Market Quick Take - November 30, 2020

Macro 6 minutes to read
John Hardy

Head of FX Strategy

Summary:  Markets have started the week in defensive mode after a strong close to trading last week. Safe haven bond yields suggest a defensive stance since late last week, although equity markets have not corroborated this until the Asian session overnight. A bit of end-of-month rebalancing on this last day of the month, perhaps? That would certainly not be a major surprise, given that this month will likely prove the strongest single month in global equity market history.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equities are 0.7% lower this morning following news that the Trump administration will most likely add two more Chinese companies SMIC and CNOOC to its defense blacklist. In S&P 500 futures the next important support level is around 3,600 and given the tensions with China and the fact that this month has been one of the best for global equities we guess that risk-off will prevail during the entire session. Nasdaq 100 futures seem to be less responding to the US-China tensions down only half as much as S&P 500 futures.

  • Bitcoin Tracker ETN (BITCOIN_XBTE:xome) and Ethereum Tracker ETN (ETHEREUM_XBTE:xome) - Bitcoin and Ethereum have managed to shake off a good portion of the volatility that suddenly arrived last week on the heels of concerns expressed on the risk of regulation, triggering a significant consolidation of recent gains. It is likely no coincidence that the consolidation took place right up against the all-time highs north of 19,500 in Bitcoin, as 20,000 is likely a major psychological focus for whether further upside gains will be unlocked from here.

  • EURUSD – EURUSD pulled higher for its strongest daily and weekly close since early 2018, with 1.2000 now clearly in its sights. The big round levels in EURUSD have long provided major sticking points and that has been no exception this year, with the probe of 1.2000 back in September. The more the outlook points to hopes that authorities can roll out a Covid-19 vaccine and an improved growth outlook, the more ammunition for the bulls looking for 1.2000 to fall and open the way for the early 2018 highs above 1.2500 (again, that was the final resistance level of the rally at the time, with no weekly closes above that level despite three tries on three different weeks above).

  • AUDUSD – the Aussie is a currency worth watching as AUDUSD approaches the cycle high just above 0.7400 and as we consider the risk to the Australian economy on a confrontation with China over its policies with that country, which drives a significant portion of demand for Australian exports. The tension ratcheted higher at the weekend with China’s move to slap tariffs on Australian wine imports (more below.)

  • China A50 Dec (CNZ0) - the index was up as much as 2% at one point during the session before the news about the US likely adding SMIC and CNOOC to its defense blacklist but is now down almost 1% for the day. Hang Seng futures in Hong Kong are down 1.6%. Other emerging markets are down with South Korean equities down almost 2%.

  • Brent crude oil (OILUKJAN21) and WTI crude oil (OILUSJAN21) trade lower ahead of today’s OPEC and Tuesdays OPEC+ meetings. This after an informal online discussion Sunday evening failed to agree on a postponement of the January 1.9 million barrel/day production hike. Failure to curb production amid an ongoing pandemic and the positive impact on demand from a vaccine rollout still month away could hurt the price. Thereby triggering an exodus of the some of the +100 million barrels that speculators have bought in Brent alone this month.

  • Gold (XAUUSD) and silver (XAGUSD) both struggle while HG Copper (COPPERUSMAR21) continues to surge higher, reaching a seven-year high in Asia overnight. The vaccine-led change in focus from safe-haven to growth has triggered sharp adjustments this month, culminating in a the 6-million-ounce clear-out Friday below $1800/oz. Overnight in Asia it almost touched the next key support at $1763.50/oz, the 50% retracement of the March to August surge. Silver meanwhile has yet to challenge the September low at $21.68/oz. The fact the latest selloff occurred despite a weaker dollar and lower real yields highlights the current focus on vaccines and their expected market impact in 2021.

  • Portuguese sovereigns will consolidate below 0% in yield this week, the periphery will continue its rally (FBONZ0, 10YBTPDEC2020). Portuguese 10-year sovereigns will most likely consolidate below 0% in yield this week and the periphery will continue to rally. Even though Spanish sovereigns are next in line to fall below 0%, we still believe that biggest upside is to be found in 30-year Italian BTPs as they trade rich compared to its peers.

  • Junk continues to rise as the market is looking for higher yields (HYG:arcx). US junk credits are near to recover their Covid-19 losses. Year to date, the market has seen $406 billions of high yield credits new issuances versus $288 billions compared to 2019. Junk corporates are taking advantage of ever low rates to issue and extend their debt.

What is going on?

  • US places two large Chinese companies on its blacklist linking the move to China’s activity in oil exploration and drilling in the disputed areas of the South China Sea, the US has placed CNOOC, the third-largest oil company in China, on its black-list of companies with links to the Chinese military. The company’s stock was down some 10% overnight. The other company black-listed by the US is Chinese semi-conductor maker SMIC, which relies on many US semi-conductor companies for its supplies.

  • The EU is set to pitch the US on an alliance to face “strategic challenge” posed by China – clearly timed in anticipation of the end of the unilateral Trump era, the EU is set to make a major diplomatic push to create an alliance with the US in facing the “strategic challenge” presented by China, and aligning on matters like digital regulation, the tackling of the Covid-19 pandemic and environmental issues. A draft document was seen by the FT. The EU is open to Joe Biden’s call for a “summit of democracies”.

What we are watching next?

  • Germany Flash November CPI up today – and is expected to show a reading of –0.7% month-on-month and –0.2% year-on-year, the latter unchanged from the prior month’s reading. Three of the last four year-on-year CPI readings have been negative. With year-on-year comparisons for oil prices set to look far less deflationary starting in March, the negative readings may not linger, but debt loads in Germany and across the Euro Zone mean that the disinflation and weak growth are a real threat for the ECB’s mandate.

  • Brexit breakthrough news – is this week really “the final week for negotiations”? As we enter this week, we have the confusing combination of rather positive developments in the latest round of Brexit talks – particularly on the fisheries issue, where an agreement on a transition period may be in the works – but sterling doesn’t seem particularly inspired, and EURGBP has drifted back higher toward the 0.9000 area. Talks are set to resume today, and this week has been billed as a “final week” for reaching an agreement (or will we actually get a delay of sorts despite Boris Johnson’s promise not to do so – or even get both, an agreement framework, with a delay on the details...).

Earnings releases this week are running low as we are off season. But the releases below are worth following:

  • Monday: Meituan, Immunomedics, Sino Biopharmaceutical
  • Tuesday: Bank of Nova Scotia, Bank of Montreal, Salesforce, Veeva Systems, Trip.com
  • Wednesday: Royal Bank of Canada, National Bank of Canada, Snowflake, Synopsys, Crowdstrike, Splunk, Okta, Zscaler
  • Thursday: DocuSign, Marvell Technology, Dollar General, Kroger

Economic Calendar Highlights for today (times GMT)

  • 0930 – UK Oct. Mortgage Approvals
  • 1000 – ECB President Lagarde to Speak
  • 1300 – Germany Nov. Flash CPI
  • 1330 – Canada Oct. Building Permits
  • 1445 – US Nov. Chicago PMI
  • During the day – OPEC virtual meeting
  • 0330 – Australia RBA Cash Target announcement

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