Market Quick Take - February 1, 2021

Macro 4 minutes to read
Saxo Strategy Team

Summary:  Equities ended last week in the US at their lowest level since the first trading day of the year, in the case of the US S&P 500 Index, although sentiment has stabilized at the start of this week in Asia. Focus among internet trading forums has shifted to include the silver market, with prices up steeply again overnight on a rush to buy silver bullion of any kind in the US in addition to bidding up silver in spot and futures markets.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equity futures are higher in early trading driven by strong equity markets in Asia with Japanese and Hong Kong equities up 2%. US 10-year yield is also slowly climbing back all in signs that the reflation trade might be resuming following two strong upside surprises to inflation numbers in the US and Europe. With the ongoing short squeeze and coordinated retail investor activity in certain stocks the focus is very much on Nasdaq 100 futures which sit just above the 13,000 level this morning.

EURUSD - after three weeks of coiling around in a tight range, perhaps this week will be the one that finally sees EURUSD make up its mind and either re-commit to the uptrend that has been in place since last summer with a break above 1.2200 or see a break of the key 1.2050 area and a challenge of the final up-trend support areas into 1.1900. It is difficult to tell where the market is looking for a catalyst when incoming data is widely ignored, although we assume the pair will be somewhat sensitive to risk sentiment, with the USD outperforming if global equity markets suffer a deeper consolidation. Some talk of rate cut potential by the ECB last week has contributed to holding the EURUSD in the lower range.

EURGBP - this is the preferred pair for expressing sterling direction. The recent downside action has taken the pair below the prior range low near 0.8860, but has not yet led to a major follow-through lower, something we will look for this week as a sign of a further repricing of sterling higher. It has been impressive to note sterling's resilience and some of that may be attributable to the UK more rapid Covid vaccine roll-out as the EU has suffered setbacks in acquiring a vaccine supply and in the roll-out itself. One key source of doubt for sterling buyers is the Bank of England's attitude toward negative interest rates, as the BoE needs to more clearly signal at its meeting this Thursday that it has no interest in taking rates negative for the sterling rally to post a more notable rally, perhaps starting with a EURGBP drop to 0.8600.

Silver (XAGUSD and SILVERMAR21) jumped overnight after taking center stage in the retail investor frenzy that has swept through markets this past week. A questionable belief that bullion banks hold a massive naked short in COMEX silver futures that can be squeezed, was a major focus across social media this weekend. As a result, the future jumped by 8.7% to $29.25/oz on the Asian opening, thereby breaking the downtrend from but not breaking the August peak at $32,16/oz. Bullion dealers in coins and small bars have seen a dramatic surge in demand with premiums blowing out. With this in mind, the focus today is to watch the exchange for physical (ETP) spread between spot silver and the futures for signs of stress in the system. Big moves in silver, however, is not unusual after witnessing 3 bull and 3 bear market moves last year ranging from 21% and 156%.

Job data in the spotlight as Treasury yields resume their rise (10YUSTNOTEMAR21). Treasury bonds fell together with the stock market last week and continue to trade within tight range as there is not a clear path to a recovery and the fiscal stimulus is stalled by Republicans. However, this week’s job data might surprise on the upside and give a push to yields with the 10-year Treasury yield resuming to trade above 1.1%.

Italian government crisis continues as a new coalition struggles to be formed (10YBTPMAR21). Amid last week’s selloff in European sovereigns, Italian BTPs were the most resilient. Investors who picked up Italian BTPs as the spread versus the Bund widened a few days ago, are waiting for a government to be formed before taking profit. Although an agreement between parties seems unlikely so far, Matteo Renzi, head of the small party which caused the government to fall in the first place, suggested Draghi as next Prime Minister. Although the President Sergio Mattarella has already sounded out Draghi, this is a possibility that could cause even more spread compression versus the Bund.

What is going on?

Robinhood keeps restriction list on certain stocks to curb speculation. On Friday, Robinhood had compiled a list of 50 stocks that were restricted in terms of trading accessibility due to violent short squeeze and subsequent volatility across all equities. Following the company’s capital increase the list has been reduced to only 8 names which are GameStop, AMC Entertainment, BlackBerry, Koss, Express, Nokia, Genius Brands International, and Naked Brand. Clients can only buy one share in GameStop and five options contracts as of Monday.

ExxonMobil and Chevron have had preliminary talks about a merger. This would be one of the biggest mergers in history and form a giant within the oil and gas industry. According to Wall Street Journal the talks have been preliminary and not resulted in anything, but it underscores an industry under pressure to increase profitability and one of the logic steps is to increase scale of economics and reduce operational redundancy in the industry. This is a signal that mergers and acquisitions could be running high this year in the energy industry.

US inflation measure surprises to the upside. Friday, the US Dec. PCE Deflator (an inflation gauge most favoured by the US Federal Reserve) was reported slightly higher than expected at the headline with a reading of +0.4% MoM and +1.3% YoY vs. +0.3%/+1.2% expected, respectively and the PCE Core was reported at +0.3% MoM and +1.5% YoY, versus +0.1%/+1.3% expected, respectively. There has been a consistent upside surprise in inflation data in recent weeks, both in Australia, Europe and the US, and the focus on inflation will continue to pick up as the "basing effects" of the oil-price and other price crashes of last March and April come into view in coming months.

What are we watching next?

Does volatility calm this week or stay very elevated? Considering the modest correction in US equity markets last week, it is remarkable that measures of volatility are so elevated, as the recent episode of squeezing of the most shorted US stocks has clearly spooked the broader market and injected considerable uncertainty. The VIX implied volatility index closed Friday at 33, normally a level one would associate with considerable market stress, and yet the S&P 500 had only corrected about 4% from the recent high as of the Friday close.

Big week ahead in the earnings season with Amazon, Alphabet, and Alibaba
It is going to be a big week in earnings with 175 companies out the 2,500 companies we track during the earnings season reporting this week. The most important earnings this week are Amazon, Alphabet, and Alibaba as these companies combined are the best picture into consumer activity and health in the two largest economies in the world.

  • Monday: Thermo Fisher Scientific
  • Tuesday: UPS, Exxon Mobil, Amazon, Alphabet, Amgen, Alibaba, Pfizer
  • Wednesday: Ping An Insurance, Novo Nordisk, Siemens, Sony, GlaxoSmithKline, PayPal, Qualcomm, AbbVie
  • Thursday: Unilever, Royal Dutch Shell, Chugai Pharmaceutical, Philip Morris, T-Mobile US, Roche, Merck & Co, Bristol-Myers Squibb
  • Friday: NTT, Linde, Sanofi, Estee Lauder, Deutsche Telekom

Economic Calendar Highlights for today (times GMT)

  • 0815-0900 – Euro Zone Final Jan. Manufacturing PMI
  • 0930 – UK Jan. Manufacturing PMI
  • 0930 – UK Dec. Mortgage Approvals
  • 1000 – EU Dec. Unemployment Rate
  • 1500 – US Jan. ISM Manufacturing
  • 1700 – US Fed’s Kashkari (non-voter) to speak
  • 1800 – US Fed’s Kaplan (non-voter) to speak
  • 1900 – US Fed’s Bostic (voter) to speak
  • 0330 – Australia RBA Cash Target announcement
 

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app:

Apple Sportify Soundcloud Stitcher

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article
Disclaimer

The Saxo 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 is not intended to and does not change or expand on this. 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 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 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 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 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 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-hk/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo or its affiliates.

Saxo Capital Markets HK Limited
19th Floor
Shanghai Commercial Bank Tower
12 Queen’s Road Central
Hong Kong

Contact Saxo

Select region

Hong Kong S.A.R
Hong Kong S.A.R

Saxo Capital Markets HK Limited (“Saxo”) is a company authorised and regulated by the Securities and Futures Commission of Hong Kong. Saxo holds a Type 1 Regulated Activity (Dealing in Securities); Type 2 Regulated Activity (Dealing in Futures Contract); Type 3 Regulated Activity (Leveraged Foreign Exchange Trading); Type 4 Regulated Activity (Advising on Securities) and Type 9 Regulated Activity (Asset Management) licenses (CE No. AVD061). Registered address: 19th Floor, Shanghai Commercial Bank Tower, 12 Queen’s Road Central, Hong Kong.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products may result in your losses exceeding your initial deposits. Saxo does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo does not take into account an individual’s needs, objectives or financial situation. Please click here to view the relevant risk disclosure statements.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-hk/about-us/awards.

The information or the products and services referred to on this site may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and services offered on this website are not directed at, or intended for distribution to or use by, any person or entity residing in the United States and Japan. Please click here to view our full disclaimer.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc. Android is a trademark of Google Inc.