Market Quick Take - June 11, 2020 Market Quick Take - June 11, 2020 Market Quick Take - June 11, 2020

Market Quick Take - June 11, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  The FOMC meeting yesterday was a mixed bag, largely seen as dovish for long term interest rates as the Fed pledged to continue expanding its balance sheet at the currently established pace, but had nothing to say on new policy initiatives like yield-curve-control. Risk appetite tried to stage a further rally over the meeting, but has consolidated overnight.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the latest strong rally extension just after the FOMC announcement and Powell press conference late yesterday has been entirely erased overnight and then some, with the Nasdaq100 looking at the symbolic 10,000 level again this morning, while the S&P has suffered a more significant drawdown without posting a new high in the prior two days, unlike the Nasdaq 100 (yet another sign of strong divergence as tech megacap names lead while smaller stocks languish).
  • OILUSJUL20 (WTI Crude Oil) - cracks in the oil market recovery was seen again yesterday after US stocks hit a 538-million-barrel record. This during a time where production has been cut by 2 million barrels/day. It supports our view that oil needs to consolidate with the risk of a minimum correction lower towards $35/b. Stocks are rising as demand for fuel continues to recover only slowly while abandoned storage plays add extra barrels through rising imports.
  • JPY crosses (AUDJPY, NZDJPY, CADJPY, EURJPY – the strong reaction in the US treasury market to the Fed’s message yesterday and a consolidating equity market are fuel for a broad JPY rally. If the lower US yields coincide with a further general bout of safe-haven seeking here, the JPY will likely strongly outperform versus smaller currencies, keeping USDJPY somewhat rangebound as the USD is likely to as the USD will also likely trade firmly – so the focus for more potential JPY strength for the moment is in the crosses.
  • AUDUSD – the AUDUSD managed to post a very marginal new high over the Fed meeting on broad US dollar selling, but now look set for a potentially larger consolidation lower after the incredibly persistent rally of the last couple of months, provided risk appetite is also in for a round of consolidation. A retracement to the 0.6800-0.6750 area is a modest consolidation scenario, while the 0.6675 area was a focus on the way up and the 200-day moving average.
  • CORNJUL20, SOYBEANSNOV20 and WHEATJUL20 - The US Department of Agriculture is due to release its monthly global agriculture supply-demand report (WASDE) later today at 16:00 GMT, the report often creates volatility and traders should be aware. The market has already priced in a heavy supply outlook, particularly in the U.S. Corn already trades at the lowest for this time of year in at least ten years while soybeans traders hope Chinese demand will save the day. This following a string of purchases of U.S. soybeans recently.

 

What is going on?

  • The new FOMC statement pledge to maintain the current pace of QE. The expressed intent to maintain the pace of purchases was the key change to the latest FOMC policy statement, which otherwise contained few changes and is seen as relatively dovish, given a strong tapering in the pace of Fed asset purchase over recent weeks. The accompanying economic and Fed policy projections were not given much focus, but suggest that the Fed doesn’t see the economy entirely returning to its pre-crisis levels until well into 2022, while the majority of the policy forecasts look for a policy rate of zero through 2022.  There was one last burst higher in late trading as the very last question at Fed Chair Powell’s press conference dealt with the risk of asset bubbles, with Powell essentially saying that the Fed is focusing on financial conditions for the economy and not the levels of asset markets.
  • US May CPI came in lower than expected, with the Headline CPI at a mere +0.1% year-on-year, the lowest since 2015, while the “ex Food and Energy” measure came in at 1.2%, the lowest since 2011. While we all know that a collapse in oil prices and demand shock will drive deflationary effects in the near term, the question further out will be whether the eventual supply shock and stimulus efforts drive a notable rebound and even the risk of inflation running hot.

What we are watching next?

  • Important EU summit next week - the EU Council meeting next week gives us the next impression on how united the front is on the new EU framework for responding to the Covid19 crisis. Already, pockets of resistance to the EUR 750 billion package are emerging, from Austria to Netherlands, Denmark and Sweden.
  • Post-Brexit negotiations incoming - these are set to grab more headlines in the weeks to come as negotiations for the terms of trade are set to resume and will affect the prospects for sterling, with any sense that the EU will continue to take a tough line with the UK, together with any sense that the BoE is still looking at taking policy rates negative possibly driving further GBP weakness.
  • Covid19 risks – reports on second wave outbreaks continue and could reach a tipping point for market awareness if some US states are forced to restrain activity again. Mexico and India, among other developing economies, are also hotspots and seem to have taken the approach of lifting lockdowns to prevent economic harm, even as Covid19 spreads.

 

Economic Calendar Highlights (times GMT)

0730 – Sweden May CPI

1230 – US May PPI

1230 – US Weekly Initial Jobless Claims

1430 – US Weekly EIA Natural Gas Storage

 

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

AppleSportifySoundcloudStitcher

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.