Market Quick Take - April 27, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US markets marched to an all-time high close in the case of the S&P 500 Index and nearly missed doing the same in the Nasdaq 100 index. Sentiment was stable to slightly better overnight after marquee name Tesla reported its Q1 results after the close.

STOXX 50 (STOXX50E.I) - Europe’s leading futures are up this morning extending positive momentum for the fifth straight session pushing through the highs from last Tuesday’s rout. With the positive earnings announcements in Europe this morning, our view is that STOXX 50 futures could likely test 4,000 today and maybe even break above. South Korea GDP numbers this morning were much stronger than expected suggesting the global economy is picking up speed which benefits European equities.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) Bitcoin continues to regroup, trading near 54k this morning after news about JP Morgan looking into creating a Bitcoin fund for the first time, aiming for a summer start. Ethereum has almost entirely erased the recent sell-off, trading above the highest daily close north of 2,500 this morning.

AUDUSD – with key commodities prices like copper and iron ore soaring to new highs for the cycle, and risk sentiment in a happy mood, the Aussie has found some broad support, rallying sharply versus the weak G3 currencies. Tonight sees the release of the Q1 CPI, which could help the Aussie higher if it comes in hotter than expected, as the RBA has remained very cautious about sending policy normalization signals. AUDUSD has punched up into the 0.7800+ area, and a close above 0.7825-50 leaves only the 0.8000 area top as the final resistance.

EURSEK – the Swedish Riksbank meets this morning and is not expected to send any strong signals after last time saw the bank forecasting a rate of zero through the end of 2024, rather dovish. Since then, manufacturing and housing activity are humming in Sweden and disinflation/deflation concerns are certainly not on the radar. Meanwhile, the chunky size of the ongoing QE could become an issue down the road and require that the Riksbank announce a taper of purchases at some point. EURSEK looks ready to continue lower for a test of 10.00, provided we don’t lurch into a bout of weak risk sentiment elsewhere.

Corn (CORNJUL21) traded limit up for most of the day yesterday and has continued higher since to trade above $6.6/bu. After spending eight years rebounding back above $6, the front month contracts of May and July have already set their sights on $7. Drought in Brazil, cold weather leading to slow planting in the U.S. and surging overseas demand are the three ingredients currently giving the whole grain sector a dramatic lift. CBOT Wheat (WHEATJUL21) up 25% this month jumped to the highest price since 2013 amid supply concerns and increased focus on rising feed substitution demand from corn.

Dry weather in Brazil also the main reason behind the continued surge in sugar (SUGARNYJUL21) and Arabica coffee (COFFEEJU21).  Both higher by around 16% this month with coffee reaching a three-year high at $1.4415/lb. For the coffee harvest starting in May, the dry weather has reduced cherry growth and will result in a small crop with smaller bean size. Adding to the unease are expectations for a post-pandemic demand boost as shops, cafes and restaurants re-open.

Gold (XAUUSD) trades rangebound after losing momentum ahead of $1800 while support in the $1760-65 area remains firm. Focus on Wednesday’s FOMC meeting and its potential impact on the dollar and yields which have both been trading softer recently. The lack of enthusiasm from speculators in both ETF’s and futures an indication that large scale short covering from longer term trend funds and renewed momentum buying has not yet emerged. For that to happen gold as a minimum need to break above $1815.

Today’s 7-year US Treasury note auction has the potential to turn ugly (TLT; IEF). Bidding metrics for yesterday’s 2- and 5-year US Treasury notes auction were weak. The 2-year notes bid to cover dropped to 2.35x well below the past 5-year average of 2.66x. Foreign demand plunged to the weakest level since July 2019. Everything pointed to investors pricing in early tapering. However, the 5-year note auction was solid even though demand was slightly on the weak side. Today’s 7-year note auction is a test to the bond market ahead of the FOMC meeting tomorrow. There is the probability to see a replay of February’s weak auction that sent US Treasuries in a fast selloff.

What is going on?

China’s government announces anti-trust probe into Meituan, the Chinese food-delivery giant, a move that spooked the market late yesterday, and follows up on the recent pattern of going after large companies with monopolistic platforms akin to some Western counterparts.

DSV Panalpina to buy Agility’s for $4.1bn. The is the first acquisition for the logistics group since the 2019 merger between DSV and Panalpina, indicating that the merger and majority of synergies have now been harvested. The deal which is an all-share transaction will expand DSV’s footprint in the air and sea industry.

What are we watching next?

FOMC meeting tomorrow – the Fed would likely prefer to not even be meeting tonight, so it will likely say as little as possible at tomorrow night’s meeting as its mettle will likely be tested in coming months on its conviction that the coming bump in inflation numbers will be “transitory”. EuroDollar futures suggest Fed rate lift-off will begin in the second half of 2022, with the latest Fed forecasts continuing to suggest a Q1 2024 lift-off. The first signal would be a “taper” of QE purchases, meanwhile, not something to expect from this meeting.

Earnings reports this week. Yesterday’s earnings from Tesla were mostly as expected and will thus not jolt sentiment in any direction this morning. This morning DSV Panalpina is reporting much better revenue and operating earnings for Q1 and announcing a new acquisition. UBS is also reporting good Q1 earnings above market expectations although the Swiss bank has taken a $774mn hit from the Archegos collapse last quarter. HSBC is lifting banking stocks in Asia due to much better performance than expected driven by cost cutting and credit improvement; the bank is not yet seeing any material impact on its India business from the recent Covid-19 wave. Today, the three key earnings in focus are Microsoft, Alphabet, and UPS, with the two former reporting after the close and UPS reporting before the market opens.

• Tuesday: DSV Panalpina, FANUC, HSBC, BP, Atlas Copco, Novartis, ABB, UBS, Microsoft, Alphabet (Google), Visa, Eli Lilly, Texas Instruments, UPS, Amgen, Starbucks, General Electric, 3M, AMD, Mondelez, Pinterest, Archer-Daniels-Midland
• Wednesday: Shopify, Kone, Sanofi, Dassault Systems, Delivery Hero, Deutsche Bank, China Construction Bank, China Life Insurance, BYD, Sony, Keyence, GlaxoSmithKline, Lloyds Banking Group, Banco Santander, Apple, Facebook, Qualcomm, Boeing, Spotify, Ford Motor, eBay
• Thursday: Orsted, Neste, Nokia, Total, Airbus, BASF, Agricultural Bank of China, Bank of China, PetroChina, Eni, Royal Dutch Shell, Equinor, Wilmar International, Nordea Bank, Amazon.com, Mastercard, Comcast, Merck & Co, McDonald’s, Caterpillar, NIO, Twitter
• Friday: BNP Paribas, AstraZeneca, Barclays, BBVA, Siemens Gamesa Renewable Energy, DBS Group, ExxonMobil, Chevron, AbbVie, Colgate-Palmolive

Economic Calendar Highlights for today (times GMT)

• 0730 – Sweden Riksbank Interest Rate Announcement
• 0730 – Sweden Mar. Unemployment Rate
• 1200 – Hungary Central Bank Rate Decision
• 1400 – US Apr. Consumer Confidence
• 2000 – Canada Bank of Canada Governor Macklem to Speak
• 0130 – Australia Q1 CPI

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