Summary: Another day brought another new record high in US indices, although the good mood generally failed to follow through into the somewhat rockier Asian session, with Japan and mainland Chinese shares selling off. After the rise in US treasury yields on Friday, yesterday saw a dip in yields as we head into the last day of Q2 tomorrow, with quarter-end balance sheet reduction by the largest US banks a possible driver of moves in the treasury market of late.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – bubble stocks and other growth pockets in US equities rallied yesterday with Nasdaq 100 futures rising 1.2% closing at a new all-time high. A string of recent positive news in the US biotechnology sector lifted our NextGen Medicine theme basket by 4%. The VIX closed again below the 16 level and US long-term interest rates are steady around 1.5%. Nasdaq 100 futures are a bit lower in early European trading, but with the news flow staying positive US equities could extend the rally.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). Bitcoin trades near 34.5k after a solid rally away from the key 30k-area support zone and Ethereum rallied with a bit more conviction yesterday, taking the price well above 2,000 to 2,100 as of this writing. According to SEC filings Cathie Wood, of the famed ARK investment Management company, is partnering with 21shares in a bid to get a Bitcoin ETF approved by the regulator.
EURUSD – the action has become almost impossibly rangebound in recent sessions as EURUSD trades below 1.2000 and above 1.1900, having failed to extend the sell-off in the wake of the FOMC meeting of the week before last and possibly awaiting incoming data through the US June jobs report this Friday before choosing a direction, with the risk of a rangy summer doldrums rising if the downside momentum continues to fade.
JPY crosses – the yen rose again yesterday and overnight as US treasuries rallied and risk sentiment was weak in the Asian session overnight. The technical situation in USDJPY remains somewhat suspenseful after last week’s rejection of the attempt to rally through the 111.00 level was beaten back, if insufficiently to reverse the choppy rally from the sub-108.00 lows in April. A well-defined channel is the chief technical focus on the chart and would require any sell-off to take out perhaps 110.00-109.75 to suggest any breakdown risk.
Crude oil (OILUSAUG21 & OILUKAUG21) trades lower ahead of Thursday’s OPEC+ meeting and weekly US inventory reports from the API and EIA. The price dropped the most in week yesterday on expectations for a 500k to 1 million barrels/day boost to production in August together with threats to demand from the more infectious delta variant of the coronavirus which has caused renewed lockdowns across parts of Asia. In Brent a break below the 21-day moving average at 73.3 would signal loss of momentum while sub $72 is needed to start talk about a deeper correction.
Gold and Basel III – The yellow metals continue to consolidate below $1800 as it heads for its worst monthly loss since 2016 in response to a stronger dollar and the Fed’s hawkish shift. New banking rules, part of an international accord known as Basel III, came into effect yesterday. While classifying gold in physical form as a zero-risk asset, unallocated or “paper” gold which banks typically deal with the most, won’t. It means bank holding unallocated gold positions must also hold extra reserves against it. On physical gold, the impact of its risk-free status could trigger more demand from banks while “paper” gold transactions may slow. Ultimately the dollar and yield developments remain the key drivers for gold, but the general view is over time Basel III could have a net positive impact on gold.
What is going on?
In Sweden, political parties in parliament have four chances to try to form new government if the calling of elections are to be avoided. Yesterday, Prime Minister Stefan Löfven resigned (although he will act as caretaker) and called on the parties to form a new government to avoid calling an election in the midst of a pandemic. After 2018 elections, four months were required to put together the coalition that ruled until Löfven lost the confidence vote last week. The Swedish krona weakened back to the lows of the day yesterday.
Large US banks set to splash cash on dividends and buybacks on the first day after the Fed to lift pandemic-linked restrictions. Wells Fargo (WFC:xnys) announced an $18 billion buyback and doubled its dividend, Goldman Sachs (GS:xnys) raised its dividend $2 per share and JPMorgan Chase (JPM:xnys) raised its dividend and will restart its prior buyback program.
Facebook market value surges past $1trn as FTC antitrust lawsuits dismissed. Facebook shares rose 4% yesterday as the FTC antitrust lawsuits were dismissed the US District Judge Boasberg as the report failed to be precise in why Facebook has a monopoly. This court decision could fuel sentiment among other industry dominating companies in the US within the technology sector.
Agriculture: Arabica coffee extended its two-day rally to 6% with freezing temperatures in parts of Brazil posing a risk to the beans. In the US corn, soybeans and wheat also rallied on Monday, thereby reducing the losses following last week's sell-off, on forecasts for heat in the western US Midwest. Overall traders await a key US acreage and stocks report on Wednesday from the U.S. Department of Agriculture, and with surveys pointing to a bigger corn and soybeans acreage than previously expected, some caution could be seen ahead of tomorrow.
What are we watching next?
Flash June CPI out of Germany today and EU on Wednesday. Inflation data bears watching for any surprises after German headline inflation number of 2.5% year-on-year in May matched the highest levels since the oil price spike in 2008 and after the last six months of month-on-month readings showing inflation running at greater than 7%, annualized. The Euro Zone CPI number is running a bit cooler, not quite reaching its 2018 high with a 2.0% YoY reading in May and expected to dip to 1.9% in June, while the core CPI is expected at 0.9% YoY after 1.0% in May.
Earnings to watch this week. This week’s most important earnings come from Micron Technology on Wednesday which is one of the world’s largest makers of computer memory chips and data storage. Analysts expect Micron Technology to deliver 32% growth on revenue. On Thursday, H&M will report FY21 Q2 earnings which will show how profitability is progressing. Nike showed last week that retailers have reduced inventories and stopped promotions, so our expectation is that H&M will show the same trend.
Economic Calendar Highlights for today (times GMT)
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