Market Quick Take - May 26, 2020
Chief Economist & CIO
Summary: The US S&P 500 Index has moved above a key technical level overnight and to new highs since the beginning of the Covid19 crisis. Today is the first cash equity session in the US since Friday after the holiday yesterday, so it looks pivotal for either confirming or rejecting this important technical sign that a full technical market recovery is unfolding.
What is our trading focus?
- US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – US equities are looking technically pivotal here as equity index futures have come roaring back from a weak close on Friday and are trading some 2% higher since Friday’s close, rising further off yesterday's gains even as the cash market was closed yesterday. The action has taken the S&P 500 index to new highs since the crisis sell-off and above the 200-day moving average at 2997 and the psychological 3000 level. The Nasdaq 100 has now risen to within 2% of its all-time high of 9780, meanwhile.
- OILUSJUL20 (WTI crude) and OILUKJUL20 (Brent crude) - Both trading higher following the US holiday. The current bullish momentum was given further support overnight from Novak comments that the oil market could balance in coming weeks. The IEA sees global oil demand return to and exceed the pre-covid-19 peak also providing support to long-term bulls. Brent is currently boxed in between $37.30/b, the 38.2% retracement of the January to April sell-off and trendline support at $35/b. With US inventories expected to fall again the bullish momentum is likely to be maintained above the mentioned support level.
- AUDUSD - within the G10 currencies, the AUDUSD remains a solid proxy for USD direction – supported by the ongoing strong risk sentiment, but in a bit of technical limbos after a surge last week to new highs just above 0.6600 was briefly beaten back. A new close north of 0.6600 keeps bullish hopes alive for a challenge of the next key area into 0.6675.
- USDCNH – this most important exchange rate remains poised near the cycle highs and may avoid a rush higher as long as the USD veers away from further strength, but given US-China tensions, all traders should keep an eye on this exchange rate and the official on-shore USDCNY rate as any move beyond 7.20 would unsettle markets across the board on whether China intends to allow its currency to weaken.
What is going on?
China assures that Hong Kong judiciary will remain independent. This is likely the headline helping Hong Kong stocks to extend their bounce from yesterday’s lows – few details are on offer as to what this means after massive demonstrations yesterday.
Germany bails out Lufthansa. In a EUR 9 billion deal, the German government will take a 20% equity stake in the struggling airline.
What we are watching next?
Market mood this week as we have crossed the line in major US S&P500 index. Markets appear to either be at a total loss as to what to do (major US dollar crosses and the US treasury market, both of which have been locked into tight ranges for weeks) or to be fully pivoting into risk-on mode, with implied volatilities continuing to collapse in many markets and EM currencies charging higher while the S&P 500 has now having a look above a key resistance level noted above.
Economic Calendar Highlights (times GMT)
- 1200 – Hungary Central Bank Rate Decision – no change expected
- 1230 – US Chicago Fed National Activity Index – expected to show worst reading save for two months during 2008-09 financial crisis.
- 1300 – ECB to publish financial stability review
- 1300 – US Mar. S&P CoreLogic Home Price Index
- 1400 – US Apr. New Home Sales
- 1400 – US May Consumer Confidence
- 1430 – US May Dallas Fed Manufacturing
- 2100 – New Zealand RBNZ to publish financial stability report
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