Summary: Equity markets were quiet near the top of the range yesterday in the US, and the major equity futures spilled higher on an equally quiet Asian session overnight. The FOMC Minutes of the March meeting, released late yesterday, suggest that FOMC voters are unanimous in their endorsement of the dovish stance on policy.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities are continuing higher this morning following a strong rebound session in Asia. S&P 500 futures are at new all-time highs and close to break higher above 4,100. As long as US interest rates are not climbing aggressively and implied volatility remains low, then we are constructive on the rally in US equities. If Nasdaq 100 futures extend their push higher today, they could close at an all-time high today.
German Dax (DAX.I) - following two sessions of muted price action it seems this morning that DAX futures are gearing up for extending the momentum and pushing into higher territory. European equities remain well positioned to continue to rise as monetary stimulus remains accommodative and global growth is accelerating which typically benefits procyclical economies such as Europe.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin suffered its weakest day in nearly three weeks yesterday with a dip south of 56k and is trying to recover this morning and get back into the former range above 57k, with the chief overhead resistance at 60k. Ethereum stumbled badly yesterday and briefly traded below 2000 and the prior record high in February before attempting a recover this morning – technically important for the bulls that this support area holds.
AUDUSD – the AUDUSD pair has traded in an impossibly tight range lately, only briefly broken by an attempt last week below the 0.7565 area support. An RBA Financial Review will be released overnight tonight, in which there could be some interesting in whether the RBA makes further comments on a fresh spike in housing prices and whether it sees the eventual need to address the issue. This could be a political rearguard action after New Zealand recently gave the RBNZ a mandate to consider housing prices and the government moved to stem housing speculation. Technically, waiting for either a break below 0.7550 or above 0.7700-50 to indicate directional momentum.
USDJPY and JPY crosses – the recent consolidation in US Treasuries has boosted the lowest yielding currencies (not the policy rate, but yields further out the sovereign curve) since the beginning of the month, and USDJPY has consolidated back below 110.00 after trading nearly to 111.00 last week. The pair is coming up on a pivotal 109.50-25 area and the yen is showing signs of firming elsewhere – at a double top in EURJPY, for example, above 130.50. A further drop in long yields could help drive a deepening consolidation in JPY crosses, where traders may have over-positioned on the short side recently. A basic 38.2% retracement of the USDJPY rally from the January lows would see the 107.80 level trading.
Spot Gold (XAUUSD) is having another go at the upside with silver (XAGUSD) trading above the trendline from the February 2 high. A dovish Fed has yields and the dollar trading softer, but so far not with enough momentum to support a punch through the ceiling. The current lack of momentum can be seen in falling volatility, open interest in COMEX gold futures at their lowest in almost two years and a continued reduction in ETF holdings, something that has been ongoing since January. The double bottom created last week below $1680 providing some technical support but for confirmation it still needs to break above $1765. Chinese PPI on Friday may trigger renewed focus on the inflation theme.
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 over the coming months. While the demand outlook into the second half looks strong, short-term challenges remain to keep Brent stuck in a $60 to $65 range for now.
What is going on?
Germany to start negotiations with Russia to import the Sputnik covid vaccine. This would be contingent on EU approval, according to Reuters. Similarly, Czechia’s leader is also looking into importing the vaccine. Separately, Russia has announced a “Sputnik Light” vaccine that only requires one dose.
FOMC Minutes show unanimous support for dovish Fed policy. It is a bit unusual to see the word “unanimous” used in connection with the release of the FOMC minutes, which often show a somewhat divided Fed on a number of issues, but it appears that there is unanimity among FOMC voters for now in supporting a hopeful stance on the current state of the economy, together with a lack of urgency to tighten policy on the anticipation that a near-term inflationary wave will prove transitory and that the labor market is too far from normalizing to consider even future timeframes for taking the foot off accommodative policy.
What are we watching next?
Global minimum tax discussions. The US ‘The Made in America Tax Plan’ includes the idea of a global minimum tax which means that if a multinational book profits in Ireland at 5% tax rate then the company’s domicile country could charge the difference up to the agreed minimum tax rate essentially disincentivizing tax arbitrage. The currents tax rates being discussed could have an impact on S&P 500 earnings of up to 10%, but it is quite likely that the eventual deal is watered down somewhat and maybe even spread out over a couple of years.
China March PPI is released at 01:30 GMT. With the base effects kicking in over the coming months inflation indicators should begin to post big changes. China is the world’s factory and thus producer prices are key for global inflationary pressures. China PPI hit 1.7% y/y in February up from -3.7% y/y in May 2020. With recent talks about Chinese producers being squeezed on profit margins from rising input costs through commodities and longer delivery times due to shipping bottlenecks, they could soon be forced to increase prices significantly.
US corn (CORNMAY21) and soybean (SOYBEANMAY21) trade close to multi-year highs ahead of tomorrow's monthly WASDE report from the US Department of Agriculture. This following last week's Prospective Planting shocker which pinned the allocated acreage for both crops at lower-than-expected levels. Wheat meanwhile is trying to recover from its recent 14% slump with dry weather across several spring wheat growing regions and the weaker dollar supporting prices. In terms of Friday’s supply and demand report, analysts see corn stocks a bit lower than in March, soybeans mostly unchanged and wheat higher.
Earnings reports this week and next week. The earnings calendar is non-existent this week as the Q1 earnings season is warming up for its beginning next week. Major US banks will be in focus with Wells Fargo and Bank of America 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, earnings from Charles Schwab will be of interest, and finally Delta Air Lines is crucial for understanding travel dynamics as the economy recovers.
Economic Calendar Highlights for today (times GMT)
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