What is our trading focus?
- US500.I (S&P 500 Index) and USNAS100.I (Nasdaq 100 Index) – the S&P 500 index continues to languish below the key 2,965 local high, while the NASDAQ 100 managed yet another surge to a new local high before stumbling in late trading and easing lower overnight. The very high concentration of the market rally in the largest US names continues to serve as a sign of shaky market health.
- 10YUSTNOTEJUN20 (US 10Y futures) – US treasury yields rose slightly yesterday after a rather strong auction of record size of US 3-year treasuries. Today we see a record large auction of 10-year treasuries and tomorrow of 30-year T-bonds. The 10-year yield has traded between 0.50% and 0.75% since late March. Watching for a break of the range to suggest whether the market sees any dynamism in yields.
- AUDUSD – the Aussie has traded firmly against its commodity dollar peers recently, but was sharply lower overnight on the news that China was banning imports of meat from four of Australia’s processors (more below). We watch the AUDUSD as the G10 FX pair perhaps most sensitive to the combination of risk sentiment, hopes for a growth recovery and further risks of tension between China and its trading partners and/or USDCNH volatility.
- EURUSD – while the confrontation between the German constitutional court ruling and EU institutions could generate further risks over the medium term, we are also simply watching the technical status of the euro versus the JPY and the USD as we traded below 1.0800 briefly overnight. A close south of the 1.0800 level and especially south of perhaps 1.0750 is a sign of a technical breakdown and the USD on the rise.
- USDCNH – this is the USD versus the offshore yuan. This exchange rate bears watching as we are only a bit more than percent from the key 7.20 area that could come under pressure if the USD continues to broadly strengthen. Concerns that China will allow its currency to slip have been a factor in significant episodes of global market volatility – most notably back in 2015-16.
- OILUSJUL20 (WTI) and OILUKJUL20 (Brent) – Crude oil received a temporary boost yesterday after Saudi Arabia said they would cut June production by an additional 1 million b/d to 7.5 million, the lowest since 2002. While supporting the rebalancing process, the market interpreted the move as a sign that demand, despite green shoots emerging across the world, still remains weak. Focus now turns to monthly oil market reports starting today with EIA, OPEC tomorrow and the IEA on Thursday. One week from today the June WTI futures will expire but with Genscape reporting a draw last week at Cushing, the storage and delivery hub for WTI crude oil futures, the risk of a disorderly expiry has almost been removed.
- CORNJUL20, WHEATJUL20 & SOYBEANSJUL20 - The grains market is waiting for the monthly World Agricultural Supply and Demand Estimates report (WASDE) from the US Department of Agriculture today at 1600 GMT. Some focus on adjustments for corn demand and exports following the recent slump in demand from ethanol producers (one-third of US demand). Estimates on Chinese demand for US farm goods will also be watched closely as the trade-deal receives new focus from the White House.
What is going on?
China banned imports of red meat from four Australian processors representing some 35% of Australia’s exports to China. Some may see the move as retaliation for Australia’s questioning of China’s transparency and actions during the early phases of the Covid19 outbreak, but the Australia Trade Minister denied this and said the bans were linked to labeling issues.
South Korea has seen a new outbreak of Covid19 with rapid transmission to at least 100 people in Seoul’s nightclubs, making it clear that opening up is a difficult process. The Kospi index took the news relatively well, only down 0.50% by early European hours.
What we are watching next?
Monthly Oil Market reports from the U.S. Energy Information Administration on Tuesday, OPEC on Wednesday and the International Energy Agency on Thursday will be watched closely following a month of carnage in the oil market. With the price beginning to recover the market will be watching closely any changes in the outlook for demand and supply.
US long treasury yields – we wonder if this market is still “alive” after a tight several weeks of very tight range trading as bond bears are perhaps concerned that the Fed will cap yields to keep the cost of government funding and longer term borrowing low. Bond bears, meanwhile, perhaps question the ability of yields to head lower still . As noted above, 0.50% and 0.75% look like important psychological and approximate chart level as well for the 10-year benchmark as the US Treasury auctions 10-year treasuries today and 30-year T-bonds tomorrow.
Economic Calendar Highlights (times GMT)
- 0730 – Norway Q1 GDP –. EURNOK hasn’t yet managed to break below the important 11.00 area.
- 1000 – US Apr. NFIB Small Business Optimism- sentiment will be terrible, we all know that – it is how subsequent months shape up that is important for the outlook.
- 1230 – US Apr. CPI – expected to drop to 1.7% year-on-year ex Food and Energy, which would be the lowest reading in over two years.
- 1300 – US Fed’s Kashkari to Speak – An FOMC voter this year, the Minneapolis Fed president is an outspoken dove and will speak up for the Fed to do more.
- 1400 – US Fed’s Harker to Speak – The Philadelphia Fed president is an FOMC voter this year.
- 1400 – US Fed’s Quarles to Speak - before a Senate banking committee. Quarles is an FOMC voter on the Board of Governors.
- 1600 – Short Term Energy Outlook from the U.S. Energy Information Administration
- 1800 – World Agriculture Supply and Demand Estimates from the U.S. Department of Agriculture
- 0200 – New Zealand RBNZ Announcement – The RBNZ seen likely to increase QE, the kiwi has been lower against the AUD recently until the latter’s overnight stumble, as the RBNZ may ease more aggressively.