Market Quick Take - June 16, 2020

Market Quick Take - June 16, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  The US equity market rallied steeply after posting new local lows yesterday and has followed through in overnight trading on no readily identifiable catalyst. The USD and JPY were sharply lower in sympathy with the move as we look ahead to testimony today before a Senate panel from Fed Chair Powell.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – US equities launched an almost vertical rally yesterday from a deep funk in the futures market in early European hours to a very strong close of the cash session in the US, a move that has followed through overnight and has the S&P500 this morning trading more than 6% above yesterday’s lows. The S&P 500 rally has slowed this morning right near the 3,109 level, the 61.8% Fibonacci retracement of the recent sell-off, while the Nasdaq has rallied above the similar technical level and has only the 76.4% Fib retracement at 9,958 and then the all-time top up at 10,140 as the final resistance levels.

  • OILUSJUL20 (WTI Crude Oil) and OILUKAUG20 (Brent Crude oil) - just like stocks received a boost yesterday following the Federal Reserve’s corporate bond buying announcement. Demand concerns following new outbreaks in Beijing and some U.S. states are being offset by the strong OPEC+ production cut commitment and an EIA drilling report that forecast a continued drop in U.S. shale oil production for July. The focus now turns to the monthly oil market reports from the International Energy Agency today and OPEC on Wednesday. Tomorrow the OPEC+ Joint Technical Committee, which advise the oil ministers, will meet to discuss latest developments. We maintain the view that oil has entered a consolidation phase which should leave the potential for further short-term gains limited.

  • XAUUSD (Spot Gold) - remains stuck in a wide $1680/oz to $1750/oz range and currently struggling to find a theme strong enough for it to attempt a breakout. On Monday it surprisingly followed US stocks lower before the Fed corporate bond buying announcement sent it higher. Focus on today’s testimony before a Senate panel from Fed Chair Powell. The current lack of momentum has triggered a 55% reduction since February in bullish gold bets held by hedge funds in the New York futures market. During this time however demand for bullion-backed exchange-traded funds have stayed strong, climbing to a record 101 million ounces.

  • CORNJUL20 (CBOT Corn) - closed near a two-month high yesterday as U.S. crop conditions slipped and domestic prices in China reached a five-year high as a recovery in hog herds boosts consumption and tightens supply. Hedge funds held a near record 297k lots net short in the week to June 9. The steady price recovery seen since late April is at risk of suddenly accelerating should funds begin to cover some of these shorts.

  • AUDUSD – the AUDUSD pair has entirely mimicked the price action in equity markets in recent days and is likely to continue to provide a high beta exposure to the latest risk-on, risk-off (RORO) gyrations in global asset markets, together with AUDJPY.

  • GBPUSD – after having a look below 1.2500 yesterday in early trading to start the week, sterling recovered sharply both here and versus the EUR after EURGBP had crossed above the key 0.9000 level. The GBPUSD is currently trading just ahead of its 200-day moving average and looks correlated at the moment, with risk-on, risk-off behaviour, though sterling did get a boost yesterday from positive spin from UK-EU Brexit deal talks. A possibly pivotal BoE meeting is up on Thursday.

What is going on?

  • US Fed announces updates to corporate bond buying facility with the changes meaning that the Fed will be buying individual bonds in the secondary market rather than merely bond ETFs, as was the case earlier. The focus is declared to be to “support market liquidity and the availability of credit for large employers.” This sent the LQD ETF, the best-known ETF of investment-grade bonds, soaring to a new all-time high.

  • NZD sold off on new Covid19 cases. The country was recently celebrating its elimination of the virus and the implications for a quicker opening up than elsewhere saw NZD rallying sharply, but two travellers to NZ from the UK tested positive after they had been allowed to travel to a relative’s funeral rather than staying in quarantine. This prompted a NZD sell-off.

  • Brexit deal: UK and EU see deal moving closer - Positive comments from both sides in talks yesterday between UK Prime Minister Boris Johnson and EU leaders suggest a more amicable situation than other recent comments from the EU’s Barnier in particular. Formal talks are set to resume on June 29 as Boris Johnson has ruled out extending negotiations beyond the December 31 deadline.

What we are watching next?

  • EU Council meeting Friday - This is the next key meeting for the heads of EU countries as we look for a sense of solidarity or lack thereof around the plan to expand the EU budget by some EUR 750 billion to fund a Covid19 response.

  • US Fed Chair Powell to testify before Congress today - we have just heard from Fed Chair Powell at last week’s FOMC meeting press conference, but the interesting angle this week for markets could be the degree to which Democratic members may look to criticize the Fed’s role in driving inequality and criticism that their efforts are rewarding the wealthy via a new market bubble. Loud criticism could affect Fed signalling at the margin as the 2020 election approaches.

  • Bank of England meeting Thursday – with sterling already under pressure on the risks of a tough stance from the EU on the post-Brexit transition period trade deal uncertainty, the Bank of England meeting this week will be interesting for whether the BoE strengthens guidance on an eventual move to a negative policy rate regime.

  • Monthly oil market reports from the International Energy Administration today and OPEC on Wednesday will provide further input to a market that is trying to stabilize following the carnage seen these past few months.

Economic Calendar Highlights (times GMT)

  • Poland Central Bank Rate Announcement (no time given)
  • 0900 – Germany Jun. ZEW Survey
  • 1230 – US May Retail Sales
  • 1315 – US May Industrial Production and Capacity Utilization
  • 1400 – US Fed Chair Powell to testify before Senate Powell
  • 1400 – US Jun. NAHB Housing Market Index
  • 2000 – US Fed Vice Chair Clarida to speak on Economic and Policy Outlook

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

AppleSportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • 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...
  • 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 ...
  • 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.