Market Quick Take - July 12 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – the US equity market shook off the steep plunge last Thursday with a strong session on Friday that saw the major indices closing at new all-time highs. Earnings season gets underway in earnest this week, as investors will watch for confidence in guidance, especially on any cost pressure concerns, even if Q2 results come in generally better than expected.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome)- Cryptocurrencies continue to coil around within recent ranges with little conviction as Bitcoin traders watch for something to develop above 36k for signs of a charge on the critical 40-42k area, while 30k is the clear support zone. Meanwhile, Ethereum traders watch the 1,700-2,400 range for next steps.

USDJPY – is a key focus in FX as the JPY came alive last week on the plunge in global bond yields. USDJPY briefly traded below 110.00 last week and the steepness of the recent sell-off there from the highs well north of 111.00 suggest that the sluggish rising channel has broken down. The next level that points to a more significant breakdown starts just above 109.00, while 107.48 was a major price pivot in late April. A key coincident indicator for USDJPY and JPY crosses will likely be the longer end of the US yield curve.

AUDUSD – the status of the US dollar is pivotal after last week’s action as many pairs have been taken to key resistance levels for the USD – with AUDUSD having traded last week near a massive support, the August 2020 high of 0.7414. A further breakdown from here could point to a further major retrenchment for this pair and the USD in general – potentially to the 0.7000 area in AUDUSD, possibly on concerns for the global economic outlook.

Crude oil rebounded further on Friday, with the 75-dollar area in WTI crude a pivotal level as this was near the top of the market in 2018. WTI has not seen a weekly close above that level since 2014. The outlook for a sluggish rebound in US shale oil production and the US inventory situation is a key driver of the relative out-performance of WTI compared to Brent since May. Focus on the demand side from here is on the ongoing Covid variant story, which is far from finished, while supply focus is on OPEC+ as Saudi Arabia and the UAE are at odds on the fairness of the allocation of production cuts.

Gold (XAUUSD) - disappointing for gold trades not to have seen more pop last week from the rally in US treasuries, although the stronger US dollar and a steep slide in especially shorter breakeven inflation rates (Friday’s rebound excepted) have weighed on the precious metal. The key local resistance area looks to be around 1,825, close to the 200-day moving average.

US Treasuries weakened on Friday after the sharp run-up earlier in the week. (SHY:xnas, TLT:xnas, IEF:xnas) The narrative from early last week has been the overriding concern that the rebound from the Covid pandemic is peaking here and we could be in for a marked deceleration in economic performance, with lingering concerns on vaccination rate and ongoing risks from new virus variants. But Friday saw a chunky consolidation of the rally as US treasuries settled the day sharply lower and setting up 1.25-1.30% as a pivotal area now for the US 10-year treasury benchmark.

What is going on?

UK Prime Minister Boris Johnson set to announce end to all mandatory Covid restrictionstoday, a move that comes at a difficult time, as Covid case-counts are surging from the spread of the delta variant of the virus, although this is so far only seeing a small fraction of the impact on the hospital system relative to the surge in cases.

ECB president Christine Lagarde flags policy changes at July ECB meeting.On the side-lines of the G20 meeting at the weekend, Lagarde said in an interview that new guidance on monetary policy will be forthcoming at the July 22 ECB meeting (next Thursday) and that new measures may be readied for next year once the current emergency QE purchases have been completed. “It’s going to be an important meeting” with “some interesting variations and changes”.

What are we watching next?

China June Trade data up tonight. The market should take a close look at China’s trade data for June, set to be released tonight in Asia’s Tuesday session, which comes after China made its first easing move with a cut of Chinese banks’ RRR requirement by 50 basis points on Friday. China’s credit impulse may be bottoming out for the cycle as this marked a shift to more support for the economy after maintaining a tight policy stance in recent quarters.

Fate of global tax plan after G-20 summit. US Treasury Secretary Yellen is moving to pressure the EU to halt its drive to implement a digital tax on online sales which are seen as targeting the US internet giants. Her hope is to give time for a global minimum tax plan, something that has been agreed in principle by most major nations, to move forward. She will meet with EU finance ministers today.

U.S. data and Fed Chair Powell testimony this week: The data highlight for the US this week is the Jun. CPI up tomorrow, where the scale of any deceleration in the month-on-month readings will likely be the focus. On Friday, we get Jun. Retail Sales. Elsewhere, Fed Chair Powell is set to deliver the semi-annual Fed testimony to Congress on Wednesday and Thursday.

Earnings to watch this week. The Q2 earnings season starts this week with the usual US financials starting the season. Our expectation is that companies will continue to deliver upside surprises against a consensus that is still too pessimistic on the rebound on revenue growth and profitability. The theme of margin squeezes from higher commodity prices are more likely a Q3 or Q4 story.

• Tuesday: PepsiCo, Fastenal, JPMorgan Chase, Goldman Sachs, Conagra Brands
• Wednesday: Wells Fargo, BlackRock, Delta Air Lines, Citigroup
• Thursday: US Bancorp, UnitedHealth, Cintas, Morgan Stanley
• Friday: Charles Schwab, State Street

Economic Calendar Highlights for today (times GMT)

• 1530 - US 3-year Treasury Auction
• 1600 – US Fed’s Kashkari (non-Voter) to speak
• 1700 - US 10-year Treasury Auction
• 0130 – Australia Jun. NAB Business Conditions
• 0200 – China Jun. Trade Balance 

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