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Markets

Yesterday, markets finally entered calmer waters as they awaited the outcome of the Fed policy meeting. The Fed as expected left the target range for the Fed fund rate unchanged at 0.0%/0.25%. In the statement, the Fed acknowledged that ‘indicators of economic activity and employment continue to strengthen. The sectors most adversely affected by the pandemic have shown improvement, but have not fully recovered'. Inflation has risen, but the Fed maintains the view that price rises are mostly transitory in nature. The economy has made progress toward the Fed's goals of maximum employment and price stability. However, especially on employment, Fed chair Powell pointed out that there is still some ways to go for it to be substantial enough to start tapering asset purchases. The Fed will continue to monitor this process ‘in the coming meetings'. So, the wait-and-see era might continue for some time to come. A concrete roadmap for tapering at Jackson Hole or even at the September meeting maybe is too early. On the ‘transitory' nature of inflation, the Fed Chair clarified that current inflation is not broadly based but mostly in specific categories that face bottlenecks in the wake of the pandemic. He also specified that one-off prices rises, even if they are not reversed, are no sustained inflation. On the composition of asset purchases once tapering will start, Powell said there is little support to start MBS tapering earlier than Treasuries. However, scaling back MBS buying faster is a topic of debate. The Fed also established two permanent repurchase-agreement facilities, a domestic one and another for foreign counterparties, that will provide a backstop for money markets. The market reaction was guarded, but investors clearly understood that the Fed maintains a soft bias. Yields declined only marginally (0.8 bp 10y, 1.3 bp 30-y), but this masks a further decline in real yields (-4.7 bp), for an important part compensated by a rise in inflation expectations. The 10-y US real yield hit a new all-time low at -1.18%!!. The combination of lower real yields and higher inflation expectations logically translated in some, albeit modest USD loss. The trade-weighted DXY closed at 92.32, EUR/USD at 1.1845. USD/JPY was an exception to the rule (109.91 vs 109.78). Equities finished mixed. The S&P 500 (-0.02%) and the Dow (-0.36%). The Nasdaq outperformed (+0.70%).

This morning, Asian/Chinese equites are rebounding as Chinese authorities tried to comfort investors and as the PBOC provided additional liquidity. US yields are little changed. The dollar is ceding some further ground with EUR/USD changing hands near 1.1850. The yuan also rebounds (USD/CNY 6.4735). Commodity related currencies (AUD-NZD-CAD) maintain (Aussie dollar at AUD/USD 0.7375) or extend (loonie USD/CAD 1.2490) post-Fed gains.

Later today the calendar is well filled. The first estimate of US Q2 GDP growth is expected at 8.5 Q/Qa. The Core PCE price deflator is expected to increase from 2.5% to about 6.0%. US jobless claims might resume their downtrend after last week's uptick. In Germany (and some other EMU countries) July HCPI will be published. German inflation is expected at 0.4% M/M and 2.9% M/M (from 2.1% in June). German labour market data are also worth to keeping an eye on. The US Treasury will sell 7-y bonds. Of late, markets often were more sensitive to negative news rather than to better than expected data. Quite some caution should already be discounted. However, yesterday's message from the Fed doesn't provide much of a trigger for ST sharp rebound in yields. 1.12%/1.20% remains first short-term support in 10-y US yield which don't expect to give away easily. For the German 10-y yield the -0.47% support is nearby. Easing market tensions and low real yields might cause some further USD profit taking with EUR/USD 1.1881/1.1895 still first technical reference. Regaining USD 1.1975 would call off the downside alert in EUR/USD.

News headlines

A vote 67-32 in the US Senate yesterday was a first step for potential further approval of a $ 1 trillion bipartisan infrastructure bill. The agreement includes money for roads, for power grid spending, for railways, for action to expand broadband access, for clean drinking water, for environmental resiliency, public transit and airports. The bill still needs formal approval by to Senate an by the House of Representatives before President Biden can make it law.

EUR/USD

Current level - 1.1845

The Federal Reserve left the rates unchanged and, after a rather lack-lustre press conference which did not spark a lot of volatility, the bulls continued to prevail. The greenback lost some ground against the common european currency and, during the early hours of today`s trading, the pair is hovering under the resistance zone at 1.1849 as a direct result of the Fed signalling for a continuation of its dovish monetary policy. A Successful breach of the mentioned level could continue the rally and would easily pave the way for a test of the next target at 1.1879. If the bears enter the market, we could witness a move towards the first support at 1.1805 which, if violated, could deepen the sell-off towards the major support at 1.1759.

USD/JPY

Current level - 109.69

The short-lived rally was limited to the resistance zone of 110.09 and the yen regained some of its positions against the dollar as a result of the Fed’s forward guidance and interest rate decision. The expectations are for a test of the support zone at 109.57 which, if successful, should lead to a move towards the local lows at around 109.30. This, in turn, could easily strengthen the negative expectations for the future path of the USD/JPY. The first target for the bulls is still the mentioned resistance level at 110.09, followed by the one at 110.30.

GBP/USD

Current level - 1.3905

The recovery for the Cable continues and, during the yearly hours of today, the pair tested the major resistance level at 1.3900. A confirmation of the breach would easily lead to new gains for the sterling against the dollar and would head the GBP/USD towards the level at 1.3970. If the bulls lose momentum, the corrective phase should be limited to the first support level at 1.3800.

WTI crude oil futures had a strong battle with the 20- and 40-day simple moving averages (SMAs) near 72.30. A noteworthy jump above these lines would take the market towards the almost three-year high of 76.20 before meeting immediate resistance at 76.87. A bullish rollercoaster above this level could drive oil prices at the inside swing low of 86.39, registered in April 2013.

Looking at the technical indicators, the MACD is gaining some ground in the negative territory, trying to overcome its trigger line. The RSI indicator is still holding above its neutral 50 line, suggesting upside pressures are still in place.

On the other hand, a potential descending move beneath the Ichimoku lines and the cloud could pause the market’s action at 64.90. Even lower, the 60.66 support and the 200-day SMA currently observed at 58.18 ahead of 57.20 could act as major support levels.

Overall, WTI futures are struggling to improve the short-term bullish bias, while in the long-term the outlook is strongly positive.

The EURUSD pair rose modestly in the American and Asian sessions as investors reflected on the latest Federal Reserve decision. The bank decided to leave its interest rates unchanged at the range between 0% and 0.25%. It also left its $120 billion asset purchase program intact. In a statement, the bank’s officials said that the economy had made progress and that they will start deliberations on tapering in upcoming meetings. The remaining two meetings of the year will be in September and November. The pair will next react to the latest initial jobless claims and US GDP data.

US futures declined slightly even after relatively strong quarterly results from Facebook. The company said that its total profit more than doubled to more than $10.39 billion or $3.61 per share. This was significantly better than analysts were expecting. At the same time. Its revenue rose by 56% to $29.08 billion. The stock declined after earnings since the company predicted that this growth would slow down in the coming quarters. Other tech companies like Microsoft, Apple, and Google reported strong results on Thursday. In fact, the four companies made a profit of more than $67 billion in the past three months.

The Australian dollar rose slightly after strong Australian export and import price index. The export price index rose from 11.2% in the first quarter to 13.2% in Q2. Similarly, the import price index rose from 0.2% to 1.9% in the second quarter. Later today, the key data to watch will be the German unemployment rate and the Sweden and US GDP data. In the UK, the Bank of England will publish the latest mortgage lending data while the European Commission will release the latest manufacturing and services sentiment numbers.

EURUSD

The EURUSD broke out higher after the latest FOMC decision. On the four-hour chart, the pair moved above the upper line of the falling wedge pattern. The falling wedge is usually a sign that a financial asset will break out higher. As this happened, the pair moved above the 25-day and 15-day moving averages while the MACD has moved above the neutral line. The Relative Strength Index has also been rising. Therefore, the pair will likely keep rising as bulls target the next key level at 1.1950.

BTCUSD

The BTCUSD is hovering near the important resistance at 40,000. It is trading at 39,890, which is above the 25-day and 15-day moving averages. The RSI has started forming a bearish divergence pattern on the four-hour chart. It is also above the important support at 36,620. Therefore, the pair will likely break out higher as investors target the next key resistance at 44,000.

XBRUSD

The price of Brent crude oil darted higher after the latest US inventories data. It rose to a high of 75.33, which was the highest level since last week. On the four-hour chart, the pair moved above the short and longer-term moving averages. It has also formed an inverted head and shoulders pattern while the commodities channel index and MACD have continued rising. Therefore, the pair will likely break out higher as investors target the YTD high at almost 78.

Market movers today

• This morning, a lot of Swedish data are due out. At 09:00 CEST, we get consumer and business confidence in July. At 09:30 CEST, the Q2 GDP indicator and unemployment data for June are due out.
• Also some regional German inflation figures for July are due out this morning ahead of the national figures at 14:00 CEST.
• EU consumer and business confidence indicators are due at 11:00 CEST.
• In the afternoon, US pending home sales in June are due out. We will monitor how the housing market is developing after a very hot start to the year.
• In the US, bipartisan infrastructure talks are continuing.

The 60 second overview

FOMC: Like in June, the Fed statement was more hawkish than anticipated at the July meeting, see Fed Research: Review - Another step towards less accommodative monetary policy, 28 July. The Fed now says that "the economy has made progress towards" the goals and that the Fed "will continue to assess progress in coming meetings". The Fed repeats, though, that high inflation is due to "largely reflecting transitory factors" and highlights that labour market developments continue to be key for the timing of the tapering of asset purchases. We continue to expect that the Fed will turn more and more hawkish in coming months so that actual tapering will start in Q4 and the Fed will signal this on the September meeting where we have two more employment reports.

Inflation watch: This morning we launched a new publication, Global Inflation Watch, which provides an overview of global inflation trends and drivers, see Global Inflation Watch - Lift from commodities fading. It will monitor whether inflation pressures are indeed transitory or not and how underlying pressures from the labour market develops.

Equities: US stocks got a small lift from the Fed statement but closed broadly flat with tech stocks outperforming while industrials were slightly lower.

The Chinese offshore index in Hong Kong is up more than 3% this morning after China took steps to calm recent investor fears. Chinese authorities underlined in a meeting with bank executives that education policies were not meant to hurt companies in other industries and a report stated China will continue to allow Chinese companies to list in the US as long as they meet listing requirements. The central bank also added liquidity to the market. A Politbureau meeting this week will be watched closely for clues on regulation and economic policies.

FI: The Fed statement sent US bond yields slightly higher, but they fell back during the more dovish message from Fed governor Jerome Powell during the subsequent press conference. US 10-year yields trade 2bp lower than before the meeting.

FX: EUR/USD ended the day higher above 1.18 after the FOMC meeting. Scandies gained ground vis-a-vis EUR, with EUR/SEK falling to 10.18 and EUR/NOK to 10.43. USD/CNY dropped back below 6.50 after the big rise yesterday.

Credit: Sentiment improved in credit markets yesterday where iTraxx Xover tightened 3bp (to 235bp) and Main ½bp (to 46½bp). Both HY and IG cash bonds closed unchanged.

General trend

• Nasdaq FUTs lag in Asia; Facebook declined following results.
• Hang Seng opened higher by almost 3% [TECH index has gained over 6%; Education cos. also rise].
• Shanghai Composite remained higher during the morning session [IT and Consumer Discretionary indices outperform; Financial and property shares lag].
• Nikkei has remained modestly higher [Automakers rise after results from Nissan]; Companies expected to report earnings include Panasonic, FANUC, Renesas, Murata Manufacturing, TEPCO, Daiwa Securities, Kyocera, FUJITSU, Oriental Land.
• S&P ASX 200 has also held gains [Resources index rises amid earnings from Rio Tinto].
• Samsung has traded generally flat after earnings/comments.
• US Fed announced the establishment of two standing repurchase agreement (repo) facilities [a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA repo facility)].
• Companies due to report during the NY morning include Albertson’s, Alliance Data, AGCO, American Tower, Baxter International, Peabody Energy, Carrier, Carlyle Group, Comcast, Citrix Systems, Flex Ltd, Hilton Worldwide, Hershey, IntercontinentalExchange, International Paper, KBR, Keurig DR Pepper, Laboratory Corp, MasterCard, Altria Group, Merck, Northrop Grumman, NetScout, Oshkosh, Overstock, PG&E, Radware, Sally Beauty, S&P Global, MolsonCoors, Tempur Sealy, LendingTree, Textron, Valero Energy, YUM! Brands.

Headlines/Economic data

Australia/New Zealand

• ASX 200 opened 0.0%.
• FMG.AU Reports Q4 Iron Ore Shipments 49.Mt v 47.3Mt y/y, Ore Mined 64.9Mt v 57.2Mt y/y; Guides initial FY22 shipments 180-185Mt.
• API.AU Rejects Wesfarmers A$1.38/shr offer.
• (AU) Reserve Bank of Australia (RBA): Excess cash at exchange settlement (ES) accounts at A$344.1B v A$343.2B prior (Record high).
• (AU) Australia Q2 Import Price Index Q/Q: 1.9% v 0.2% prior; Export Price Index Q/Q: 13.2% v 11.2% prior.

Japan

• Nikkei 225 opened +0.5%.
• 9984.JP Said to be selling 45M shares (33% of its stake) of Uber to cover losses on Didi – press.
• (JP) Japan Investors Net Buying of Foreign Bonds: -¥1.09T v -¥1.22T prior; Foreign Net Buying of Japan Stocks: -¥58.5B v -¥10.5B prior.
• (JP) Japan Econ Min Nishimura: Coronavirus situation in Osaka is quite severe.
• (JP) Japan MOF sells ¥3.0T v ¥3.0T indicated in 0.00% 2-year JGBs: avg yield: -0.1260% v -0.116% prior; bid to cover 4.19x v 4.29x prior.
• 6503.JP Reports Q1 Net ¥61.8B v ¥17.9B y/y, Op ¥82.8B v ¥20.2B y/y, Rev ¥1.07T v ¥858.2B y/y.

Korea

• Kospi opened +0.4%.
• 005930.KR Reports final Q2 (KRW) Net 9.45T v 5.5T y/y; Op 12.6T v 12.5T prelim (8.15T y/y); Rev 63.7T v 63.0T prelim (52.97T y/y).

China/Hong Kong

• Hang Seng opened +2.9%; Shanghai Composite opened +1.3%.
• (CN) China said to permit China companies to continue to have US IPOs - US press.
• (CN) China Sec Daily: China may strengthen its housing loan policies during H2, mortgage rates are expected to continue to rise.
• (CN) China PBOC to conduct CNY5.0B in 3-month Central Bank Bill Swap (CBS) operation on today's session v CNY5.0B prior.
• (CN) China PBOC sets Yuan reference rate: 6.4942 v 6.4929 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY30B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY20B v Net CNY0B prior (1st injection since Jun 30th).
• 1876.HK Reports Q2 Normalized Net $284M v $228M y/y, Normalized EBITDA $627M v $523M y/y, Rev $1.85B v $1.62B y/y.
• (CN) China replaces ambassador to US Cui Tiankai with Qin Gang, who is known for speaking out against Western criticism of China.
• (CN) China: Shortage of empty shipping containers in major ports has eased.
• (CN) China authorities met recently with global financial companies, indicating they will consider impact on markets when making new policies - press.
• Other
• (SG) Singapore Central Bank (MAS) removes dividend curbs for banks and financial companies (yesterday after the close).

North America

• UBER Hearing block of 45M shares being shopped via Goldman for Softbank (-5% after hours).
• YUMC Reports Q2 $0.42 v $0.35 y/y, Rev $2.45B v $1.90B y/y.
• FB Reports Q2 $3.61 v $3.03e, Rev $29.1B v $27.9Be; Expects Rev growth rate v 2019 levels to decelerate modestly in H2 2021.
• F Reports Q2 +$0.13 v -$0.11e, Rev $26.8B adj v $21.5Be, raises FY guidance.
• (US) Senator Sanders (I-VT): Senate has all 50 Democrat votes needed to pass budget resolution next week.
• (US) Senate said to have votes to pass the $550B infrastructure bill, said to have votes for the $1.0T bill; Follow Up: vote 67-32 to move forward with debate.
• (US) FOMC LEAVES TARGET RANGE UNCHANGED BETWEEN 0.00-0.25% (AS EXPECTED); Made progress towards goals since setting out bar for tapering.
• (US) Fed Chair Powell: Fed will continue to support the economy until recovery is complete; Timing of tapering will depend on incoming data; Delta variant will have health consequences but recent waves have shown less economic implications; Still a ways away from considering raising interest rates; Not on our radar screen right now; There is no consensus on explanations for moves in the bond markets; Acknowledges there is a discussion to be had on pace of tapering in MBS relative to US Treasuries but likely both will begin tapering at same time; Do not have a problem with what the RRP is doing, expect RRP usage to be high for some time - post rate decision press conference.
• (US) Fed announced the establishment of two standing repurchase agreement (repo) facilities—a domestic standing repo facility (SRF) and a repo facility for foreign and international monetary authorities (FIMA repo facility).

Europe

• (UK) Jun Car Manufacturing 69.1K unit, +22.1% y/y; YTD Manufacturing 498.9K units, +30.8% y/y - SMMT.
• (UK) Press notes that the UK saw COVID cases decline for 7 consecutive days, before a small increase Wednesday, but health officials are unsure why.

Levels as of 01:15ET

• Hang Seng +3.2%; Shanghai Composite +1.3%; Kospi +0.0%; Nikkei225 +0.7%; ASX 200 +0.6%.
• Equity Futures: S&P500 -0.1%; Nasdaq100 -0.3%, Dax -0.1%; FTSE100 -0.1%.
• EUR 1.1859-1.1841; JPY 109.96-109.69 ;AUD 0.7382-0.7359; NZD 0.6972-0.6949.
• Commodity Futures: Gold +0.9% at $1,815/oz; Crude Oil +0.4% at $72.64/brl; Copper +0.5% at $4.49/lb.

Short Term Elliott Wave in S&P 500 E-Mini Futures (ES) suggests the rally from September 25, 2020 low remains ongoing as a 5 waves impulse Elliott Wave structure. In the 45 minutes chart below, we can see wave (4) of this impulsive rally ended at 4223.53. The Index has resumed higher within wave (5) with internal subdivision of another impulse in lesser degree.

Up from wave (4), wave ((i)) ended at 4338.5 and pullback in wave ((ii)) ended at 4315.50. Index then resumes higher in wave ((iii)) towards 4408.25 and dips in wave ((iv)) ended at 4375.50. Final leg higher wave ((v)) ended at 4416.75 and this completed wave 1 in higher degree. Wave 2 pullback is currently in progress to correct cycle from July 20, 2021 low. The internal subdivision of the pullback is unfolding as a double three Elliott Wave structure. Down from wave 1, wave ((w)) ended at 4364.75, and rally in wave ((x)) ended at 4407.75. Expect wave ((y)) of 2 to end at 4323.4 – 4355.7 blue box area before the Index resumes higher again. Near term, as far as July 20 pivot low at 4223.53 remains intact, expect the Index to find support and extends to new high.

S&P 500 E-Mini Futures 45Minutes Elliott Wave Chart

Daily Pivots: (S1) 1.2490; (P) 1.2548; (R1) 1.2579; More...

USD/CAD's fall from 1.2805 accelerates lower and focus is now on 1.2485 resistance turned support. Decisive break there will suggest that rise form 1.2005 might have completed. Deeper fall would be seen to next cluster support at 1.2301 (61.8% retracement of 1.2005 to 1.2805 at 1.2311). For now, risk will stay mildly on the downside as long as 1.2605 resistance holds, in case of recovery.

In the bigger picture, fall from 1.4667 is seen as the third leg of the corrective pattern from 1.4689 (2016 high). It should have completed after hitting 1.2061 (2017 low) and 50% retracement of 0.9406 to 1.4689 at 1.2048. Sustained break of 38.2% retracement of 1.4667 to 1.2005 at 1.3022 will pave the way to 61.8% retracement at 1.3650 and above. Overall, medium term outlook remains neutral at worst with 1.2048/61 support zone intact.

Daily Pivots: (S1) 0.7334; (P) 0.7357; (R1) 0.7398; More...

AUD/USD is staying in consolidation from 0.7288 and intraday bias remains neutral at this point. Further fall is expected as long as 0.7443 support turned resistance holds. On the downside, break of 0.7288 will resume the whole decline from 0.8006 to 161.8% projection of 0.8006 to 0.7530 from 0.7890 at 0.7120 next. On the upside, break of 0.7443 will indicate short term bottoming, and bring stronger rebound to 0.7530 support turned resistance instead.

In the bigger picture, rise from 0.5506 medium term bottom could have completed at 0.8006, after failing 0.8135 key resistance. Correction from there could target 0.6991 cluster support (38.2% retracement of 0.5506 to 0.8006 at 0.7051). We'd look for strong support from there to bring rebound. However, sustained break of this level would argue that the whole medium term trend has indeed reversed.

Daily Pivots: (S1) 109.68; (P) 109.98; (R1) 110.22; More...

Intraday bias in USD/JPY remains neutral first. On the upside, break of 110.58 will resume the rebound from 109.05, for retesting 111.65 high. On the downside, break of 109.05 will resume the fall from 111.65 to 38.2% retracement of 102.58 to 111.65 at 108.18.

In the bigger picture, medium term outlook is staying neutral with 111.71 resistance intact. The pattern from 101.18 could still extend with another falling leg. Sustained trading below 55 day EMA will bring deeper fall to 107.47 support and below. For now, outlook won't turn bullish as long as 111.71 resistance holds, even in case of strong rebound.