Tesla shares retraced to our confluence zone identified last week (see the latest Bullish & Bearish Markets video) and rallied over 8 per cent on strong institutional buying. The above screenshot is from the video. More on TSLA later on in this report. US equities rallied modestly in yesterday’s trading as the Senate majority leader Schumer said the Senate Budget Committee is “close to finalizing a budget resolution,” that is needed in order to finalize the infrastructure deal. By reading further you agree with our disclaimer at the end of this report and acknowledge that we do not provide investment advice.
At the same time, Fed’s Williams is saying that there has been no substantial further progress in the US economy which could be interpreted as a signal that tapering could be delayed if the economic recovery shows signs of slowing down. Fed’s Barkin was also saying that tapering delayed if labour market recovery is slow. Canada is expected to taper some more this week. The BOC is scheduled to release their Monetary Policy Report on Wednesday. Today’s main risk event is the release of the US inflation numbers.
The Dow Jones Industrial Average (+0.36%) and the S&P 500 (+0.35%) gained some ground in yesterday’s trading while the Nasdaq Composite added 0.21%. The modest but broad rally saw nine out of eleven S&P 500 sectors closing higher. The biggest gainers were the financial (0.98%), the real estate (+0.87%) and the communication (+0.71%) sectors. The consumer staples (-0.16%) and the energy (-0.15%) sectors sustained small losses. Among the TIOmarkets equity CFDs, we saw the biggest gains in TSLA (+4.38%), DIS (+4.15%), MS (2.68%), ALGN (+2.50%) and GS (2.35%). The five biggest losers in yesterday’s trading were BB (-4.58%), LYFT (-3.31%), HPQ (-2.76%), BIIB (-2.55%) and CHTR (-2.26%).
Over the last two trading days, the performing currencies against the USD have been the GBP (+0.84%) and the commodity currencies: AUD (+0.88%), NZD (+0.74%) and CAD (+0.64%). JPY (-0.31%) has been trailing lower as the markets have once again found a footing and bouncing higher. The lack of need for a safe haven has taken its toll on JPY while the expectation of the government planning more stimulus in Japan is likely to also play a role. Gold (-0.26%), silver (+0.02%) and WTI Crude oil (-0.62%) futures traded in relatively small ranges yesterday as there was no significant news flow or macroeconomic releases to give the commodity markets a boost. No significant change in the treasury yields. Today’s main risk event is the release of the US inflation numbers while Wednesday is going to be quite a busy day for event traders. We will have rate decisions from the RBNZ and the BOC, the PPI numbers from the US and the Fed Chair Powell testifying tomorrow. For more information and details see the TIOmarkets economic calendar here.
Market update: Our analysis published in the latest Bullish & Bearish Markets video paid off very nicely as Tesla (TSLA, +4.38%)shares retraced back to our confluence zone and rallied strongly higher. The stock moved to our zone and attracted some serious buying helping it to rally over 8%. This analysis success followed two previous consecutive calls (one long and one short) on TSLA that were spot on! Now the stock is approaching the 699.55 resistance that sent the stock lower in early July. This level also coincides roughly with the channel high at 703.80 which could prompt some profit-taking but the recent strength suggests the bullish sentiment prevails. Technicals turn bearish if the stock violates the 625.09 support level. The key S&R levels in TSLA are 547.22, 625.20, 699.55 and 780.30.
The strong rally on Friday sets the scene for GBPUSD trading for this week. The pair rallied 0.82% which is not unheard of but still represents significant institutional buying interest in the cable. The rally created a breakout from a bullish wedge formation. At the same time, the bulls have been trying to penetrate the 1.3900 resistance for two days now and such hesitation is always a risk. However, overall this market remains bullish in the daily timeframe. The key S&R levels are 1.3665, 1.3732, 1.3900, 1.4000 and 1.4083. The bullish indications would be negated if the pair moved below the support at 3732.
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 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
- Another 4 to 6 weeks of lockdown in Sydney, Australia
- Fed’s Barkin: tapering delayed if labour market recovery slow
- Germany wholesale price index for June 1.5% (1.7% previous)
- Dutch Covid-19 cases up eight-fold in a week
- China state media: more economic support on the way
- Japanese June PPI 0.6% m/m (0.6% expected)
- Lagarde: ECB policy guidance to change
- UK GDP m/m +0.8% (1.5% expected)
- Record high coronavirus cases in South Korea
- Sidney stays in lockdown as cases increase
- Analyst consensus: BOC to taper by 1 bn CAD next week
- Chinese CPI 1.1% y/y (1.3% expected)
- ECB inflation target to 2%
- PBOC $23 billion intervention to buy USD against yuan
- The US JOLTS job openings for June 9.209M (9.310M expected)
- Japan’s extra stimulus estimated at $180 bn
The Next Main Risk Events
- USD – CPI and Core CPI m/m
- NZD – RBNZ Rate Statement
- GBP – CPI y/y
- USD – PPI and Core PPI m/m
- CAD – BOC Rate Statement
- USOIL – US Crude Oil Inventories
- CAD – BOC Press Conference
- USD – Fed Chair Powell Testifies
For more information and details see the TIOmarkets economic calendar here.
Chief Market Analyst
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