Market Quick Take - March 4, 2021 Market Quick Take - March 4, 2021 Market Quick Take - March 4, 2021

Market Quick Take - March 4, 2021

Macro 4 minutes to read
Saxo Strategy Team

Summary:  A renewed surge in sovereign bond yields on Wednesday once again dragged down stocks, with the tech heavy Nasdaq tumbling 2.5% on concerns of stretched valuations. The weakness extended to Asia, led by China, while the dollar reached a six-month high against the JPY above 107. Commodities traded lower, as gold and copper lost steam while crude oil found support ahead of the OPEC+ meeting today.


What is our trading focus?

Nasdaq 100 (USNAS100.Iand S&P 500 (US500.I) equities were in for rough sledding yesterday as the Nasdaq 100 closed at a new local low and the S&P 500 closed sharply lower and even poked to the lowest levels in more than a month overnight. A new rise in longer treasury yields is likely the proximate cause and we could have a touchy market around today’s appearance from Fed Chair Powell, who has yet to weigh in on the Fed’s stance on last week’s treasury market dysfunction during the Thursday rout.The 12,725-50 area is important for the Nasdaq 100, having served several times as a support area before breaking yesterday. The next level of note is down near 12,070, the 61.8% retracement of the rally from the November lows. The S&P 500 level of note is at 3,772, a Fibo retracement support that is the last important one ahead of the 3,656 level from early Feb.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) cryptocurrencies bulled higher yesterday before consolidating today, with Bitcoin finding a high yesterday almost precisely at 52,510, which is the 61.8% retracement of the steep sell-off from the 58,000+ high – that is a key hurdle if Bitcoin is to get back on the rally train. Ethereum has yet to achieve as steep a comeback, currently trading below 1,600.

USDCHF – the Swiss franc is not normally a currency prominently on our radar, but the recent major breakout is notable and demands our attention as EURCHF has cleared 1.1000 and could trade to 1.1250 and USDCHF has ripped higher above 0.9000 and even to 0.9200, taking it above the 200-day moving average for the first time since in nearly a year. The drive is a preference for holding currencies with higher yields, especially at the longer end of the sovereign yield curve, and the Swiss National Bank’s holdings of US stocks and gold has suffered considerably of late as well as the franc has been the weakest currency in the G10.

AUDUSD despite generally weak risk sentiment, AUDUSD trades flat relative to yesterday’s levels, perhaps choosing to focus on the new high for the cycle in iron ore futures out in China, as iron ore is Australia’s largest export. Every day that passes without a follow through lower in the wake of last week’s huge reversal could add a bit of confidence for bulls, who will look for a close above 0.7900 to begin suggesting that the sell-off was an aberration driven by a one-off train wreck in US treasuries last week. Any downside prospects would likelyrequire a major hit to global growth expectations, long Australian yields and commodity prices – and a move south of 0.7700.

Gold (XAUUSD) slumped again yesterday following another surge in sovereign bond yields. It did however once again manage to find support ahead of $1700 with rising stock market volatility creating a small safe-haven bid. A reduced beliefin the Federal Reserve’s ability let alone willingness to introduce yield-curve control to curb long-end yields is hurting sentiment at a time where headline inflations have yet to accelerate. From a longer-term bullish perspective, the metal would need to hold above a major band of support between $1670 and $1690 while a break above $1765 would send a signal of renewed strength and support.

Crude oil (OILUKMAY21 and OILUSAPR21) It’s D-day in the oil market as OPEC+ meet at 1PM GMT to decide production levels from April and onwards. Having managed to raise expectations for a 1.5m barrels/day production increasethe market is however wary of a Saudi surprise, something they have delivered on several occasions in recent meetings. Oil generally trades higher following a weekly US inventory report that went straight into the history books. The recent freeze in Texas triggered a record 21.6 million barrels jump in crude stocks with record low refinery intake – due to shutdowns - triggering the biggest gasoline stock reduction since 1990. Brent currently stuck in a $62 to $66.5 with OPEC+ and US bond yields (risk on/off) the focus. 

Tesla (TSLA:xnas) and Ark Innovation ETF (ARKK:arcx) Tesla shares were down another 4.8% yesterday and Ark’s shares tumbled some 6%, suggesting for the moment that these shares have a high beta to the swings in the market, where speculative names sell off more heavily in a rout. Ark’s shares are down over 20% from their all-time top just a bit over two weeks ago. 

What is going on?

Global bond yields rose sharply again yesterday, driving weaker risk sentiment - one development that seemed to serve as the spark to start the days selling in bonds was a Bloomberg story citing sources at the ECB, who apparently said that recent rises in bond yields were not sufficiently large to warrant action now, a somewhat confusing development after ECB President Lagarde and the ECB’s Schnabel weighed in with concerns about bond market developments last week.

Industrial metals showing signs of rally fatigue and with that, the need to consolidate. Rising bond yields have triggered some renewed risk aversity with the Bloomberg Industrial Metal index falling to a two-week low but still up 20% since early NovemberNickel has led the decline tumbling 17% during the past week on increased production news from Chinese and Russian mining operations. Copper, the darling of the industrial metals space, given reflation and speculative demand from investors and the prospect for a rising supply deficit as the electrification gathers pace, has seen its tightness ease this week. It is however holding up well and has yet to challenge support, currently at $4.03 on High Grade (COPPERUSMAY21).

UK Budget will be generous short term and wait until 2023 before tightening – UK Chancellor Sunak yesterday announced another £350 billion in measures to help support the economy in the spring budget statement. These will include income replacement and measures designed to support investment. In fact, Sunak emphasized that encouraging investment will be the primary focus once the economy starts opening up more aggressively mid-year due to the UK’s fast vaccine roll-out. Measures to increase taxes, for example raising the corporate profit tax to 25% from 19% currently, to shore up longer term fiscal credibility and reign in the budget deficits (expected at near 10% of GDP in 2021) will not begin until 2023.

What are we watching next?

Fed Chair Powell interview today: does he offer any signs of a policy shift? - there is considerable talk of “Operation Twist” and even outright yield curve control coming soon from the Fed to avoid the kind of volatility we saw last week, but it is likely far too early for the Fed to take such a drastic step as particularly the latter would. More technical moves to address issues with the very short end of the US yield curve are possible soon, as these relate to the issue of the Treasury transferring huge holdings from the Fed to spend on stimulus – some $1.3+ trillion of funds that must be shifted by August 1. If Powell continues to suggest that rising longer term yields are merely a reflection of a more positive growth outlook and are not a concern, the equity market may not like the message.

Earnings releases to watch this week:

 
  • Thursday:Vonovia, Merck, CRH, Costco Wholesale, Broadcom, Kroger

  • Friday: Canadian Natural Resources, GSX Techedu

 

Economic Calendar Highlights for today (times GMT)

1000 – EC Jan Unemployment Rate
1300 – OPEC+ meeting kicks off
1330 – US Initial Jobless Claims
1500 – US Jan Durable Goods Orders
1500 – US Jan Factory Orders
1530 – EIA's Weekly Natgas Storage Change
1705 – Fed Chair Powell Discusses the U.S. Economy

 

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.