Market Quick Take - February 24, 2021

What is our trading focus?

• Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – market participants were witnessing a historic comeback in the Nasdaq 100 futures yesterday with the index down 4.3% intraday from high to low before managing to recover most of the losses. This vindicated the buy-the-dip crowd but overnight has seen a return of negative sentiment with Nasdaq 100 futures pushing lower again down 0.8% in European pre-market session with the 13,000 being the key psychological level to watch. Despite the recent selloff the VIX, except for yesterday’s tour to 27, remains relatively calm. The selloff is still dominated by green transformation, bubble stocks, and biotechnology. It is still too early to call this over and a bigger correction in equities could still happen.
  
  
• Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - another 10,000 day for Bitcoin yesterday, which traded all the way down to 45,000 from session highs of 55,000 after the prior day’s 7,000-dollar bounce. Bitcoin finds itself struggling to pull back above 50,000 this morning. Crypto asset promoters may fear after that institutional interest will remain somewhat constrained after the kind of volatility we have seen over the last couple of days, because risk managers can’t allow excessive VaR swings. Ethereum volatility was even more pronounced as it was down more than 20% intraday before a strong bounce set in. Note story on Bitfinex and Tether below.
  
  
• NZDUSD – the kiwi jumped to new cycle highs against the US dollar above 0.7350 in the wake of an RBNZ meeting that didn’t really provide much support for the upside case, but apparently traders and analysts (count us in that camp) were expecting a firmer pushback from the central bank on the recent rise in the NZD exchange rate. The RBNZ said it is ready to keep “prolonged monetary stimulus” without specifying a timeline, preferring to signal outcome-based signals on employment and inflation for when to change stance. The statement said the RBNZ “remains prepared to provide additional monetary stimulus if needed” specifying elsewhere that its financial system is now prepared for negative policy rates if needed and that these could be implemented if conditions tighten too much on rising bond yields or due to the NZD exchange rate.
  
  
• EURGBP and GBPUSD – the sterling rally has impressed by managing to power onward almost regardless of the backdrop – I.e., unswayed by rather notable swings in risk sentiment and even commodities, which the UK imports to a significant extent. The GBPUSD 1.4000 level merely provided a small hitch in the upward move, where there is no major resistance until the post-Brexit high around 1.4375. EURGBP has more range to work with all the way down to just below 0.8300 as the selling in EURGBP picked up pace yesterday and overnight. UK Chancellor of the Exchequer Sunak announced he will push back plans to review rules governing tax and spending decisions until the fall (rather than this spring) to focus on creating jobs – this will keep more generous stimulus flowing to the economy.
  
  
• Crude oil (OILUKAPR21 & OILUSAPR21) - trade softer after reaching a fresh one-year high on Tuesday. This after the weekly industry report from the API contradicted surveys by seeing the first rise in US crude stockpiles in five weeks. With both crude benchmarks still in overbought territory the market will look ahead to EIA’s report at 15:30 GMT for further clues. With US producers having restored around 80% of lost production after the Texas freeze, the focus will increasingly turn to the outcome of next week's OPEC+ meeting.
  
  
• Gold (XAUUSD) continues to find support around $1800 with US real yields trading lower following the recent spike and the dollar being a tad softer. However, Fed’s Powell calling the recent run up in bond yields “a statement of confidence” in the economic has left the market nervous that yields can go a lot higher before the Fed steps in. Still precariously close to key support, gold needs to break higher soon in order to avoid another downside challenge. Resistance at $1819 followed by $1832, a break above the latter clearing a path towards $1875. Silver (XAGUSD) meanwhile struggled to gain a foothold above $28 with copper and platinum price gyrations triggering a great deal of noise. Support at $27.30.
  
  
• US Treasuries sentiment improved after Powell reassures of no early tightening (TLT, IEF). The economy needs to be supported amid a recovery Powell said yesterday. The President of the Federal Reserve doesn't see chances for early tightening despites yields have been rising fast amid the reflation trade. Yields may resume their rise today or tomorrow on the back of US Treasuries issuing 5- and 7-year notes and Personal Consumption Expenditures data.
  
  
• Selloff intensifies among European sovereigns before Powell’s speech (BTP10, IS0P, 10YOATMAR21). It is not enough for the ECB to monitor bond yields in order to slowdown the selloff in European sovereigns. If European bond yields continue to rise, we expect the ECB to step in to stop this trend. One of the central bank’s options, is the one to step up purchases under the PEPP program, which remains largely underused.
  
  
• Gilts selloff amid prospects of a recovery (IGLT). Now that Gilts broke above the 0.65% resistance line, they are on the way up to try the 0.82% resistance. An acceleration in rise in yields is due to expectations of a fast recovery due to the country’s vaccination efforts. Bank of England’s Bailey speaks today in front of the Parliament Treasury Committee and it will be important to know what it is the central bank’s plan amid a recovery and if it sees negatively the rise in yields.
  
  
• Square (SQ:xnys) - shares were down 5% in primary session and another 6% in extended session despite Q4 adj. EPS at $0.32 vs est. $0.24 and EBITDA coming in better than expected. Q4 net revenue at $3.16bn vs est. $3.22bn was the key disappointment and likely caused some investors to think that growth will be slowing down. Square also happens to be the fourth largest position across all the Ark Invest funds so this could add pressure to the Tesla-Bitcoin-Ark risk cluster (see discussions below).
  
  
• Tesla (TSLA:xnas) and Ark Innovation ETF (ARKK:arcx) - Tesla shares were down as much as 13% intraday yesterday as Bitcoin was under heavy selling and generally flow has reversed. These actions also put Ark Innovation ETF under selling pressure with Cathie Wood, the CEO and founder of Ark Investment, coming out during the session to talk her book and signaling that the firm has bought more Tesla shares. The selloff across the risk cluster is not over yet and we urge investors to stay alert.

What is going on?

• The Hang Seng Index suffered an ugly drop of nearly 3% overnight on raising of stamp duty – for trading stocks there, from 0.1% to 0.13%. Mainland Chinese shares were also in for heavy selling overnight, almost fully reversing the recent advance above 5,900, and well below the previous cycle highs near 5,655.
  
  
• Copper (COPPERMAY21) continues to grind higher and reached a fresh 10 year high overnight in Asia, before being sold down again. A pattern that has repeated itself this week with buyers, mostly located in China and operating on the SHFE exchange, being met by sellers elsewhere during European and US trading hours. Who will win this battle of will between big speculative sharks remains to be seen, but just like oil, copper’s recent surge has lifted it into overbought territory, thereby raising the prospect for a healthy consolidation. This despite an overwhelming bullish outlook for copper due to tightening mine supply and growth momentum driven by the push towards decarbonization.
  
  
• The Tesla-Bitcoin-Ark risk cluster is still under pressure. Tesla, Bitcoin, and Ark Innovation ETF were all under pressure again yesterday. In this updated note we go through what could happen from here. We also plan to update our analysis of Ark Invest fund holdings by Friday. Cathie Wood of Ark Investment firm was out strongly in media yesterday saying that they had brought even more Tesla and that she saw Bitcoin as an insurance against wealth seizure. In our view, these actions also reinforce the ‘tower of risk’ that Ark Investment is building across their funds.
  
  
• US Fed Chair Powell assured markets that stimulus will continue to flow – in yesterday’s testimony before the Senate Banking Committee that was short on drama and long on Powell expressing the intent to continue to provide stimulus until specific outcomes – especially on employment – have been achieved. The Fed Chair’s observations on the rise in long bond yields was interesting in that it elicited no concern on the level or the issue of huge treasury issuance beyond the Fed’s QE, with Powell ascribing all of the move higher in yields to en encouraging market improvement in growth expectations.
  
  
• Bitfinex and Tether settle case against them with New York State Attorney General - In a closely watched case, US state New York’s Attorney General ended its probe of cryptocurrency exchange Bitfinex and “stablecoin” Tether on whether they covered up a loss of $850 million in customer and corporate funds. The sides agreed on an $18.5 million settlement that saw Tether admitting no wrongdoing.

What are we watching next?

• Fed Chair Powell Testimony today - after yesterday’s testimony, the anticipation for the second day of Powell testimony today – this time before the House Financial Services committee – is somewhat low. The most interesting and pointed comments are likely to come from progressive left Democrat Alexandria Ocasio Cortez (AOC), who will likely want to raise the inequality aggravation that Fed policy obviously drives, but declares that it doesn’t.
  
  
• US Fed Vice Chair Clarida out speaking - ironically, it may be from Fed Vice Chair Clarida that we get more interesting observations from the Fed on its impression of the economy and for guidance, as he is considered an influential voice in shaping policy and today’s speech bears watching – there will be a Q&A.

Earnings releases to watch this week – Home Depot delivered strong earnings yesterday with Q4 comp sales up 25% y/y vs est. 19%, but the company refrained from giving any 2021 guidance which disappointed the market. The US home improvement retailer also warned that rising lumber and logistics costs are pressuring operating margins. Square was already down 5% in the primary session and shares extended the loses by 6% in extended trading as the Q4 earnings release disappointed investors. Today the key focus is on Booking and Nvidia earnings.

• Today:  HKEC, Reckitt Benckiser, Iberdrola, Royal Bank of Canada, TJX, Booking, Nvidia, Lowe’s
• Thursday: MercadoLibre, AXA, Anheuser-Busch InBev, Bayer, NetEase, Toronto-Dominion Bank, Salesforce, Autodesk, Workday, VMWare, Dell Technologies, Moderna, Safran
• Friday: Deutsche Telekom, BASF
• Saturday: Berkshire Hathaway

Economic Calendar Highlights for today (times GMT)

• 1200 – UK Bank of England’s Haldane to Speak
• 1430 – UK Bank of England Governor Bailey and other BoE members speak before parliament committee.
• 1500 – US Jan. New Home Sales
• 1500 – US Fed Chair Powell testimony before House committee
• 1530 – US Weekly DoE Crude Oil and Product Inventories
• 1530 – US Fed’s Lael Brainard (Voter) to Speak on maximum employment mandate
• 1800 – US 5-year Treasury Auction
• 1800 – US Fed Vice Chair Richard Clarida to speak on US Economic Outlook
• 1910 – New Zealand RBNZ Governor Orr before parliamentary committee
• 2100 – US Fed Vice Chair Clarida out speaking again

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