Market Quick Take - February 25, 2021

Macro 4 minutes to read
Saxo Strategy Team

Summary:  Equities fought their way back higher yesterday and overnight and commodities saw a huge new wave of buying pressure, perhaps on the news in the US that the one-shot Johnson and Johnson vaccine is effective. US treasury yields also leaped to new highs on the news, as the market anticipated a post-vaccine burst of growth and potentially inflation.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – very strong session in Asia with Hang Seng futures bounding back 2% following the fallout from the likely increase in stamp duty on trading is lifting US and European equity futures this morning. Nasdaq 100 futures are up 0.3% but yesterday’s session was still quite volatile intraday suggesting fragile markets. European equity futures are bouncing back more in line with inflation hedges as the European equity market has more index weight in cyclical companies including miners and energy companies.

  • Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - the crypto market seems to have stabilized after a couple of days with heavy price movements, with Bitcoin trading around the $50.000 level and Ethereum just above $1.600.

  • AUDUSD and NZDUSD – the commodity currencies are doing well with this backdrop, as commodity prices have rushed higher of late and boosted the AUD and NZD to new highs for the cycle. Next chart points to the upside for AUDUSD are near the 0.8135, the 2018 high, and for NZDUSD the not-so-distant 0.7550+ high from 2017. A note of warning: these currencies will have high beta with any swing in commodity prices and at some point, the central banks in both countries will become more restive, and the RBNZ even has a history of actual currency intervention.

  • EURUSD – for the broader US dollar picture, we continue to watch EURUSD and USDCNY for a sense of whether a more profound USD sell-off is unfolding here (as opposed to the chief focus of the moment on commodity-exposed FX), as EURUSD trades toward the top of the local range that has served as resistance for the last several weeks just under 1.2200. A weaker US dollar would likely help to fuel strong risk sentiment and asset- and commodity prices globally.

  • Gold (XAUUSD) slumped back below $1800 after Powell pushed back on inflation concerns thereby causing a rise in US 10-year real yields to –0.75%, the November top. Following two days of Congressional testimonies, the market has concluded the Federal Reserve is not concerned about the recent rise in yields and as a result the yield curve (5-30yr) is now the steepest since 2014. Silver (XAGUSD) meanwhile has recovered back above $28 with the gold-silver ratio (XAUXAG) falling to 64. Driven by a continued rally in copper and some renewed focus from the “SilverSqueeze” group of traders after GameStop doubled twice yesterday. Gold has key support at $1765 and resistance at $1820.

  • US Treasuries continue to selloff, 7-year Treasury Notes auction and PCE data in the spotlight today (TLT, IEF). Powell said that he believes there is going to be a long way to a recovery. According to the president of the Federal Reserve, inflation will reach a sustained level of 2% in more than 3 years. Despite sentiment in Treasuries improved after his speech, the 5-year note auction was weak sending yields in the belly and long part of the yield curve back up. Today’s 7-year and Personal Consumer Expenditure data will be crucial for Treasuries’ sentiment.

  • Bailey’s speech improves sentiments in Gilts, but not for long (IGLT). Yesterday, 10-year Gilt yields rose to try the new support line at 0.80%, however after Bailey’s speech yields dived and closed the day at 0.72%. The Bank of England’s Governor is expecting a considerably negative first quarter leading him to continue to support the economy and to review the pace of Gilt purchases next months.

  • Nvidia (NVDA:xnas) - reported Q4 earnings yesterday with EPS hitting $3.10 vs est. $2.81 and revenue at $5bn vs est. $4.8bn with revenue guidance of $5.3bn in Q1 vs est. $4.5bn by analysts. While the chipmaker sees some supply constraints and difficulties keeping inventory in some graphic cards, the company expect to have enough supply to grow the business in 2021. Shares were quite muted in extended trading.

  • Ark Innovation ETF (ARKK:arcx) - the main fund of Ark Invest was down again yesterday and evidence suggests that the fund’s position size has been highly correlated to those stocks’ performance over the past couple of days. While risk seems more balanced for now the increasing puts on Ark Innovation ETF suggests professional investors are still betting on a bigger correction in this segment of the equity market.

What is going on?

  • UK Chancellor Rishi Sunak preparing big new spending bill – and may offset some of expense with corporate tax raise - this is an interesting first effort by the UK Chancellor to both provide additional stimulus – possibly of up to £100 billion – but also some sense of fiscal probity by offsetting some of the expense with a corporate tax raise. Currently, the corporate tax rate is 19%. The Treasury will hold a “tax day” some three weeks after next Wednesday’s Spring Budget announcement, at which Sunak may outline the new spending plans and an eventual intent to shift the tax regime.

  • Agriculture commodities - Poor weather in Brazil continues to support the prices of soybeans (SOYBEANMAY21) and sugar (SUGARMAY21). Heavy rains during the past week have delayed the harvest of soybeans while exacerbating shipping logjams which are also impacting the export flows of sugar. Arabica coffee (COFFEEMAY21) meanwhile has risen to a 14-month high with adverse weather - drought during flowering followed by too much rain – driving the price higher at a time where the market is beginning to look for a post-pandemic pickup in demand. These developments supporting a jump in the Bloomberg Ag Index (ETF example: AIGA:xlon) to a fresh four-year high.

  • Charlie Munger hits out at current equity sentiment. In a talk yesterday at a Daily Journal interview he said that the current market behaviour reminds him of the dot-com bubble and that it will end badly. He lashed out at Tesla and Bitcoin, but also called Robinhood a dirty business luring in gamblers.

What are we watching next?

  • What is the pain point for rising treasury yields? - the “everything up but bonds” trade yesterday is driving enormous potential energy into this market, as yields have risen very sharply recently and can only head so high before triggering some level of unease across markets – we are getting close to one important pressure point in US yields – the 1.50% ten-year benchmark, as this area marked the cycle lows in yield for that benchmark yield prior to the pandemic outbreak.

Earnings releases to watch this week – strong Q4 earnings yesterday from Nvidia was not enough to please investors, sending the shares down again in extended trading due to growth concerns related to its datacenter business. The chipmaker is also constrained on the supply side with difficulties keeping an inventory especially in its gaming (includes crypto mining) segment. Booking, the world’s largest operator of online travel booking sites, showed less worse than expected bookings in Q4 and the company’s CEO said they are seeing early signs of summer bookings in especially Germany and the UK. Today’s earnings focus

  • Today: MercadoLibre, AXA, Anheuser-Busch InBev, Bayer, NetEase, Toronto-Dominion Bank, Salesforce, Autodesk, Workday, VMWare, Dell Technologies, Moderna, Safran
  • Friday: Deutsche Telekom, BASF
  • Saturday: Berkshire Hathaway

Economic Calendar Highlights for today (times GMT)

  • 0830 – Sweden Jan. Household Lending
  • 1000 – Euro Zone Consumer Confidence and other Confidence surveys
  • 1045 – ECB Chief Economist Lane to speak
  • 1330 – US Jan. Durable Goods Orders
  • 1330 – US Weekly Initial Jobless Claims and Continuing Claims
  • 1330 – US Q4 GDP revision
  • 1430 – US Fed’s George (non-voter) to speak
  • 1500 – ECB Vice President Guindos to speak
  • 1530 – US Weekly Natural Gas Storage Change
  • 1530 – US Fed’s Bullard (non-voter) to speak
  • 2000 – US Fed’s Williams (voter) speaking
  • 2100 – New Zealand Feb. ANZ Consumer Confidence
  • 2330 – New Zealand RBNZ Governor Orr speaking
  • 2350 – Japan Jan. Industrial Production / Jan. Retail Sales
 

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

Apple Sportify Soundcloud Stitcher

Disclaimer

The Saxo Bank 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 Bank 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 Bank 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 Bank 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 Bank 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 Bank 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/legal/disclaimer/saxo-disclaimer)
- Full disclaimer (https://www.home.saxo/en-mena/legal/disclaimer/saxo-disclaimer)


Due to coronavirus controls, we are not able to meet with clients in our reception at present, unless by appointment in exceptional circumstances. We remain at your service on the phone and email details below. Thank you for your understanding.

Please expect very long waiting times on the line when calling us, we advise you to send us an email instead.

Contact Saxo

Select region

UAE
UAE

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.