Chief Investment Officer
Summary: Equity markets have hit a weak patch since Friday as New York closed on a sour note on the combination of a worsening acceleration in Covid19 cases in the US and as mega-cap Facebook plunged some eight percent on Friday as a growing group of advertisers are boycotting the platform for its perceived failure to suppress content. The week ahead features US June payrolls and employment data on Thursday in a shortened week for US traders.
What is our trading focus?
US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the sell-off Friday in US equities saw the Nasdaq 100 closing just above its 21-day moving average - currently 9865, a technical level it has not violated on a daily closing basis since early April. As for the S&P 500, the close Friday and the price action overnight have taken the index into the critical pivot zone between 3,015, the 200-day moving average, and an important area of resistance on the way up near 2,965.
XAUUSD (Spot Gold) - gold managed to snap back higher on Friday as risk sentiment cratered and the precious metal closed the week at its highest level since 2012, a strong performance given a rather resilient US dollar. The outlook for new highs would improve further if silver were also to break free of its resistance levels for the cycle, which are rather heavy in the 18-19.65 range.
FB:xnas (Facebook) - shares were down some 8% on Friday as a growing list of advertisers, now including Starbucks, Levi Strauss, PepsiCo and Diageo, announced they would curtail spending on the social media platform for its failure to suppress content that is seen as glorifying violence, sowing division and disinformation, and promoting racism and discrimination.
OILUSAUG20 (WTI) and OILUKAUG20 (Brent) - the renewed acceleration in Covid19 cases has the market on edge for the risk of a decline in demand and last week’s candlestick was a bearish one for Brent and WTI, with the former now capped by approximately 44 dollars and eyeing the psychologically significant 40.00 level this week and then lower still the pivotal 37.00 level that has supported over the prior two weeks. The downside levels important for WTI are last week’s lows just above 37 and the 34.66 area supporting over the prior two weeks.
EURUSD – volatility in the currency market is sorely lacking, but speculative positioning is building and now includes a very large USD short trade, much of it in EURUSD, in the US currency futures, with the speculative long there at its highest since early 2018. Traders should watch the sub-1.1200 lows around 1.1160 this week for risk of a positioning watch out if the US dollar begins rising again.
What is going on?
The COVID-19 case count in the US continues to accelerate and the case count has accelerated to a million new cases per week, a record number.
In local elections across France, President Macron’s party performed poorly, with the greens gaining ground and taking elections in Lyon, Strasbourg and Bordeaux, and left-green coalition winning Marseille for the first time after more than twenty years of centre-right rule. Turnout was low at 40%.
What we are watching next?
End of quarter shenanigans? It is difficult to find evidence that end-of-quarter rebalancing drives significant volatility, but the latest quarter has brought an enormous move in equity markets relative to bond markets, so if there is any such phenomenon, it could drive flows over through the end of the month and quarter tomorrow.
Brexit talks set to resume this week. While there is some time before the Brexit transition period ends at the end of this year, we could see important signals on the temperature of relations between the UK and the EU after Friday saw a weak close for sterling.
US employment numbers and sentiment – the strong showing in the US May Nonfarm Payrolls change data was cause for cheer last month and the June tallies are set for release this Thursday due to a Friday holiday for US Independence Day. Just as important is whether the market has The speed of declines of US initial jobless claims and continuing claims continues to be in the spotlight this week, as well as the June payrolls change data as the US faces a growing risk of slowing down the resumption of economic activity due to the latest acceleration in Covid19 numbers.
Economic Calendar Highlights (times GMT)
0830 – UK May Mortgage Approvals
0900 – Euro Zone Jun. Economic, Industrial, Services, Consumer Confidence
0930 – Bank of England Governor Bailey to Speak at Climate Finance Event
1230 – Canada May Building Permits
1230 – Bank of England’s Vlieghe to Speak
1430 – US Jun. Dallas Fed Manufacturing
2330 – Japan May Jobless Rate
2350 – Japan May Flash Industrial Production
0100 – China Jun. Manufacturing and Non-manufacturing PMI
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