Market Quick Take - October 15, 2020

Market Quick Take - October 15, 2020

Macro
John J. Hardy

Global Head of Macro Strategy

Summary:  The US equity markets saw a fresh slide yesterday, and the last two sessions of declines, together with a slide in the futures overnight, have now wiped away all of the steep rally from Monday in the S&P500 index. Sentiment may be weakening on fading US stimulus hopes. Elsewhere, sterling traders are buffeted by Boris Johnson canceling his Brexit deadline and Aussie traders by RBA considering longer term asset purchases.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities saw a weak session yesterday and the selling continued overnight in the index futures. Very downbeat reaction to large bank earnings noted below were one concern, although technically, the major indices have room to consolidated further without reversing the recent rally wave after the steep rally from September lows. The next support areas come in around 3,410 for the S&P 500 and the more well defined 11,600 area in the Nasdaq 100.

  • USDJPY and other JPY crosses – the weak risk sentiment of the last few sessions and likely more significant, the drop in long safe haven bond yields has helped boost the JPY, with USDJPY having a look at the often pivotal 105.00 level yesterday without breaking it. The lack of JPY volatility has been notable for quite some time and a break below 105.00 that actually holds for a time (as opposed to the previous tests below, which quickly found support and failed to stay below for more than a week) could bring a reassessment of the yen.

  • GBPUSD and EURGBP crunch time is pushed back – but how far? - sterling jumped significantly yesterday after Boris Johnson announced that he would not pull out of Brexit talks today – suggesting that these are at least promising enough to offer some hope for an agreement in principle in the coming weeks. This sent GBPUSD back above 1.3000 and EURGBP to a new low daily close below 0.9050 - but traders may be reluctant to take sterling much higher until it sees a headline pointing to an amicable agreement – or the opposite. And the crunch phase for whether an agreement is possible may not arrive until later this month or in early November, according to both sides in the talks.

  • Brent Crude Oil (OILUKDEC20) and WTI Crude Oil (OILUSNOV20) - Oil poked higher again yesterday and the December Brent contract is near the range highs since September around 43.50 and the 200-day moving average is dropping into view not far above that level. The November WTI contract has a similar setup with its range high at 41.50 and has actually criss-crossed the 200-day moving average (now below 41.00) in recent sessions. The US API inventories in dropped over 5 million barrels last week, and the market will eye the latest weekly supply figures from the US DoE due later today.

What is going on?

  • Ugly action in big US banks after earnings reports - Goldman Sachs managed to avoid a significant sell-off yesterday, although it did post a modestly negative session despite the best earnings results in years on strong trading-driven revenue. But Bank of America and Wells Fargo both suffered ugly sell-offs yesterday of more than 5%, Bank of America as it failed to capitalize on the volatile trading environment to the degree its competitors did and its consumer unit saw a 17% decline from the year prior. Wells Fargo, like every other large US bank reporting so far, was able to set aside fewer funds than expected for loan losses than expected, but sold off on the announcement of a $1 billion charge to deal with a long standing customer abuse scandal and another $718 million restructuring chart. The bank’s revenue handily beat expectations, but the guidance was less optimistic on net interest income prospects in Q4 than, for example, Bank of America, which thinks it saw the bottom in Q3. At yesterday’s closing price, Wells Fargo is below its lowest weekly close since 2009.

  • Australia RBA Governor Lowe considering further easing measures – this was a surprise to the market, which took the Aussie and Australia’s bond yields sharply lower overnight, if modestly so. Governor Lowe said that the RBA’s board is discussing whether extending its purchase out the curve (currently the RBA has a 3-year yield-curve-control policy) would help the Australian labor market. Lowe commented that Australia’s 10-year yield is higher than “almost everywhere in the world”, although at some 0.84% before his comments (and 0.77% after), it is not far north of, for example, the US 10-year treasury yield of 0.71%.

  • France imposes a curfew to slow the Covid-19 resurgence - in the greater Paris area and several other major French cities that will not allow people out on the streets from late evening until morning, with further measures to follow if virus measures don’t improve in the next 10 days.

  • iTraxx Volatility for Investment Grade and High Yield corporates is rising again. European corporate bond volatility has dropped to levels seen at the beginning of March, however as Covid-19 cases continue to rise and winter approaches, volatility seems to start rising again.

  • The New York Fed has unveiled Treasury purchase scheduled for the second half of October. The NY Fed that is buying Treasury securities at a rate of $80bn a month, has released the schedule covering the end of the month. Out of the $40, almost half are being invested in the belly of the curve, with maturities up to 7 years. Around $4bn will go to Treasuries with maturity from 20 to 30 years.

What we are watching next?

  • US pre-election stimulus prospects are fading fast. US President Trump seems in full campaign mode and Republicans are in an uproar after Twitter and Facebook refuse to allow links to a NY Post hit piece on Biden. The Biden campaign called it a “Russian disinformation” attempt. With no deal on stimulus, at least 13 million US workers could face a complete lack of income with key elements of the prior stimulus deal set to expire on December 31.

  • US Q3 earnings season continues and picks up further next week. Another large bank – Morgan Stanley – reports today, while next week features market cap heavyweights like Tesla, Intel, Amazon, and Netflix.

Economic Calendar Highlights for today (times GMT)

  • 0730 – Sweden Aug. Unemployment Rate
  • 0950 – Hungary Rate Announcement
  • 1230 – US Oct. Empire Manufacturing
  • 1230 – US Weekly Initial- and Continuing Jobless Claims
  • 1230 – US Philadelphia Fed Survey
  • 1300 – UK Bank of England’s Cunliffe to Speak
  • 1430 – US Weekly Natural Gas Storage
  • 1430 – US DoE Crude Oil Inventories
  • 1500 – US Fed’s Quarles (FOMC Voter) to Speak
  • 1600 – ECB President Lagarde to Speak
  • 2100 – US Fed’s Kashkari (FOMC Voter) to Speak on Economic Outlook

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