Market Quick Take - November 13, 2020

Macro 6 minutes to read

John Hardy

Head of FX Strategy

Summary:  A low energy day for global markets yesterday in large part, although Chinese equities suffered a weak session overnight. The resurgence of Covid-19 in the US is reaching a level that is raising fears of new restrictions on activity, with the crude oil market certainly taking note. The Trump attempt at denying the election result is seeing pushback from some officials.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - a rather low energy session as the market mulls the risks from lack of stimulus during the lame duck period of the Trump presidency until inauguration on January 20 and the risk that the Covid-19 resurgence is becoming sufficiently grave to dampen activity. The technical area to the downside that may usher in more selling in the Nasdaq 100 comes in just above 11,500, with the next moving average of note the rapidly rising 100-day moving average, currently at 11,230. The broader S&P 500 index is farther from notable downside swing levels, with 38.2% Fibo support from recent rally wave at 3,499 and a cluster of moving averages and the 61.8% retracement coming in from 3,432 down to 3,394.

STOXX 50 (EU50.I) - European equities are holding up well despite French lockdown is prolonged into late December with the 3,400 in STOXX 50 being the key support level to watch if risk-off resumes today going into the weekend.

EURUSD – the US dollar is keeping its intentions well-hidden as it edged a bit stronger versus riskier currencies yesterday, while EURUSD found support just ahead of the key local downside retracement support (1.1725), never breaking 1.1750 - which looks the tactical swing level of note. The EURUSD managed to find support even as ECB president Lagarde indicated the intent for heavy new easing measures at the December ECB meeting and even mentioned the risk that the EUR exchange rate presents for the inflation outlook.

USDCNH – we continue to watch the USDCNH pair for signs that the strong trend of the last several months is set for some degree of consolidation after the broader CNY basket reached a major range high last week. The 6.65 area could open up for a run higher toward the next interesting waystation on the recent way down at 6.70-6.75, with the USD likely having to do the weakening if the pair is to fall farther from here, if the basket has any relevance (I.e., if there is an assumed hand guiding the CNY to stay within the basket band, USDCNH would be a low beta trade to USD direction).

Brent crude (OILUKJAN21) and WTI crude oil (OILUSDEC20) trade lower for a second day following another gloomy monthly oil market report and a surprise U.S. stock build. The IEA cut its Q4 demand outlook by 1.2 m b/d at a time where Libya’s production has risen by close to one million b/d while a vaccine is unlikely to have a meaningful impact on demand until H2 2021. The EIA meanwhile reported a surprise oil stock build as refinery demand remains weak with implied gasoline demand still trailing last year by 1 million b/d. In Brent the break below $43.50/b may signal a move back towards $40/b with the first level of support at $41.65/b.

Gold (XAUUSD) continues to find support ahead of key support at $1850/oz with the focus firmly on the dollar and U.S. bond yields which are lower after challenging 1% on 10-year Notes earlier in the week. As the number of new coronavirus cases in the U.S. and Europe continue to surge, three of the world’s top central bankers cautioned that a vaccine would not end the economic challenges. Yesterday ETF investors cut total holdings by the most since March 20. Resistance at $1895 and $1908. Platinum (XPTUSD) has outperformed gold this week with its discount falling to $988/oz, a two-month low.

Treasuries’ rally leaves bonds bears wondering whether the steepening of the yield curve will resume (10YUSTNOTEDEC20). Yesterday’s 30-year Treasury auction was awarded a higher yield than When Issued (WI), but by the end of the day the yield curve flattened. The 10-year yields closed the day at 88bps which is 10bps below the highs on Wednesday as Covid-19 cases rise and Trump steps away from stimulus talks. We still believe that the yield curve will steepen with the 10-year hitting the 1% level and risking to rise up to 1.5%.

Italy to issue USD government bonds today (10YBTPDEC20). According to Bloomberg, Italy is going to issue $3bn of sovereigns paying around 165bps over 10-year euro-denominated bonds. It seems that the government is looking to diversify its client base, which heavily rely on domestic investors. We still believe that there is upside for Italian BTP ahead of December ECB’s stimulus, with 30-year BTPs to benefit the most.

Disney (DIS:xnys) - shares 3% higher in extended trading on strong FY20 Q4 earnings result (3 October). Revenue was $14.7bn vs est. $14.2bn and EPS at $-0.20 vs est. $-0.73. But the positive for future growth was the subscriber numbers on Disney+ showing global subscribers of 73.7mn vs est. 65.5mn showing much better momentum than Netflix.

Pinduoduo (PDD:xnas) - Q3 revenue was $14.2bn vs est. $12.2bn growing at 89% y/y with active monthly users hitting 643mn up 50% y/y. The company is still operating at a loss but the current trajectory we profitability by late 2021. Pinduoduo is the fourth largest e-commerce company out the 48 e-commerce companies that we track globally.

What is going on?

Covid-19 continues to rage in the USA and Europe - the lockdowns in France will cause the country to enter a double-dip recession in Q4, with hospitalizations reaching a record both there and in the UK. Elsewhere, the case count is accelerating badly in the US with almost daily new records and hospitalizations of Covid-19 patients nationwide is expected to reach a record there as well, with local areas running out of capacity to treat.

Republican backing for Trump’s challenge of US Election results waning - some Republican senators are calling for president-elect Biden to begin receiving intelligence briefings and one even threatened to intervene if this was not done before the end of the week. A board of officials, including a Trump appointee in the Department of Homeland Security, signed off on a statement that the 2020 election was the most secure in US history and that there was no evidence of fraudulent voting.

What we are watching next?

Will we get any Brexit news ahead of the weekend? - November 15, this Sunday, was meant to be a deadline for this latest round of Brexit talks, but there are no signs that the two sides are set for any dramatic announcements. In the meantime, UK Prime Minister Boris Johnson is dealing with new Covid-19 lockdowns and the prospective exit of key advisor Dominic Cumming at the end of this year and recent departure of his communications director Lee Cain. EURGBP has crept back higher toward the 0.9000 level after a plunge this week on the uncertainty.

Q3 earnings season continues this week. Below list shows the largest companies reporting on the final day of the week:

  • Today: JD.com, Nippon Paint Holdings, SMC Corp/Japan, Japan Post Bank, Japan Post Holdings, Mitsubishi UFJ Financial Group, Engie, Sumitomo Mitsui Financial Group

Economic Calendar Highlights for today (times GMT)

  • 1000 – Euro Zone Q3 Employment
  • 1000 – Euro Zone Q3 GDP
  • 1200 – US Fed’s Williams (Voter) participating in FT webinar
  • 1330 – US Fed’s Bullard (Non-voter) to speak on US Economy and Monetary Policy
  • 1500 – US Nov. Preliminary University of Michigan Sentiment
  • 1530 – US Weekly Natural Gas Storage
  • 1600 – UK BoE Governor Bailey to Speak

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