Market Quick Take - November 11, 2020

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) - the trading range was modest yesterday in the quietest session for the S&P 500 in two weeks, but that seemed an almost positive achievement as the price action was steady and the index closed almost unchanged after the prior session’s fireworks and sharp reversal after posting new all-time highs. Small cap stocks had a strong session and a look at the Nasdaq 100 index and its weak session yesterday suggests that the only group of stocks struggling are the big-tech mega-caps, after these proved the world’s best performing basket of stocks for most of this year, and even a kind of “safe haven” in their positive divergence from global stock markets this year.

NZDUSD and AUDNZD – The Reserve Bank of New Zealand (RBNZ) met overnight and, as expected, announced a large funding-for-lending scheme to support lending in the New Zealand economy. It had a brighter view of the outlook for the NZ economy this time relative to the prior meeting, although it still claimed it was ready to offer further support for the economy if necessary. The market took the hint that the bank saw a reduced likelihood that the RBNZ would move to a negative policy rate regime and the market added back nearly 20 basis points to the projected policy rate by mid next year after pricing the shift to negative rates. NZDUSD is trading above an 18-month high and AUDNZD is eyeing the important 1.0600 area range lows this morning.

EURGBP and GBPUSD – the EURUSD super major has consolidated back and forth since rallying off the 1.1600 range-low test in the wake of the US Election result. It is time for the market to decide whether to mount a charge on the 1.1900-1.2000 zone that can catapult the pair for a test of 1.2500+ or if it will remain bogged down in the 1.1600-1.1900 range it has been bogged down in for a month. The 1.1725 area is arguably the last pivot keeping an upside bias intact on the chart.

Brent crude (OILUKJAN21) and WTI crude oil (OILUSDEC20) continue to trade higher on lower U.S. stockpiles and vaccine hopes off-setting a continued surge in new coronavirus cases. The latter has resulted in a relative outperformance by later dated contracts with the Brent Jan-01/Jan-02 contango rising to $2/b, a near four-month high. Having broken $43.80/b, Brent’s next level of resistance is the August high at $46.50/b. Focus today the Monthly Oil Market Report from OPEC around noon and weekly stock data from the EIA at 15:30 GMT.

10-year Treasury yields break 2018 yield downtrend amid weak demand coming from indirect bidders at 10-year auction (10YUSTNOTEDEC20). The US yield curve continues to steepen with the 2s10s leading the way. Yesterday, the 10-year Treasuries yields broke the 2018 downtrend line at 96bps, and continue to rise amid vaccine news and a Biden win. The 10-year Treasury auction yesterday saw less indirect bidders meaning that there is weaning demand of Treasuries among real money and foreign investors. Once the 10-year yields beak 1% they will find new resistance at 1.14%.

Amazon (AMZN:xnas) - Amazon had another weak day yesterday and sold off toward the bottom of its four-month range. It was a Covid-19 lockdown superstar as the restrictions and reduced activity on in-person retail helped super-charge its growth this year. Adding to Amazon’s headwinds, the EU has filed formal anti-trust charges against the company, on its treatment of 150,000 EU merchants selling goods on its website, especially its use of non-public data to support the sale of its own products and services.

Alibaba (BABA:xnys), Tencent (00700:xhkg), JD.com (JD:xnas) - large Chinese technology stocks were under pressure in today’s session following comments from Liang Tao, vice-chair of the CBIRC in China, citing increased regulation of big technology companies. This follows the recent cancellation of world’s largest IPO of Ant Group on the basis on inadequate regulation of fintech doing financial transactions but without financial oversight. The comments from Beijing follows last month’s draft of a new personal data protection law that aims to stop companies from using exclusive behaviour. The signal from Beijing is that private companies in the era of information technology are getting too big and that it stifles competition. This could cause long-term adjustments to technology companies in China.

What is going on?

Corn (CORNDEC20) and soybeans (SOYBEANSJAN21) both raced higher after a monthly supply and demand report slashed its forecast for production and stocks for both crops due to harvest downgrades, but also due to a surge in expectations for China’s grain buying. It highlights again why this year is anything but normal with tightening market conditions driving corn to a 15-month and soybeans to a four-year high. Overall, agriculture at 22% is now the top performing sector of H2-20 ahead of industrial metals (19%), precious metals (8%) and energy at 5.4%

The EU reached a 2021-27 budget deal, unlocking EUR 750B recovery package. The 1.8 trillion budget is modest in size relative to the EU Economy, given that it is spread out over 7 years, but includes the first issuance of direct EU-funded debt. Another novel factor in the budget agreement is that funding is linked to the “rule of law”, that member states must follow to access funds. Hungarian leader Viktor Orban has railed against this mechanism.

The EU slapped tariffs on $4 billion worth of US imports after a WTO decision on illegal US subsidies for BoeingCo., a move largely seen as a retaliation against the US imposition of some $7.5 billion of EU imports. The issue will provide the most obvious test of Biden’s attitude toward the EU on trade policy.

What we are watching next?

When will US President Trump concede the US Election? There are no sign that US President Trump is willing to concede the election to President-elect Biden, and the large majority of Republicans that refuse to take a stand against Trump’s efforts to pursue legal challenges to the election result show how beholden they are to him, due to his overwhelming popularity among the voting base. Some 70% of Republican voters, according to one poll, think that the election was not “free and fair” - with 78% alleging unfairness in the mail-in ballots.

Q3 earnings season continues this week. Below list shows the largest companies reporting for the rest of the week:

• Today: Hong Kong Exchanges & Clearing, Air Products and Chemicals
• Thursday: Tencent, National Grid, Siemens, Deutsche Telekom, Merck KGaA, Mizuho Financial Group, Walt Disney, Cisco Systems, Applied Materials, Pinduoduo, Brookfield Asset Management
• Friday: JD.com, Nippon Paint Holdings, SMC Corp/Japan, Japan Post Bank, Japan Post Holdings, Mitsubishi UFJ Financial Group, Engie, Sumitomo Mitsui Financial Group

Economic Calendar Highlights for today (times GMT)

• 1200 – Mexico Sep. Industrial Production
• 1300 – Euro Zone ECB President Lagarde to Speak
• 0000 – Australia Nov. Consumer Inflation Expectations
• 0001 – UK Oct. RICS House Price Balance

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