Market Quick Take - April 20, 2021

Market Quick Take - April 20, 2021

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  Sentiment is mixed overnight in Asia, as China is trading higher, while Japanese equities were in for rough sledding after a weak session for US equities yesterday. US treasury yields rose yesterday, but the relative move higher in European sovereign bond yields was more notable, with the German Bund yield approaching its highest level in months ahead of the ECB meeting on Thursday.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities dropped yesterday, perhaps in part on a fresh rise in treasury yields at the long end of the US yield curve, although we are still far from the cycle high in yields. Key companies will report earnings for the next couple of weeks in the heart of earnings season, including Netflix later today. Short term momentum indicators have rolled over for the Nasdaq 100, where there is considerable room for consolidating some more withouth threatening the recent rally wave, starting perhaps with the 13,500 area. The S&P 500 has already bounced back overnight and only looks a bit tired from a momentum perspective, after a remarkably stretched run higher.

STOXX 50 (EU.I) - STOXX 50 futures dropped yesterday failing to push through the 4,000 level and they are opening lower again today. If STOXX 50 futures fail to close above yesterday’s close, then the technical setup could be a catalyst for a short-term selloff back to the previous consolidation area around 3,925.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin is struggling to feel out a support level centered around 55k after the rather traumatic sell-off at the weekend, while the price action in Ethereum is showing that coin having a harder time finding a support level, with 2,000 an obviously important chart point. The attention on DogeCoin and its recent sharp outperformace is driving considerable distraction in the crypto space.

EURUSD and AUDUSD – the USD burst lower yesterday, taking out 1.2000 in EURUSD without ever really looking back and that pair traded above 1.2050 overnight, with the next major chart resistance at 1.2100 (61.8% Fibo retracement) but not really until the 1.2350 area top. A sharp rise in EU yields yesterday ahead of the Thursday ECB meeting suggests rising sentiment on growth. And the USD is weak across the board, as AUDUSD also continued sharply higher overnight and is poking at the 0.7800 area, with 0.7826 (61.8% Fibo retracement) the last major resistance ahead of the 0.8000+ top. Fresh rises in industrial metals and a recovery in Chinese sentiment have helped stoke the Aussie rise.

GBPUSD Cable has reattained the 1.4000 level overnight, a major milestone that suggests the top at 1.4237 is the next objective. And sterling has outperformed a strongly resurging euro. Previously, GBPUSD only survived five sessions above 1.4000 before dropping back below and then finding that the big round level continued to provide resistance, underlining the importance of the level.

Gold (XAUUSD) found support at the key resistance-turned-support area at $1760-65/oz overnight, and while the weaker Greenback offered support an abrupt turnaround in bond yields saw gold waver. Despite the much-improved technical picture, it may still struggle unless supported by stable to lower bond yields. Ahead of next week’s FOMC meeting the market will continue to focus on dollar and yields as well as geopolitical developments. Resistance at $1790, $1800 and $1818.

Crude oil futures (OILUKJUN21 & OILUSMAY21) traded higher in Asia supported by a weaker dollar and after China kept is lending rates steady, thereby easing concerns over possible policy tightening. WTI trades $64, some 104 dollars above the level it crashed to on this day last year when global lockdowns and Saudi production hike overwhelmed the global oil market. With global virus cases hitting new records, the prospect for a sustained rally at this stage seems limited, and with this in mind, we see the upside potential in Brent crude limited to $70/b until vaccine rollouts significantly changes the demand dynamics.

Selloff in European sovereign bonds drags US Treasuries with them (IEF, TLT, BTP10, IS0P). The improving European economic outlook might mean higher inflation, and higher European sovereign yields. Strategists from the street highlight there is a risk on Thursday that the ECB will disappoint because the central bank might not be as committed to keeping bond yields in check in light of the improving economic backdrop. We believe that despite the bloc is heading towards recovery, there is yet no sign of a significant pick up of inflation expectations. Hence, the ECB will need to reiterate its message of unconditional support to keep financial conditions easy, and bond yields in check.

What is going on?

The CDU has chosen Armin Laschet as the candidate to lead the party, which means he will likely be the candidate to replace Merkel as German Chancellor in elections in late September, although he must also win approval of the CDU’s Bavarian sister party, the CSU, whose leader Markus Söder is very popular. Laschet polls poorly but received only 9 of the 46 votes in the CDU poll, with 31 going to Laschet. The German green party yesterday nominated one of its leaders, Annalena Baerbock as its candidate for the election.

Chinese President Xi Jinping speaks against US approach, calls for closer global economic integration in a speech at the Boao forum in Asia. Xi criticized countries “imposing their rules” on others and “bossing others around or meddling in others’ internal affairs”, clear references to the shift in US policy in recent years.  The Boao conference was held in Hainan, China with global leaders and UN and IMF officials tuning in via video link.

U.S. grain prices remain bid on a combination of weather and strong overseas demand. US corn futures (CORNJUL21) already supported by strong China-led demand trade near an 8-year high in response to forecasts for frosty U.S. weather and a slower planting pace. Soybeans (SOYBEANJUL21) generally planted a bit later also trading higher to reach a 7-year high. We are into the important planting season in the U.S. and weekly planting progress reports, released on Mondays at 20:00 GMT will be watched closely over the next weeks.

Canada budget includes new spending, taxes. Besides heavy new spending of more than C$100B for the recovery, a number of taxes are in the deal, including a 1% tax on real estate owned by foreigners if the property is left vacant, and a tax of 3% of revenues on “digital services” (aimed at US info-tech giants) that would go into effect on January 1, 2022 “until an acceptable multilateral approach comes into effect”. On that last note, US Treasury Secretary Yellen’s recent global minimum tax proposal is likely the kind of international framework that could avoid such a tax.

What are we watching next?

Derek Chauvin trial in US and risk of protests - tough to quantify this, but this closely watched trial of the police officer Chauvin accused of murdering George Floyd could set off public unrest in the US depending on the verdict and sentencing (whether Chauvin is charged of manslaughter or murder, for example and the length of any jail-time). Jury deliberations are set to begin today.

ECB meeting Thursday – looks particularly pivotal as key EU sovereign yields are poking at cycle highs, and given the strength of the global recovery, also for the EU’s manufacturing sector, and eventually adding to that the services rebound for Europe once the vaccination roll-out is more advanced, makes selling a dovish message increasingly difficult.

Earnings reports this week. IBM shares were up 3% in extended trading as Q1 operating earnings solidly beat estimates and the cloud business showing healthy growth rate at 21% y/y. Coca-Cola earnings were not impressive although revenue was better than expected saying that the commodity environment to stay challenging for the next 12-18 months.

  • Tuesday: China Mobile, Investor, Johnson & Johnson, Philip Morris, Netflix, Intuitive Surgical, CSX, Procter & Gamble, Abbott Laboratories, Lockheed Martin
  • Wednesday: ASML, Anthem, Verizon Communications, Lam Research, NextEra Energy
  • Thursday: Ping An Insurance, Chugai Pharmaceutical, Nidec, Danaher, Union Pacific, Intel, Snap, AT&T, Blackstone Group, HCA Healthcare
  • Friday: Daimler, American Express, Honeywell International

Economic Calendar Highlights for today (times GMT)

  • 1230 – Canada Mar. Teranet/National Bank Home Price Index
  • 2245 – New Zealand Q1 CPI
  • 0130 – Australia Mar. Retail Sales
  • 0600 – UK Mar. CPI

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

Apple Sportify 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 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 is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Inspiration Disclaimer and (v) Notices applying to Trade Inspiration, 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 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 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 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 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 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.

Trading in financial instruments carries risk, and may not be suitable for you. Past performance is not indicative of future performance. Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/en-sg/legal/disclaimer/saxo-disclaimer)

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments. Saxo Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Markets or its affiliates.

Saxo Markets
88 Market Street
CapitaSpring #31-01
Singapore 048948

Contact Saxo

Select region

Singapore
Singapore

Saxo Capital Markets Pte Ltd ('Saxo Markets') is a company authorised and regulated by the Monetary Authority of Singapore (MAS) [Co. Reg. No.: 200601141M ] and is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Risk Warning to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as Margin FX products may result in your losses exceeding your initial deposits. Saxo Markets does not provide financial advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Markets does not take into account an individual’s needs, objectives or financial situation.

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-sg/about-us/awards.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website are not intended for residents of the United States, Malaysia and Japan. Please click here to view our full disclaimer.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Apple and the Apple logo are trademarks of Apple Inc, registered in the US and other countries and regions. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.