Market Quick Take - March 3, 2021

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)–US equity futures are reversing this morning from yesterday’srisk-off moves which saw technology stocks and in particular bubble and next generation medicine stocks lower. The 13,300 level in Nasdaq 100 is the key resistance level that has been the rejection area four times the past two weeks, and on the downside the 13,000 level is the critical support level to watch. This means, given the recent underlying volatility, that Nasdaq 100 is boxed into a tight trading range with a high probability of being broken to either side this week.

Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - cryptocurrencies consolidated yesterday after Monday’s bounce, but were back on the rise again overnight. This gives the impression that they are a general barometer of risk sentiment in recent days, as the price action correlates rather closely with the direction in equity markets, suggesting some risk to portfolio diversification. Bitcon near the 50,000 battleground this morning.

EURUSD– this supermajor exchange rate teased below 1.2000 briefly yesterday before staging a strong rally, with that 1.2000 level surviving likely hinging on whether US yields remain under control (don’t rip back higher again, taking out 1.60%, for example) and likely connected with that, whether global risk sentiment remains stable here. The tactical resistance area is 1.2100, but the next directional indicator is a daily close above 1.2200 or below 1.2000.

AUDUSD–there has been no follow through lower for AUDUSD after last week’s climactic reversal, which was driven by a combination of US yields spiking and triggering a sharp reversal in global risk sentiment, together with a consolidation in key commodity prices like copper that began around the same time. Last night, copper rallied strongly and AUDUSD has found support after touching below 0.7700 briefly. There is still a lot of wood to chop to get the bulls back on track, starting with a daily close above at least 0.7900 to neutralize more of the recent sell-off. If global yields begin rising again with no expectation that the US Federal Reserve is yet ready to temper their rise, risk sentiment could crater again on real interest rate rises, pushing AUDUSD lower again - perhaps toward 0.7500.

Gold (XAUUSD) found a small bid yesterday after almost challenging $1700. A weaker dollar and lower real yields helped stabilize the ship despite continued outflows from exchange-traded fundswhere total holdingsdropped to a seven-month low at 3222 tons.The short-term outlook remains challenged given the prospect for further economic stimulus lifting US yields and the fact that inflation is unlikely to show up in data for another couple of months.From a longer-term bullish perspective, the metal needs to hold above a major band of support between $1670 and $1690 while a break above $1765 would send a signal of renewed strength and support.

Crude oil (OILUKMAY21 and OILUSAPR21) trades near a two-week low as the weaker dollar and rising demand as the pandemic impact continues to ease being offset by an expected production increase from OPEC+. The group of producers meet on Thursday and speculation is growing they believe demand has recovered enough to absorb the bulk of the 1.5 million barrels/day that’s up for debate. Later today the market will digest a Texas-freeze distorted US inventory report. It is expected to show a huge jump in crude oil stocks – as refineries temporary shutdown – being off-set by equally large slumps in both products. Brent support at $62 followed by $60.

Tesla (TSLA:xnas) and Ark Innovation ETF (ARKK:arcx)- Tesla shares were down 4.5% yesterday as NIO disappointing earnings forecast impacted sentiment. The move pulled Ark Innovation ETF lower highlighting that Ark Invest’s short-term fate depends on where Tesla goes from here. The risk cluster of Tesla-Bitcoin-Ark could still blow up in the near term.

Federal Reserve speakers paid attention to last week’s rise in yields(TLT, IEF). Leal Brainard said that she pays attention to market developments and that the move in yields last week caught her attention. Despite this week 10-year Treasury yields seem to have consolidated below the pivotal 1.5%, the long trend for yields is to rise. The nonfarm payrolls this Friday as well as 10- and 30-year US Treasury Bond auctions next week might be catalysts for another selloff.

Italy is looking to test the market with a green government bond today (BTP10). Italy has mandated the syndication of agreen bond today, the first the country issues. Normally green bonds are better bid than traditional bonds because they are scarce, so we expect the syndication to be quite successful.European sovereigns are going through a week of consolidation after last week’s selloff. However, they are still are risk as the ECB just reassured the market that it will not allow an increase in yields, but did not take any action.

What is going on?

US President Biden sets a goal to have all US adults vaccinated by end of May-about two months before originally hoped. As part of the goal to ensure that every adult will have received at least one shot by then, Biden announced a deal with Merck & Co (MRK:xnys)inwhich the company would help produce Johnson & Johnson’s (JNJ: xnys)one-shot vaccine. The Department of Defense has also been tasked with increasing vaccine production. Yesterday, the US State of Texas announced an end of the mask mandate and will allow 100% resumption of business on March 10. Bloomberg estimates that Texas has given 13.4% of its population one dose of the vaccine, with 7.1% fully vaccinated. Surveys estimate the 30% or more of Americans are skeptical about taking the vaccine.

Grain and soybean futures prices trade higher again after another small correction seems to have run out of steam. Easing concerns about the South American harvest of corn and soybeans being offset by record prices for soybeans in China where increased demand for plant-based proteins are likely to ensure continued strong demand from overseas producers in North and South America. However, new outbreaks of African swine fewer in northern China couldhurtdemand for feed grain later in the year. Next key focus in the market will be the US spring planting season with focus on crop allocation and acreage used. 

US Senators appeal to Fed to not extend capital relief for banks– US Democratic Senators Elizabeth Waren and Sherrod Brown wrote a letter to the Federal Reserve and others asking that the emergency suspension of capital requirement rules for banks that was enacted during the Covid pandemic not be extended after the March 31expiry date. Banks are appealing for an extension. The senators argue that the capital requirementrule suspension has given the largest US banks an enormous windfall of billions of dollars and that these rules are a key part of post-2008-09 financial crisis reforms to avoid systemic risk in the financial system.

Q4 earnings from Sea – reported strong Q4 revenue growth up 102% y/y but as we highlighted in yesterday’s equity updatethe q/q growth in its gaming business slowed down dramatically in Q4 although still up 7% q/q. The e-commerce business continues to grow fast but without the ability to lift operating margin. Overall, Sea operating losses widened in 2020 despite management’s attempts to show a profit with a very creative adjusted EBITDA and the company needs a lot of financing to fund the growth. Shares initially opened 8% higher but ended up giving the entire gains up and closing 7% lower from the open and just barely a gain compared to the close on the previous trading day.

What are we watching next?

UK Spring Budget announcement with Chancellor Sunak  - the budget has largely been leaked in terms of the specific further supports to the economy, which including an extension of the furlough scheme through September (originally set to expire end of April), help for self-employed and othermeasures, while tougher decisions down the road on eventual plans to pay for some of the fiscal generosity in responding to the Covid pandemic are likely to only be hinted at, such as a hike of corporate or other taxes.

Earnings releases to watch this week– today is the last day this week with important earnings to watch. Especially, we have focus on Snowflake that recently went public and is one of the hottest names in the cloud industry.

Economic Calendar Highlights for today (times GMT)

0815-0900 – Euro Zone Feb. Final Services PMI
0930 – UK Feb. Final Services PMI
1200 – ECB's Hernandez to Cos to speak
1230 – UK Chancellor Sunak Spring Budget announcement
1300 – ECB’s Panetta to Speak
1315 – US Feb. ADP Employment Change
1500 – US Feb. ISM Services
1500 – ECB’s Guindos to Speak
1530 – US Weekly DoE Crude Oil and Product Inventories
1600 – UK BoE’s Tenreyro to Speak on Negative Interest Rates
1700 – US Fed’s Bostic (Voter) to speak
1800 – US Fed’s Evans (Voter) to speak
1900 – US Fed Beige Book
1930 – ECB's Schnabel to Speak
2015 – New Zealand RBNZ Governor Orr to Speak
0030 – Australia Jan. Trade Balance
0325 – Australia RBA’s Kearns to Speak

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