Market Quick Take - July 9, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Economist & CIO

Summary:  Risk is bouncing back broadly in equities but the real show is in Chinese equities, US technology stocks and then gold which has managed to stage a convincing breakout above 1,800, which will most likely attract trend-following CTA hedge funds adding more fuel to the momentum. US COVID-19 new cases rose yesterday to a new record and signs are now emerging that daily deaths are on the rise nationally which could suddenly become a new risk factor for the market.


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the S&P 500 managed to halt the declines yesterday that looked like the beginning of a breakdown in equites. The 3,170 level is the first key level to break above before testing the 3,200 level. Key risk today is initial jobless and continuing claims. Momentum in US technology stocks continued yesterday with a new all-time high close raising the stakes ahead of the Q2 earnings starting next week and with the first technology earnings scheduled for the second week of the earnings season.

  • OILUSAUG20 (WTI) and OILUKSEP20 (Brent) - the trading range is getting increasingly tighter and tighter. Yesterday’s inventory numbers were not the tailwind the bulls had hoped for as stockpiles at Cushing rose. Rising inventories and worries over demand due to potential lockdowns in the Sun Belt states amid the COVID-19 outbreak will cap the upside in oil for now.

  • XAUUSD (spot gold) - it finally broke above the psychologically important 1,800 level and price action this morning seems to confirm a strong and true positive breakout. This will most likely attract trend-following CTA hedge funds placing additional bets that the trend will continue. Given falling real rates and still high uncertainty we see few roadblocks for gold and see a clear path to 1,900.

  • EURUSD – the USD lost strength as risk-on in equities back yesterday and EURUSD is now at the highest levels since 11 June and with 1.1400 in sight which will be a tough resistance zone. Strong initial jobless claims today could accelerate the weaker USD trend and risk-on sentiment pushing EURUSD to 1.1400.

What is going on?

  • US COVID-19 new cases rose to record 62,000 yesterday with first signs of death beginning to rise nationally. As we have pointed out in our podcast most spectators have failed to understand Simpson’s Paradox, which is about how a trend appears in several different groups of data but disappears or reverses when these groups are combined, which basically says that the national daily deaths number was underestimating the underlying risks as the Sun Belt states projected would reverse it quickly due to new infection cases. It is evident that daily deaths numbers will soon accelerate again nationally. Data from OpenTable suggests already that people in the Sun Belt states (California, Arizona, Texas and Floria) are changing behaviour slowing down economic activity.

  • Momentum continues in Chinese equities rising to highest levels since 2015 as we observe same speculative behaviour as in the US equity market. The CSI 300 Index is now up 32% since the lows in March.

  • The Chinese-based video sharing app TikTok enters the arena of the US-China conflict with the US government contemplating to ban the app in the US. These are further signs that the Internet could become divided in the future as the two countries clash over technology.

  • The Dutch government is blocking EU recovery fund as the country, which represents the “Frugal Four” countries Netherlands, Sweden, Denmark and Austria, want the recovery fund to only lend out money to crisis-hit countries with the objective of payback instead of grants. Frustration is growing inside EU and if the EU recovery fund is not soon started it could become a risk to the EUR and European equities in the second half.

What we are watching next?

  • US COVID-19 daily deaths as hospitalizations are now on the rise nationally in the US and ICU capacity is being maxed out in the Sun Belt states. This is probably the biggest risk to sentiment in equities and oil.

  • 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)

  • 12:30 – US initial jobless and continuing claims
  • 13:45 – Bloomberg Consumer Comfort
  • 14:00 – US Wholesale Inventories

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 Markets or its affiliates.

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 is not intended for residents of the United States and Japan. Please click here to view our full disclaimer.

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