Summary: Friday saw an ugly session in US equities that more than erased the gains of the previous day, though US futures action overnight to start the week was more upbeat and some may point to end of month flows after a strong April performance for equities. Everywhere, however, the focus is on inflation and to what degree company earnings, consumer expectations, and the economy will be impacted by signs of surging prices.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities closed on a very weak note on Friday, the last day of the month of April after a very strong month, which the bulls will hope was down to end-of-month rebalancing after a quite strong month for US equities. This week sets in motion a test of the old saying to “sell in May and go away” on historical under-performance of this time of year. The Nasdaq 100 index is entirely lacking momentum, still trading in a tight range for more than three weeks, with 14,000 apparently a tough nut to crack, while the 21-day moving average has moved up to the current price level near 13,850. The next area lower is 13,300. The S&P 500 Index is showing bearish divergent momentum that would start to find confirmation on a close below its 21-day moving average (currently near 4,140).
STOXX 50 (STOXX50E.I) - European stocks suffered a setback late last week after a strong run for April, as the 4,000 area for the STOXX 50 remains the focus for bulls. The Friday close was right on the 21-day moving average in the cash index, even if that was broken for the future/index CFD. In any case, if sentiment continues to deteriorate, the focus will quickly shift to the recent pivot low near 3,935.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome). Bitcoin isn’t giving up just yet after a strong comeback form the recent powerful sell-off, but has so far found resistance in the key 58,000 area, just above which is the 61.8% retracement of the sell-off wave from the 64.8k+ top to the lows near 47k. Ethereum, meanwhile, has ripped to new all-time highs overnight after a strong close last week, and is trading near 3,100 as of this writing as Bitcoin “dominance” continues to fade, currently below 48% of the crypto market.
AUDUSD – the AUDUSD pair suffered a weak close to last week, one that took the price action away from the previous focus on the 0.7800+ breakout area that is so clearly defined on the chart and was attacked on multiple occasions last week to no avail. The reversal is a setback for bulls, one that deepens if risk sentiment worsens from Friday’s drop and the RBA fails to indicate and new stance on its policy mix overnight at its meeting. Price action below 0.7675-50 would begin to suggest a new breakdown and focus on the 0.7532 lows.
EURUSD – the USD staged a strong comeback on Friday, and across the board, one that wasn’t even driven by a surge in US treasury yields, which are relatively unchanged since the last Thursday’s close. The snapback rally in the USD after its recent weakness took EURUSD back close to 1.2000 late Friday, a pivotal psychological level for the bulls looking for more upside. Next supports are 1.1980 (38.2% of the sharp rally from the 1.1700 area low of April) and then the 200-day moving average just below 1.19050 followed by 1.1874, the 61.8% retracement of the April rally.
Crude oil futures trade lower for a second day with the uneven demand recovery creating a somewhat challenging outlook. In India, April gasoline demand fell to the lowest level since August and increased curbs on mobility may trigger further declines into May. This at a time when higher fuel consumption is being recorded in the U.S., China and the U.K. and OPEC+ during the next three months begins to add barrels back into the market. The outlook is further being clouded by uncertainty about U.S. production growth and Iran nuclear negotiations where a deal could trigger rising production.
Gold (XAUUSD) and silver (XAGUSD) continue to frustrate bulls and bears alike given their inability to break current ranges. Both trading higher today after surviving another downside attempt on Friday when the dollar suddenly jumped (see above). US Treasury yields continue to trade range bound with rising breakeven (inflation expectations) being offset by lower real yields. Speculators cut length in COMEX futures last week while ETF holdings remain stuck near a one-year low. Current range in gold being $1755 to $1800.
What is going on?
The Bloomberg Grains Spot index, already at an 8 year high continues higher today led by corn (CORNJUL21) and (WHEATJUL21). In corn, the spread between the July (old crop) and December (new crop) contracts has widened to 115 cents per bushel, and it highlights the current stress in the spot market as a powerful La Nina disrupts harvests in Brazil with dry weather cutting the production outlook by 8% to 104m tons. Adding to the current unease has been record Chinese imports while US planting progress and weather developments will be watched for clues as to the direction of the new crop contracts, such as December. Weekly U.S. planting progress data due later at 20:00 GMT
Intel CEO says semiconductor shortage will persist, indicating that “We have a couple of years until we catch up to this surging demand across every aspect of the business.” On Thursday of last week, for example, Ford Motor company indicated that chip shortages would cut its 2nd quarter production in half, although analysts were confused by the guidance in last week’s earnings call. S&P Global bond ratings agency said last week that it will keep a negative rating on the company’s debt.
What are we watching next?
Whether the “sell in May and go away” saying is the operative phrase for equity investors. One factor that could impact equities this month is the delayed US tax season, as the deadline was extended to May 17 from the usual mid-April, and after a rip-roaring recovery in equities and other assets like crypto currencies since the pandemic lows, some selling will have to take place to pay tax bills.
Another busy earnings week. Last week was the biggest Q1 earnings week with all the major companies reporting. With a Danish holiday on Friday, we did not have the opportunity to comment on Amazon's Q1 earnings which showed revenue growth of 44% y/y and adjusted EPS growth of 215% y/y, with EBITDA margin hitting an all-time high of 16.5%. Amazon has invested $45.4bn in the last 12 months which almost three times the amount invested in 2019 which is obviously compressing the company's equity valuation but the market is accepting this for now betting it will sustain high growth over the coming years. This week we will be watching A.P. Moller Maersk and Rio Tinto earnings as they will provide more insights into the inflationary pressures through input costs from commodities and logistics.
Monday: Westpac Banking, Estee Lauder Cos, Nutrien, Siemens Healthineers, Zoom
Tuesday: T-Mobile US, Activision Blizzard, Pfizer, CVS Health, ConocoPhillips, Infineon Technologies, Ferrari
Wednesday: Novo Nordisk, MercadoLibre, Deutsche Post, General Motors, Booking, PayPal, Uber Technologies, A.P. Moller – Maersk, Vestas Wind Systems, Genmab, Siemens Energy, Intesa Sanpaolo
Thursday: National Australia Bank, Anheuser-Busch InBev, Nintendo, Linde, Becton Dickinson, Rio Tinto, Square, Enel, Volkswagen, Fidelity National Information, Zoetis, Moderna, Coloplast, Zalando, Unicredit, ArcelorMittal
Friday: Siemens, BMW, Cigna, Enbridge, Credit Agricole, Adidas
Economic Calendar Highlights for today (times GMT)
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