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Everything posted by tickmill-analytics

  1. OPEC’s extension of current output curbs is still in cards despite robust demand growth Greenback advance eased on Thursday as bullish momentum developed earlier in the first half of the week failed to find support in key data releases. ADP report and ISM non-manufacturing PMI published on Wednesday fell short of expectations, although bull run in USD indicated expectations of a positive surprise. The number of jobs in the US in February rose by 117K according to ADP, which is less than 177K estimate. ISM index missed estimates as well with employment sub-index indicating a slight coo
  2. Negative correlation of Gold with US real interest rate starts to bite the safe haven European markets rallied alongside US equity index futures as the recent factor of bearish pressure - correction in sovereign debt markets and related volatility of interest rates - faded into the background. The themes of global expansion, bull market in commodities and fiscal impulse in the United States are apparently returning to the forefront. After a short period of stabilization, the yields on long-term US and German bonds are on the rise again as local Central Banks stand their ground an
  3. US appears to be taking lead in the global recovery, driving capital inflows Oil quotes struggle to retain elevated mood ahead of OPEC+ meeting. Monday rally in equities, Monday rally in equities, which led to the surge of US stock indices by 2.3% on average, failed to underpin commodity prices. On Tuesday, prices stay in a downtrend thanks to strengthening USD and bearish motives in commodity markets in general. While optimism still prevails in the oil market, there are signs that demand growth has begun to weaken with downside risks growing on the demand side. For example, recovery mom
  4. Powell speech, upcoming stimulus talks in Congress should provide additional support for stocks Orderly sell-off in sovereign debt markets, which flared into massive dump last week, has slowed down on Monday, but is far from over. The 10-year Treasury yield bounced off from a local high of 1.55%, however resumed advance on Monday. It looks like the bond markets entered into a state of short-term equilibrium, but the balance of forces is fragile. The Fed types gave a dry commentary on the rout last week, leaving a lot of understatement. This week there will be a number of speeches by t
  5. Why stock markets Thursday fall is a good buying opportunity Consolidation of 10-year US bond yields around 1.30% turned out to be a short-lived market state. On Thursday, the yield surged to +1.55% area which brought about a massive knee jerk reaction in risk assets. Investors dumped tech shares with Nasdaq erasing 3.52% of its market cap and SPX losing 2.45% of its value. Aggressive selling began right after the NY opening on Thursday: On Friday, there are signs of modest downside pressure remaining - European equities trade in the red, futures on US stock trade ne
  6. Where oil could move ahead of the OPEC+ meeting in March? Oil prices continued to rise on Thursday with Brent breaking $67/bbl, returning to the level where it traded in January 2020. Powell's speech this week, in which he said about the need to maintain significant monetary easing, helped oil rally. Additional reports from the US indicated that oil market tightening gathers pace. As it often happened before, traders could easily miss the moment where the market will already start to suffer from undersupply. That is why oil prices are rising in unabated fashion. The US EIA released
  7. Stimulus expectations, jump in US economic momentum put USD under pressure A key theme of trading on Monday has been renewed rise in market risk-free interest rates in the US. The yield on 10-year Treasury bond after short consolidation near 1.30% mark last week has updated its local high Monday, rising to 1.38%. This led to increased anxiety in equities: US stock index futures tumbled, SPX by about half a percent, Nasdaq by more than 1%. There are two key channels through which an excessive rally of Treasury yields exerts pressure on equity markets: - Bonds vs. stocks ch
  8. World equities at fresh all-time highs US equities sustained elevated mood on Tuesday closing near their all-time highs, passing the baton to Wednesday trading. SPX futures tested new all-time high at 3925 today, but trended lower later during London hours. European indices inched higher as well, but with less confidence, as news on lockdowns in the EU hinders "spreading wings", with no easing of restrictions in sight. The rally is propelled largely by two growth catalysts – developments on the story with US extra government spending ($1.9 tn. stimulus bill) and quickening vaccina
  9. Democrats inch closer to the huge stimulus bill. Should we expect inflation shock? Both houses of the US Congress approved on Friday a budget plan that effectively deprived Republicans of any possibility of obstructing a new coronavirus relief package. Now, to approve the $1.9 trillion aid, a simple majority (51 votes), instead of the usual 60, will be enough for the Democrats. Democrats and Republicans shared equally seats in the Senate, but Vice President Kamala Harris has the tie-breaking vote. As a representative of the Democratic Party, she will likely tip the scales in favor of
  10. S&P 500 poised to break 3900 on NFP release as the US recovery gains steam The December Non-Farm Payrolls report made investors seriously worried about impact of the coronavirus restrictions imposed in the winter on the US economy. Then the number of jobs in the economy shrank by 140 thousand, in particular due to the fact that 372 thousand restaurant workers lost their jobs. That quickly changed, though, with economic data for January pointing to expansion on all fronts. What kind of data made it possible to revise so quickly the outlook for the US economy in the first quarter and wh
  11. Market short-squeeze is likely to continue keeping broad market under pressure Asian and European stock indices rose on Monday, while silver surged nearly 10% (5-month high) as investors on social media and chatrooms have apparently set their choice on the precious metal for another pump. The rest of the precious metals complex posted much more modest gains. The global stock index MSCI All-Country World lost 3.6% last week, but recovered 0.5% on Monday. However, it is still too early to take the rebound as a signal of reversal: inspired by recent success in GME and AMC, retail in
  12. Why stock markets can fall further, but not for long The US dollar extends bullish correction entirely on the back of increased volatility in the stock markets. The risk-off on Friday were fueled by an apparent liquidity shortage in China money markets, where the overnight repo rate rose to a 5-year high, presumably also signaling increased credit risk. The halt of trading in shares that were rampantly bought up by retail investors in recent days calmed markets on Thursday, but today it became known that brokers resumed access to buying, so the hot theme of market cornering and s
  13. China – new center of gravity for investors? Asian equity markets climbed to the levels close to all-time highs on Monday amid expectations that growth in Asian economies will continue to outpace recovery of Western peers. Interestingly enough, the rally in Asian equity markets have notably accelerated compared to US stocks since the start of November 2020: Comparison of returns of US and Asian stocks via performance of two large ETFs Optimism in the Asian market was also fueled by the UN report which showed that China surpassed the United States in 2020 in term
  14. Reflation bet in the US appears to be gaining traction US futures and European stocks resumed rally anticipating more bullish updates from the new US administration. We saw fresh highs in S&P 500 yesterday and extension of bullish sentiment in today’s session with SPX futures hitting new peak at ~ 3860 point. Recall that we discussed possible reasons of market participants to increase their exposure in US stocks. Breaking down returns of US equity markets by indexes and taking the start of 2021 as the starting point, we see strong evidence that investors are increasing their bets on r
  15. Three reasons for uneven equity markets growth in 2021 Stock indices of advanced economies rose on Wednesday, large ETFs investing in emerging markets saw moderate inflows on Tuesday. The speech of Janet Yellen who assumes the office of the US Treasury secretary affirmed that not only a short-sighted approach will continue in the US fiscal policy, but it may become even more pronounced. Yellen’s remark about the need to “act big” ignoring growing public debt issues was basically a signal that she, as a head of the Treasury, favors further debt accumulation as a remedy for short-term ec
  16. USDJPY and Biden fiscal plans There was only a brief pause of stocks in terms of bullish headlines from the US government: starting from the last week, we observe development of the store with a new aid package from the Democrats who have finally grasped full power. The size of the expected support is being revised very quickly: last week Goldman estimated the amount of stimulus at $750 billion (of which $ 300 billion will be distributed in the form of stimulus payments), then there were estimates at $1 trillion, $1.3 trillion, and before Biden's today's address to the Americans, the mar
  17. Inflation expectations rise in the US. What does it mean for a new fiscal stimulus? Judging by the recent developments in the US money and Treasury markets investors start to expect that the Federal Reserve will start to normalize policy sooner than expected earlier. If a month ago a first interest rate hike was expected no earlier than the second half of 2023, this month expectations have sharply shifting closer to present time, pricing in a rate hike at the start of 2023. While consumer inflation in the US is dormant, inflation premium in bond yields is rising very quickly, making it m
  18. There is too much tax uncertainty for US big tech right now. Time for shorts? In my Monday post we discussed why it may be appropriate to short US Dollar in the first half of January. Yesterday we’ve got the first signal of development of this our scenario. USD index (DXY) fell from 90 points to 89.20 on Wednesday, while EURUSD rose above 1.23, GBPUSD tested a new multi-year high at 1.37 while Gold sticks to its plan to climb above $ 2000, and I think it will succeed. Recall that the key chart I recommended to keep an eye on is the odds of Democratic win in Georgia run-off elections:
  19. Two reasons to sell USD in January The beginning of the new year was not distinguished by any surprising moves in FX space. USD remains under heavy pressure, ceding ground to majors, comdollars and EM currencies. It was though unusual to see that USDJPY and USDCHF (i.e. safe-haven vs. safe-haven pairs) also saw sharp downside moves. There are two ideas of why the USD can test new lows in the first half of January. The first idea (the macro one) which drives USD fall is that no global central bank can beat the Fed in easing monetary policy. Recall that following the Fed meeting
  20. Key near-term risks for risk-on. USD targets for the next week Risky assets saw modest losses on Friday amid the emergence of a new roadblock in the stimulus package negotiations - Republicans' proposals to restrict the Fed and the Treasury to use credit facilities created in response to the pandemic. In particular, this concerns the Main Street program (direct lending by the Federal Reserve to small and medium-sized enterprises), which expires at the end of this year. Democrats see this as an attempt to tie the hands of the Biden administration (in terms of ability to respond to pos
  21. Explaining 10yr-2yr spread and Fed’s meeting baseline scenario. Near term USD outlook Decline of US Dollar accelerated on Wednesday before the Fed meeting as the consensus strengthened that the US Central Bank will float additional monetary easing measures today. On Monday we discussed the possible forms of this easing - an increase in the duration of the Treasury portfolio, or an outright increase in QE (which is less likely). QE is when the central bank tries to adjust basic risk-free market rates - government bond yields, through guaranteed monthly asset purchases of some volume. By ad
  22. Is there anything to stop stocks decline except fresh fiscal headlines? The ECB meeting had little chance to send Euro lower: recall that on November meeting, Lagarde warned investors that they should expect a major policy adjustment in December, but since then various ECB officials have been steering market expectations towards much less easing. Which, in fact, happened on Thursday - the bank just raised the limit of the pandemic asset purchase program by 500 billion euros (which in no way obliges the bank to ramp up asset purchases) and increased long-term cheap financing to banks (the
  23. US stocks dodge correction as new US stimulus plan seems to suit both parties US stock market once again dodged looming bearish pullback on Tuesday thanks to positive news on the stimulus package. Treasury Secretary Mnuchin presented a new stimulus plan on Tuesday that takes into account the priorities of both Democrats (funds for federal and local authorities) and Republicans (liability protection for businesses). The news immediately had an effect on the markets - the S&P interrupted the onset of a slump and swiftly climbed above the 3700 mark: Europea
  24. This broken link between banks and bond markets indicates Central Bank support is the only thing that matters for stocks Price action in European equities and US futures lack clear direction on Tuesday as markets wait for a "Christmas gift" in the form of a fiscal deal. In the absence of news headlines signaling about progress in stimulus talks, there is a chance for equity markets to stage a minor pullback (scenario that we discussed yesterday) and the signs of bearish pressure do persist. The greenback remained weak against other majors, trading below the key foothold at 91 points.
  25. A case for a bearish pullback in S&P 500. What could go wrong? US job growth fell short of expectations in November, pointing to waning recovery momentum in the US economy. However, it didn’t stop the US equities from renewing all-time highs. SPX inched closer to 3700 points, DOW rose above 30,000 mark. On Monday, equity markets went into a mild retreat while US currency recovered some of the lost ground. The biggest question is the strength of this downside move. In my view, fundamental background and news flow expected this week suggest that the 3700 mark should remain a local
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