Summary: The S&P 500 touched another record in yesterday's trading while the interest rate sensitive Nasdaq 100 lost ground ahead of US inflation data - the other part of the Fed's mandate - which will be watched closely following last week's strong job report and a growing taper call from Fed officials. Crude oil has stabilized, supported by shrinking US stockpiles and confidence demand will hold up despite current virus setbacks. Gold remains fragile ahead of CPI with focus on its impact on dollar and yields.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – fluctuates ahead of US CPI with the focus on the continued rise in US 10-year yield which yesterday helped send the tech-heavy Nasdaq 100 down while the S&P 500 climbed to an all-time high.
EURUSD – trades near, but so far holding above the March 31 low at €1.17, a level if broken could trigger an extension towards €1.16, the double bottom from Q4-20. Driven by a rising yield spread on a divergence in the timing of tapering between the Fed and the ECB with the latter still expected to be on hold until 2023 while the Fed could signal a change at the Jackson Hole symposium. To the upside, we focus on support-turned-resistance at €1.1760.
Gold (XAUUSD) remains fragile as it continues to trade below key support-turned-resistance in the $1750-60 area. Ahead of today’s important US CPI print (see below), a small bid emerged in Asia with improved physical demand seen following the recent slump. So far, no support from the dollar which is still threatening to break higher and real yields which trades at a two-week high. Silver (XAGUSD) meanwhile continues to struggle with the XAUXAG ratio trading near a seven-month high. Platinum (XPTUSD) is doing relatively better and since Friday its discount to gold has dropped by 75 dollars to the current $725. Trading will be nervous with the direction eventually determined by CPI, the most important data print before the late August gathering of central bankers at Jackson Hole, a forum often used to announce pivotal changes.
Crude oil (OILUKOCT21 & OILUSSEP21) has stabilized after the weekly API report pointed to another drop in US stocks, and a belief that the recovery in demand will not be derailed by the delta coronavirus variant which continues to spread around the world. Goldman Sachs, one of the biggest oil bulls, predicts the demand impact will be transitory before another surge towards yearend. The market will be watching closely the monthly oil market reports from the IEA and OPEC on Thursday for any signs of changes in their demand outlook. Focus today the CPI print and its potential via the dollar as well as the weekly stock report from the EIA.
What is going on?
The $550 billion US infrastructure bill was passed by a bipartisan 69-30 vote last night and now the battle for a much bigger $3.5 trillion package of social spending and tax increases begin. The infrastructure bill however may still face hurdles in the house where progressive Democrats may opt not to pass the bill without getting their priorities addressed, a development that led House Speaker Pelosi to declare that she will not allow a vote on the bipartisan package until the Senate has passed the broader economic plan.
Bitcoin and Ethereum - The passed US infrastructure bill contains the originally proposed broad definition for a "broker" when it comes to crypto tax reporting requirement, despite several attempts from lawmakers and the crypto industry to have the definition changed.
Big acquisition in the cyber security industry. NortonLifeLock is acquiring Avast in a deal valued at $8.1-8.6bn in a cash and shares deal. The combined company will have dual headquarters in the US and Europe. This acquisition could fuel a wave of acquisitions in the industry and potentially be a driver for higher valuations in the industry over the coming months.
Coinbase Q2 revenue beat expectations with Q2 revenue at $2.23bn vs est. $1.85bn driven by volume of $462bn vs est. $382bn. Q2 adj. EPS was $7.76 up from $7.50 in Q1. Monthly active users hit 8.8mn up 44% q/q and Ethereum overtook Bitcoin in terms of volume. Shares were unchanged in extended trading. Our crypto & blockchain basket is up 24.1% month-to-date and Coinbase’s strong earnings could easily extend the rally.
Robinhood buys Say Technologies for $140mn. The acquisition is adding a crucial shareholder voting and communication tool to Robinhood’s ecosystem, which seems to be a positive move towards being more oriented towards investors than the short-term options and crypto trading that has fueled Robinhood’s success.
What are we watching next?
July US CPI is the big macro release today. The consensus expects it will hover around 4.9% YoY after a jump at 5.4% YoY in June. It was the largest gain since August 2008. If the headline figure is higher than anticipated, which is likely, the market might seriously question the concept of « transitory » inflation used by the Federal Reserve. What worries us the most is that more and more firms are now inclined to increase prices in order to cope with higher wages and soaring transportation costs. In turn, this could make inflation run uncomfortably high in coming months.
WASDE - The grains market trade mixed ahead of a monthly supply and demand report from the US Department of Agriculture on Thursday. The report will provide estimates for yields and production levels following what so far has been a volatile growing season caused by adverse weather. However, the short-term weather outlook has now turned less price favorable with temperatures moderating while rains have brought much needed moisture across key growing areas in the northwest and central areas of the US. The report is expected to show a decline in corn yields leading to a lower production estimate while the outlook for soybeans look less price supportive.
Earnings to watch this week. Q2 earnings have been strong we expect earnings releases this week to reflect this. Today, Vestas and NIO are the key earnings releases to watch with both being part of the green transformation and enjoying a massive tailwind from regulation and policy trajectory. NIO has recently disappointed a bit on deliveries and with VW and other carmakers ramping up EV production the pressure is on NIO to deliver against high expectations. Thursday is the big day with Orsted on the green transformation in Europe, Walt Disney on video streaming and its attack on Netflix with its Disney+ offering. On Thursday, we also have earnings from Baidu and iQIYI which are currently in the middle of the Chinese technology crackdown.
Economic calendar highlights for today (times GMT)
Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:
AI: The good, the bad, and the bubble
While a deep recession may not be iminent thanks to central bank policy, interest rates will have to stay high for longer, and this will be accompanied by volatility risk from the unwinding of bubbles, especially within AI.
Steen Jakobsen,
Chief Investment Officer
The emergence of advanced AI systems is by far the most surprising event this year, turning everything upside down, while risks and benefits are debated. AI will also become an arms race between the US and China.
Peter Garnry,
Head of Equity Strategy
As China navigates global fragmentation, its cycle of technology application, productivity enhancement, and growth is threatened by US breakthroughs in generative AI, limited computing power, and geopolitical tensions.
Redmond Wong,
Market Strategist
Japan’s expertise in semiconductors and robotic integration could be the foundation of AI dominance. Combining two of this year's themes, Japanese equities and artificial intelligence, brings a wave of opportunities.
Charu Chanana,
Market Strategist
The AI fever has turned the technology into a darling, pushing crypto further into no-man’s-land. There are striking similarities between AI and crypto, and if these are to come full circle, AI won't be spared for bubbles.
Mads Eberhardt,
Cryptocurrency Analyst
Stocks related to artificial intelligence (AI) have appeared on investors' radars. Expectations are high, but it may be necessary to consider how to get exposure to AI in a diversified way.
Hans Oudshoorn,
Trainer Academy
The USD is on its back foot as markets celebrate an eventual Fed rate peak and steady long US yields. The stakes are even higher for the Japanese yen if longer major sovereign yield curves have to price in economic acceleration.
John J. Hardy,
Head of FX Strategy
While commodities, broadly speaking, have faced some tough months, a partial reversal during June could signal that the asset class is getting back on its feet with energy holding up and precious metals with upside potential.
Ole S. Hansen,
Head of Commodity Strategy
As inflation remains high central banks face hard decisions about whether they should keep hiking interest rates or stop. Meanwhile, the rise of AI creates bubble-like conditions that only make the decision harder.
Althea Spinozzi,
Senior Fixed Income Strategist
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)
