Broad markets rally for 2nd week. Curb your enthusiasm or consider crouching into champion commodities and FX?

What’s happening in markets that you need to know?

The S&P500 and Nasdaq trade higher for the second week but caution is in the air, so considering curbing long term enthusiasm. US stocks were buoyed on Thursday by tech stocks, consumer spending and economic reopening names rallying. Positive news hit the street from the likes of Apple (AAPL) upgrading its iPad software, and Lululemon (LULU) upgrading its yearly sales forecasts. Although, markets lifted after long term interest rates fell (measured by bonds yields) after a weaker than expected jobs report, yields are expected to rise later this year. Plus, markets still remain delicate; Q2 earnings numbers are tipped to be weak. Microsoft (MSFT) downgraded forward earnings numbers for the quarter, blaming an unfavorably high US dollar.

Square (SQ, SQ2) announced it’s working with Apple (AAPL) to enable tap to ‘Pay on iPhone’. This makes it easier for smaller retailers to use Square’s point of sale system. So instead of retailers having the famous white Square tap and go system, a retailer say, in fresh food market for instance, can receive payment for goods or services via a new iPhone app. Early access for select retailers starts today, while mass market rollout is later this year. Square earns over 70% of its money from Bitcoin transactions so its shares not only move with tech stocks but with typically with Bitcoin as well.

Lululemon (LULU) upgraded its guidance for the year as earnings and sales beat expectations in Q1. It sees full year 2022 net revenue rising to $7.61 billion to $7.71 billion. The market also estimates earnings growth of 26% in 2022. Lululemon is one of the most bought stocks across Saxo globally, and has a higher representation of women on its board, so it’s featured in our in our Women in Leadership basket.

Asia Pacific equities trade mostly higher for the last trading day of the week; 

Australia’s ASX200 trades higher for third straight week. In company news a new entity, Woodside Petroleum (WDS)was born on the ASX and became the world 10^th biggest oil company. Woodside effectively took over BHP’s (BHP) oil assets (with BHP retaining a a smaller stake). But stepping back and looking at the best performers, who are gaining the most momentum, you can see Mining and Energy sectors rising up 3% week to date, continuing to stand out as this years best performers. This weeks push comes after China’s biggest city reopened; meaning Aussie iron ore, copper and aluminum and coal exports can flow more freely to China. This is why large sellers of these commodities, like South32 (S32), Fortescue Metals (FMG) and BHP (BHP) are trading about 5% higher week to date, anticipating earnings to increase, which will likely support long term share price growth

China markets are closed while Japan’s Nikkei 225 (JP225.I) trades up 1% following a strong US close with gains led by Fast Retailing (9983) and Tokyo Electron (8035). The weak ADP print overnight has ignited some caution over the NFP due later today, although it isn’t usually a good leading indicator of how NFP will do. But a miss in NFP will give the Fed some reason to slack off in its fight against inflation. Singapore’s STI index (ES3) however only saw minor gains as some of the key REIT players slid.

Crude prices (OILUKAUG22 & OILUSJUL22) were eventually bid. Crude prices pared some of yesterday’s weakness as markets questioned whether OPEC will be able to handle the increased production quotas over July and August. As a reminder, they're aiming for 648k b/d while they have been undershooting production quotas at the initial 432k b/d monthly output hikes.

USD weakened across the board. The risk-on tone ahead of NFP saw the USD plunge overnight. AUDUSD touched 6-week highs of 0.7283 as it rides the commodity gains especially with iron ore resuming a fresh uptrend. EURUSD has reclaimed 1.0760 with ECB hawkishness gaining an edge after record high inflation prints. The December ECB meeting is now priced for more than 100 basis points of rate hikes in total, meaning rising odds that one meeting will see a larger than 25-bp rate hike, assuming no June lift-off.

What to consider? 

ADP jobs report underwhelmed. US ADP posted a much-smaller-than expected rise of 128k jobs last month and revised the prior reading down from 247k to 202k. This was below the expected 300k. Jobless claims fell more than expected and, at 200k, continue to signal tight conditions in the labor market. While ADP isn’t a reliable indicator of NFP, there is some sense of caution.

Fed hawkish commentary continues. Fed's Brainard said it is hard to make the case for a September pause while Mester reiterated that it is difficult to predict how high rates will need to go but she agrees with 50bps hikes at the next two meetings before considering the appropriate pace.

RBA to rise rates next week, get even more hawkish. Next week, the RBA holds its June interest rate meeting, and the market expects rates to rise from 0.35% to 0.6% after receiving stronger than expected economic news this week. Plus we know Australia’s export income surged to a record high and that will only improve with Shanghai emerging from lockdown this week. Plus the Australian Labor Government’s new childcare policy will result in more employees being added to the labour market, adding to Australia’s ‘full employment’. This means wage price inflation is likely to rise, which will feed the fire of RBA hawkishnessMeaning, expect more rake hikes than the market has baked in (with consensus expecting rates will end the year just shy of 3%).

Singapore May PMI at record highs, so is South Korean CPI. S&P global PMI for Singapore rose to a record high of 59.4 from 56.7 in April. Output and new orders are both up, which is especially remarkable given that China was in lockdown and that might have impacted some manufacturing activity. Meanwhile inflation in the region continues to rise with South Korea reporting a 14-year high inflation print of 5.4%, coming in higher than the highest estimate.

Potential trading and investing ideas?

Cybersecurity earnings impress. CrowdStrike Q1 earnings delivered a beat with revenue up 61% and adj. EPS at $0.31 vs. $0.23 expected. Q2 forecasts were at adjusted earnings of 27-28 cents a share on sales of $512.7-516.8 million, above consensus of 24 cents a share on sales of $510 million. Other players such as Okta and Secureworks reported a loss but subscription revenue is on the rise and both also beat expectations. Overall, we remain bullish on cybersecurity theme basket amid rising demand for data security especially after the Ukraine invasion.

How to trade the NFP? NFP remains a key mover for the forex markets. With consensus expecting a slowdown in trend from 428k posted last month to expectations of 320k for May, the scope for surprise is more on the upside. Key data points to watch are also the unemployment rate (which is expected to fall to 3.5% in May from 3.6% last month) and average earnings growth (which is expected to slow down to 5.2% from 5.5% earlier). A positive surprise, or better than expected jobs numbers, lower unemployment or higher average earnings growth, would be a hawkish surprise meaning that the Fed can continue to tighten aggressively and that will be positive for the USD and possibly negative for equities. EURUSD and USDJPY will be key.

For a weekly look at what’s on the radar for investors, and traders this week; read, watch or listen to our Monday Saxo Spotlight.

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