Even though the NFP employment report came in considerably better than anticipated, traders took the view that the Fed would not speed up tapering their asset purchases. The NFP report showed the payrolls increased by 850K in June. The total is, however, still 6.8 million jobs lower than at its peak in February last year. Now the expectation is that the tightening would start in 2022 (at the earliest). Currently, the probabilities based on Fed Funds futures indicate a 41.2% probability for a rate hike in December 2022. Analyst expectations are more bullish with October 2022 quarter point rate hike expectations at 100%. Australian retail sales numbers came in much better than expected at 0.4% (vs. 0.1% expected). Today’s next main risk event is the BOC Business Outlook Survey release. For more key risk events, see the end of this report. The US public holiday will be likely to keep the markets range-bound today. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
US stocks closed to new highs on Friday. The S&P 500 (+0.75%) traded higher for a seventh straight day in a row while Nasdaq Composite (+0.81%) and the Dow Jones Industrial Average (+0.44%) also recorded solid gains at ATH levels. June employment data showed solid hiring but revealed some weaknesses in the labour market as hourly earnings ticked lower to 0.3% from 0.4% in May. The unemployment rate was confirmed at 5.9%, 0.1% higher than in May. This is likely to keep the Fed from hiking the rates sooner than generally expected. US Treasury yields reacted lower on Friday. The 10-yr yield ticked lower by 4.9 basis points to 1.431%. The longer end reacted as well with the 30 year Treasury yield falling 4.1 basis points to 2.045%. Gold (+0.37%) and silver (+1.54%) futures trade positively after moving higher on Friday, while WTI crude (+0.09%) traders wait for the OPEC+ to come to an agreement on supply allocations.
The technology (+1.32%) and the healthcare (+0.96%) sectors were leading the market on Friday while the financial (-0.11%) and the energy (-0.22%) were pressured by the lower yields and the uncertainty created by the OPEC+ that struggles to agree on production limits. Among the TIOmarkets equity CFDs the biggest gainers were AMZN (+2.27%), MSFT (+2.23%) and AAPL (+1.96%). IBM (-4.64%, BRKB (-2.59%) and DVN (-2.44%) were the loss leaders in Friday’s trading.
Market update: We highlighted AAPL (+1.96%) as a buy candidate (here) in June. The stock had just attracted institutional buying on the back of a story that the company was planning a faster watch with body temperature and blood sugar sensors. Now the stock is trading 7.28% higher! AAPL has penetrated the April high (137.07) and is now approaching a bull channel top at 141.30. The next important resistance after this is at 145.09.
Market update: ROKU (-1.23%) is another recent success story. We focused on long opportunities in this stock (here) and since then ROKU has rallied over 32% before starting to attract profit taking on Thursday and Friday last week. The nearest major support area is at 386.68 – 398 (the 20-day SMA, the 38.2% Fibonacci retracement level and a former resistance level). The February high at 486.50 is the nearest key resistance level.
WBA (-1.11%) gapped significantly lower last week. After such a volatility spike we usually see further volatility and several intraday trading opportunities. If the price retraces back to the 50.27 – 51.40 range the stock could offer a shorting opportunity (but only if the price action confirms) while a decisive bounce from 46.31 support could provide a nice swing trade on the long side.
GE (-0.89%) has been ranging between 12.78 and 14.38 for some time now. Last week the price started to rally higher from the support. GE is bullish above the 12.78 support and could offer quick intraday or swing trade opportunities. A decisive break below this support would be likely to open a way to a 61.8% retracement level at 11.90. The nearest key resistance is the 14.38 high from February.
Macro Drivers for the USD
As the most followed, invested and traded markets for risky assets are priced in the USD it is helpful to understand what macroeconomic factors impact the other side of the equation, the USD. Whether we are trading EURUSD, XAUUSD or US equity CFDs the factors impacting the dollar, the nominator in the equation, have a significant role in the formation of all medium to long-term price action. The following table summarises the most important fundamentals.
|The FED||The Fed has now changed the tune and is moving away from the ultra-accommodative monetary policy. Currently, the expectation is that the first-rate hike would take place in the second quarter of 2022.|
|Stimulus||The US lawmakers have authorised approximately five trillion dollars of economic stimulus and the Biden administration is negotiating with the Senate Republicans to introduce a $1.2 trillion infrastructure stimulus plan.|
|Yields||After trending higher since the beginning of August 2020, the Treasury yields have been moving lower or sideways since March. All in all, the yields and interest rates are extremely low on both nominal and real basis.|
|Employment||Even though the June NFP report came in better than anticipated (+850K) the total is still 6.8 million jobs lower than at its peak in February last year. However, the Fed has said earlier recently that believes that the US is on a path to a very strong labour market as indicators of activity and employment continue to improve.|
|Inflation||The year on year headline CPI change was 5% but not all inflation gauges agree with such a high number. The trimmed-mean inflation CPI index published by the Cleveland branch of the Federal Reserve Bank, rose only 2.6% y/y (0.4% m/m)|
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Market News & Facts
- Central banks reportedly buying gold, moving out of the USD
- China June Caixin/Markit Services PMI 50.3 (55.7 expected)
- ANZ Australian Job Ads for June +3.0% m/m
- Australia to limit international arrivals by 50% due to the Delta strain
- Philadelphia Fed’s Harker: tapering should start later this year
- BOE ready to respond to signs of persistent inflation
- UK final manufacturing PMI for June: 63.9 (64.2 preliminary)
- Japan chief cabinet secretary Kato pondering new stimulus
- Australian exports to 6% in May from 3% in April
- Canada April GDP -0.3% m/m (-0.8% expected)
- US ADP payrolls 692K (600K expected)
- China June Manufacturing PMI 50.9 (50.8 expected)
- China June Services PMI 53.5 (52.7 expected)
- Fed’s Waller: 2022 rate hike is not ruled out
- Fed’s Barkin: inflation and growth to peak in Q2 2021
The Next Main Risk Events
- CAD – BOC Business Outlook Survey
- AUD – RBA Rate Statement
- AUD – Cash Rate
- AUD – RBA Governor Lowe’s Speech
- EUR – ZEW Economic Sentiment
- EUR – German ZEW Economic Sentiment
- USD – ISM Services PMI
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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