Market Quick Take - September 15, 2021

Market Quick Take - September 15, 2021

Macro 6 minutes to read
Saxo Strategy Team

Summary:  Equity sentiment continued to suffer yesterday despite a US August CPI release that showed cooler inflation than expected and saw a rally in Treasuries as it keeps Fed expectations on tapering and eventual rate hikes in check. The weak risk sentiment drove the US dollar back to the firm side and JPY was firmer still as FX patterns across many pairs suggested a change of mood to the worse.


What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - despite a victory for investors believing in transitory inflation yesterday denting the US 10-year yield, Nasdaq 100 futures are not very bid this morning in early trading. This suggests that sentiment overall is weakening and investors are worried about China, global growth, and rising commodity prices which are soon hitting an all-time high. Nasdaq 100 futures are trading around the 15,400 level this morning, but if risk-off kicks in again the next support level is at 15,266.

Hang Seng (HI50.I) - today’s macro figures from China, the news that Evergrande will not pay interest due 20 September, and the ongoing technology crackdown, are driving Hang Seng futures down 1.5% trading just above the 25,000 level. The next big support level is around 24,682 seen as pivotal for the rebound in August.

EURUSD – EURUSD trader might have been surprised at the reaction to the US CPI release, which came in lower than expected and saw US treasuries rally – EURUSD tried to rally back toward 1.1850, but surrendered the day’s gains and rolled back over toward 1.1800, a choppy performance that represents the third day in a row of intraday moves finding rejection in a market lacking conviction. Given the important of yesterday’s US data, this move may carry more weight in terms of sentiment and suggests the risk of a probe of the 1.1770 area lows, a break of which could open for a run to the range lows below 1.1700.

GBPJPY – yesterday looked like a potential key reversal day for many FX pairs aligned along the axis of risk, especially JPY pairs that are sensitive to US long treasury yields. With the release of the lower-than-expected US CPI data and rally in US treasuries, the JPY strengthened and GBPJPY reversed back hard to the downside after attempting an upside break above 152.65. Now the focus shifts to the 200-day moving average near 149.50, which is also close to the neckline of a well-defined head and shoulders formation.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) – Bitcoin and Ethereum are trading near the highs for the last week but need to show further gains to dig the price action out of the shadow of last week’s sell-off, arguably starting with a move back above 50k for Bitcoin and perhaps 3,800 for Ethereum.

Gold (XAUUSD) trades above $1800 in response to lower Treasury yields after the US CPI print turned out to be lower than expected (see below). The FOMC meets next week with the market still expecting the bank could start tapering towards yearend. Gold’s inability to find a path higher despite the tailwind from sub –1% real yields have left potential buyers sidelined waiting for a change in the macroeconomic outlook or a break above key resistance at $1835. With silver (XAGUSD) underperforming again, and with platinum’s (XPTUSD) discount surging to 870 dollars following a near 10% drop, the prospect for gold to shine seems limited at this stage.

Crude Oil (OILUSOCT21 & OILUKNOV21) trades near a six-week high with the API reporting an across-the-board reduction in crude and fuel stocks last week, as post-hurricane Ida disruptions continue to impact production and refinery activity. China’s latest attempt to curb prices by releasing 7.4m barrels of crude oil into the market on September 24 was shrugged off as small change, given the +30m barrels cut from temporary US production disruptions. However, the lack of fresh momentum following the break higher could indicate traders are in no rush to enter the market at current levels. Focus on today’s EIA report with next resistance level in Brent at $76.15/b.

US Treasuries rally amid US CPI miss, yields might fall further amid retail sales drop on Thursday (IEF, TLT). The yield curve bull flattened with the 5s30s falling below 106 bps, a level previously seen almost a year ago. Ten-year yields fell as much as 6.4bps, while 30-year TIPS touched -0.40% a level previously seen in September 2020. Bullish sentiment was spurred by expectations the Federal Reserve will not taper until the November FOMC meeting. Also, strong demand for US Treasuries keeps yields compressed as this week coupon supply lacking, resuming only next week with the 20-year auction. Despite retail are expected to show another drop on Thursday, we don’t expect yields to drop below 1.20%. It is more likely that the 10-year remain rangebound between 1.25% and 1.35% until next week’s FOMC meeting.

European bond yields drop amid falling US Treasury yields (VGEA, BTP10, IS0L). Heavy bond supply led yield curves to steepen yesterday morning, but a strong 30-year BTPS auction caused yields to reverse their gains. The drop in yields in the euro area accelerated as yields began to drop in the US following the CPI miss. We can conclude that the dovish-taper delivered by the ECB last week was successful in limiting hawkish speculations, therefore sovereign bonds with a high beta benefit the most. Additionally, the correlation between Bund and US Treasuries continues to be a prevalent theme.

Gilts look vulnerable as inflation rises at the strongest pace in more than nine years (IGLT, GILS). UK inflation data this morning might turn the Bank of England hawkish at next week's monetary policy meeting. Yearly CPI rose 3.2% in the UK versus 2.9% expected, the highest pace in more than nine years. The MPC is already divided regarding whether the economy has reached economic conditions that warrant more aggressive policies, and this week strong jobs data and inflation numbers might lead the BOE to consider less accommodative policies. Within this context, ten-year Gilts trading at 0.74% look mispriced, and we expect them to rise above 0.80% ahead of the BOE next week.

What is going on?

U.S. August CPI lower than expected, but still uncomfortably high. CPI was out at 5.3% y/y versus prior 5.4% y/y. Excluding food and energy it was down more than expected at 4.0% y/y versus 4.2% y/y. The cost of used cars, which has attracted a lot of market attention in recent months, was down 1.5% m/m. It is too early to know whether this is a win for the transitory camp, in our view. Increased travel caution due to Covid-19 partially explains the slowdown in inflation (airline fare -9.1% m/m and car rental -8.5% m/m, for instance). The cost of living remains high. There are still a lot of concerns regarding transportation costs. And wage inflation is on the rise. In some U.S. states, McDonald’s proposes a minimum wage of $18 per hour versus a federal minimum wage of $7.25 per hour. This is something to monitor closely.

China’s Xi Jinping declined summit proposal from US President Biden - that was floated during a 90-minute phone call between the two leaders last week. Observers note that Xi Jinping has not left China for more than 600 days, the longest stint of any G20 leader.

China retail sales disappoints in August. Retail sales in the world’s second largest economy came in at 2.5% y/y vs est. 7.0% y/y as mobility restrictions related to outbreaks of Covid-19 impacted consumer sentiment more than expected. Construction spending for the first eight months of the year showed a contraction which is related to both Evergrande and also the government’s wish to curb leverage in the system.

China instructs banks that Evergrande will not pay interest due 20 September. Despite this announcement, Evergrande shares are down only 3% in today’s Hong Kong session. With this news the restructuring process of Evergrande has begun. The crisis around Evergrande has caused the Chinese real estate market to slow down with home sales turning negative y/y in August which puts pressure on banks and credit formation in the Chinese economy. A spokesperson for the National Bureau of Statistics said today that other real estate developers are experiencing some level of stress and that the government is monitoring the situation.

Inditex reports 1H earnings. Revenue for the first six months (ending 31 July) of the fiscal year was €11.9bn up 49% y/y and in line with estimates and EBIT at €1.7bn was also in line with estimates. However, online sales grew only 36% driven of course by the huge pickup in stores reopening after the pandemic but some investors would like to see online sales growth to be above the overall sales growth to firmly believe in the transformation towards a more digital fashion brand.

What are we watching next?

Risk sentiment for US equities into this Friday’s options expiry – the sell-off in US equities over the six sessions has been of a different nature than the monthly dips of the past four months, each of which was short and sharp and appeared related, in terms of timing, with the expiry of options on S&P stocks on the third Friday of the month (for this month, the options expiry this Friday is for futures and single stocks as well). This sell-off has been more of a grinding affair, with yesterday’s close near an important trend-line in the S&P 500. It will be interesting to see if the market has proven too complacent if this trend-line breaks and if options-related leverage generates volatility as Friday’s expiration approaches.

Economic calendar highlights for today (times GMT)

  • 0900 – Euro Zone Jul. Industrial Production
  • 1230 – ECB’s Schnabel to speak
  • 1230 – US Sep. Empire Manufacturing
  • 1230 – US Aug. Import Price Index
  • 1230 – Canada Aug. CPI
  • 1300 – Canada Aug. Existing Home Sales
  • 1315 – US Aug. Industrial Production / Capacity Utilization
  • 1430 – EIA's Weekly Petroleum Status Report
  • 1500 – ECB's Lane to speak
  • 2245 – New Zealand Q2 GDP
  • 2350 – Japan Aug. Trade Balance
  • 0130 – Australia RBA Bulleting
  • 0130 – Australia Aug. Unemployment Rate / Employment Change

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 Capital Markets or its affiliates.

Saxo Markets
Most of our staff in Singapore are working from home to help limit the spread of the coronavirus. We remain at your service on the details below. Thank you for your understanding.

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.