Log in Open account
UAE
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider.
Show more
CFDs and forex (FX) are complex instruments and come with a high risk of losing money rapidly due to leverage. 62% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs, FX, or any of our other products work and whether you can afford to take the high risk of losing your money.
Show less

Financial Markets Today: Quick Take – August 1, 2022

Macro 6 minutes to read
Saxo Be Invested
Saxo Strategy Team

Summary:  US equities ended last week on an upbeat note after a choppy session roiled by hotter than expected PCE inflation data, but in the end with fresh drop in US treasury yields to new multi-month lows driving a sentiment boost. A new month is under way as earnings season rolls on and the week features a busy calendar of macro event risks, with Friday’s US payrolls and earnings for July topping the list. Tonight, the RBA meets as the market leans for a 50-basis point hike.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)

US equities ended July up 9.1% making it one of the best months ever in the US equity market and yesterday’s price action took S&P 500 futures to the 100-day moving average for the first time since early April. We expect mean reversion effects to kick in around these levels and the 4,170 level is the major resistance area from early June.

Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I)
Markets initially were troubled by the weak China PMI data and Alibaba being added by the US SEC to the list of Chinese ADRs potentially to be delisted from U.S. exchanges. Stocks in in Hong Kong and mainland China traded lower at the open but managed to pare all the losses through the day. HSBC surged more than 2% after reporting higher Q2 revenues and earnings, beating market expectations. Net interest income increased 6.5% sequentially and 13.2% from a year ago. Interest margins increased to 135 basis points in Q2 from 126 basis points in Q1.  Autos surged 3% to 9% across the board on incremental government policies in China to boost demand for passenger car purchases. Geely led the charge higher after reporting strong delivery of its high-end EV in July. 

USDJPY as US yields drop

The USDJPY correction lower continues apace as US treasury yields at the long end of the curve closed last week at multi-month lows. USDJPY dropped to as low as 132.51 on Friday in an FOMC week that saw the Powell Fed refusing to provide guidance and choppy reactions to US data. The move extended as low as 132.07 in Monday’s Asian session. A fresh surge in Tokyo CPI reported last week may not move the needle by much on Bank of Japan’s rate hike expectations, but the yen still has significant potential to recover if US data continues to point towards moderation in economic activity. The 131.50 area is the next major chart point to the downside, while resistance is perhaps 135.00-50.

USD and data this week

Given the lack of forward guidance from the FOMC meeting last week, the US data releases late last week showed the way after the Fed has declared itself entirely data dependent in its next moves. On Friday the stronger than expected June PCE inflation data drove a sharp USD rally only to see that rally almost entirely fade by the close. This week, further US data, from the ISM Manufacturing survey up today and ISM Services Wednesday will likely drive considerable intraday volatility, but the Friday July US jobs report and earnings data will likely prove the key test for USD sentiment this week, with the direction in US treasury yields the key coincident indicator for the greenback. Notable levels for the USD sell-off include the 1.0275+ area in EURUSD and the pivotal 0.7000 area in AUDUSD in addition to the USDJPY levels noted above.

Crude oil prices gain on risk-on and supply concerns. (OILUKOCT22 & OILUSSEP22)

After gains last week, the focus in crude oil is shifting to the OPEC+ meeting this week where expectations for any notable increase in output for September are minimal. Supply side issues also continue to underpin but focus short-term has shifted to China’s manufacturing PMI miss and the resulting demand contraction. WTI futures slid back below $98/barrel in the Asian hours, while the October Brent futures were below $103.

US Treasuries (IEF, TLT)

US Treasury yields at the longer end of the curve fell to new multi-month lows on Friday despite hot June PCE inflation data as the market firms up its view of a weaker US economic outlook, while the shorter end of the curve has dropped less, meaning that the yield curve has inverted back toward the cycle lows, from a high for the 2-10 slope near –15 basis points toward –25 bps on Friday (cycle lows was just below –30 bps mid-last week). US data this week in focus as the 10-year Treasury yield benchmark dipped below the key 2.70% area last week.

What is going on?

Chinese banks set for possible enormous losses on property crisis

Chinese property stocks are under pressure as an increasing number of Chinese mortgage holders are refusing to make payments in more than 90 Chinese cities. S&P Global estimates, in a worst case scenario, that 6.4% of Chinese mortgages (worth over $350 billion) are at risk, while Deutsche Bank put the figure at 7% of mortgages, putting many Chinese banks at risk, some of which have more than 30% of their loan portfolios in mortgages.

Worrying U.S. data as confidence data at rock bottom, June PCE inflation hotter than expected

The final reading of the University of Michigan Consumer Sentiment Index showed little change from the historic low in June. The headline index was up 1.5 points to 51.5 in July, with current conditions close to the record low (58.1, +4.3 points) and the expectations are at the lowest level since 1980 (47.3, -0.2 point from June). Inflation expectations cooled slightly last month (the one-year expected inflation rate was at 5.2 % and the five-year expected inflation rate was at 2.9%). In addition, inflation picked up in June. The headline PCE inflation was at 6.8 % - this is the highest level since March 1982. The Core PCE inflation –which is monitored closely by the U.S. Federal Reserve, was at 4.8 %. This is still uncomfortably high, close to the 1982 high. Most of the rise in inflation in June was explained by surging energy prices. The inflation headache won’t disappear soon.

Metals stronger last week on weaker dollar and China stimulus

Industrial metals had a comeback week with broad-based gains across the space as weaker dollar, supply constraints and China stimulus measures underpinned. Zinc rallied sharply on Friday amid further signs that Europe’s energy crisis is putting smelters under pressure. Aluminum stockpiles have also plunged to a 31-year low. A surprise miss in China’s manufacturing PMI to contraction zone may however dent the rally in industrial metals.

Energy companies report massive profits and buybacks

A slew of energy earnings reports last week surpassed expectations not just on profits, but also on shareholder returns, on high oil prices. Exxon, Chevron, Shell Plc and TotalEnergies SE all reported record profits. All of them expanded share buybacks except Exxon, which had already tripled repurchases earlier in the year. Exxon grew its quarterly profit by over $3 billion. Executives at Exxon and Chevron said they don’t see much evidence of fuel-demand destruction even as recession fears mount. The energy sector now accounts for 4.5% of the S&P 500 index, having come roaring back post-pandemic as focus shifted back to lack of energy sources.  

China official manufacturing PMI fell into contractionary territory while Caixin manufacturing PMI managed to stay above 50

The official China NBS manufacturing PMI released on Sunday July 31 surprised to the downside and declined to 49.0 back to the contractionary territory (vs consensus: 50.3; June: 50.2). The manufacturing output component and manufacturing new order component were both in contraction, coming at 49.8 and 48.5 respectively.  Exports new orders fell 2.1 points to 47.4.  Oil and gas refinery and metal processing were in contraction and dragged the overall manufacturing PMI lower.  Non-manufacturing PMI came at 53.8 (vs consensus 53.9; June 54.7).  The services component decelerated 1.5 point to 52.8 but remained in the expansion territory.  Air transportation, catering and lodging came at above 60, indicating strong expansion. Caixin manufacturing PMI, which focuses mor on SMEs in the coastal region, came in at 50.4 (vs consensus: 51.5; June: 51.7), barely staying in the expansion territory.

HSBC surprises to the upside in Q2

The pan European-Asian bank beats on earnings in Q2 driven by higher than estimated net revenue. HSBC believes dividends can be restored soon and mention a lot of strengths across its division while China remains relatively weak and loan provisions are expected to climb on real estate.

What are we watching next?

US ISM manufacturing on tap today

The US S&P Global flash Manufacturing PMI for July moderated 0.4pp to 52.3 and regional Fed surveys were mixed. The Bloomberg survey for today’s July ISM manufacturing index has a median forecast from economists at 52.0, down from 53 a month ago, which means a further slowing of the expansion is expected. While the supply side hurdles may be easing, weakening in demand is likely to cap increases in new orders and the overall headline.

Australia RBA Cash Target announcement tonight

The RBA is expected to hike rates 50 basis points tonight at their monthly meeting, but a minority are looking for a smaller move as rate expectations for the cycle peak have moderated sharply for many central banks since the mid-June FOMC meeting and the RBA expectations for peak rates are near the lowest levels since early June.

Earnings Watch Calendar

The Q2 earnings season is still pushing ahead with more than 260 important earnings releases next week with the most important for market sentiment listed below. Given the economic pressures in Europe, the German earnings next week are our focus.

  • Monday: Xinyi Solar, HSBC, Heineken, Activision Blizzard, Devon Energy, Mosaic
  • Tuesday: Kweichow Moutai, Generali, Mitsubishi UFJ, BP, Koninklijke DSM, AMD, Caterpillar, PayPal, Starbucks, Airbnb, Occidental Petroleum, Marriott International, Uber Technologies, Ferrari, Electronic Arts
  • Wednesday: Nutrien, Maersk, AXA, Societe Generale, Siemens Healthineers, BMW, Infineon Technologies, Vonovia, Nintendo, JDE Peet’s, CVS Health, Booking, Moderna, Regeneron Pharmaceuticals, Fortinet, Albemarle, eBay, MercadoLibre
  • Thursday: Novo Nordisk, Credit Agricole, Merck, Bayer, Adidas, Beiersdorf, Toyota, SoftBank, Glencore, ING Groep, Eli Lilly, Alibaba, Amgen, ConocoPhillips, EOG Resources, Air Products and Chemicals, Block, DoorDash, Twilio

Economic calendar highlights for today (times GMT)

  • 0715-0800 – Eurozone final Jul. Manufacturing PMI
  • 0900 – Eurozone Jun. Unemployment Rate
  • 1345 – US Jul. Final S&P Global Manufacturing PMI
  • 1400 – US Jul. ISM Manufacturing
  • 2300 – South Korea Jul. CPI
  • 0130 – Australia RBA Cash Target
  • 0130 – Australia Jun. Building Approvals

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

Apple Sportify Soundcloud Stitcher

Quarterly Outlook

01 /

  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
    Read full article
  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

    Read full article
  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
    Read full article
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
    Read full article
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

    Read full article
  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
    Read full article
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
    Read full article
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
    Read full article
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
    Read full article
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...
    Read full article

Disclaimer

 The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
Full disclaimer (https://www.home.saxo/legal/disclaimer/saxo-disclaimer)


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE
Products & pricing
Platforms
Accounts & service
General
Other
Legal

Trade responsibly
All trading carries risk. Read more. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more

Saxo Bank A/S is licensed by the Danish Financial Supervisory Authority and operates in the UAE under a representative office license issued by the Central bank of the UAE.

The content and material made available on this website and the linked sites are provided by Saxo Bank A/S. It is the sole responsibility of the recipient to ascertain the terms of and comply with any local laws or regulation to which they are subject.

The UAE Representative Office of Saxo Bank A/S markets the Saxo Bank A/S trading platform and the products offered by Saxo Bank A/S.