week.
What is going on?
A major gasoline pipeline in the US was shut-down by hackers, generating fears of shortages along the eastern seaboard of the US, with still no indication as of this morning for when the pipeline would be restarted by its owner, Colonial. The pipeline carries some 2.5M barrels a day of gasoline from the refinery area of Houston to North Carolina and New York.
Sterling higher after SNP results weaker than expected in Scottish parliament elections – the SNP gained one seat versus the prior result, but fell one seat short of the absolute majority expected that would have arguable given the party a stronger mandate to push for a new independence referendum. The Green Party, also in favour of independence, added a couple of seats, but sterling rose in anticipation that the mandate is too weak after this election result to indicate any immediate threat of a short timeline for a new referendum on Scotland leaving the UK.
US April non-farm payrolls change drastically lower than expected at +266k versus 1M expected, and the March payrolls number was revised 146k lower leading to sharply lower yields all along the US yield curve. The household survey saw the participation rate rise 0.2%, softening the implications of the overall unemployment (higher participation rate suggests more people looking for work).
Ark Invest is buying Chinese technology companies such as Alibaba and JD.com.
What are we watching next?
China April PPI up tonight - the Chinese PPI figure is considered a key global inflation gauge and is expected to show a rise of 6.5% year-on-year versus +4.4% in March. The basing effects of last year are an obvious driver of higher readings and that effect peaks for the April-June time frame, but we continue to watch for the risk of higher-than-expected readings for this data point on signs of inflation everywhere.
Earnings reports this week. The earnings season continues this week with more European and Chinese companies reporting Q1 earnings. The key earnings releases to watch in China are Alibaba on Thursday and JD.com on Friday, and they are even more interesting to watch given Ark Invest is increasing its exposure to Chinese technology names. BioNTech is key to watch today given the Biden administration’s decision to open the patents on the mRNA vaccines against Covid-19.
- Monday: ITOCHU, Panasonic, Duke Energy, Air Products and Chemicals, Marriott International, BioNTech
- Tuesday: KBC Group, E.ON, SoftBank Corp, Takeda Pharmaceutical, Nissan Motor, Electronic Arts, Palantir Technologies, Unity Software
- Wednesday: Verbund, Fortum, EDF, Allianz, Merck, Bayer, RWE, Toyota Motor, SoftBank Group, Compass Group, Iberdrola, Li Auto
- Thursday: Brookfield Asset Management, Alibaba, Walt Disney, Bilibili, Xpeng, Airbnb
- Friday: Honda Motor, JD.com
Economic Calendar Highlights for today (times GMT)
- 0730 – Sweden Riksbank Meeting Minutes
- 1800 – US Fed’s Evans (Voter) to speak
- 0130 – China Apr. CPI/PPI
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