Market Quick Take - January 12, 2021

Market Quick Take - January 12, 2021

Macro 4 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  US equity markets corrected lower yesterday, although global markets steadied overnight in Asia, and the Nikkei 225 posted a new multi-decade high. The US dollar remains firm after US treasuries weakened again, but gold and silver snapped back from an extension of their sell-off yesterday. In the US, Trump and Pence make nice as House likely set to move forward with impeachment in last week of the Trump presidency.


What is our trading focus?

  • Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equity futures pulled back sharply yesterday, erasing the entire extension above the old highs prior to the rally, and putting the major indices at delicate levels that need to hold to confirm the trend. The levels are around 12,900 in the Nasdaq 100 index and perhaps 3,750-75 for the S&P 500. Later in the week, equity traders will need to begin balancing incoming earnings results and guidance with expectations on how the economy and earnings will develop as vaccine roll-outs get under way in earnest in Q1.

  • Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - crypto assets stabilized and bounced back after Bitcoin sold off nearly all the way down to $30,000, a correction from the top late last week of over 25%. Ethereum suffered a sell-off of similar magnitude, but has already retraced more than half of the lost territory as of this writing. Some are linking the recent more frequent mention of “tapering” of Fed QE purchases as aimed squarely at speculative phenomena like the meteoric rise in Bitcoin and other crypto assets as well as Tesla stock.

  • AUDUSD and EURUSD – the US dollar remained broadly firm, with AUDUSD trading below 0.7700 at a new 5-day low close. The next trend support there is arguably 0.7600-25, although yesterday saw the pair finding support in the very narrow rising trend channel. Major trend support is the 0.7400 area that was critical on the way up. For EURUSD, the sell-off extended well below 1.2200, with first retracement support around 1.2065, and the major trend support coming in psychologically at 1.2000.

  • USDJPY – the USDJPY pair is often the most sensitive to moves in US yields and traded near the top of its very well-defined trend channel yesterday, where key resistance arguably come in around 104.50. If this area is broken, it would represent the first G10 USD pair to suggest a trend reversal for this cycle and would likely coincide with a further rise in US treasury yields at the long end of the curve.

  • Gold (XAUUSD) and silver (XAGUSD) continue to stabilize following the biggest drop in two months. The dollar rally has paused while US 10-year bond yields reached a new cycle high overnight. Rising nominal yields is a drag, but as long it is being driven by expectations for higher inflation, the (negative) impact on precious metals will eventually start to fade. During the latest rout gold has confirmed trendline support at $1815/oz while staying mostly above its 200-day moving average at $1840/oz with focus now on resistance at $1870/oz. Silver meanwhile has started to claw back some of the 5% it lost relative to gold with the first level of resistance at $25.7/oz.

  • US Treasury yields continue to rise, market attention turns to 10y auction today (10YUSTNOTEMAR21). The belly of the US yield curve rose sharply with 7- and 5-year yields rising as much as 5bps on the day. The 3-year Treasury auction closed marginally cheaper; however, demand was solid with the bid-to-cover-ratio rising as investors were looking to reduce duration. Fed’s Bostic’s speech fostered bearish sentiment in Treasury as it said that it is open to tapering as soon as the end of 2021 if there is a strong recovery. The selloff will likely continue with the 10-year yield trying the 1.2% resistance level. Key levels ahead are: 10-year Treasury auction today and 30-year auction tomorrow, and Bostic speaking again on Thursday.

  • Odds for an interest rate cut continue to rise in the United Kingdom as the economy faces double dip recession (GILTLONGMAR21, GILS). Bank of England’s Tenreyro was vocal yesterday about an interest rate cut, however it failed to convince the market that this tool will be enough to support the British economy and ignore a recovery as Gilts continued to selloff throughout the day.

  • Tesla (TSLA:xnas) and NIO (NIO:xnys) - Tesla shares were down 8% yesterday in what at first seemed like a correlated move to the decline in Bitcoin highlighting the same speculative vein. But part of the explanation could also have been Tesla’s main competitors in China, NIO, reporting a new sedan called ET7 with deliveries starting in Q1 2022. But the real positive surprise was the upgraded battery pack showing better performance and longer range. NIO shares were up 6%.

What is going on?

  • A buoyant grain market awaits the monthly release of world supply and demand forecasts by the U.S. Department of Agriculture today at 1700 GMT. Soybean (SOYBEANSMAR21) is hovering near a six-year high while corn (CORNMAR21), following its best run in a decade, continues to challenge the key $5/bu level. The report is expected to show reduced US inventories for soybeans, corn and wheat while a drop in oilseed and corn output in Brazil and Argentina would trim global stockpiles of both crops, already projected at the lowest in at least five years. Speculators began 2021 holding a near record net-long in corn and soybeans futures as rising demand and hot, dry crop weather in South America have reinforced concerns about tightening world supplies.

  • US President Trump and VP Pence meet, send no signs of Trump resignation or removal by VP Pence, which means that the Democratic House leadership will likely move forward with articles of impeachment tomorrow in an attempt to remove Trump from office and prevent him from ever serving again after having “incited insurrection”, as well as due to his role in asking for an official in Georgia to “find more votes”. The US Senate would then have to impeach Trump with a two-thirds majority for the impeachment to result in a trial and removal from office (largely symbolic as any trial would likely not take place until after the end of Trump’s term on January 20.

  • Carnival reports preliminary Q4 results showing a net loss of $1.9bn. The cruise line operator’s average monthly burn rate was $500mn in Q4 compared to $9.5bn in cash on the balance sheet as of 30 November indicating that the company has enough liquidity to get through 2021. The CEO says that the company expects all ships to be operational by year-end and that demand for 2022 is strong with cumulative advance bookings for 1H 2022 ahead of 2019. This is a good indication of what to expect for the general leisure industry when vaccines normalize our daily lives. Shares were down 1.5% yesterday on the news.

  • Cryptocurrency platform Bakkt to go public through a SPAC deal. The company is owned by the Intercontinental Exchange and has plans to launch an app in March that will let users buy and sell cryptocurrencies and manage loyalty points and gift cards according to Financial Times. The company will have an enterprise value of $2.1bn. The deal comes after Coinbase, the most established name in the industry, has just announced its plan to IPO in a more traditional way.

What are we watching next?

  • The ongoing development in US long yields – after the first week of the year saw US 10-year and 30-year treasury yields break above the key range highs of 1.00% and 1.75%, respectively, the ongoing development in US yields is important for the outlook across asset classes, as higher yields represent a tightening of financial conditions, which is benign if this is due to an improvement in the outlook and a strong economy, but comes at an interesting time as many speculative assets have had a remarkable run and could prove very sensitive to a persistent run higher in yields. Yesterday, the 10-year treasury benchmark yield posted another new high for the cycle at 1.15%.

  • Q4 2021 earnings season starts this week. Q3 2020 earnings season was the big comeback for corporate earnings and the market expect the momentum to continue in the Q4 earnings season. Friday is the most important day when JPMorgan Chase, Citigroup, and Wells Fargo report Q4 earnings and more importantly provide the market with an update on loan losses and the US economy.

Economic Calendar Highlights for today (times GMT)

  • 1100 – US Dec. NFIB Small Business Optimism survey
  • 1435 – US Fed’s Brainard (Voter) to speak at AI symposium
  • 1500 – US Nov. JOLTS Job Openings
  • 1600 – US Fed’s Rosengren, Kaplan and Kashkari to speak at event
  • 1700 – EIA's Short-term Energy Outlook
  • 1700 – USDA’s Jan. World Agriculture Supply and Demand Estimates
  • 1800 – US Fed’s George (non-voter) to Speak on economic outlook
  • 1900 – US Fed’s Rosengren (non-voter) to speak on economic outlook
  • 2130 – API's weekly US petroleum stock report

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...

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. This content is not intended to and does not change or expand on the execution-only service. 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)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

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.