Market Quick Take - April 12, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities ended last week on a strong positive note as the S&P 500 closed above 4,100 for the first time and the Nasdaq 100 continues to play catch-up, closing at an all-time high close above 13,800 even as it just missed the all-time intraday high. The strong momentum comes just ahead of Q1 earnings season, which kicks off this week as noted below.

Stoxx 50 (EU50.I) - momentum in European equities has stalled over the past week and Euro Stoxx 50 futures are lower again in early trading. The level around 3,918 is key support level intraday with the next test coming down at 3,900.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin poked above 60,000 over the weekend and into Monday morning, seemingly champing at the bit to test the all-time highs from March above 61.7k. Ethereum didn’t hold back and rose to a new all-time high at the weekend above 2,150.

Alibaba (09988:xhkg and BABA:xnys) - jumped higher in the Asian session after the weekend saw the announcement of a record anti-trust fine in China for the company amounting to some $2.8 billion, as many see this fine as putting an end to the anti-trust effort against the company and was smaller than many feared. More from Bloomberg.

EURUSD and AUDUSD – the USD picture is not particularly coherent as EURUSD has been having a go at breaking back up through the 200-day moving average and reversing a recent sell-off wave, while other currencies are languishing sideways against the big dollar. This week, the pivotal area for the EURUSD supermajor is the 1.1900-25 resistance zone, the last area ahead of the bigger 1.2000 level. For AUDUSD, the search is for any pulse in either direction as the pair has traded sideways for weeks in an impossibly tight range. The 0.7550 area to the downside and 0.7700-50 area to the upside could trigger fresh order flow.

USDJPY and JPY crosses – interest-rate sensitive JPY crosses were generally heavy in overnight trading after closing Friday on a high note as Friday’s sell-off in US treasuries was corralled and fizzled to start this week. USDJPY looks pivotal in the 109-110 zone and yields remain the key coincident indicator, with any fresh rally in longer-dated US treasuries possibly leading to 107-75-108.00, while a pull higher in yields would likely mean we saw the lows for now in USDJPY and possibly other JPY crosses (Note EURJPY double top and choppy price action above 130.00, for example, and whether AUDJPY is tracing out a head and shoulders formation if it sells off a bit more this week.) Important US Treasury auctions are up this week as noted below.

Spot Gold (XAUUSD) remains within its established range, as it continues largely to be driven by movements in the dollar and bond yields. Last week’s failed attempt to challenge resistance at $1765 and subsequent weakness led by dollar and yield strength following strong U.S. and Chinese PPI will be the initial focus. Prior to that, the rejection below $1680 saw hedge funds boost their net bullish gold bets by 53% to a 6-week high in the week to April 6. We maintain a short-term neutral view on gold and while the twice rejection below $1680 points to a potential bottom it still needs confirmation, hence the focus on $1765. Focus this week on U.S. CPI and U.S. Treasury auctions.

Crude oil (OILUSMAY21 & OILUKJUN21) remains rangebound with the prospect for stronger economic growth helping to offset the impact of a resurgent coronavirus just as OPEC+ prepares to add supply. Crude oil speculators however will take some comfort from the fact recent position reductions have primarily been driven by long liquidation while the appetite for short selling remains low. Last week oil posted its worst week in three and while the demand outlook into the second half looks strong, short-term challenges are likely to keep Brent rangebound, currently between $60 and $65.

Inflation remains US Treasuries’ key driver, this week’s CPI numbers, Beige Book and bond auctions could provoke a further steepening of the yield curve (TLT, IEF). Last week’s rally in US Treasuries ended as quickly as inflation expectations rose amid strong PPI numbers in the United States and China. We believe that this week inflation will continue to be a recurrent theme as tomorrow CPI numbers will be unveiled and the Beige Book is going to be released on Wednesday. Bidding metrics in Today’s 3- and 10-year bond auction as well as tomorrow’s 30-year auctions could be catalyst for a deeper selloff.

Draghi will conveniently feed yield-hungry bond investors with more Italian debt (BTP10). Last week’s news that Italy will borrow EUR 40 billion more provoked a considerable selloff in BTPS which saw 10-year yields rising seven basis points. This morning sentiment in Italian government bonds is positive pointing to the fact that any rise in yields in Italy is an opportunity for investors to binge on more BTPS because there is little alternative anywhere in the euro area. We believe that the market will gladly support the issuance of more Italian debt and that bidding metrics during this week's auction will be solid.

What is going on?

Alibaba is fined $2.8bn by Chinese regulators. The stock is up as China’s regulators are ending their current antitrust investigation and closes the matters with positive wording of Alibaba aiming to sooth markets that have increasingly getting worried over technology regulation. Other Chinese technology companies are trading lower today on expectations of more fines to the broader industry. The real concern longer term is not the fines as they do not materially impact value of these companies – it is pure virtue signaling by regulators. The key question is how general technology regulation will impact earnings growth rates long-term, and for now the market has no idea of this and thus will have to discount the impact on a quarter-by-quarter basis.

Political situation heating up in Germany’s conservative bloc ahead of German elections later this year. The CDU and sister party CSU are holding leadership meetings today and could see an outcome in which the head of each vies for the Chancellorship in the elections later this year. The popular leader of the smaller CSU party, Markus Söder, threw his hat in the ring at the weekend, as the centrist new CDU leader Laschet is polling very weakly.

Speculators continued to cover dollar short positions despite broad dollar weakness in the week to April 6. The net short against ten IMM currency futures and the Dollar Index was reduced to just $5.4 billion, an 11-month low and down 85% since the mid-January peak at $37 billion. The two biggest casualties during this time have been the euro and Japanese yen, and while the euro long has been reduced by the equivalent of $15 billion, the yen position has seen a $12.5 billion swing from long to short.

Microsoft in talks to acquire Nuance Communications for $16bn. This is Microsoft’s attempt to push into speech recognition software and its application in health care markets. The acquisition makes sense because the technology could be used elsewhere in many of Microsoft’s businesses and thus the application synergies are potentially quite big. But this potential acquisition, not confirmed yet, will be a big test of US antitrust regulators.

What are we watching next?

US Treasury Auctions this week - after rising US yields garnered considerable attention before their recent consolidation, a fresh batch of US treasury auctions this week will offer fresh evidence of the state of demand for treasuries for the important longer maturities. Today sees both 3-year and 10-year auctions and Wednesday will see an auction of 30-year T-bonds.

Earnings reports this week. The earnings calendar heats up this week as the first Q1 results roll in. Three major US banks will be in focus, the biggest of them all JPMorgan Chase, and then Wells Fargo and Bank of America. The latter two are worth watching due to their large footprint in ordinary US households. With the latest talk that retail investors are losing interest in trading the market, the report from Charles Schwab looks key, and finally Delta Air Lines is crucial for understanding travel dynamics as the Covid lockdowns are lifting in the US.

• Tuesday: Fastenal
• Wednesday: Wells Fargo, Teladoc Health, Tesco, JPMorgan Chase, Goldman Sachs, First Republic Bank
• Thursday: Charles Schwab, Progressive, PepsiCo, Bank of America, Citigroup, PPG Industries, UnitedHealth, BlackRock, US Bancorp, Truist Financial, Delta Air Lines
• Friday: Tractor Supply

Economic Calendar Highlights for today (times GMT)

• 0900 - Euro Zone Feb. Retail Sales
• 1300 – UK Bank of England’s Tenreyro to Speak
• 1530 – US 3-year Treasury Auction
• 1700 – US Fed’s Rosengren (Non-voter) to speak
• 1700 – US 10-year Treasury Auction
• 2245 – New Zealand Mar. Card Spending
• 0130 – Australia Mar. NAB Business Conditions

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