Market Quick Take - March 29, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – US equities posted a strong rally on Friday, with the S&P 500 index closing just some 10 points shy of its all-time record high, while the Nasdaq 100 Index pulled further away from the pivotal lows of last week. But the Monday opening saw futures gapping lower on the Archegos story discussed below. The S&P 500 needs to remain well above 3,900 into today’s close as a move back to that level would erase Friday’s impressive move, while the Nasdaq 100 index is in a more fragile position and has already unwound all of the Friday rally overnight. The key level there was last week’s low near 12,600, a break of which could open for a full test of the big 12,200 low.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Bitcoin and Ethereeum rose a bit furtherover the weekend before easing back to Friday’s closing levels. The key technical focus for Bitcoin appears to be the round 50k and 60k levels, while Ethereum has been coiling in a tightening triangle.

USDJPY and JPY crosses – after poking to new highs for the cycle just below 110.00, USDJPY eased back on the rally in US treasuries overnight. The pair is at a sensitive crossroads technically after having progressed to new highs late last week and any stumble here and close back below 109.00 could suggest that the USDJPY pair (and likely other JPY crosses) is capped for now and could consolidate lower, while a fresh surge in US yields could see the recent rally hold and challenge the pivotal 110.00 level.

EURUSD – the EURUSD showed few signs of life on Friday, only managing a weak nod of the head as US equities surged higher, perhaps held back by a sharp new sell-off in US treasuries.The focus on the US recovering rapidly relative to Europe, still mired in new Covid lockdowns, could intensify on signs of a more sharply recovering USlabour market this week, as key data is up for the US labour market this week through the Friday US jobs report. The next major support area for EURUSD is down toward 1.1600, while a rally to 1.1900 would be needed to begin neutralizing the recent sell-off.

Crude oil (OILUKMAY21 & OILUSMAY21) crude oil eased lower on news that the ship stuck in the Suez Canal was partially freed (see more below) and over the next couple of sessions, price swings are likely to be quite headline driven on this issue.

The end of the year’s first quarter might see buyers in US Treasuries, but yields will remain volatile amid higher inflation expectations (TLT, IEF). Wednesday marks the end of the fiscal year for Asian investors, which might be buyers of US Treasuries. Yet, inflation expectations continue to rise as Biden is looking to add infrastructure stimulus as well as another COVID relief bill in April leaving Treasuries vulnerable. We believe that President Biden’s speech this Wednesday could be catalyst for another selloff before the Easter break.

What is going on?

Archegos Capital  hedge fund’s forced position unwinding spooks market – a little known hedge fund only managing its own capital, Archegos has suddenly gained prominence on the news that counterparties were involved in a forcedunwinding of its significant positions. Billions of dollars in blocktrades went through on Friday in the US company ViacomCBS(VIAC:xnas) and Chinese technology stocks among other holdings, and there is uncertainty how much more of the hedge fund’s holdings remain and could hit the market this week. Already, Japanese bank Nomura Holdings (8604:xtks) overnight reported a $2 billion loss at its US subsidiary linked to Archegosand cancelled a bond issue, sending the company’s shares down more than 15% inTokyo overnight. Credit Suisse also announced that the fund’s default on a margin call would result in losses for the bank.

Container ship still blocking Suez Canal, although it was “partially refloated” – according to anonymous sources quoted by Bloomberg. If high tide and efforts to dredge sand from underneath the boat cannot fully re-float it over the coming day, a more time-consuming off-loading of fuel and actual containers (which would have to be lifted one at a time by a special boat) will ensue and could take several days or even weeks. The ship is blocking nearly $10 billion in trade daily that passes through the canal, with 450 ships now bottled up an unable to pass through the canal.

What are we watching next?

Tracking the Archegos story and whether there are further significant holdings by this troubled hedge fund to unwind and any further contagion and especially, whether the Archegossituation is a unique oneis the top point on the agenda early this week.

Further signs of US recovery ramping up and US yields - last week’s initial weekly jobless claims from the US were the lowest since the pandemic outbreak in the US and will bear watching this week, together with the ADP private payrolls on Wednesday and the official Nonfarm payrolls on Friday, both expectedto show a strong surge in US payrolls of over half a million jobs.Alsoworth  watching are long US treasury yields this week and how they behave as we head into quarter end and to a new quarter and in reaction to the incoming US jobs data this week.

Economic Calendar Highlights for today (times GMT)

• 0830 – UK Feb. Mortgage Approvals
• 1430 – US Mar. Dallas Fed Manufacuring Activity
• 2330 – Japan Feb. Jobless rate

Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: