Market Quick Take - September 3, 2020

Macro

John Hardy

Head of FX Strategy

Summary:  The broad US stock market outperformed the more concentrated Nasdaq 100 on a strong rally day, a rare development that could suggest a shifting focus in market breadth. Europe is trying to shift to a more positive footing after the euro weakened in recent days and as major indices in Europe like the DAX are back threatening the top of the range. Dollar strength drives a second day of broad commodity weakness with oil and gold both trading lower.


What is our trading focus?

  • S&P 500 Index (US500.I) and NASDAQ 100 Index (USNAS100.I) – US equities saw an unusual session yesterday, in which the broader S&P 500 (and small cap indices) outperformed the more concentrated, mega-cap laden Nasdaq 100 and did so on a positive day for the broader market. The S&P 500 cash session closed almost 1.5% percent higher and posted a new record close near 3,580, while the Nasdaq session barely managed a 1% advance while the Nasdaq futures have underperformed since yesterday morning in New York as the Nasdaq suffered. Is this a sign that mega-cap outperformance is set to fade?

  • STOXX 50 Index (EU50.I) – European equities rallied strong yesterday, powered in part by a weaker euro and anticipation of a strong easing message from the ECB next week. The German DAX managed its strongest close since February, while the STOXX 50 still has another one percent of the local range to work through to achieve something resembling breakout status. The high closing level since July is 3,377, relative to yesterday’s close at 3,338, and the intraday highs since February is not until 3,451.

  • EURUSD EURUSD has pushed down as far as 1.1800 and even below this morning in an ongoing correction. Every consolidation in EURUSD after hitting the 1.1900+ area at the end of July has been gathered up at a “higher low”, a pattern that breaks down if this most major of USD pairs trades below 1.1750. The big levels to the downside are the 1.1700 area range low (and notable Fibonacci retracement) and the absolutely critical 1.1500 area, which was a major cycle resistance on the way up and effectively the secular trend support. The price action could prove jumpy until the other side of the ECB meeting next Thursday, where the pressure is on for the ECB to act after a record low CPI print for August.

  • Spot Gold (XAUUSD) & Spot Silver (XAGUSD) - Gold extended its losses overnight as the dollar saw additional strength after improved economic data and vaccine news (see below) gave a further boost to recovery hopes. Tuesday’s failure to reach $2000/oz despite multiple tailwinds had left it vulnerable to profit taking and the stronger dollar was the trigger. A prolonged period of consolidation may leave the yellow metal exposed to a deeper correction with focus on trendline support at $1922/oz followed by $1900/oz. Focus squarely on the dollar and economic data ahead of Friday’s job report.

  • WTI Crude Oil (OILUSOCT20) & Brent Crude Oil (OILUKNOV20) - finally saw some action yesterday with the sudden dollar strength driving prices of oil and several other commodities lower. The US inventory report, which showed big drops in oil and fuel stocks, was ignored given the disruptive impact of last week's hurricanes. Instead the market was spooked by the dollar and Iraq’s request for a two-month extension to implement compensatory cuts under the OPEC+ agreement. No major technical levels got broken but a break below the 50-day moving average on WTI at $41.25/b and Brent at $44/b may signal a deeper and, in our opinion, much needed correction following months of inactivity.

  • USDRUB – the ruble sold off more than 2% versus the USD late yesterday on the news that German medical investigations concluded that Russian opposition leader Alexei Navalny was poisoned with the nerve agent novichok. German Chancellor Angela Merkel said she will meet with EU officials and NATO in determining an appropriate response, with the ruble likely to take a further hit if new sanctions are imposed, though it does not appear Germany is willing to consider any measures that would affect its access to Russian natural gas exports via the Nordstream 2 pipeline. Russia maintains that Russian doctors found no evidence of poisoning and don’t see set to admit any involvement in the case.

  • Apple, Inc. (AAPL:xnas) - suffered an extremely volatile session yesterday as new record highs near the opening of trade in New York were sold heavily (turning a nearly 3% gain intraday into a more than 3% loss – closing the day some 2% lower from the prior day’s close). The volatility was perhaps sparked in part by a German regulator announced that it is following Epic Game antitrust filing against Apple with “great interest”.

  • Tesla (TSLA:xnas) - volatile session yesterday with Tesla shares down as much as 15% at the intraday lows following news that major long-term shareholder Baillie Gifford trimmed its stake in Tesla to 4.25% down from 7.67%. The asset management said the move was primarily driven by guidelines on single stock exposure in client portfolios. However, the violent downward move highlights the inherent fragility that has been built up in Tesla due to high option volume and thus related large market maker positions due hedging of enormous call options from retail investors.

  • MongoDB (MDB:xnas) - shares were down 4% in the primary session but jumped 5% in extended session on solid results. FY21 Q2 revenue was $138mn vs est. $127mn and adj EPS was $-0.22 vs est. $-0.39. The company also lifted revenue guidance for the fiscal year. Another US technology company that beat on earnings. We expect strong price action in MongoDB shares today.

  • Broadcom (AVGO:xnas) and DocuSign (DOCU:xnas) - both companies report earnings today after the US market close. There is a lot of anticipation around the DocuSign earnings with shares up 24% in just three sessions ahead of today’s earnings. The average absolute move in DocuSign shares over historic earnings releases has been 8.4% so given the latest run-up we expect a lot of volatility both before and after the earnings.

What is going on?

  • France set to move ahead with EUR 100 billion stimulus plan - called “France Relaunch”, the plan includes a mix of wage subsidies, business tax cuts and outlays for new green initiatives. Over the last 24 hours, France reported more than 7,000 new cases of COVID-19, the second highest daily tally since the initial spring-time breakout. Death totals in France have risen, but are at between 25-30 daily over the last three days.

  • US August ADP Payrolls change disappointed with a reading of +467k vs.1M expected and 212k in July, a sign that the growth bounce-back in the labor market is proving slower than hoped, even as retail sale, for example, reached a record high in July. The US continues to struggle with various levels of lockdown levels, with not all schools across the country set for reopening in coming days.

What we are watching next?

  • US Weekly Initial Jobless Claims and US Aug. ISM Services today - the US economy is expanding again after its COVID-19 induced shock and we’ll watch the weekly jobless claims data  from the US with interest as one of the better high-frequency indicators on the shape of the US recovery and the ISM Services for a measure of whether the recovery is accelerating or stalling or worse.

  • Earliest vaccine candidates will soon show whether effective – as early as mid-September some of the initial results from the earliest vaccine candidates could become available and show whether the vaccines are able to stop the virus from spreading. The earliest to announce results could be AstraZeneca, followed by a US-German partnership of Pfizer and BioNTech and then US-based Moderna Inc.

Economic Calendar Highlights for today (times GMT)

  • 0715-0800 – Euro Zone Final Aug. Services PMI
  • 0900 – Euro Zone Jul. Retail Sales
  • 1230 – US Weekly Initial Jobless Claims
  • 1230 – US Jul. Trade Balance
  • 1400 – US Aug. ISM Services
  • 1400 – UK BoE’s Bailey to Speak
  • 1430 – EIA's Weekly Natural Gas Storage Change
  • 1630 – US Fed’s Evans (non-voter) to Speak
  • 0130 – Australia Jul. Retail Sales

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