Market Quick Take - April 9, 2021

Market Quick Take - April 9, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  US equities pulled to new record highs yesterday, and the Nasdaq 100 Index is now also within striking distance of its high-water market from February. The Asian session was rather weak, however, as Chinese stocks remain in a funk. In FX, the US dollar is struggling for support, with EURUSD trying to decide if it is breaking back higher, though much of that has been down to recent, isolated euro strength.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities are holding on to recent highs with US interest rates remaining stable and economic outlook improving. We do not expect wild things in today’s trading session as everyone is waiting for the Q1 earnings season to start next week. Yesterday’s close in S&P 500 at 4,089 is a natural support level today and if not held could cause some intraday sell-off.

Stoxx 50 (EU50.I) - European equities remain in strong momentum sitting at their highest level in five years enjoying the tailwind of higher commodity prices, higher interest rates and stronger economic growth. Despite ongoing challenges in Europe in terms of rolling out Covid-19 vaccines, the market seems willing to see through it and pricing in strong fundamentals for the years to come. Yesterday’s close in Stoxx 50 futures at 3,925 is a key support level intraday following a jump higher in early trading.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin and Ethereum have recovered from their recent sell-off and trade back in the prior range ahead of their respective all-time highs, although Bitcoin’s high was from February (the key 60k+ resistance), while Ethereum posted its record high earlier this week above 2,100.

EURUSD and AUDUSD – there is a real contrast between these two USD pairs, which show that the EURUSD attempt through an important 1.1880-1.1900+ area that threatens a bullish reversal has been far more about recent euro resilience (much of it on lower US treasury yields) more than USD weakness. As we close the week today, we’ll keep an eye on the 1.1900 area then as the general bull/bear line. Meanwhile, the AUD has traded in absolute limbo for nearly three weeks as we await a break of either 0.7550 to the downside or 0.7700-50 to the upside, the latter likely requiring a renewed interest in global commodity inflation potential.

USDJPY and JPY crosses – with US treasuries rallying again yesterday, the Japanese yen pulled higher and quite sharply so across the board. This had USDJPY threatening below the 109.35 area prior high in USDJPY and other JPY crosses took a significant intraday tumble before bouncing late in the US yesterday. The momentum shift toward fading momentum is notable in most JPY crosses and if US treasuries continue to consolidate higher, and for example the torrid rally in US equities takes a breather or even reverses for a few sessions, the JPY could be in for a sharp further extension of its rally – towards something like 107.75-108.00 in USDJPY terms, though the action in more risk sensitive pairs like AUDJPY could prove far more volatile.

Spot Gold (XAUUSD) trades softer overnight after climbing to a five-week high to challenge resistance in the $1755 to $1765 area. The move, supported by a softer dollar and lower yields in response to dovish FOMC minutes, reversed a bit overnight as both key drivers strengthened a tad. A strong PPI reading out of China overnight (+4.4 YoY from +1.7% in February) is likely to rekindle the inflation focus as the base effect of last year’s oil price surge will continue to boost CPI data around the world.  We maintain a short-term neutral view on gold and while the twice rejection below $1680 points to a potential bottom it still needs confirmation, hence the focus on $1765.

Crude oil (OILUSMAY21 & OILUKJUN21) remains rangebound with the prospect for stronger economic growth helping to offset the impact of a resurgent coronavirus just as OPEC+ prepares to add supply over the coming months. While the demand outlook into the second half looks strong, short-term challenges remain to keep Brent stuck in a $60 to $65 range. The major oil companies meanwhile traded lower yesterday despite seeing the broader US market reach fresh record highs. This after the recent drop in US in yields helped reignite the momentum trade thereby reducing the focus on value stocks in oil and mining companies.

Solid 50-year BTPS auction proves that sentiment in Italian sovereigns continues to be positive following Draghi’s entrance in Italian politics (BTP10, IEGA). Italy’s new 50-year benchmark has received EUR64 billions in orders and priced with a yield around 2.15%, a pick-up of just 15 basis points over the older 50-year BTPS which are five year shorter. The biggest catch of this issuance was the coupon offered, one of the highest in the euro area, providing a cushion against interest rate rise. Italian sovereigns are outperforming their peers this year recording a loss of 1% compared to an average loss of 2% among European sovereigns.

What is going on?

US Democratic Senator Joe Manchin declares he favours retaining the filibuster. The Democratic Senator is an odd conservative from a very Republican-leaning West Virginia and likely sees it as politically dangerous to continue to support strictly party-line votes as he is up for election in November 2022. His refusal to support any end to the Senate filibuster means that it will be virtually impossible for the Biden administration to move forward with any further major initiative from here – from infrastructure to the minimum wage and immigration reform. If Manchin holds his ground and refuses to even support spending bills via so-called simple majority “reconciliation”, further fiscal measures will come to a complete standstill unless Republicans and Democrats can agree on a new package – something they have only been able to do in a dire emergency in recent history, as in last year’s pandemic outbreak.

March Chinese PPI comes in hotter than expected at 4.4% year-on-year, versus 3.6% expected. This is a key gauge of global inflation and it is no secret that the “basing effects” of last year’s price collapses during the intense phase of the covid pandemic outbreak would lead to a spike in inflation. But this measure of inflation will bear watching in coming months, together with developments in oil prices for whether an inflationary spiral is developing.

US corn (CORNMAY21) and soybean (SOYBEANMAY21) trade close to multi-year highs ahead of today's monthly WASDE report from the US Department of Agriculture at 1600 GMT. This following last week's Prospective Planting shocker which pinned the allocated acreage for both crops at lower-than-expected levels. Wheat (WHEATMAY21) meanwhile tries to recover from its recent 14% slump with dry weather across several spring wheat growing regions and the weaker dollar supporting prices. In terms of today’s supply and demand report, analysts see corn stocks a bit lower than in March, soybeans mostly unchanged and wheat higher.

What are we watching next?

Are rallying US equity markets considering worrisome long-term headwinds? It is understandable that interest-rate sensitive equities have staged a smart comeback rally and the S&P 500 Index has even posted a series of new highs in the US recently, as US treasury yields have reversed back lower. Rising yields were clearly a headwind in March. But a few issues could give US and even global equity investors some longer term pause here, as further US stimulus in the pipeline (for example, on infrastructure) could have a far smaller impact as it is stretched over years and the Biden administration will attempt to offset that with tax rises. As well, we have the recent initiative by US Secretary of Treasury Yellen to move forward with a global minimum tax regime that would impact a significant chunk of US equity market cap. Finally, the Senate Democrat Joe Manchin has come out against removing the Senate filibuster (more above) and says that the Democrats need to work to get Republican votes, clouding the prospects for any new major Biden initiatives in the first place.

Earnings reports this week and next week. The earnings calendar heats up next week as the first Q1 results roll in. Three major US banks will be in focus with Wells Fargo and Bank of America worth watching due to their large footprint in ordinary US households. With the latest talk that retail investors are losing interest in trading the market, the report from Charles Schwab looks key, and finally Delta Air Lines is crucial for understanding travel dynamics as the economy recovers.

  • Today: Aeon
  • Tuesday (next week): Fastenal
  • Wednesday (next week): Wells Fargo, Teladoc Health, Tesco, JPMorgan Chase, Goldman Sachs, First Republic Bank
  • Thursday (next week): Charles Schwab, Progressive, PepsiCo, Bank of America, Citigroup, PPG Industries, UnitedHealth, BlackRock, US Bancorp, Truist Financial, Delta Air Lines
  • Friday (next week): Tractor Supply

Economic Calendar Highlights for today (times GMT)

  • 1230 – Canada Mar. Employment Data
  • 1230 – US Mar. PPI
  • 1400 – USDA Apr. Agriculture supply and demand estimates (WASDE)

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

Apple Sportify Soundcloud Stitcher

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 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 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.

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 Capital Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

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.