Market Quick Take - December 3, 2020

What is our trading focus?

• Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - US equity futures have recovered from yesterday’s sudden decline around the US cash equity market open. Nasdaq 100 is likely to test the 12,500 level from Tuesday’s session as a firm breakout of this level could muster the necessary energy for another run into new all-time high territory. Asian session provided yet another string of positive macro news from Japan and China supporting the rebound in economic activity.
  
  
• EURUSD – the EURUSD rally continued higher, through 1.2100 and argues that the recent break above 1.2000 resistance is a major one leading to further gains to come. One small point of worry is that the move is not getting much support from other pairs, especially USDCNH, which was a major mover as the USD weakened in recent months. Still, traders will keep the focus higher as long as 1.2000-1.2050 holds, with a full-scale reversal only likely on a major sudden consolidation in global equity markets that sees safe haven seeking in the USD and JPY.
  
  
• AUDUSD – the AUDUSD pair has been interacting with the top of the range, even after a prominent bout of tensions with its most important trading partner China, which has moved against importing specific Australia products and announced hefty tariffs recently on Australian wine imports, citing dumping charges, but clearly aimed at objections over what it sees as interference in Chinese internal affairs. The 0.7415 area top of the cycle is the focus for whether a major follow-through leg can continue toward the next major chart resistance into 0.8000-0.8100. To get there, we’ll likely to need continued strong performance from commodities and risk assets in the background.
  
  
• Snowflake (SNOW:xnys) - shares were down 3.5% in extended trading after the close extending the three-day decline taking the stock’s correction to around 18% from the highs on Monday. The decline came despite strong Q3 earnings, the first earnings release since the IPO, with revenue at $159.6mn vs est. $147.1mn and EPS of $-1.01 vs est. $-1.92. The company’s FY21 revenue guidance was strong but maybe a bit below implied expectation. Analysts were mixed after the earnings with consensus keeping a hold rating on the stock.
  
  
• Gold (XAUUSD) has risen to a one-week high on stimulus hope, a weaker dollar and rising inflation expectations. Faced with rising Covid-19 related deaths and stalling job growth, the likelihood of a U.S. bipartisan stimulus package has risen. The dollar meanwhile has dropped to the lowest since April 2018 with U.S. 10-year breakevens trading at a 19-month high. All developments that despite vaccine optimism supports renewed demand for precious metals. While the initial recovery from last Friday’s dump was led by silver via its link to surging copper, it is now gold back in the driving seat with focus now on key resistance above $1850/oz.

What is going on?

• The Bloomberg Commodity Agriculture index avoided a third consecutive down day yesterday, thereby steadying the nerves among speculators holding more than 1 million lots of bullish bets across ten major futures markets. Despite a weaker dollar, the early December weakness has been led by cocoa, coffee and soybeans. Improved weather conditions in both north and especially south America and lack of orders for U.S. goods, the main reason for the market pausing the rally which has lifted the sector by more than one-quarter during the second half. Today the UN FAO will publish its Global Food Price Index with another year-on-year rise expected from the 6% seen in October.
  
  
• France is flagging the right to veto any Brexit deal – if it feels that the terms are not acceptable. This is adding further pressure on the situation as this was billed as a “final week” of sorts to get something done ahead of the end of the transition period at the end of this month. Ireland’s Simon Coveney weighed in with warnings that it would be a “really big mistake” if the UK attempt to reintroduce controversial clauses of its Internal Market Bill that overruled portions of the original Brexit withdrawal agreement.
  
  
• The US House of Representatives has approved legislation that will require Chinese companies listed on US exchanges to submit to a review of their financial audits by US regulators if they are to continue trading on US-based exchanges. Big names in this category include Alibaba Group (BABA:xnys) and Baidu (BIDU:xnas). The US Senate already passed this legislation with strong bi-partisan support and President Trump is expected to sign. There is a phase-in period of three years in the bill, with penalties assessed after three years if companies don’t comply.

What we are watching next?

• US yields – will they break higher and how would the market absorb this? The announcement yesterday that the US Congress may be moving closer to an agreement on a sizable stimulus package ahead of year end saw US yields rising a bit further close to the critical resistance area just below 1.00% for the US 10-year treasury benchmark yield. A move above that level in US yields could set markets on edge, given extreme rate sensitivity for major US megacap and other stocks, where valuations are only justified based extremely low long-term rates.
  
  
• US getting closer to a stimulus package agreement. Yesterday, US Democratic leaders in both the House and Senate announced they are both backing a $908 billion bipartisan deal as the starting point for new talks, which is the first major sign of the House Dems moving away from their $2.4 trillion proposal. This puts pressure on Senate majority leader Mitch McConnell, who has insisted on a smaller deal and US President Trump, who is an unpredictable quantity, given his hostile attitude on nearly everything in his lame duck period as president. A House member expressed hope that a deal could be reached by the weekend, while admitting that may be too optimistic.

Earnings releases this week are running low as we are off season. But the releases below are worth following:

• Today: DocuSign, Marvell Technology, Dollar General, Kroger

Economic Calendar Highlights for today (times GMT)

• 0815-0900 – Euro Zone Final Nov. Services PMI
• 0930 – UK Nov. Services PMI
• 1000 – Euro Zone Oct. Retail Sales
• 1330 – US Weekly Initial Jobless Claims & Continuing Claims
• 1445 – US Nov. Final Markit Services PMI
• 1500 – US Nov. ISM Services
• 1530 – US Weekly Natural Gas Storage
• 0030 – Australia Oct. Retail Sales

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