Summary: Asian as well as US stocks drifted lower overnight while key commodities found a bid following Monday's selloff. The market remains torn between strong economic data calling for an earlier than expected stimulus withdrawal and whether a resurgence in the delta variant may pause the recovery. The dollar trades near a five-month high while Treasury yields are softer following a four-day sprint higher. US inflation data - the other part of the Fed's mandate - due Wednesday will be watched closely following last week's strong job report.
What is our trading focus?
Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – the US 10-year yield is holding the 1.30% level with the technology index Nasdaq 100 range trading as higher rates mean higher discount rate for the long-term expected growth discounted in US technology stocks. The 15,090 level in Nasdaq 100 is a key support level for Nasdaq 100 in today’s trading. S&P 500 futures are also retreating in early European trading but could get a boost later in the session if the US infrastructure bill is passed in the Senate.
EURUSD – trades near a four-month low with the March 31 low at €1.17 the final level standing in the way for a move to €1.16, the double bottom from Q4-20. Driven by a divergence in the timing of tapering between the Fed and the ECB with the latter still expected to be on hold until 2023 while the Fed could signal a change at the Jackson Hole symposium. Speculators in futures cut their long euro position to a 17-month low in the week to August 3, down to €4.7 billion from a peak a year ago at €26.5 billion.
Gold (XAUUSD) trades near a four-month low following Monday’s flash crash while silver (XAGUSD) trading near its cheapest to gold since January. Both metals have for now got their work cut out to attract renewed interest from traders with the call from Fed officials to start the tapering process growing louder. Late-August brings the annual symposium at Jackson Hole, a forum often used to announce pivotal changes. Next up, however, we have US inflation data – the other part of the Fed’s mandate - due Wednesday, and it will be watched closely following last week’s strong job report. Gold trades below relative safety at $1750-60, a key area of support-turned-resistance with a close above the first signal that another major low has been established.
Crude oil (OILUKOCT21 & OILUSSEP21) has stabilized following a 10% correction driven by demand worries amid another surge in delta virus cases around the world. However, supporting the market is the belief demand will continue to accelerate and tighten into yearend and 2022, and OPEC+ if needed will step in and support prices. The market will be watching closely the monthly oil market reports from EIA today followed by the IEA and OPEC on Thursday for any signs of changes in their demand outlook. Having found support ahead of the July low at $67.44, Brent crude may find resistance at $70.85 followed by $71.85.
Bitcoin (BITCOIN_XBTE:xome) and Ethereum (ETHEREUM_XBTE:xome) - Yesterday the Senate agreed on a bipartisan compromise to the US infrastructure bill which would limit the original proposal for increasing federal regulation of cryptocurrencies, and this boosted the sentiment in the crypto space, especially for crypto miners. The amendment was however rejected in a last-minute vote, as a lone senator voted against the amendment which needed unanimous consent to pass.
What is going on?
US infrastructure bill set to vote today. Yesterday saw some late amendments and discussions postponing the US Senate vote on the $1trn infrastructure bill till today. Commentators expect the bill to pass today opening the next round of bipartisan discussions on the much wider infrastructure plan that the Biden administration has proposed worth $3.5trn. Read our equity update from yesterday and find the largest US companies expected to benefit from the infrastructure bill.
SoftBank Group Q1 earnings down 61% q/q. It was a tough quarter for the Japanese investment company with Q1 profits falling significantly compared to the previous quarter and the same period last year. The company announces that Facebook and Microsoft are no longer among its investments. The value of its listed stocks portfolio is $13.6bn down from $19.9bn driven by large losses in its Coupang investment. The founder Son has invested $2.6bn directly into the Vision Fund 2 during the quarter.
BioNTech raises outlook. The US/German biotechnology company delivered Q2 revenue of $5.31bn vs est. $3.5bn and raised its FY revenue outlook to $15.9bn. The company said that 201 vaccine manufacturing capacity is 3bn doses and will be raised to 4bn in 2020. BioNTech also said that many studies show that its Covid19 vaccine has good effectiveness against many different variants and is now negotiating booster shots with several governments. There was no update on other drug discoveries related to its mRNA technology. Shares were up 15% yesterday.
What are we watching next?
July US CPI is out tomorrow. The consensus expects it will hover around 4.9% YoY after a jump at 5.4% YoY in June. It was the largest gain since August 2008. If the headline figure is higher than anticipated, which is likely, the market might seriously question the concept of « transitory » inflation used by the Federal Reserve. What worries us the most is that more and more firms are now inclined to increase prices in order to cope with higher wages and soaring transportation costs. In turn, this could make inflation run uncomfortably high in coming months.
WASDE - The grains market trade mixed ahead of a monthly supply and demand report from the US Department of Agriculture on Thursday. The report will provide estimates for yields and production levels following what so far has been a volatile growing season caused by adverse weather. However, the short-term weather outlook has now turned less price favorable with temperatures moderating while rains have brought much needed moisture across key growing areas in the northwest and central areas of the US. The report is expected to show a decline in corn yields leading to a lower production estimate while the outlook for soybeans look less price supportive.
Earnings to watch this week. Q2 earnings have been strong we expect earnings releases this week to reflect this. On Wednesday, Vestas and NIO are the key earnings releases to watch with both being part of the green transformation and enjoying a massive tailwind from regulation and policy trajectory. NIO has recently disappointed a bit on deliveries and with VW and other carmakers ramping up EV production the pressure is on NIO. Thursday is the big day with Orsted on the green transformation in Europe, Walt Disney on video streaming and its attack on Netflix with its Disney+ offering. On Thursday, we also have earnings from Baidu and iQIYI which are currently in the middle of the Chinese technology crackdown.
Economic calendar highlights for today (times GMT)
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