Market Quick Take - April 15, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – the US equity market cooled it heels yesterday after its recent steep run-off, with the tech-heavy Nasdaq 100 selling off the most aggressively after having rallied more than the broader market yesterday. The Coinbase IPO seeing shares tumbling far below intraday highs may have weighed on sentiment there. Small-caps actually managed a positive session. If stocks are in for a larger consolidation here, first areas of focus lower could be the 21-day moving average (currently 4,009 for the S&P 500 and 13,310 for the Nasdaq 100).

Stoxx 50 (EU.I) - Stoxx 50 futures are boxed into a very tight trading range from 3,900 to 3,933, and a breakout is likely to be a catalyst for a new short-term direction in European equities. Our view is that the probability is skewed in favour of an upside breakout taking European equities higher as the Q1 earnings season could surprise to the upside.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Ethereum is stealing Bitcoin’s thunder as it rose steeply again yesterday and overnight, setting a new high water mark in Asian hours at 2,478, while Bitcoin is languishing a bit after finding rejection just ahead of 65,000 yesterday, with the weak close in Coinbase stock on its first day of trading perhaps weighed on sentiment.

EURUSD and AUDUSD – EURUSD has traded close enough to 1.2000 to call a reversal of the recent sell-off wave and a more neutral chart, though it needs to drive higher through that key level to point the needled toward the 1.2350 area cycle top, while AUDUSD jumped back higher yesterday through the important 0.7650-75 area, which is now the support zone for a drive to the 0.8000 top, with some supportive developments in commodities in Asia overnight, including a strong session for iron ore.

USDTRY – an important day for TRY as the new Turkish central bank chief Kavcioglu is leading his first announcement of the policy rate. He was appointed the new head of the bank in a shock move from President Erdogan after criticizing the approach of the prior leader Agbal, who took an orthodox approach of aggressively hiking rates to stabilize TRY. No change to the 19.0% policy rate is expected, but guidance will be watched closely for indications that the new leadership wants to take policy rates lower despite the risks to the currency. This after TRY was traumatized by the removal of Agbal.

Crude oil (OILUSMAY21 & OILUKJUN21) broke higher yesterday after the IEA in its monthly report repeated the optimism that shone through OPEC’s update on Tuesday. Despite short-term Covid-19 related challenges, both increased their outlook for 2021 demand based on an expected strong pickup into the second half. The biggest US crude inventory draw in almost two months did the rest as it helped drive the price above its recently established range, thereby triggering fresh technical buying from momentum players such as CTA’s and hedge funds. The short-term focus is on whether the breakout above $65 will stick as OPEC+, the U.S. and Iran, the wildcard, prepares to add barrels over the coming months.

US Treasuries yields steady near lows amid Powell’s speech, Beige Book and a possibly cheaper infrastructure stimulus (TLT, IEF). US Treasuries remained steady during yesterday’s Powell’s speech despite the chair said that the Federal Reserve will be looking to taper before rising interest rates. The Beige Book reinforced the central bank’s message of economic strength and no rate cut until 2023. To leave yields close to 1.6%, it’s also the news that a senior Republicans Senator may push forward an alternative infrastructure stimulus bill cheaper than Biden’s.

US high yield corporate bonds and Emerging market sovereigns pay the same spread over the US Treasuries (HYG, PCY). On average, US high yield corporate bonds and emerging market sovereigns pay around 300 basis points over the US Treasuries. Junk bonds are slightly more expensive making us wonder whether we would start to see a correction soon within this space. We believe that the macroeconomic backdrop is still supportive of junk in the US while emerging markets face bigger problems such as ballooning debt and a recovery delay amid a slower vaccination pace. We will write about this topic later today.

What is going on?

US to announce sanctions against Russia on accusation of election, SolarWinds hacks. The measures are not yet known, but could be announced as soon as today, and could focus on Russian individuals thought to be behind the accused hacks. But more important for the Russian ruble, which is under pressure this morning again after this story broke, the sanctions could include barring any US financial institutions from trading new debt issued from official Russian sources like the central bank, finance ministry or sovereign wealth fund. This comes after the RUB rallied just the prior day when Biden raised the idea of a summit with Putin to discuss the two countries’ issues.

HG Copper (COPPERUSMAY21) traded higher within its established $4 to $4.2 range yesterday after Goldman Sachs published a note in which the bank forecast LME copper will hit $15000 ($6.5/lb in HG) by 2025. The green transformation remains the key source of additional demand, and one that will trigger a shortage of copper unless prices rise to levels where producers are incentivized to increase production. In the short term, copper may focus equally on the potential negative impact of tightening liquidity in China as authorities there try to bring inflation under control.

The Bloomberg Commodity Grains Index (ETF ticker example: AIGG:xlon) trades at a fresh four-year high on a combination of strong demand at a time where farmers in the US, Canada and Europe are already battling with dryness this early in the planting and growing season. Adding to this ongoing worries in South America and the risk is for a continued decline in already falling global stock levels. These developments have driven Corn (CORNJUL21) to an eight-year high while spring-wheat (Minneapolis) futures has rallied to a near four-year high with Chicago wheat (WHEATJUL21) also picking up speed in recent sessions.

Australia’s employment numbers disappoint - as, despite a strong headline employment change number of 71k for the month of March, and a 0.2% rise in the participation rate, the growth in jobs was entirely in part-time positions at +91.5k, while full-time employment change was –21k.

What are we watching next?

US March Retail Sales today – these are expected to show a rise of +6.4% month-on-month ex Autos and Gas as the latest and largest round of US stimulus checks works through the system and comes after a –3.3% drop in February. A significantly larger than expected gain might point to consumers splashing some of their pent-up savings from prior rounds of stimulus as well, while a weaker than expected gain might point to a more cautious stance, even as the US economy is opening up from Covid restrictions, if unevenly.

Bitcoin and Coinbase shares – as we said yesterday the $250 per share in reference price for the Coinbase direct listing on Nasdaq was too low and the shares eventually also cleared at $381 at the open. Shares went as high as $429.54 at the high before selling off closing at $328.28. As with the introduction of Bitcoin futures a couple of years ago the Coinbase listing is a key milestone that arguably has created a lot of interest and hype, so it will be interesting to see how the entire cryptocurrency industry evolves over the coming months.

Earnings reports this week. Yesterday, the roles of Wells Fargo and JPMorgan Chase reversed as the market rewarded the earnings of Wells Fargo with much better efficiency ratio (also known as cost/income ratio) despite worse than expected net income in a sign that the turnaround is working for Wells Fargo. JPMorgan Chase on the other hand was punished by the market as the commercial and consumer banking divisions were not delivering vs expectations with loan demand still running weak. Teladoc Health ended up not reporting yesterday as expected and the earnings release date is now set to 28 April. Today we are watch earnings from Charles Schwab, Bank of America, Citigroup, and Delta Air Lines.

• Today: Charles Schwab, Progressive, PepsiCo, Bank of America, Citigroup, PPG Industries, UnitedHealth, BlackRock, US Bancorp, Truist Financial, Delta Air Lines
• Friday: Zijin Mining Group, CDW, Bank of New York Mellon, PNC Financial Services, Morgan Stanley, State Street, Kansas City Southern

Economic Calendar Highlights for today (times GMT)

• 1100 – Turkey Central Bank Interest Rate Announcement
• 1230 – Canada Feb. Manufacturing Sales
• 1230 – US Apr. Empire Manufacturing
• 1230 – US Weekly Initial Jobless Claims and Continuing Claims
• 1230 – US Mar. Retail Sales
• 1230 – US Apr. Philadelphia Fed Survey
• 1400 – US Apr. NAHB Housing Market Index
• 1430 – DOE’s Weekly Natural Gas Storage Change
• 1800 – US Fed’s Daly (Voter) to speak
• 0200 – China Q1 GDP
• 0200 – China Mar. Industrial Production
• 0200 – China Mar. Retail Sales

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