Last week saw the US equity indices bouncing back strongly from a sudden sell-off and we’ve seen impressive returns from some very familiar names. ROKU (12.60%), FB (5.30%) and GOOG (+3.37%) rallied on Friday signalling that traders have faith in the US equity markets. The rally was widespread with 10 of the 11 S&P 500 sectors closing higher and the fear index VIX dropping below 18 index points. Since the announcement on Tuesday last week that ROKU is teaming up with NBCUniversal to stream the Olympics the stock has rallied over 16%. We first highlighted ROKU as a buying opportunity when the stock was trading at $346.54. Friday’s close was 473.65. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
The European PMI numbers were pretty much in line with the expectations with the French flash services PMI 57.0 (58.7 expected) and German flash manufacturing PMI 65.6 (64.2 expected) for July only slightly better than analysts had projected. The UK flash services PMI numbers came in at 57.8 (62.0 expected) and the US flash services PMI at 59.8 (64.6 expected). The major USD rivals have reacted modestly to Friday’s PMI numbers. At the time of writing, CHF is up by 0.15% and AUD down by 0.21% when compared to the London session open on Friday.
The major US equity indices had a strong finish for the week that saw some higher than usual volatility. The S&P 500 (+1.01%), the NASDAQ Composite (+1.04%) and the Dow Jones Industrial Average (+0.68%) finished the day higher on Friday. After shooting as high as 25 VIX, also known as the fear index, finished the week at 17.19. The rally was led by the communications technology (+2.48%) and the utilities (+1.28%) sectors while the energy sector lost 0.37%. The energy sector was the only one to trade lower on Friday. Some of the biggest bull moves were seen among the TIOmarkets equity CFDs. The best performers were ROKU (12.60%), FB (5.30%), GOOG (+3.37%), MNST (+3.13%) and MA (+2.90%). The biggest losers among our equity CFDs were INTES (-8.01%), INTC (-5.29%), JD (-4.77%), WYNN (-3.57%) and LVS (-3.07%). This far about 20% of the S&P 500 firms have reported earnings but 88% of them have beaten the analyst estimations for earnings. The big names reporting this week include Facebook, Tesla, Apple and Amazon. Expect to see higher than average volatility in these names.
The slide in US Treasury yields continues. The latest close saw the yields at 1.26% (-0.025%) but this failed to support gold futures which closed down by 0.20%. Silver (-0.58%) also slipped slightly lower while the WTI Crude futures took a breather (+0.22%) after rallying almost 7% earlier in the week. Coronavirus fears and Chinese floods have eroded demand projections but it seems that the supply might stay tight due to the US producers being unwilling to invest.
This week traders will have plenty of macroeconomic data to process. Today’s main risk events are the German IFO Business Climate release and MPC Member Vlieghe’s speech. The main events this week are the release of the FOMC statement and the FOMC press conference on Wednesday. For more information and details see the TIOmarkets economic calendar here.
USDCAD traded lower last week with strong momentum on Tuesday and Wednesday. This suggests that the psychology among the market participants might have changed and is now more bearish than earlier. This could lead to rallies being sold in this week’s trading. However, the FOMC statement and press conference are factors that have the potential to once again change the mood of the markets so we have to tread cautiously. Currently, the pair is trading right above the 50% retracement level and a decisive break above 1.2607 would be likely to bring the 1.2674 – 1.2730 range into play while continued breaks of supports and lower reactionary highs would probably take the pair to the 1.2250 – 1.2300 region.
There are some early signs of bullishness seeping into EURJPY (eg. Bullish divergence in Stochastics Oscillator and a bullish wedge). The pair is still in a downtrend but it makes sense to prepare for a limited downside potential for short trades and if the market starts to make higher lows it makes sense to switch to the long side. A break above 130.30 would indicate strength and would be likely to open a way to the 131.08 – 131.27 range. A break below last week’s low at 128.59 would negate the bullish indications and probably take the pair to the 126.40 – 127.50 region.
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 since March 2021. 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 for June was 5.4% (4.9% expected. This suggests the Fed might have an incentive to move quicker in their tapering plans.|
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Market News & Facts
- BOE digital currency for the UK gets support from a study
- Still substantial disagreement over the US infrastructure deal
- Amazon preparing to accept payments in cryptocurrency?
- Markit July US services flash PMI 59.8 (64.8 expected)
- Canada June retail sales +4.4% (-3.2% previous)
- French July flash services PMI 57.0 (58.7 expected)
- German July flash manufacturing PMI 65.6 (64.2 expected)
- UK July flash services PMI 57.8 (62.0 expected)
- ECB’s Villeroy thinks it’s justified to keep the accommodative policy stance
The Next Main Risk Events
- EUR – German IFO Business Climate
- GBP – MPC Member Vlieghe’s Speech
- JPY – BOJ Gov Kuroda’s Speech
- AUD – RBA Deputy Gov Debelle’s Speech
- USD – CB Consumer Confidence
- AUD – CPI and Trimmed Mean CPI q/q
- CAD – CPI, Common CPI, Median CPI and Trimmed CPI y/y
- USOIL – Crude Oil Inventories
- USD – FOMC Statement and Federal Funds Rate
- USD – FOMC Press Conference
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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