Market Quick Take - February 12, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – fourth straight session with sideways US equity futures as S&P 500 futures hover around the 3,900 level. Equities are not getting any positive catalysts from earnings any longer and the macro numbers have also stalled with the US claims data yesterday on the weak side. Technically and given markets are headed into the weekend we could see a bit of risk-off in today’s session. The 3,885 level is the key support level to the downside.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin had a go at new all-time highs overnight and nearly managed to breach $49,000 before dropping back about 2,000 dollars into this morning’s trading, while Ethereum is caught in the range established earlier this week between about 1,680 and the all-time high just below 1,840. The US payments company PayPal, which last fall opened up for its customers to buy, sell and hold four different crypto currencies (the two here plus Litecoin and Bitcoin cash) in the fall, said yesterday that it is unlikely to invest its cash in cryptocurrencies.

USDJPY – after tumbling lower in the wake of a weak US jobs report last week, the action in USDJPY has become bottled up in a tight range. Not helpful for those looking for lower levels here, the US long bond yield ticked up sharply yesterday after a weak US Treasury auction of 30-year T-bonds. Still, as long as the pair trades below perhaps 105.25-50, the bears will eye a breakdown through 104.50-00 as a sign that the recent squeeze was merely that and focus on a renewal of the structural bar move toward 100.00. US yields are likely a key coincident indicator and could disrupt the bearish hopes if they rise to new highs.

AUDUSD and EURUSD – EURUSD is clearly at a crossroads here in the 1.2100-1.2200 zone, having retraced about 50% of the sell-off wave from the 1.2350 area top recently. EURUSD bulls need the pair to maintain altitude above 1.2000 to keep the structural argument for higher levels alive. THere is little to celebrate in Europe and the vaccine roll-out simply must kick into a much higher gear soon to save some portion of the tourist season or southern Europe. AUDUSD is less close to pivotal downslide levels, but the bull move has lost considerable momentum there as the current price level near 0.7750 traded as far back as early January and one wonders if the pair can generate fresh upside momentum with Chinese markets off-line for a holiday there through next Wednesday.

Gold (XAUUSD) and silver (XAGUSD) - trade lower following a weak US 30-year bond auction yesterday helped drive bond yields higher while the dollar paired earlier losses. It highlights precious metals current dependency on the dollar while adapting to higher bond yields, most of which has been driven by a gold and silver supportive rise in breakevens or inflation expectations. The 50 and 200-day moving averages have both converged to create a band of resistance in high $1850’s. Platinum (XPTUSD) meanwhile reached a six-year high before profit taking emerged, driven by strong investment demand, stricter auto emissions rules and signs that catalyst producers have started to switch back to platinum from palladium.

Crude oil (OILUSMAR21 & OILUKAPR21) - both slipped after the IEA once again lowered its 2021 demand growth outlook, describing the market as fragile as the pandemic continues to hurt consumption from China to the US. Thereby leaving the current price strength dependent on continue restraint from the OPEC+ group of producers supported by "paper" demand from speculators. Despite of these uncertain forecasts, the oil market courtesy of Saudi’s unilateral production cuts continues to tighten while “paper” demand driven by momentum and deflation hedges remain firm. The next critical time for OPEC+ will be on March 4 when they meet to decide on production levels into the spring and summer months. Apart from psychological support at $60/b the first major level of support in Brent is at $59 followed by $58.

Weak 30-year US Treasury auction has revived the reflation trade (TLT, IEF). Yesterday’s bond auction was expected to benefit from the highest yield in a year, however bidding metrics showed unexpected weakness. The bid-to-cover ratio was the lowest since August and bids from indirect dealers, which represents foreign demand, were 60% down from the previous auction.

Italy takes advantage of positive market sentiments and successfully places 3-, 7- and 20- year BTPs (BT10). Despite the 20-year auction results were solid, 3-year BTPs drew market's attention. The three-years BTP auction had a bid-to-cover-ratio of 1.6x vs 1.4x from the previous auction and priced in deeper negative territory with a yield of –0.33% down 10bps from the previous. BTPs are poised for more upside as, Mario Draghi won the support of the biggest party in parliament, and he’s looking to make his cabinet picks as soon as today.

Disney (DIS:xnys) - FY21 Q1 earnings release was a bit better than expected with revenue at $16.3bn vs est. $15.9bn and Disney+ subscribers hit 94.9mn vs est. 90.7mn. The adjusted EPS was $-0.32 vs est. $-0.38 underscoring the bleeding that is still happening from the Parks, Experiences, and Products segment.

What is going on?

US housing prices rose nearly 15% year-on-year in Q4 - as a sign of the bizarre, K-shaped recovery for the US economy, lower rates for mortgages have driven a huge boom in US Housing prices, with prices accelerating further in Q4 of last year to a rate of 14.9% year-on-year for median prices. The rate for 30-year US mortgages crossed below 3% in November and has only risen around 10 bps despite the solid rise in US 30-year T-bond yield.

Mexico’s Central Bank cuts rates 25 bps to 4.00% as widely expected, with strength in the country’s currency and an economy that ran a current account surplus for the first time in decades last year (albeit on weak demand for imports on a struggling economy) helping the central bank to make the decision to provide easing. As the move was widely expected, the Mexican peso (MXN) reacted little and the recent action suggests the current level around 20.00 is an important psychological one for traders.

What are we watching next?

US initial University of MIchigan sentiment survey – out later today and one of the two large sentiment surveys in the US, together with the Conference Board survey. Generally, these surveys correlate historically most closely with the strength of the labour market, where some numbers have looked a bit more promising, but where the weekly jobless claims figures seem painfully slow to fall, as seen in yesterday’s latest data. The Conference Board survey was near the bottom of the range since the pandemic outbreak while the U. of MIchigan survey was far from the lows but still within the range of the prior four months. If sentiment remains bogged down, it suggests that on-the-ground conditions are far from positive for the average person.

Earnings releases to watch this week - strong numbers from Disney ended the earnings week on a strong note as the earnings releases expected today will not move market sentiment.

• Today: Enbridge, Dominion Energy

Economic Calendar Highlights for today (times GMT)

0730 – Switzerland Jan. CPI

0800 – Hungary Jan. CPI

0900 – Poland Q4 GDP

1030 – Russian Central Bank announces interest rate

1500 – US Feb. University of Michigan Sentiment

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