Market Quick Take - May 21, 2021 Market Quick Take - May 21, 2021 Market Quick Take - May 21, 2021

Market Quick Take - May 21, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Equities stormed back higher in Europe and the US yesterday as treasury yields sank and the cryptocurrency market failed to provide any fresh drama. Action overnight in Asia was more muted. Commodities, from oil to industrial metals, have deepened their consolidation lower, taking some of the immediate pressure off the inflationary narrative and perhaps driving the sentiment rebound.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities came storming back higher yesterday and both the Nasdaq 100 and the S&P 500 are up trading near their 21-day moving averages, with the rally particularly sharp in the Nasdaq 100 yesterday as yields dipped (but once again reinforcing the recent positive correlation between treasuries and equities that have noted as a concern). The 13,550 area in the Nasdaq 100 (21-day SMA) and then the 61.8% retracement of the sell-off from the top at 13,625 are the next resistance areas of note. For the S&P, there is the recent 4,180 pivot area as the last level of note ahead of the 4,238 all-time high.

Euro STOXX 50 (EU50.I) - the last couple of weeks’ price action shows that momentum has grinded to standstill with European large cap stocks boxed into a trading range with increasing volatility highlighting the wait-and-see mode of investors. Inflation expectations and rising Bund yield are constraining equities more broadly while lifting European banks overall. The key level to watch today in STOXX 50 futures is 4,006 which was last Friday’s closing level.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). The comeback yesterday in the cryptocurrency space found resistance in the 40-42k zone for Bitcoin, the major resistance for now before the prior low around 47k, 61.8% retracement at 48.3k and the psychological level of 50k. For Ethereum, the clear upside resistance is now 3,000 after the remarkable rebound from sub-2,000 lows from Wednesday. Yesterday, the US Treasury announced that any transfer of more than $10k would require reporting to the internal revenue service.

EURUSD after dipping in the wake of the FOMC minutes Wednesday and turbulence in the crypto market and steering clear of closing below the 1.2150 area, EURUSD rebounded back toward the recent cycle highs, keeping the focus higher for the pair toward the 1.2350 area top from early January, although progress may be slow without a more determined move higher in EU yields, which have stalled out in recent days. The EU reports preliminary May Manufacturing and Services PMI today, with a broad comeback in the Services industry not anticipated until summer, on more widespread opening up from lockdowns and restrictions.

AUDUSD and AUDJPY – we continue to watch AUDUSD here for direction after its very extended bout of trading in a remarkably constricted range. Two opposing forces are struggling for attention here: a commodity correction and China’s recent moves to limit imports of Australian commodities are weighing on the currency, while the bulls are perhaps hoping that this is a mere distraction for now and broader strong risk sentiment is providing some off-setting support. The key upside level is just shy of 0.7900 and then the 0.8000 area top, while we are trading close to the first downside breakout level near 0.7675, with a bigger multi-month range low at 0.7532. AUDJPY is interesting from the angle of potential downside on weak commodities prices and Japan’s low CPI overnight reminding that real yields in Japan remain high relative to elsewhere, with lower yields also JPY supportive.

Crude oil (OILUKJUL21 & OILUSJUN211) is trying to stabilise following its biggest weekly loss since March on a potential revival of the Iran nuclear deal and lack of synchronized growth in global fuel demand due to virus hotspots in Asia. In addition, oil has also been caught up in a broader commodities correction after China warned that it could introduce measures to cool spiking prices of raw materials. Brent’s prompt spread has weakened to show the lowest backwardation this year, an indication market tightness is easing. With Iran potentially coming back and OPEC+ already adding barrels, Brent is likely to remain stuck in a $65 to $70 range, with the s/t risk skewed to the downside until the mentioned demand picture improves.

Gold (XAUUSD) is heading for a third weekly advance in response to supportive macroeconomic developments and elevated crypto volatility which according to JP Morgan has resulted in big investors switching into gold as inflation fears heat up. Total holdings in bullion-backed ETFs have risen for a fourth week with the current momentum attracting fresh investor interest. The key level to watch is $1876 with a break above signaling a move to $1922, the 61.8% retracement of the August to April correction. Support at $1845 (200-day ma) followed by $1818 (21-day ma).

What is going on?

The Biden administration lowers taxation level in proposed global minimum corporate tax - after previously proposing a level of 21% in the ongoing negotiations in an OECD context, the new proposal is for at least 15%, which the administration declared as a “floor” and still hoped to move higher. The original rate discussed at the OECD was 12.5%.

Mixed week in agriculture commodities - Soybeans (SOYBEANSNOV21) trades down around 4% as bullish momentum eases and planting in the U.S. progresses at speed while wheat’s (WHEATDEC21) two-week decline of more than 11% has been the result of heavy rain in Kansas, the top growing state raising the prospect for record yields. Corn (CORNDEC21) traded higher on tight supply with focus on Chinese buying, currently running at levels never seen before, and increased demand from renewable fuel industry. Softs meanwhile saw coffee (COFFEEUSJUL21) top the performance table with ongoing drought in Brazil impacting the size of this year's crop and now potentially also next years on-season crop.

What are we watching next?

Is positive correlation between US equity and US treasuries a sign of a fragile market? The correlation between the Nasdaq 100 index and the US ten-year treasury future is very tight over the last 10-plus trading sessions, with both markets yesterday possibly receiving a boost from a weakness in a number of commodity markets recently, most importantly oil. But this positive correlation could be a driver of volatility going forward because it drives the risk of greater swings in portfolio risk when major asset classes are not providing diversification of P&L swings.

Robinhood IPO S-1 filing is expected next week – the fastest US retail brokerage company which was catapulted Robinhood into world-wide fame during the historic GameStop squeeze as the company was forced by US regulators to put up more regulatory capital to maintain client positions. Since the hectic weeks of the GameStop squeeze the retail brokerage firm has worked to filed for IPO to both increase capital but also capitalize on its high growth rates over the past five years. The company is saying that it expects it S-1 filing to be ready by next week and is aiming for first day of trading by the end of June.

Earnings reports this week. Strong earnings yesterday from Tencent are bolstering sentiment that Chinese technology can weather increased Chinese regulation without a large impact on profitability. Given lower valuations on Chinese technology companies compared to US technology companies, we expect flows to move in direction of China as soon as the regulatory news flow dries up. In Europe, Richemont has reported very strong results with the CEO saying the company is operating at capacity levels above 2019. Later today, our focus will be on Chinese e-commerce giant Pinduoduo, which we expect to show strong results, and Deere which is important for gauging demand and pricing pressures in the agricultural sector.

  • Today: Richemont, Pinduoduo, Deere

Economic Calendar Highlights for today (times GMT)

  • 0715-0800 – Euro Zone May Preliminary Manufacturing and Services PMI
  • 0830 – UK May Preliminary Manufacturing and Services PMI
  • 1100 – ECB President Lagarde to Speak following Eurogroup meeting
  • 1230 – Canada Mar. Retail Sales
  • 1345 – US May Preliminary Markit Manufacturing and Services PMI
  • 1400 – Euro Zone May Consumer Confidence
  • 1400 – US Apr. Existing Home Sales

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)

Saxo Markets
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 Markets is a registered Trading Name of Saxo Capital Markets UK 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. 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 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.

©   since 1992