Market Quick Take - May 13, 2020

Macro 3 minutes to read

Steen Jakobsen

Chief Economist & CIO

Summary:  The US equity market rolled over to the downside in an ugly late slide that saw the worst day for the market in over a week on no specific catalyst. Elsewhere, NOK rallied on a major stimulus announcement, and the kiwi sold off as the RBNZ surprised with new QE and a hint at negative rates. Today US Fed Chair Powell is set to speak


What is our trading focus?

  • US500.I (S&P 500 Index) and USNAS100.I (Nasdaq 100 Index) – the technical outlook for the US equity markets turned more negative with yesterday’s slide as the S&P 500 held its resistance line over the last week. The tech-heavy Nasdaq 100 saw an “engulfing” candlestick yesterday in which the day’s open was the highest for the cycle, while the close was below the prior two days’ trading range.
  • 10YUSTNOTEJUN20 (US 10Y futures) – US treasury yields dropped yesterday as the record $32 billion US 10-year auction saw the strongest bid-cover demand in well over two years, suggesting strong safe haven demand for US treasuries and driving the US 10-year benchmark yield back a few basis points lower and into the recent range. Today sees a record auction of 30-year T-bonds from the US treasury.
  • NZDUSD and AUDNZD – the RBNZ meeting overnight saw the central bank surprising with a doubling of its QE programme as it also flagged the possibility of taking the policy rate into negative territory if it felt the move was necessary, taking the market by surprise and driving a strong sell-off in the NZD across the board. There could be more distance for this currency to travel to the downside to absorb the news, particularly if general risk sentiment comes under pressure again.
  • EURNOK – yesterday saw the Norwegian government announcing an enormous stimulus package, much of it to be funded by sales of assets from its petroleum fund rather than through debt issuance. This will mean large scale purchases of NOK to bring stimulus to the economy – see more here. Yesterday, EURNOK broke key support around 11.05 and traded as low as 10.96 on the news.
  • OILUSJUL20 (WTI) and OILUKJUL20 (Brent) – WTI crude oil narrowed its discount to Brent yesterday after the EIA in their ‘Short Term Energy Outlook’ - as expected - lowered its production forecast for the year. Further support was provided by an American Petroleum Institute report saying that stocks at Cushing, the WTI delivery hub, fell last week. If confirmed by the EIA in their weekly report today at 14:30 GMT it would be the first drop since late February. Despite the additional cuts from GCC producers earlier in the week, Brent have problems breaking above $30/b, trading near the weakest level in a week. Around noon CET today OPEC will publish its ‘Oil Market Report’ with focus on world oil demand developments. Some forecasters saying it could take a year before demand returns to pre-virus levels.
  • WHEATJUL20 (CBOT Wheat) - traded lower after the USDA in their monthly World Agriculture Supply and Demand Estimates report (WASDE) predicted that global supplies would rise to a record. A rebound in crop production in Russia and Australia would lift stocks to 310 million tons, thereby making it harder for US farmers to compete in world markets. The uptrend from May 2019 at $5.05/bu in focus with a break initially targeting the March low at $4.9/bu.
  • COFFEENYJUL20 & SUGARNYJUL20 – both under pressure from a Brazilian real in free-fall. The currency has weakened by almost 50% this year with President Bolsonaro’s mishandling of the coronavirus outbreak putting the economy and his political future at risk.  The harvesting of Arabica coffee beans is expected to pick-up speed from next week with some initial worries about lack of farmhands not being a major issue so far. Trend-line support on Arabica coffee at $1.04/lb. Sugar also under pressure due a massive jump in sugar production according to Unica via Reuters. The industry group said the plunge in ethanol demand had triggered a 93% jump in sugar production during the second half of April. 

What is going on?

The US Federal programme to begin purchasing Bond ETFs started yesterday, with the major LQD bond ETF of investment grade debt jumping well over a percent at the open before closing some 0.3% off the highs.

Investment legend Stanley Druckenmiller was out with a very negative outlook in a talk before the Economic Club of New York in which he cast heavy doubt on the potential for a V-shaped recovery and said that the equity market was poorly priced for risk/reward, though he liked the potential for long/short plays in the market.


What we are watching next?

US Fed Chair Powell is set to speak today in a webinar hosted by the Peterson Institute for International Economics, discussing “Current Economic Issues” and there will be a question and answer session. This could see the market highly reactive to any surprise comments from the Fed Chair.


Economic Calendar Highlights (times GMT)

  • 0600 – UK Mar. Visible Trade Balance – Is UK heading back to running large deficits? Currency risk if so.
  • 1300 – US Fed Chair Powell to Speak – see above.
  • 1430 – US DoE Weekly Crude Oil and Product Inventories
  • 2301 – UK Apr. RICS House Price Balance – house sales had surged after the Brexit clarity but are now impacted by the Covid19 crisis, with market expecting a deeply negative reading.
  • 0130 – Australia Apr. Employment Change / Unemployment Rate – a large jump expected in unemployment, even as the government has moved mountains to keep many workers stilly nominally classified as employed.

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.