What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities continued higher yesterday both Nasdaq 100 and S&P 500 futures making new all-time highs on the close. However, comments from Chinese policy makers about considering cutting the central bank rate is more evidence that growth is slowing a bit globally and equities are generally selling off this morning. S&P 500 futures are the heaviest with the 4,328 level being the key support level today.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin has been struggling to rise above the USD 35k level and started a downside correction this morning, now trading close to USD 33,200. A similar pattern is seen for Ethereum which traded close to the USD 2,400 level yesterday but is now close to the USD 2,200 level.
In forex, the whipsaw week continues with the dollar generally trading stronger against AUD and NZD and lower against the EUR and especially the JPY. Worth noting that the drop in US Treasury yields this past week has helped strengthen the Japanese yen to the point USDJPY is currently challenging the uptrend from the April low, today around 110. Speculators hold a an elevated short in IMM JPY futures and further strength may set the ball rolling.
Crude oil trades down for a third day in response to OPEC-fueled uncertainty, a rapid rising virus count in select countries around the world and not least a summer holiday market where reduced liquidity drives increased volatility, especially now given the current disarray within OPEC+. A prolonged period without a deal could drive an increased amount of noncompliance, and the market worries countries like the UAE may adopt a new strategy of selling as much crude as possible. The API reported an 8 million barrel drop in US crude stocks while the EIA, despite surging prices, only saw modest production growth increases this year and next.
Gold (XAUUSD) remains rangebound around $1800 while silver is struggling to keep up, with the XAUXAG ratio rising to a near three-months high above 69. A firmer dollar and the FOMC minutes talking about the need to plan for stimulus tapering offsetting the positive tailwind from real yields trading at the lowest levels since February. Resistance remains at $1814, the 38.2% retracement of the post-FOMC sell-off, with support at $1790.
What is going on?
FOMC minutes confirmed that participants are talking about the fact they have been thinking about talking. It gave little clarity on when the tapering will start and what will be the composition of tapering. What really draw our attention – and might be of some importance – is the fact the FED is getting worried about overheating housing market rather than inflation or labour markets. It will be very interesting to see in the coming months whether larger tapering will be with MBS rather than Treasuries. We still expect talks about tapering to continue in the upcoming July FOMC meeting and forward guidance on the matter to be officially unveiled in September.
The lagged June JOLTS job openings were out at 9.21M from downwardly revised 9.19M in May. The quit rate, which was closely monitored by Janet Yellen when she was chair of the FOMC, came down a bit but remains high at 2.5%. However, we should not pay too much attention to these data since it covers a period prior to the first state exiting the $300 extra in federal unemployment insurance. We should rather focus on August and September labor market data to see how employment evolves.
The ECB agreed to raise its inflation goal to 2% and allow room to overshoot it according to Bloomberg. The pact, which emerged during this week's strategy review, is a significant change to the previous target of "below, but close to, 2% over the medium term." The review will be unveiled today, when the bank also releases minutes from its last meeting. Investors will focus on its case for keeping monthly bond buying through the PEPP at a "significantly higher pace" for another three months.
The Delta variant of COVID-19 is driving another increase in virus cases in select countries around the world. A widening disparity in access to vaccines leaves poorer nations and those with little faith in their governments exposed to outbreaks of the more infectious strains. Despite rapid rollouts in Europe and the U.S. it has taken 82 days for the latest million deaths, compared to 92 days for the previous million. On reaching 4 million deaths the UN’s Secretary-General Antonio Guterres said in statement that “Vaccine equity is the greatest immediate moral test of our times”.
The Bloomberg Grains index trades down 7.4% this month with the three major crops still trying to recover from steep declines earlier in the week on improved US Midwest weather outlook. In addition, the selloff in crude oil has impacted those crops used for biofuel while corn has been the hardest hit on doubts over Chinese corn import demand after a USDA briefing from Beijing earlier in the week lowered the country's 2021-22 imports to 20 million tons, below the USDA’s official 26 million tons forecast.
What are we watching next?
G20 meeting on Friday and Saturday in Venice. A new global corporate tax plan on the agenda. The French Minister says to Reuters that he expects the global tax deal to be accepted by G20 as 130 countries last week backed the US-led tax plan to harmonize corporate taxes on multinational companies with a set minimum tax of 15%. The tax plan is expected to take effect in 2023. The US is not pleased about the EU Commission’s plan to iron out an EU digital tax levy on digital companies which will hurt US interest as according to the US is not aligned with the tax plan idea.
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.
Economic Calendar Highlights for today (times GMT)
- 0900 – UN FAO’s Monthly Food Price Index
- 1230 – US Initial Jobless Claims
- 1430 – EIA's Natural Gas Storage Change
- 1500 – DOE's Weekly Petroleum Status Report
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