Market Quick Take - July 8, 2020 Market Quick Take - July 8, 2020 Market Quick Take - July 8, 2020

Market Quick Take - July 8, 2020

Macro 3 minutes to read
Steen Jakobsen

Chief Investment Officer

Summary:  The equity market is retreating after failing to push higher as nervousness is building over the deteriorating COVID-19 situation in the US with forecasting now suggesting a significant increase in deaths over the coming months. Gold is close to pushing through 1,800 as inflation expectations are rising and oil is following equities lower. We are also highlighting the VIX Index today as the index is up to almost 30 from 25 in just two sessions indicating the options market is pricing in a different information picture than the cash equity market.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the S&P 500 is trading below yesterday lows and seems fragile amid the big move higher in the VIX Index over the past two sessions. We are leaning towards a retracement to the 3,100 as the first move as the market will begin pricing in the COVID-19 developments across the Sun Belt states with increasing ICU capacity being maxed out.

  • OILUSAUG20 (WTI) and OILUKSEP20 (Brent) - trades lower within a tight range after being rejected at the $43.50 level in Brent crude. It supports our view that oil remain range-bound with rising virus infections across the three biggest fuel-consuming U.S. states and abroad raising concerns about a continued recovery in demand. IEA’s monthly overview of the worldwide oil market on Thursday is a key event.

  • XAUUSD (spot gold) - sentiment remains strong the 1,800 level in sight and a breakout will attract more bets from CTAs which could then accelerate the trend. With nominal rates remaining steady and break-even rates moving higher the inflation expectations are rising which will most likely continue to support the move higher.

  • EURUSD – the USD has strengthened broadly the last two sessions following the general pause in risk-on evident across equities and commodities. EURUSD is boxed into a tight range but is most likely skewed for a move lower if the situation in the US with COVID-19 infections worsen even further.

  • LQD:arcx (US investment grade bonds) - the momentum in US investment grade bonds continued yesterday reaching a new all-time high despite high uncertainty over credit quality in the second half of the year. The risk-reward ratio looks bad in investment grade bonds and this bond segment is fragile to adverse developments in the US.

  • VOOL:xetr (Long volatility / VIX futures) - with the VIX up from 25 to almost 30 in two sessions despite less volatile equity sessions the options market is clearly pricing a different information picture than the cash equity market.

What is going on?

  • VIX is getting close to 30 again as options are pricing in high volatility over the coming months with the important Q2 earnings season during July and August. In addition, the acceleration in new COVID-19 infections globally could at one point create a new risk-off environment.

  • US banks are estimated to get close to $24bn in fees from PPP loans for the service of facilitating the government’s aid programme to small businesses. JPMorgan and Bank of America are estimated to get $1.5bn and $2.6bn respectively from the programme. These temporary fees could lift Q2 earnings for US banks.

  • Civil rights groups leave Facebook meeting disappointed as the groups’ demands have largely not been met. This could continue to fuel the advertisement boycott of Facebook which now accounts 1,000 advertisers including big names such as Verizon, Unilever and Ford.

  • Offshore wind spending is set to overtake offshore oil & gas for the first time according to a report from Wood Mackenzie as the green transformation continues despite the economic setback from the pandemic. Earlier this year we coined green investing as one of the biggest themes in the coming decade and our view is still that some of the largest firms going forward will be those that address environmental challenges with smart technological solutions. The green agenda in Europe also got a boost from Lagarde saying ECB should ‘explore every avenue’ in the green transformation.

  • Chinese officials hit by US visa restrictions over issues related to Tibet. This is another sign that US-China tensions continue to rise and will cause disruptions in the years going forward.

What we are watching next?

  • Whether the COVID-19 resurgence extends to rising daily deaths as hospitalizations are now on the rise nationally in the US and with Texas setting new daily infections record yesterday.

  • Initial Jobless Claims and Continuing Claims for the US economy are one of best timely indicators we have on the US economy. With the mixed signals we are getting across many macro variables, and especially on the labour market, these two series will be intensely watched. If these claims numbers fail to show solid progress amid their latest stagnation, then the market could get spooked.

  • Q2 earnings season starts next week which will be the most exciting in many years as 80% of S&P 500 companies skipped their guidance in Q1 leaving investors to fly blind into the storm. With US technology stock valuations at record levels there is little margin for error so any revenue miss could lead to steep declines. The record high index weight concentration in S&P 500 by the large technology stocks mean that their results will make or break the equity market over the summer months.

  • Corn traders will look towards the World Agriculture Demand & Supply (WASDE) report on July 10 for confirmation that the recent 10% rally can be sustained. Will the smaller than expected planted acreage announced recently be enough to make up for declining demand from ethanol producers thereby helping to keep inventories under control.

Economic Calendar Highlights (times GMT)

  • 14:00 – ECB Vice President Luis de Guindos speech 

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 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.

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.