Market Quick Take - July 5 2021 Market Quick Take - July 5 2021 Market Quick Take - July 5 2021

Market Quick Take - July 5 2021

Macro
Saxo Strategy Team

Summary:  A U.S. holiday shortened week has kicked off on a quiet note after the S&P 500 on Friday managed to hit another record. In addition, Treasury yields, and the dollar softened after the US job report eased concerns about the Fed's hawkish pivot. Overnight some focus on China where the Caixin services PMI fell to 14-month low, and the government widened its probe of tech firms. Focus this week on US PMI Tuesday and Wednesday's FOMC minutes and its potential impact on dollar and yields. Elsewhere OPEC+ remains at an impasse with UAE holding out for a better deal and Saudi Arabia refuses to budge.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – Today’s U.S. Independence Day holiday is likely to create limited market action with US equity futures trade sideways after clocking up another record on Friday following the US job report. Seven consecutive record highs in the S&P 500 were last achieved in 1997, and it highlights the current momentum and lack of concerns about tapering, rising rates and renewed surge in the Delta variant around the world.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). Over the weekend, Ethereum reached its highest price over the past two weeks, just above USD 2,350, and Bitcoin almost reached the USD 36k level before retracting to just above USD 34k this morning

EURUSD – the USD rally ran out of steam ahead of €1.18 on Friday after the U.S. job report eased taper and hike worries, potentially showing a rally running low on energy. The next downside focus is the 1.1704-1.1775 area, the upper part of which is arguably the “neckline” of a head-and-shoulders formation, while the lower bit is the pivot low from the end of March that coincided with the last major peak in US treasury yields, which have since drifted lower. Upside focus on €1.191 followed by a band of resistance between €1.1975 and €1.20.

AUDUSD sees lacklustre price action despite a big reversal on Friday from a low of 0.7445. For Aussie crosses, this week is likely all about the RBA rate decision on Tuesday (see below), where the tail-risk is to the hawkish side, yet is likely a low probability given Australia going back into restrictions over the last few wks.

Gold (XAUUSD) trades near a two-week high, but still below resistance at $1795 as concerns over an earlier-than expected rate hike by the Federal Reserve eased following a mixed bag of U.S. job data on Friday. However, with U.S. ten-year real yields reaching low levels last seen prior to the mid-June FOMC meeting, the recovery so far looks anything but impressive. Focus this week on FOMC minutes and the dollar which currently provides most of the directional input. Speculators meanwhile cut bullish gold bets by 5% to an eight-week low in the week to June 29, mostly due to fresh short selling. It highlights the prospect for a renewed short-covering rally on a break above $1814.

Crude oil trades unchanged with market participants trying to decipher what happens next within the OPEC+ group following a rare diplomatic spat between the UAE and Saudi Arabia. The UAE is looking for better terms and have so far refused the join a deal that would increase production by 400k bpd per month from August to December. At stake if the unity weakens, is the group's ability to continue to control prices, and with this in mind the market is still refusing to believe that a deal will not be struck eventually. The OPEC+ meeting look set to resume Monday afternoon Vienna time. Twitter users can follow developments on Twitter by using #OOTT and #OPEC.

US Treasury short-term yields are negative up to five months, and the front part of the yield curve could further fall into negative territory (SHY). Three elements will compress yields further: the debt ceiling returning on the first of August, bills issuance reduction, and a drawdown of the Treasury General Account. It means that the Federal Reserve needs to accept yields dropping into further negative territory in the front part of the yield curve, or it will need to taper more aggressively than expected. This week FOMC’s minutes might reveal Fed’s members’ stand concerning tapering. However, we might need to wait for the Fed to actively engage in tapering talks before yields will reveal some pressures.

In Europe, watch out for news coming from the ECB special strategy meeting. Bunds might be testing their support at –0.25% (VGEA). Investors are wondering whether the ECB will rise its economic target, being one of the few central banks in the developed world to hold a target below 2%. Speculation is for the central bank adopting a strategy like the Average Inflation Targeting (AIT) of the Federal Reserve, allowing it to remain accommodative for longer. Talks this week are crucial because they might influence decisions about unwinding the PEPP going forward. Ten-year Bund look they might be testing their support line at –0.25%, if they break it, they will find support next at –0.40%

What is going on?

China’s Caixin Services PMI slowed sharply in June to a 14-month low at 50.3 versus 54.9 expected. Weighed down by a resurgence of COVID-19 cases in southern China, thereby adding to concerns the world's second-largest economy may be starting to loose momentum. This will only raise the focus on US Services PMIs that are due tomorrow when the US comes back in from its long holiday weekend. Worth noting, we also have key China CPI & PPI this Friday.

China Tech: After two back-to-back weeks of higher stock prices following a big lag in 1H21, China tech names are solidly in the red into the Asia afternoon trading session. This seems driven by China regulators investigations and concerns around last week’s US listing of China’s answer to Uber and grab in the form of DiDi Chuxing. DIDI was up +17% in its first two trading days, before losing -5% on Fri when news of the investigations and concerns around its customers privacy data. The name could likely come under pressure in the US session on Tuesday.

The weekly Commitments of Traders report covering the week to June 29 showed a general rise in bullish commodities bets with net buying seen in 14 out of 24 futures contracts tracked in our report. Most noticeable exceptions being continued selling in gold and grains ahead of key USDA reports acreage and stocks. In addition, some profit taking also emerged in crude oil ahead of last Thursday’s (and ongoing) OPEC+ meeting. The 3% increase in the total net long to 2.3 million lots or $134.6 billion nominal value was led by natural gas (+61.4k lots), RBOB Gasoline (7.3k), wheat (7.8k), cotton (9.3) and HG Copper (8.3k).

US wins widespread support for its global minimum tax deal. Officials from 130 countries have agreed to a broad outline of new rules for taxing international companies, including a global minimum tax rate. The list of countries backing the new rules include China and India, which had previously withheld support for similar proposals. There are important holdouts that don’t support the deal, including low-tax areas in Europe, and new legislation would have to pass the US Congress.

What are we watching next?

RBA meeting on Tuesday Expect we will see RBA not opting to roll the YCC target to Nov 24 bond, while extending QE as a flexible and open-ended bond purchase programme, for now maintaining the current pace of A$5bn per week. Thus, avoiding unwanted upward pressure on the exchange rate, the RBA’s targets are still a long way off and many uncertainties remain, which in current circumstances should see Lowe leaning dovish and pushing back on market pricing, whilst simultaneously allowing for some flexibility by not rolling the 3-year target.

U.S. debt limit ceiling focus: Short-term look rates traders are getting ready for volatility ahead, as the U.S. debt ceiling looks poised to return on August 1, while Congress so far has not clear plan to increase it.

FOMC minutes – Will be heavily parsed for the talking about talking about tapering pivot. Traders will be looking for insights on the FOMC’s reasoning, any hints to whether the transitory narrative is wavering, as well as looking for hints on the possible timeline of tapering.

Economic Calendar Highlights for today (times GMT)

  • 0900 – Markit Eurozone Services PMI
  • U.S. Independence Day Holiday

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.