Market Quick Take - April 19, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities ended higher on Friday closing a strong week, and S&P 500 futures are holding the line this morning with the first key support level at 4,162 and then the bigger level 4,150. The plunge in cryptocurrencies over the weekend, potentially exacerbated by the rumour of a coming US Treasury crackdown on the crypto industry for money laundering, could have negative spillover effects into Nasdaq 100 futures with the 13,950 being a key support level to watch.

STOXX 50 (EU.I) - STOXX 50 futures saw strong price action on Friday touching 4,000 before retreating a bit into the close. This morning the futures are opening higher and pushing higher in sign of continued momentum in European equities which are still relatively cheap on a relative basis and economic data have lately been supporting the rally. Today’s key resistance level to watch is at 4,000.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin suffered a traumatic weekend, fall more than 10k at one point on Sunday, with smaller coins falling as much or more in many cases, although about half of the damage was erased by this morning. Some point to fears of regulation as a driver, as Turkey said it would ban the use of crypto as a form of payment. And over the weekend, stories circulated that the US treasury is poised to crackdown on the crypto space for its role in money laundering.

EURUSD and AUDUSD – the USD suffered setbacks in many key pairs last week, including a reversal of the latest sell-off wave in EURUSD now that it has retraced back toward 1.2000, and a rally back through a local pivot around 0.7675 in AUDUSD. This week will be about whether the USD continues to sell-off and the market takes these pairs through last week’s high-water marks, with earnings season in focus, and RBA meeting minutes up tonight for Aussie traders and an ECB meeting on Thursday. The market failed to boost the USD last week despite very strong US data.

USDJPY and JPY crosses – the JPY traded firmer again to start the week, with USDJPY poking to a new multi-week low overnight, while EURJPY reversed sharply again and teased below 130.00, still with a “double top” chart formation scenario in place, although missing the sell-off that would confirm it.  Treasury yields bottomed out last Thursday and are likely the key indicator, together with global risk appetite, for whether the JPY can continue to mount a recovery this week.

Gold (XAUUSD) ticked higher in Asia overnight after closing above the key resistance-turned-support area at $1760-65/oz on Friday.  While the dollar trades a bit firmer U.S. Treasury yields remain soft with 10-year real yields back below –80 bp for the first time in six weeks. Partly driven by a continued rise in global corona virus cases worldwide supporting safe havens like Treasuries and gold. Continued focus on dollar and yields as well as geopolitical developments between the U.S. and Russia. Important resistance levels, using Fibonacci, at $1785 (double top) and $1818.

Crude oil futures (OILUKJUN21 & OILUSMAY21) closed above their recent ranges on Friday, but with global virus cases hitting new records, the prospect for a sustained rally at this stage seems limited. Not least considering last week's rally, apart from strong economic data from the U.S. and China, was based on assumptions for a strong recovery in global fuel demand into the second half of 2021. With the prospect of additional barrels over the coming months from OPEC+, Iran and the U.S. we see the upside potential in Brent crude limited to $70/b until vaccine rollouts significantly changes the demand dynamics.

Beware of US Treasuries: they could resume tumbling as the economic backdrop strengthens (TLT, IEF). Last week’s rally will be short lived as Treasury yields will continue to rise together with inflationary pressures. Once fully hedged against JPY, 10-year US Treasuries provide a yield of -0.21%. Only when US nominal yields will hit 2%, they will break-even with the JGBs if fully hedged against FX risk. That’s the reason why we will see strong support for US Treasuries from foreign investors only when they test the 2% pivotal level.

The correlation between US Treasuries and European sovereigns is key ahead of ECB meeting (BTP10, IS0P, IFRB). The ECB tried to keep the correlation between US Treasuries and the Bunds as close as possible to zero by increasing its bond purchases under the PEPP program. Yet, the central bank’s efforts do not seem to be able break the correlation between the two and the European bond market continues to be widely influenced by the US safe havens. Higher sovereign bond yields can be a key issue in the periphery and France.

What is going on?

Global daily Covid cases reached a record over the weekend, based on the 7-day moving average of globally compiled case counts, with India suffering the largest daily case count for the cycle at 275k on Sunday and at the center of concern among populous countries, especially as a new variant there featuring a “double mutation”.

In Russia, regime critic Alexei Navalny is in poor health as he is on a hunger strike and has insisted on choosing his own doctor. The US and other countries have warned Russia of consequences if Navalny dies. Navalny’s network of supporters is planning protests across Russia. In Czech Republic, the government will expel 18 Russian embassy employees over claims that Russia was involved in an explosion of an ammunition depot in the country in 2014.

Commitment of Traders report covering the week to April 13 found money managers turning net buyers of commodities for the first time in seven weeks. The combined net long across 24 major commodity futures contracts, however, rose by less than 1% to 2.28 million lots with buying of crude oil, natural gas, sugar and corn being somewhat offset by selling of gold, soybeans, platinum and copper. The reporting week ended before multiple technical breakouts in oil, copper and gold, continued grain market strength, and renewed demand for soft commodities saw the Bloomberg Commodity index jump the most since December to reach a near three-year high.

Danske Bank replaces CEO Vogelzang. The now former CEO of Danske Bank has landed in a Dutch money laundering investigation and as a result he is being replaced immediately with the head of risk management Carsten Egeriis.

What are we watching next?

Johnson and Johnson vaccine to return to widespread use by the end of the week? The cheaper, one-shot vaccine will be key for a more rapid global vaccine roll-out and may be instated in the US, at least, by the end of the week, according to Dr. Anthony Fauci, chief medical advisor to the US president. Part of the reason for the pause is that the rare incidences of blood clots require non-standard treatment protocols.

Earnings reports this week. While most of earnings last week beat on both revenue and earnings the reactions were more mixed due to lack of outlook from many companies continuing to induce uncertainty into this year’s earnings. This week we get 90 earnings releases among the 2,500 earnings we track during the Q1 earnings season. The names underlined below are the ones that can move general market sentiment or their specific industry cluster.

• Monday: IBM, Coca-Cola
• Tuesday: China Mobile, Investor, Johnson & Johnson, Philip Morris, Netflix, Intuitive Surgical, CSX, Procter & Gamble, Abbott Laboratories, Lockheed Martin
• Wednesday: ASML, Anthem, Verizon Communications, Lam Research, NextEra Energy
• Thursday: Ping An Insurance, Chugai Pharmaceutical, Nidec, Danaher, Union Pacific, Intel, Snap, AT&T, Blackstone Group, HCA Healthcare
• Friday: Daimler, American Express, Honeywell International

Economic Calendar Highlights for today (times GMT)

• 1215 – Canada Mar. Housing Starts
• 2000 – Canada Government to release 2021 Budget
• 0130 – China Rate Decision
• 0130 – Australia RBA Minutes

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