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Markets

Markets didn’t know how to cope with higher than expected data of late, be it prices or activity data. Uncertainty continued to linger whether a positive growth balance can be maintained further in the economic cycle.Are rising prices a sign of accelerating demand or will they complicate growth dynamics? On Friday, decent US retail sales again wasn’t enough to suppress investors’ doubts. June sales, both headline (0.6% M/M vs -0.3% M/M expected) and the control group measure (1.1% vs 0.4% expected) beat consensus. Admittedly, the May figure saw a downward revision. US yields tried an unconvincing attempt to see the story from the bright side, but a weaker than expected U. of Michigan consumer confidence was enough for hesitancy to regain the upper hand. US yields finished the day less than one bp lower. As such this isn’t dramatic, but the US 10-y closing below 1.30% (1.29%) and the 30-y distinctly below 2.0% (close 1.92%) obviously isn’t a vote of confidence on the reflationary dynamics. German bunds outperformed declining between 0.6 bp and 2 bp (30-y). The 10-y EMU swap yield again closed in negative territory (-0.12%)! In this fragile context, equities didn’t profit from lower yields. The 3 major US indices lost 0.75%/0.85%. On the FX market, the majors showed no unequivocal picture. USD/JPY tested the 110.34 area after the US retail sales but closed at 110.07. EUR/USD held a tight range around 1.18 (close 1.1807). Sterling couldn’t capitalize on (some) ‘hawkish’ BoE comments earlier last week. EUR/GBP (close 0.8577) even finished near the highest level of the week.

Asian markets resumed trading in risk-off modus. There isn’t that much of specific news. Uncertainty on the impact of new corona outbreaks causes investors to continue to err to the cautious side. Core bonds remain well bid. The yuan is losing modest ground (USD/CNY 6.4810). ST resistance at 6.49 remains withing reach. AUD/USD (0.7380) is trading at the lowest level since early December as rising Covid cases question the chances for RBA tapering. A topping in (some) commodity prices is a negative too. The dollar (DXY 92.75) trades marginally stronger.

There are very few eco data today. Global sentiment will continue to set the tone for trading with the earnings season coming in full swing. Given current investor mindset, there is probably little room for negative guidance. European investors also look out for the ECB policy meeting on Thursday. From a technical point of view, the US 10-y yield declining below 1.25% and German 10-y yield giving up 0.38% would flash further red lights on the reflationary narrative. DXY 92.85 is also an important resistance for the dollar. A risk-off, in theory, is USD-supportive, but USD gains of late could have been bigger. The ‘reopening narrative’ also doesn’t help sterling as the sustainability of this reopening is questioned. EUR/GBP is again trading in the well-known territory (0.8580).

News headlines

World’s most important oil exporters OPEC and its allies struck a deal on Sunday to increase oil output by gradually lifting the remaining curbs over the coming months. More specifically, the group will pump an additional 400 000 barrels per day each month starting from August until all of the 5.8 million barrels a day of halted output is restored. The move came after the UAE saw its output baseline revised upwardly and gave the green light for the deal. The eventual outcome in theory is more bearish for oil. The previous proposal also suggested a monthly increase of 400 000 b/d but only covered the period August-December. Brent oil drops about 1% to below $73/barrel.

Czech central bank governor Rusnok in an interview with newspaper Pravo over the weekend said he expects an “extensive debate” at the next meeting on August 5 on whether to lift the policy rate further. Rusnok argued he doesn’t see strong reasons not to continue raising the benchmark, which now stands at 0.5% after hiking for the first time last month. “It’s time and there’s a need to make another little step”, he said adding that he sees risks that global inflation pressures won’t weaken over time because of structural economic changes. He mentioned aging populations and the push to cut carbon emissions. The Czech krone weakens this morning due to overall risk-off but has been the notable regional outperformer lately. EUR/CZK trades around 25.54.

The US dollar is testing above the 1.2600 level against the Canadian dollar due to a combination of oil weakness and strength in the greenback. The USDCAD pair is now testing towards its key 200-day moving average, however, bulls have not performed a daily price close above this key technical metric. Failure to overcome the 200-day moving average could result in a technical correction back towards the 1.2480 level.

The USDCAD pair is only bullish while trading above the 1.2550 level, key resistance is found at the 1.2630 and the 1.2700 levels.

If the USDCAD pair trades below the 1.2550 level, sellers may test the 1.2510 and 1.2480 levels.

The British pound has started the trading week under pressure against the US dollar after performing its lowest weekly price close since April this year. The GBPUSD pair could fall towards the 1.3660 level if bears are able to breach the double-bottom pattern around the 1.3740 area. Sellers should note that the four-hour time frame continues to show that bearish price MACD price divergence is still present and extends towards the 1.4000 level.

The GBPUSD pair is only bullish while trading above the 1.3860 level, key resistance is found at the 1.3900 and the 1.4000 levels.

If the GBPUSD pair trades below the 1.3860, sellers may test the 1.3740 and 1.3660 support levels.

The New Zealand dollar is undergoing a pullback against the US dollar currency, following last weeks price rally towards the 0.7045 resistance level. The latest dip could provide a buying opportunity as the RBNZ are starting to turn more bullish towards hiking rates. NZDUSD bulls may look to buy around the 0.6980 to 0.6950 area in expectation of a recovery to new highs.

The NZDUSD pair is only bearish while trading below the 0.7000 level, key support is found at the 0.6980 and 0.6950 levels.

The NZDUSD pair is only bullish while trading above the 0.7000 level, key resistance is found at the 0.7045 and 0.7120 levels.

Crude oil prices declined in early trading after OPEC+ members reached a deal to increase production gradually as oil prices rise. The members will add about 400k barrels a day every month from August and then ramp it up by about 2 million by the end of the year. The members will then accelerate the increases. The increase is a sign that the members fear that the global recovery will not be as strong as expected. The new deal came after weeks of disagreements between Russia, Saudi Arabia, and the United Arab Emirates. The deal is a victory for the UAE since it will award higher production baselines to countries like Saudi, Russia, and Kuwait.

The global equities sell-off accelerated in early trading as investors waited for key corporate earnings. Dow Jones and S&P 500 futures declined by 200 and 20 points while futures tied to the DAX and FTSE 100 indices dropped by more than 0.50%. The decline happened as investors started pricing in an eventual cooling of the American economy after it recorded a stronger recovery in the first half of the year. Later this week, the indices will react to the latest corporate results from companies like J.B Hunt Transport Services, AutoNation, IBM, Ally Financial, Sleep Number, Netflix, and UBS.

The wave of mergers and acquisitions is set to increase. Last week, the Wall Street Journal said that Intel was considering making a move on GlobalFoundries, a company that manufactures chips for other firms. And during the weekend, Zoom Video said that it will spend $14.7 billion in stock to acquire Five9. Five9 is a cloud company that provides solutions in contact centers, artificial intelligence, and employee management. The acquisition is part of Zoom management’s desire to expand its business since growth in video communications is expected to slow down as the world economy reopens.

XBRUSD

The price of Brent declined to $72.82 after OPEC+ members reached a deal to add a production. This price was substantially lower than the year-to-date high of 78.50. On the four-hour chart, the pair’s 25-day and 15-day moving averages have made a bearish crossover pattern. The MACD and Commodity Channel Index (CCI) also kept falling. Additionally, the price is at the same level as the important support since it struggled to move below this level on July 8. Therefore, the pair will likely keep falling as bears target the next support at 70.

EURUSD

The EURUSD was little changed as traders started to refocus on the upcoming European Central Bank (ECB) decision. It is trading at 1.1800, where it has been in the past few days. The price has moved below the 25-day and 15-day moving averages. Other technical indicators like the MACD are at a neutral level. It has also formed a small channel shown in yellow. Therefore, the pair will likely remain in this range today.

NDX100

The Nasdaq 100 index futures declined to $14,635 as the earnings season continues. The pair broke out below the 25-day and 15-day moving averages while the RSI and MACD indices kept falling. The index also formed a double-top pattern. Therefore, there is a possibility that it will keep falling as bears target the next key support at 14,500.

General Trend

• US equity FUTS decline.
• Asian equity markets have generally pared declines.
• Financials track drop on Wall St. amid lower yields.
• Nikkei extended declines but currently trades off of the session lows [Topix Air Transportation, Banks, and Electric Appliances indices are among the decliners; Automakers also drop].
• Hang Seng and HK TECH indices have declined by over 2%; Financial, Property and Airline cos. also drop.
• Shanghai Composite ended the morning session modestly lower, pared loss [Decliners included Property, Financial and Consumer indices].
• S&P ASX 200 has pared declines [Resources index has declined over 2% after production update from Rio Tinto, BHP is due to report production on Tues.; Energy and Financial indices also drop ].
• Taiwan Semi continues to decline after recently reported financial results.
• Five9 to be acquired by Zoom for ~$14.7B in stock.
• Companies due to report during the NY morning include Cal-Maine, ProLogis.
• RBA minutes are due on Tuesday (Jul 20).
• China PBOC is also due to set loan prime rates (LPRs) on Jul 20th [consensus is unchanged].

Headlines/Economic Data

Australia/New Zealand

• ASX 200 opened 0.0%.
• SGP.AU To acquire land lease community operator, Halcyon Group, for A$620M plus transaction costs.
• (AU) Reserve Bank of Australia (RBA): Excess cash at exchange settlement (ES) accounts at A$335.7B v A$334.6B prior (record high).
• (NZ) Reserve Bank of New Zealand (RBNZ) buys NZ$110M in government bonds in QE auction v NZ$110M sought.

Japan

• Nikkei 225 opened -1.2%.
• (JP) Japan PM Suga and South Korea President Moon to meet July 23rd in Tokyo - Japan press.
• (JP) Tokyo officials confirm a positive Covid case at Olympic athlete's village (Saturday).
• (JP) As of Sunday morning 2 South African soccer players at the Olympics have tested positive for COVID.

Korea

• Kospi opened -0.6%.
• 1015Z.KR Temporarily suspended its sole plant in Busan due to lack of semiconductor parts – Yonhap.
• (KR) Follow Up: South Korea Presidential Office: Meeting between President Moon and Japan PM Suga is still uncertain.
• (KR) South Korea sells KRW1.02T in 5-year bonds: avg yield 1.700% v 1.675% prior.

China/Hong Kong

• Hang Seng opened -0.8%; Shanghai Composite opened -0.3%.
• (CN) China State Planner (NDRC) Approved CNY38.9B in fixed asset investments in June, total CNY246.4B in H1, fully confident in reaching annual economic and social development targets despite recovery still facing difficulties and challenges.
• (CN) China has signaled that Hong Kong is the preferred place for Chinese companies to IPO (not New York) and will exempt any Chinese company from requiring approval from cybersecurity regulatory body if they IPO in Hong Kong v other offshore markets – press.
• (CN) China said to consider trial program that would allow foreign institutions to invest offshore yuan (CNH) in stocks listed on the Shanghai Star Board - Chinese press.
• (TW) China Army and Navy held joint drill on beach assault near Taiwan, the day after the 2nd US military aircraft landed in Taiwan - press.
• (HK) Macau Responsible Gaming Association President Wai-kit: Recent closure of satellite casinos does not imply the start to more wide spread closures; but there will be some difficulty in reaching MOP130B in gaming rev in 2021 - HK press.
• (CN) China PBOC sets Yuan reference rate: 6.4700 v 6.4705 prior.
• (CN) China PBOC Open Market Operation (OMO): Injects CNY10B in 7-day reverse repos v CNY10B in 7-day reverse repos prior; Net CNY0B v Net CNY0B prior.

Other

• Reportedly OPEC+ agreed to ease oil output cuts from Aug 2021 and to extend supply agreement until the end-2022 – press.

North America

• FIVN To be acquired by Zoom in $14.7B all-stock transaction.
• (US) Treasury Sec Yellen: Some tariffs have hurt customers, doubts the overall results of China Trade deal signed under President Trump - Interview in NYT.
• (US) President Biden: Social media is "killing people" with false information about COVID; separately a group of Senators calls to make platforms liable for misinformation spread on COVID – press rehashing earlier comments.
• (US) Several US cities now looking to allow Bitcoin to be used to pay tax bills as well as a method to pay employees of the city – press.
• (US) US Democrats weigh supporting Powell as Fed Chairman; President Biden to decide whether to reappoint Powell to second 4-year term [starting Feb 2022] as progressives seek change - FT.
• (US) Fed's Kashkari (dove, non-voter): Not seeing evidence that there will be sustained inflation beyond the re-opening period; reiterates expect people to return to labor market in the fall (update).

Europe

• (UK) PM Johnson and Chancellor Sunak to self isolate after coming in contact with health Sec Javid (who tested positive for COVID); reversing their earlier plan to continue on as normal - press.
• (UK) According to analysts Chancellor of the Exchequer Sunak (Fin Min) will see the cost of UK debt rise by £10B due to debt tied to inflation - UK press.

Levels as of 01:15ET

• Hang Seng -2.0%; Shanghai Composite -0.1%; Kospi -0.9%; Nikkei225 -1.3%; ASX 200 -0.8%.
• Equity Futures: S&P500 -0.3%; Nasdaq100 -0.2%, Dax -0.4%; FTSE100 -0.5%.
• EUR 1.1814-1.1798; JPY 110.10-109.85; AUD 0.7410-0.7373; NZD 0.7005-0.6976.
• Commodity Futures: Gold -0.1% at $1,812/oz; Crude Oil -1.0% at $70.83/brl; Copper -0.5% at $4.28/lb.

Daily Pivots: (S1) 151.10; (P) 151.86; (R1) 152.28; More...

Intraday bias in GBP/JPY remains neutral first. On the downside break of 150.64 will resume the corrective fall from 156.05. We'd look for strong support from 38.2% retracement of 136.96 to 156.05 at 148.75 to bring rebound. On the upside, break of 153.46 will turn bias back to the upside for 155.13/156.05 resistance zone.

In the bigger picture, rise from 123.94 is seen as the third leg of the pattern from 122.75 (2016 low). Focus remains on 156.59 resistance (2018 high). Sustained break there should confirm long term bullish trend reversal. Next target is 61.8% retracement of 195.86 (2015 high) to 122.75 at 167.93. On the downside, break of 149.03 support is needed to be the first sign of completion of the rise from 123.94. Otherwise, outlook will remain bullish even in case of deep pull back.

Market movers today

• Today is a very quiet day without any important data releases. This week, we are looking forward to the ECB meeting on Thursday and the preliminary PMIs for July due out on Friday. .

The 60 second overview

OPEC+: On Sunday OPEC+ (OPEC and additional oil-exporting countries including Russia and Kazakhstan) agreed to gradually scale back production cuts implemented as prices tumbled at the outbreak of the pandemic in early spring of last year. The cartel said it targeted the end of 2022 as the end of current in-place cuts. The initial increase in production will add 400,000 barrels per day starting in August rising to 2m barrels at the end of this year, and continuing to increase until the accumulated cuts of 5,8m barrels per day has been revived. A deal has been long overdue with the UAE and Saudi Arabia clashing on multiple occasions in public recently, as UAE have found its production baseline set at a too low level. The oil price has been increasing throughout this year and is currently standing at USD 73 per barrel up from USD 52 at the beginning of the year. The price has been declining somewhat in past days (and this morning) as expectations moved towards a deal.

German polls: Opinion polls out of Germany on Saturday showed only small changes with support rising slightly for the Greens now standing at 18% of the popular vote and CDU/CSU at 28%. The 18% would be enough for the Greens to enter into a coalition with SPD (17%) and FDP (12%). Polling was conducted in part before large floods destroyed multiple towns in the western part of the country.

Equities: Equities are in general lower this morning with tech continuing to underperform. Nikkei is down 1.3% and Hang Seng 1.6%. S&P futures also indicates a weak opening to US markets later in the day and is down 1%. Equity markets have been somewhat under water during the past week as new covid-19 cases are currently growing globally. However, with almost all risk groups being fully vaccinated in the US and Europe, there should be a low correlation between new cases and hospitalisations.

FI: US government bond yields declined only modestly on Friday by 1bp in the 10y segment (10y yield now standing at below 1.30%) and curves flattened further. This morning sees the same trend continue. US retail sales covering the month of June showed a convergence towards a more normal consumption pattern among American households (ie. more service spending and less DIY), however, was not a market mover in rates.

FX: The USD ended last week on a strong footing and with the support from Friday's US retail sales release the greenback ended last week as one of the clear outperformers. In the Scandies, the NOK continues to trade on the back foot which reflects the global investment environment and not domestic news. EUR/SEK has broken above the 10.20 threshold and COVID-19 delta fears have weighed on GBP with EUR/GBP now back above 0.8550.

Credit: In line with European equities, credit remained under pressure on Friday where iTraxx Xover widened 1bp (to 238bp) and Main also widened slightly to close in 47½bp. HY bonds widened 1bp while IG was unchanged.

Daily Pivots: (S1) 129.65; (P) 129.96; (R1) 130.29; More....

Intraday bias in EUR/JPY remains neutral at this point. On the downside, break of 129.60 will resume the corrective decline from 134.11. We'd look for strong support from 38.2% retracement of 121.63 to 134.11 at 129.34 to bring rebound. On the upside, break of 131.07 resistance will indicate short term bottoming, and bring stronger rebound back to 132.68 resistance first. However, firm break of 129.34 will bring deeper fall back to 127.07 resistance turned support.

In the bigger picture, rise from 114.42 is seen as a medium term rising leg inside a long term sideway pattern. Next target is 137.49 (2018 high). Decisive break there will open up the possibility that it's indeed resuming the up trend from 94.11 (2012 low). For now, outlook will stay bullish as long as 127.07 resistance turned support holds, in case of pull back.

Daily Pivots: (S1) 1.0840; (P) 1.0853; (R1) 1.0867; More....

Intraday bias in EUR/CHF remains neutral for consolidation above 1.0802 temporary low first. Outlook will stay bearish as long as 1.0985 resistance holds. On the downside, break of 1.0802 will resume the decline from 1.1149, to 1.0737 cluster support next.

In the bigger picture, current development argues that rebound from 1.0505 (2020 low) might be completed with three waves up to 1.1149 already. Sustained trading below 55 week EMA (now at 1.0882) will affirm this bearish case. Further break of 1.0737 cluster support (61.8% retracement of 1.0505 to 1.1149 at 1.0751) will bring retest of 1.0505 low.