news today

Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets.


Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Apple May Rise Price For iPhone 14! Are Fuel Warehouses Empty?

Saxo Strategy Team Saxo Strategy Team 11.08.2022 13:39
Summary:  Equity markets are ebullient in the wake of the softer than expected US July CPI data print yesterday, as a sharp drop in energy prices helped drag the CPI lower than expected for the month. The knee-jerk reaction held well in equities overnight, if to a lesser degree in the weaker US dollar. But US yields are nearly unchanged from the levels prior to the inflation release, creating an interesting tension across markets, also as some Fed members are explicitly pushing back against market anticipation of the Fed easing next year.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) The July CPI report showing core inflation rose only 0.3% m/m compared to 0.5% m/m expected was just what the market was hoping for and had priced into the forward curve for next year’s Fed Funds rate. Long duration assets reacted the most with Nasdaq 100 futures climbing 2.9%. However, investors should be careful not to be too optimistic as we had a similar decline in the CPI core back in March before inflation roared back. As Mester recently stated that the Fed is looking for a sustained reduction in the CPI core m/m, which is likely a 6-month average getting back to around 0.2% m/m. Given the current data points it is not realistic to be comfortable with inflation before late Q1 next year. In Nasdaq 100 future the next natural resistance level is around 13,536 and if the index futures can take out this then the next level be around 14,000 where the 200-day average is coming down to. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities climbed, Hang Seng Index +1.8%, CSI300 Index +1.6%. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +16%, Sunny Optical (02382:xhkg) +7%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. Semiconductors gained, SMIC (00981:xhkg) +3%, Hua Hong (01347:xhkg) +4%. After collapsing 16% in share price yesterday, Longfor (00960) only managed to recover around 3% after the company denied market speculation that it failed to repay commercial papers due. UBS’ downgraded Longfor and Country Garden (02007:xhkkg) yesterday citing negative free cash flows for the first half of 2022 highlighted the tight spots even the leading Chinese private enterprise property developers are in. Chinese internet stocks rallied, Alibaba (09988:xhkg) +3%, Tencent (0700:xhkg) +1%, Meituan (03690:xhkkg) +2.7%. China ended its military drills surrounding Taiwan on Wednesday, which lasted three days longer what had been originally announced. USD: Treasuries don’t point to further weakness here The US dollar knee-jerked lower on the softer-than-expected July CPI data, although US yields ended the day unchanged, creating an interesting tension in a pair like USDJPY, which normally takes its lead from longer US yields (unchanged yesterday after a significant dip intraday after the US CPI release). USDJPY dipped almost all the way to 132.00 after trading above 135.00 earlier in the day. What are traders to do – follow the coincident US yield indicator or the negative momentum created by yesterday’s move? Either way, a return above 135.00 would for USDJPY would likely require an extension higher in the US 10-year yield back near 3.00%. EURUSD is another interesting pair technically after local resistance just below 1.0300 gave way, only to see the pair hitting a brick wall in the 1.0350 area (major prior range low from May-June). Was this a break higher or a misleading knee-jerk reaction to the US data? A close below 1.0250 would be needed there to suggest that EURUSD is focusing back lower again. A similar setup can be seen in AUDUSD and the 0.7000 area, with a bit more sensitivity to risk sentiment there. Gold (XAUUSD) did not have a good day on Wednesday Gold was trading lower on the day after failing to build on the break above resistance at $1803 as the dollar weakened following the lower-than-expected CPI print, thereby reducing demand for gold as an inflation hedge. Instead, the prospect for a potential shallower pace of future rate hikes supported a major risk on rally in stocks and another daily reduction in bullion-backed ETF holdings. Yet comments by two Fed officials saying it doesn’t change the central bank’s path toward even higher rates – and with that the risk of a gold supportive economic weakness - did not receive much attention. Gold now needs to hold $1760 in order to avoid a fresh round of long liquidation, while silver, which initially received a boost from higher copper prices before following gold lower needs to hold above its 50-day SMA at $20.26. Crude oil Crude oil futures (CLU2 & LCOV2) traded higher on Wednesday supported by a weaker dollar after the lower US inflation print gave markets a major risk on boost. Also, the weekly EIA report showed a jump in gasoline demand reversing the prior week’s sharp drop. Gasoline inventories dropped 5 million barrels to their lowest seasonal level since 2015 on a combination of strong exports and improved domestic demand while crude oil stocks rose 5.4m barrels primarily supported by a 5.3 million barrels release from SPR. Focus today on monthly Oil Market Reports from OPEC and the IEA. Dutch natural gas The Dutch TTF natural gas benchmark futures (TTFMQ2) rallied amid concerns over Russian gas supplies and falling water levels on the key Rhine River which threatens to disrupt energy shipments of fuel and coal, thereby forcing utilities and industries to consumer more pipelined gas. Dutch front month futures rose 6.9% to EUR 205.47/MWh while the October to March winter contract closed at a fresh cycle high above €200/MWH. European countries have been filling up their gas storage, largely by factories cutting back on their usage and through LNG imports, the flow of the latter likely to be challenged by increased demand from Asia into the autumn. Further demand curbs and more imports of liquefied natural gas are likely the only option for Europe ahead of the winter. US Treasuries (IEF, TLT) shrug off soft July CPI data US yields at first reacted strongly to the softer-than-expected July CPI release (details below), but ended the day mostly unchanged at all points along the curve, suggesting that the market is unwilling to extend its already aggressive view that the Fed is set to reach peak policy by the end of this year and begin cutting rates. Some Fed members are pushing back strongly against that notion as noted below (particularly Kashkari). A stronger sign that yields are headed back higher for the US 10-year benchmark would be on a close above 2.87% and especially 3.00%. Yesterday’s 10-year auction saw strong demand. What is going on? US July CPI lower than expected The US CPI print came in lower than expected for both the headline and the core measures. The headline softness was driven by huge drops in energy prices from June levels, with the entire energy category marked -4.6% lower month-on-month and gasoline down -7.7%, much of the latter on record refinery margins collapsing. The ex-Food & Energy category was up only +0.3% vs. the +0.5% expected, with soft prices month-on-month for used cars and trucks (-0.4%) and especially airfares (-7.8%) dragging the most on figure. While this may be an indication that US inflation has peaked, it is still at considerably high levels compared to inflation targets of ~2% and the pace of decline from here matters more than the absolute trend. Shelter costs – the biggest component of services inflation – was up 5.7% y/y, the most since 1991. Fed pricing for the September meeting has tilted towards a 50bps rate hike but that still remains prone to volatility with another set of labor market and inflation prints due ahead of the next meeting. Fed speakers maintain hawkish message Fed speaker Evans and Kashkari were both on the hawkish side in rhetoric yesterday. Evans again hinted that tightening will continue into 2023 as inflation remains unacceptably high despite a first sign of cooling prices. The strength of the labor market continued to support the case of a soft landing. Kashkari reaffirmed the view on inflation saying that he is happy to see a downside surprise in inflation, but it remains far from declaring victory. Long thought of previously as the pre-eminent dove among Fed members, he has waxed far more hawkish of late and said yesterday that nothing has changed his view that the Fed funds rate should be at 3.9% at the end of this year (vs. market pricing of 3.5%) and 4.4% by the end 2023 (vs. market pricing of 3.1%). Siemens cuts outlook Germany’s largest industrial company is cutting its profit outlook on impairment charges related to its energy division. FY22 Q3 results (ending 30 June) show revenue of €17.9bn vs est. €17.4bn and orders are strong at €22bn vs est. €19.5bn. Orsted lifts expectations The largest renewable energy utility company in Europe reports Q2 revenue of DKK 26.3bn vs est. 21.7bn, but EBITDA misses estimates and the fiscal year guidance on EBITDA at DKK 20-22bn is significantly lower than estimates of DKK 30.4bn. However, the new EBITDA guidance range is DKK 1bn above the recently stated guidance, so Orsted is doing better than expected but the market had just become too optimistic. Disney beats on subscribers Disney reported FY22 Q3 (ending 2 July) results showing Disney+ subscribers at 152.1mn vs est. 148.4mn surprising the market as several surveys have recently indicated that Amazon Prime and Netflix are losing subscribers. The entertainment company also reported revenue for the quarter of $21.5bn vs est. $21bn with Parks & Experiences deliver the most to the upside surprise. EPS for the quarter was $1.09 vs est. $0.96. If subscribers for ESPN and Hulu are added, then Disney has surpassed Netflix on streaming subscribers. Shares were up 6% in extended trading. Despite the positive result the company lowered its 2024 target for Disney+ subscriber to 135-165mn range. Coupang lifts fiscal year EBITDA outlook The South Korean e-commerce company missed slightly on revenue in Q2 but lifted its fiscal year adjusted EBITDA from a loss of $400mn to positive which lifted shares 6% in extended trading. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. What are we watching next? Next signals from the Fed at Jackson Hole conference Aug 25-27 There is a considerable tension between the market’s forecast for the economy and the resulting expected path of Fed policy for the rest of this year and particularly next year, as the market believes that a cooling economy and inflation will allow the Fed to reverse course and cut rates in a “soft landing” environment (the latter presumably because financial conditions have eased aggressively since June, suggesting that markets are not fearing a hard landing/recession). Some Fed members have tried to push back against the market’s expectations for Fed rate cuts next year it was likely never the Fed’s intention to allow financial conditions to ease so swiftly and deeply as they have in recent weeks. The risks, therefore, point to a Fed that may mount a more determined pushback at the Jackson Hole forum, the Fed’s yearly gathering at Jackson Hole, Wyoming that is often used to air longer term policy guidance. Earnings to watch Today’s US earnings in focus are NIO and Rivian with market running hot again on EV-makers despite challenging environment on input costs and increased competition. NIO is expected to grow revenue by 15% y/y in Q2 before seeing growth jumping to 72% y/y in Q3 as pent-up demand is released following Covid restrictions in China in the first half. Rivian, which partly owned by Amazon and makes EV trucks, is expected to deliver its first quarter with meaningful activity with revenue expected at $336mn but free cash flow is expected at $-1.8bn. Today: KBC Group, Brookfield Asset Management, Orsted, Novozymes, Siemens, Hapag-Lloyd, RWE, China Mobile, Antofagasta, Zurich Insurance Group, NIO, Rivian Automotive Friday: Flutter Entertainment, Baidu Economic calendar highlights for today (times GMT) 0800 – IEA's Monthly Oil Market Report 1230 – US Weekly Initial Jobless Claims 1230 – US Jul. PPI 1430 – US Weekly Natural Gas Storage Change 1700 – US Treasury to auction 30-year T-Bonds 2330 – US Fed’s Daly (Non-voter) to speak During the day: OPEC’s Monthly Oil Market Report Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 11, 2022  
The US Has Again Benefited From Military Conflicts In Other Parts Of The World, The Capital From Europe And Other Regions Goes To The US

Is Fed Ready For It's Counter-Attack? Commodities, Earnings And More

Saxo Bank Saxo Bank 11.08.2022 13:52
Summary:  Today we look at the sharp correction in energy prices driving a softer than expected CPI print for the US in July, which saw sentiment responding by piling on to the recent rally and taking equities to new highs for the local cycle since June. Interestingly, the reaction to the CPI data has generated some tension as US treasury yields are trading sideways after erasing the knee-jerk drop in yields in the wake of yesterday's data. With financial conditions easing aggressively, the Fed faces quite a task if it wants to counter this development, with recent protests from individual Fed members failing to make an impression. Perhaps the Jackson Hole Fed forum at the end of this month is shaping up as a key event risk? Crude oil, the USD, metals, earnings and more also on today's pod, which features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com. Source: Podcast: Soft CPI revives risk rally, but treasury reaction creates dissonance    
Oz Minerals’ Quarterly Copper Output Hit A Record High, Brent Futures Rose

Copper Is Smashing For The Second Time This Summer! WTI Is Back From The Dead

Marc Chandler Marc Chandler 11.08.2022 14:12
Overview: The US dollar is consolidating yesterday’s losses but is still trading with a heavier bias against the major currencies and most emerging market currencies. The US 10-year yield is soft below 2.77%, while European yields are mostly 2-4 bp higher. The peripheral premium over the core is a little narrower today. Equity markets, following the US lead, are higher today. The Hang Seng and China’s CSI 300 rose by more than 2% today. Among the large bourses, only Japan struggled, pressured by the rebound in the yen. Europe’s Stoxx 600 gained almost 0.9% yesterday and is edging higher today, while US futures are also firmer. Gold popped above $1800 yesterday but could not sustain it and its in a $5 range on both sides of $1788 today. September WTI rebounded yesterday from a low near $87.65 to close near $92.00. It is firmer today near $93.00. US natgas is 1.4%, its third successive advance and is near a two-week high. Europe’s benchmark is also rising for the third session. It is up nearly 8% this week. Iron ore rose 2% today and it is the fourth gain in five sessions. September copper is also edging higher. If sustained, it would be the fifth gain in six sessions. It is at its highest level since late June. September wheat is 1.1% higher. It has risen every session this week for a cumulative gain of around 4.25%.  Asia Pacific In its quarterly report, the People's Bank of China seemed to downplay the likelihood of dramatic rate cuts or reductions in reserve requirements. It warned that CPI could exceed 3% and ruled out massive stimulus, while promising "high-quality" support, which sounds like a targeted measure. It is not tightening policy but signaled little scope to ease. Note that the 10-year Chinese yield is at the lower end of its six-month range near 2.74%. Its two-year yield is a little above 2.15%, slightly below the middle of its six-month range. Separately, Yiwa, a city of two million people, south of Shanghai has been locked down for three days starting today due to Covid. It is a manufacturing export hub. South Korea reported its first drop (0.7%) in technology exports in two years last month. While some read this to a statement about world demand, and there is likely something there given the earnings reports from the chip sector. However, there seems to be something else at work too. South Korea figures show semiconductor equipment exports to China have been more than halved this year (-51.9%) through July. China had accounted for around 60% of South Korea's semiconductor equipment. Reports suggest the main drivers are the US-China rivalry. Semiconductor investment in China has fallen and South Korea has indicated it intensions to join the US Chip 4 semiconductor alliance. Singapore's economy unexpectedly contracted in Q2. Initially, the government estimated the economy stagnated. Instead, it contracted by 0.2%. Given Singapore's role as an entrepot, its economic performance is often seen as a microcosm of the world economy. There was a nearly a 7% decline in retail trade services, while information and communication services output also fell. After the data, the Ministry of Trade and Industry narrowed this year's GDP forecast to 3%-4% from 3%-5%. While the drop in the US 10-year yield saw the dollar tumble against the yen yesterday, the recovery in yields has not fueled a recovery in the greenback. The dollar began yesterday above JPY135- and fell to nearly JPY132.00. Today, it has been confined to a little less than around half a yen on either side of JPY132.85. The cap seen at the end of last week and early this week in the JPY135.50-60 area, and the 20-day moving average (~JPY135.30) now looks like formidable resistance. Recall that the low seen earlier this month was near JPY130.40. The Australian dollar is also consolidating near yesterday's high set slightly below $0.7110. It was the best level in two months. The $0.7050 area may now offer initial support. The next upside target is seen in the $0.7150-70 band, which houses the (50%) retracement objective of the Aussie's slide from the April high (~$0.7660) and the July low (~$0.6680), and the 200-day moving average. The broad greenback sell-off yesterday saw it ease to about CNY6.7235, its lowest level in nearly a month. Despite the less-than-dovish message from the PBOC, it seemed to signal it did not want yuan strength. It set the dollar's reference rate at CNY6.7324, a bit above the median (Bloomberg's survey) of CNY6.7308. Europe Germany's coalition government has begun debating over the contours of the next relief package. The center-left government has implemented two support programs to ease the cost-of-living squeeze for around 30 bln euros. A third package is under construction now. The FDP Finance Minister Linder suggested as one of the components a 10 bln euro program to offset the "bracket creep" of higher inflation putting households into a higher tax bracket. The Greens want a more targeted effort to help lower income families. More work needs to be done, but a package is expected to be ready next month. The International Energy Agency estimates that Russian oil output will fall by around a fifth early next year as the EU import ban is implemented. The IEA warns that Russian output may begin declining as early as this month and estimates 2 mln barrels a day will be shut by early 2023. The EU's ban on most Russian oil will begin in early December, and in early February, oil products shipments will also stop. Now the EU buys around 1 mln barrels a day of oil products and 1.3 mln barrels of crude. Russia boosted output in recent months, to around 10.8 mln barrels a day. The IEA estimates that in June, the PRC overtook the EU to become the top market for Russia's seaborne crude (2.1 mln bpd vs. 1.8 mln bpd). Separately, the IEA lifted its estimate of world consumption by about 380k barrels a day from its previous forecast, concentrated in the Middle East and Europe. The unusually hot weather in the Middle East, where oil is burned for electricity, has seen stronger demand. In Europe, there has been more switched from gas to oil. The euro surged to almost $1.0370 yesterday on the back of the softer than expected US CPI. It settled near $1.03. It is trading firmly in the upper end of that range today. It held above $1.0275, just below the previous high for the month (~$1.0295). Today's high, was set in the European morning, near $1.0340. There is a trendline from the February, March, and June highs found near $1.04 today. It is falling by a little less than half a cent a week. Sterling's rally yesterday stalled in front of this month's high set on August 1 slightly shy of $1.2295. It is straddling the area where it settled yesterday (~$1.2220). We suspect the market may test the lows near $1.2180, and a break could see another half-cent loss ahead of tomorrow's Q2 GDP. The median forecast in Bloomberg's survey is for a 0.2% contraction after a 0.8% expansion in Q1.  America What the jobs data did for expectations for the Fed at next month's meeting were largely reversed by slower the expected CPI readings. On the eve of the employment data, the market was discounting a little better than a 35% chance of another 75 bp hike. It jumped to over a 75% chance after employment report but settled yesterday around a 45% chance. It is still in its early days, and the Fed will see another employment and CPI report before it has to decide. Although the market has downgraded the chances of a 75 bp hike at next month's meeting, it still has the Fed lifting rates 115 bp between now and the end of year. The market recognizes that that Fed is not done tightening no matter what trope is dragged out to use as a strawman. The truth is the market is pushing against some Fed views. Chicago Fed's Evans, who many regard as a dove from earlier cycles, said that Fed funds could finish next year in the 3.75%-4.00% area, which opined would be the terminal rate. The swaps market says that the Fed funds terminal rate is closer to 3.50% and in the next six months. More than that, the Fed funds futures are pricing in a cut late next year. At least a 25 bp cut has been discounted since the end of June. It was the Minneapolis Fed President Kashkari that surprised many with his hawkishness. Many see him as a dove because five years ago, he dissented against rate increases in 2017. However, he has been sounding more hawkish in this context and revealed yesterday that it was his "dot" in June at 3.90% this year and 4.4% next year. These were the most extreme forecasts. Perhaps it is not that he is more dovish or hawkish, labels that seemingly take a life on of their own but more activity. While neither Evans nor Kashkari vote on the FOMC this year, they do next year. San Francisco Fed President Daly seemed more willing to consider moderating the pace of tightening but still sees more work to be done. She does not vote this year or next.  Headline CPI was unchanged last month and the 0.3% rise in the core rate was less than expected. At 8.5%, the headline is rate is still too high for comfort, and the unchanged 5.9% core rate warns significant progress may be slow. Shelter is about a third of the CPI basket and it is rising about 0.5% a month. It is up 5.7% year-over-year. If everything else was unchanged, this would lift CPI to 2%. The US reports July Producer Prices. Both the core and headline readings are expected to have slowed. The headline peaked in March, 11.6% above year ago levels. It was 11.3% in June and is expected to have fallen to 10.4%. The core rate is likely to post its fourth consecutive decline. It peaked at 9.6% in March and fell to 8.2% in June. The median forecast (Bloomberg's survey) is for a 7.7% year-over-year pace, which would be the lowest since last October.  Late in the North American session, Mexico's central bank is expected to deliver its second consecutive 75 bp rate hike. It will lift the overnight target rate to 8.5%. The July CPI reported Tuesday stood at 8.15% and the core 7.65%. The swaps market has a terminal rate near 9.5% in the next six months. The subdued US CPI reading, helped spur a 0.85% rally in the JP Morgan Emerging Market Currency Index yesterday, its largest gain in almost four weeks. The peso, often a liquid and accessible proxy, rose around 1.1%. The greenback briefly traded below MXN20.00 for the first time since late June. The move was so sharp that closed below its lower Bollinger Band (~MXN20.08) for the first time in six months. The US dollar slumped to almost CAD1.2750 yesterday to hold above the 200-day moving average (~CAD1.2745). It is the lowest level in nearly two months, and it has not traded below the 200-day moving average since June 9. Like the other pairs, it is consolidating today near the lower end of yesterday's greenback range. The swaps market downgraded the likelihood that the Bank of Canada follows last month's 100 bp hike with a 75 bp move when it meets on September 7. It is now seen as a 30% chance, less than half of what was projected at the end of last week. We suspect that the US dollar can recover into the CAD1.2800-20 area today.     Disclaimer   Source: US Dollar Soft while Consolidating Yesterday's Drop
Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Eyes On Iran Nuclear Deal: Oil Case. Gold Price Is Swinging

Craig Erlam Craig Erlam 11.08.2022 14:32
Oil treading water after volatile 24 hours Needless to say, it was quite a volatile session in oil markets on Wednesday. A positive surprise on inflation was followed by a huge inventory build reported by EIA and then the highest US output since April 2020. Meanwhile, oil transit via the Druzhba pipeline resumed after a brief pause that jolted the markets. That’s a lot of information to process in the space of a couple of hours and you can see that reflected in the price action. And it keeps coming this morning, with the IEA monthly oil report forecasting stronger oil demand growth as a result of price incentivised gas to oil switching in some countries. It now sees oil demand growth of 2.1 million barrels per day this year, up 380,000. It also reported that Russian exports declined 115,000 bpd last month to 7.4 million from around 8 million at the start of the year. The net effect of all of this is that oil prices rebounded strongly on Wednesday but are pretty flat today. WTI is back above $90 but that could change if we see progress on the Iran nuclear deal. It’s seen plenty of support around $87-88 over the last month though as the tight market continues to keep the price very elevated. Gold performs handbrake turn after breakout It was really interesting to see gold’s reaction to the inflation report on Wednesday. The initial response was very positive but as it turned out, also very brief. Having broken above $1,800, it performed a swift u-turn before ending the day slightly lower. It can be difficult to gauge market reactions at the moment, in part because certain markets seem to portray far too much economic optimism considering the circumstances. With gold, the initial response looked reasonable. Less inflation means potentially less tightening. Perhaps we then saw some profit-taking or maybe some of that economic optimism crept in and rather than safe havens, traders had the appetite for something a little riskier. Either way, gold is off a little again today but I’m not convinced it’s peaked. From a technical perspective, $1,800 represents a reasonable rotation point. Fundamentally, I’m just not convinced the market is currently representative of the true outlook. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Oil stablizes, gold pares gains
Bitcoin Is Showing The Potential For The Further Downside Rotation

Bitcoin Like Phoenix!? Crypto Community Can Breathe A Sigh Of Relief

Craig Erlam Craig Erlam 11.08.2022 14:48
Investors are certainly in a more upbeat mood as the relief from the US inflation data ripples through the markets. Positive surprises have been hard to come by on the inflation front this year and yesterday’s report was very much welcomed with open arms. While we shouldn’t get too carried away by the data, with headline inflation still running at 8.5% and core 5.9%, it’s certainly a start and one we’ve waited a long time for. Fed policymakers remain keen to stress that the tightening cycle is far from done and a policy u-turn early next year is highly unlikely. Once again, the markets are at odds with the Fed’s assessment on the outlook for interest rates but this time in such a way that could undermine its efforts so you can understand their concerns. I expect we’ll continue to see policymakers unsuccessfully push back against market expectations in the coming weeks while further driving home the message that data dependency works both ways. That said, the inflation report has further fueled the optimism already apparent in the markets and could set the tone for the rest of the summer. PBOC signals no further easing Unlike many other central banks, the PBOC has the scope to tread more carefully and continue to support the economy as it contends with lockdowns amid spikes in Covid cases. The country’s zero-Covid policy is a huge economic headwind and proving to be a drain on domestic demand. The PBOC has made clear in its quarterly monetary policy report though that it doesn’t want to find itself in the same position as many other countries right now. With inflation close to 3%, further easing via RRR or interest rates looks unlikely for the foreseeable future. Cautious targeted support looks the likely path forward as the central bank guards against inflation risks, despite the data yesterday surprising to the downside. Singapore trims growth forecasts A surprise contraction in the second quarter has forced Singapore to trim its full-year growth forecast range from 3-5% to 3-4% as the economy contends with a global slowdown, to which the country is particularly exposed, and Covid-related uncertainty in China. While the MAS has indicated monetary policy is appropriate after tightenings this year, inflation remains high so further pressures on this front may add to the headwinds for the economy. Where’s the momentum? Bitcoin took the inflation news very well and it continues to do so. Slower tightening needs and improved risk appetite is music to the ears of the crypto community who will be more confident that the worst is behind it than they’ve been at any point this year. Whether that means stellar gains lie ahead is another thing. The price hit a new two-month high today but I’m still not seeing the momentum I would expect and want. That may change of course and a break of $25,000 could bring that but we still appear to be seeing some apprehension that may hold it back in the near term. For a look at all of today’s economic events, check out our economic calendar: www.marketpulse.com/economic-events/ This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds. Source: Welcome relief
The Bank Of England Is Anticipated To Hike Rates By 50 bp As A Result Of A Wealth Of Data

Boris Johnson Resignation Cause Further Difficulties For Pound Sterling (GBP)!? MarketTalk

Swissquote Bank Swissquote Bank 11.08.2022 12:20
US consumer prices eased in July, and they eased more than expected. US yields pulled lower after the CPI print, the US 10-year yield retreated, the US dollar slipped, gold gained, and the US stock markets rallied. Forex The EURUSD jumped to 1.0370 mark, as Cable made another attempt to 1.2272 but failed to extend gains into the 1.23 mark. And It will likely be hard for the pound sterling to post a meaningful recovery even if the dollar softens more, as there are too much political uncertainties in Britain following Boris Johnson’s resignation.   The sterling is under pressure, but the FTSE100 does just fine, and I will focus on why the British blue-chip companies are in a position to extend gains in this episode. Disney Elsewhere, Disney jumped on strong quarterly results, Tesla rallied despite news that Elon Musk dumped more stocks to prepare for an eventual Twitter purchase. Twitter shares gained.   Watch the full episode to find out more!   0:00 Intro 0:27 Softer-than-expected US CPI boosts appetite… 2:03 … but FOMC members warn that inflation war is far over! 3:39 FX update: USD softens, gold, euro, sterling advance 5:55 Why FTSE 100 is still interesting? 8:06 Disney jumps on strong results, Tesla, Twitter gain Ipek Ozkardeskaya Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #US #inflation #data #Gold #XAU #USD #EUR #GBP #FTSE #Disney #earnings #Tesla #Twitter #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary _____ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr _____ Discover our brand and philosophy: https://swq.ch/wq   Learn more about our employees: https://swq.ch/d5 _____ Let's stay connected: LinkedIn: https://swq.ch/cH Source: Stocks up on soft US CPI, but inflation war is not over! | MarketTalk: What’s up today? | Swissquote
Stock Markets Opened The Week Lower | Apple Seeing Losses

US Jobless Claims: Even More Than The Previous Year. PBOC Hopes CPI To Stay At 3%

Saxo Strategy Team Saxo Strategy Team 12.08.2022 09:03
Summary:  Another downside surprise in US inflation in the wake of lower energy prices lifted the equity markets initially overnight. However, sustained hawkishness from Fed speakers brought the yields higher, weighing on equities which closed nearly flat in the US. Crude oil prices made a strong recovery with the IEA boosting the global growth forecast for this year. EURUSD stayed above 1.0300 and will be eying the University of Michigan report today along with UK’s Q2 GDP. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  After rising well over 1% in early trading amid the weaker-than-expected PPI prints, U.S. equities wiped out gains and closed lower, S&P 500 -0.07%, Nasdaq 100 -0.65%. Energy stocks were biggest gainers, benefiting from a 2.6% rally in the price of WTI crude, Devon Energy (DVN:xnys) +7.3%, Marathon Oil (MRO:xnys) +7%, Schlumberger (SLB:xnys) +5.7%.  Consumer discretionary and technology were the biggest decliners on Thursday. Chinese ADRs gained, Nasdaq Golden Dragon Index climbed 2.6%.  U.S. treasuries bear steepened In spite of weaker-than-expected PPI data, U.S. long-end treasury yields soared, 10-year yields +10bps to 2.99%, 30-year yields +14bps to 3.17%. The rise in long-end yields were initially driven by large blocks of selling in the T-bond and Ultra-long contracts and exacerbated in the afternoon after a poor 30-year auction. The yield of 2-year treasury notes was unchanged and the 2-10-year yield curve steepened 10bps to minus 23bps.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities surged, Hang Seng Index +2.4%, CSI300 Index +2.0%. Northbound inflows into A shares jumped to a 2-month high of USD1.9 billion. In anticipation of a 15% rise in the average selling price of Apple’s iPhone 14 as conjectured by analysts, iPhone parts supplier stocks soared in both Hong Kong and mainland exchanges, Q Technology (01478:xhkg) +17.7%, Sunny Optical (02382:xhkg) +9%, Cowell E (01415:xhkg) +4%, Lingyi iTech (002600:xsec) +10%. China internet names rebounded, Alibaba (09988:xhkg) +4.3%, Tencent (00700:xhkg) +2.7%, Meituan (03690:xhkkg) +4.0%, Baidu (09888:xhkg) +5.2%. Power tool and floor care manufacturer, Techtronic Industries (00669:xhkg) soared nearly 11% after reporting  a 10% year-on-year growth in both revenues and net profits in 1H22. The company rolled out a new generation of drill drivers that have embedded with machine learning algorithm. After collapsing 16% in share price yesterday, Longfor (00960) managed to stabilize and recover 5.7% following the company’s refutation of market speculation that it had failed to repay commercial papers due. EURUSD re-tested resistance levels EURUSD reclaimed the key 1.0300 on Thursday amid a softer dollar, and printed highs of 1.0364. While weaker-than-expected inflation prints in the US this week have curtailed dollar strength, it is hard for EURUSD to sustain gains amid the energy crisis and European recession concerns. A break below 1.0250 would be needed for EURUSD to reverse the trend, however. AUDUSD, likewise, trades above 0.7100 amid the risk on tone, but a turn lower in equities could reverse the trend. GBPUSD has been more range-bound around 1.2200 ahead of the Q2 GDP data scheduled to be released today, and EURGBP may be ready to break above 0.8470 resistance if the numbers come out weaker-than-expected. Crude oil prices (CLU2 & LCOV2) Crude oil prices gained further on Thursday amid signs of softer inflation, weaker dollar and improving demand. The International Energy Agency (IEA) lifted its consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch to oil. This could be aided by lower gasoline prices, which have dented demand during the US driving season. Prices fell below USD4/gallon for the first time since March. Meanwhile, OPEC may struggle to raise output in coming months due to limited spare capacity. WTI futures touched $94/barrel while Brent futures rose towards the 100-mark.   What to consider? Another downside surprise in US inflation US July PPI dipped into negative territory to come in at -0.5% MoM, much cooler than 1% last month or the +0.2% expected. But on a YoY basis, PPI remains up a shocking 9.8%. Core PPI rose 0.4% MoM, which means on a YoY basis core producer prices are up 7.6% (lower than June's +8.2% but still near record highs). Goods PPI fell 1.8%, dominated by a 9.0% drop in energy. Meanwhile, services PPI was up 0.1% in July. Despite the slowdown in both PPI and CPI this week, PPI is still 1.3% points above CPI, suggesting margin pressures and a possible earnings recession. Fed’s Daly said she will be open to a 75bps rate hike at the September meeting. US jobless claims rise, University of Michigan ahead US initial jobless claims 262K vs 265K estimate, notably higher than the 248k the prior week and the highest since November 2021. The 4-week moving average of initial jobless claims increased to 252K vs 247.5K last week, but still below 350k levels that can cause an alarm. The modest pickup in claims suggests that turnover at weaker firms is increasing. Key data to watch today is the preliminary University of Michigan survey for August, where expectations are for a modest improvement given lower gasoline prices. China’s central bank expects CPI to hover around 3% In its 2nd quarter monetary policy report released on Wednesday, the People’s Bank of China (PBOC) expects the CPI being at around 3% for the full year of 2022 and at times exceeding 3%.  The release of pend-up demand from pandemic restrictions, the upturn of the hog-cycle, and imported inflation, in particular energy, are expected to drive consumer price inflation higher for the rest of the year in China but overall within the range acceptable by the central bank.  The PBOC expects the recent downtrend of the PPI to continue and the gap between the CPI and PPI growth rates to narrow. The PBOC reiterates that it will avoid excessive money printing to spur growth so as to safeguard against inflation.  China’s President Xi is said to be visiting Saudi Arabia next week The Guardian reports that President Xi Jinping is expected to visit Saudi Arabia on an invitation extended from Riyadh in March.  China has been eager to secure its oil supply and explore the possibility of getting its sellers to accept the renminbi to settle oil trade.   While relying on the United States for security in a volatile region and supplies of weapons, Saudi Arabia with Prince Mohammed being in charge is looking for leverage in the kingdom’s relationship with the United States.  UK Q2 GDP likely to show a contraction The Q2 GDP in the UK is likely to show a contraction after April was down 0.2% and May up 0.5%. June GDP is likely to have seen a larger contraction given less working days in the month, as well as constrained household spending as inflation surged to a fresh record high. While there may be a growth recovery in the near-term, the Bank of England clearly outlined a recession scenario from Q4 2022 and that would last for five quarters. Our Macro Strategist Chris Dembik has painted a rather pessimistic picture of the UK economy.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 12, 2022
Daniel Kostecki talks situation on cryptocurrency market

AUDUSD Is Sliding Down. AUDJPY Aims High!? GBPAUD Finally Have A Chance!

Kim Cramer Larsson Kim Cramer Larsson 12.08.2022 08:47
AUDUSD AUDUSD confirmed short-term uptrend yesterday breaking above 0.7069. RSI back above 60 indicating AUDUSD is likely to move higher towards resistance at 0.7283. AUDUSD could move higher from there after a likely correction. If closing above 0.76 AUDUSD could move toward peak at around 0.7660.To neutralise that scenario AUDUSD must move back below 0.7069. To reverse it AUDUSD must collapse to below 0.6865. Source: Saxo Group Weekly chart shows AUDUSD trading in a wide falling channel. A test of upper falling trendline is not unlikely, given that the above bullish scenario plays out. Source: Saxo Group AUDJPY AUDJPY is slowly crawling higher after the spike down below key support last week. AUDJPY is back above all Simple Moving averages and RSI is still showing positive sentiment indicating a test of the slightly falling upper trendline is likely. If AUDJPY breaks above the trendline and above resistance at 95.75 the pairs is likely to take out the peak in June at around 96.90. Source: Saxo Group GBPAUD GBPAUD is testing support at 1.7173 and seems likely to break bearish out of the range it has been trading in past 6 months. If AUDGBP closes below 1.7173 the pair is set for lower levels Source: Saxo Group Weekly chart shows that 01.7173 is a key support level rejecting GBPAUD several times. If GBPAUD finally breaks below the support a medium- to long-term move towards 1.60 area is in the cards.IF it fails to close below 1.7173 GBPAUD could resume its rangebound behaviour Source: Saxo Group Source: Technical Update - AUD pairs on the move testing or breaking resistance levels. AUDUSD , AUDJPY & GBPAUD
Commodities: Favorable weather conditions may be gone some time soon, so energy prices may go further up

Natural Gas Report After Weekly US Storage - Obnoxious Results

Saxo Bank Saxo Bank 12.08.2022 11:34
Summary:  Today we note that the big surge in yields at the long end of the US yield curve were likely the critical factor in capping and reversing the extension of the rally in equities yesterday. The US dollar found a bit of resilience on the development as well, if only half-hearted. Elsewhere, we zoom in on global natural gas supply concerns after the latest weekly US storage yesterday, discuss the grains outlook with a key report up late today and look ahead at the fairly busy macro calendar next week, while wondering how the Fed deals with re-establishing its hawkish credibility. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link. Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please!   We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: US yields jump, capping complacency
Most Fed Members Support A Hawkish Scenario

Dollar (USD) Became Stronger, Not Enough Yet. Fed Better Meet Expectations!

John Hardy John Hardy 12.08.2022 14:23
Summary:  US treasury yields at the long end of the yield curve jumped higher yesterday to multi-week highs, a challenge to widespread complacency across global markets. The USD found a modicum of support on the development, though this was insufficient to reverse the recent weakening trend. It will likely take a more determined rise in US yields and a tightening of financial conditions, possibly on further Fed pushback against market policy expectations, to spark a more significant USD comeback. FX Trading focus: US yields jump, not yet enough to reverse recent USD dip A very interesting shift in the US yield curve yesterday as long yields jumped aggressively higher, with the 30-year yield getting the most focus on a heavy block sale of US “ultra” futures and a softer than expected 30-year T-bond auction from the US treasury. The 30-year benchmark yield jumped as much as 15 basis points from the prior close, with the 10-year move a few basis points smaller. We shouldn’t over-interpret a single day’s action, but it is a technical significant development and if it extends, could be a sign of tightening liquidity as the Fed ups its sales of treasuries and even a sign that market concern is growing that the Fed will fail to get ahead of inflation. As for the market reaction, the USD found some support, but it was modest stuff – somewhat surprisingly in the case of the normally very long-US-yield-sensitive USDJPY. Overnight, a minor shuffle in Japanese PMI Kishida’s cabinet has observers figuring that there is no real determined pushback yet against the Kuroda BoJ’s YCC policy, with focus more on bringing relief to lower income households struggling with price rises for essentials. Indeed, BoJ policy is only likely to come under significant pressure again if global yields pull to new cycle highs and the JPY finds itself under siege again. As for USDJPY, it has likely only peaked if long US yields have also peaked for the cycle. Chart: EURUSD EURUSD caught in limbo here, having pulled up through the resistance in the 1.0275+ area after a long bought of tight range trading, but not yet challenging through the next key layer of resistance into 1.0350+. It wouldn’t take much of a further reversal here to freshen up the bearish interest – perhaps a dip and close below 1.0250 today, together with a bit of follow through higher in US yields and a further correction in risk sentiment. Eventually, we look for the pair to challenge down well through parity if USD yields retest their highs and beyond. Source: Saxo Group Elsewhere – watching sterling here as broader sentiment may be at risk of rolling over and as we wind our way to the conclusion of the battle to replace outgoing Boris Johnson, with Liz Truss all but crowned. Her looser stance on fiscal prudence looks a sterling negative given the risks from UK external deficits. Her instincts seem pro-supply side on taxation, but the populist drag of cost-of-living issues has shown her to be quick to change her stripes – as she has often been, having reversed her position on many issues, including Brexit (was a former remainer). Today’s reminder of the yawning trade deficit (a current run rate of around 10% of GDP) and the energy/power situation together with dire supply side restraints on the UK economy have us looking for sterling weakness – a start would be a dip below 1.2100 in GBPUSD, which would reverse the reaction earlier this week to the US July CPI release. The week ahead features an RBNZ on Wednesday (market nearly fully priced for another two meetings of 50 basis points each). NZDUSD has looked too ambitious off the lows – there is no strong external surplus angle for the kiwi like there is for the Aussie – might be a place to get contrarian to the recent price action if global risk sentiment is set to roll over again finally now that the VIX has pushed all the way to 20 (!).  A Norges Bank meeting on Thursday may see the bank hiking another 50 basis points as it continues to catch up to inflationary outcomes. The US FOMC minutes are up next Wednesday and may be a bit of a fizzle, given that the bulk of the easing financial conditions that the Fed would like to push back against came after the meeting. Table: FX Board of G10 and CNH trend evolution and strength. The US dollar hasn’t gotten much from the latest development in yields – watching the next couple of sessions closely for direction there, while also watching for the risk of more sterling downside, while NZD looks overambitious on the upside. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. The EURGBP turn higher could follow through here – on the lookout for that development while also watching GBPUSD status in coming sessions and whether the EURUSD move higher also follows through as per comments on the chart above. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Fed’s Barkin (non-voter) to speak 1400 – US Aug. Preliminary University of Michigan sentiment Share Source: FX Update: US yield jump brings USD resilience if not a reversal.
Commodities: Prices Are Rising, Heatwaves In US And China Affects The Production Of Cotton

Commodities: Prices Are Rising, Heatwaves In US And China Affect The Production Of Cotton

Ole Hansen Ole Hansen 12.08.2022 16:00
Summary:  The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing, driven by recent economic data strength, dollar weakness and signs inflation may have peaked. With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support, especially across the sectors of energy and key agriculture commodities. The correction that for some commodities already started back in March has since the end of July increasingly been showing signs of reversing. According to the Bloomberg commodity sector indices, the correction period triggered peak to bottom moves of 41% in industrial metals, 31% in grains and 27% in energy. The main reason for the dramatic correction following a record run of strong gains was the change in focus from tight supply to worries about demand. Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver has been the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing but recent economic data strength, dollar weakness and signs inflation may have peaked have all helped support markets that have gone through weeks and in some cases months of sharp price declines, and with that an aggressive amount of long liquidation from financial traders as well as selling from macro-focused funds looking for a hedge against an economic downturn.With the broad position adjustments having run their course, the focus has returned to supply which in many cases remains tight, thereby providing renewed support and problems for those who have been selling markets looking for even lower prices in anticipation of recession and lower demand. Backwardation remains elevated despite growth worries The behaviour of spot commodity prices, as seen through first month futures contracts, rarely gives us the full fundamental picture with the price action often being dictated by technical price-driven speculators and funds focusing on macroeconomic developments, as opposed to the individual fundamental situation. The result of this has been a period of aggressive selling on a combination of bullish bets being scaled back but also increased selling from funds looking to hedge an economic slowdown.An economic slowdown, or in a worst-case scenario a recession, would normally trigger a surplus of raw materials as demand falters and production is slow to respond to a downturn in demand. However, during the past three months of selling, the cost of commodities for immediate delivery has maintained a healthy premium above prices for later deliveries. The chart below shows the spread measured in percent between the first futures and the 12-month forward futures contract, and while the tightness has eased a bit, we are still seeing tightness across a majority, especially within energy and agriculture. A sign that the market has sold off on expectations more than reality, and it raises the prospect of a strong recovery once the growth outlook stabilises. Crude oil The downward trending price action in WTI and Brent for the past couple of months is showing signs of reversing on a combination of the market reassessing the demand outlook amid continued worries about supply and who will and can meet demand going forward. The recovery from below $95 in Brent and $90 in WTI this week was supported by signs of softer US inflation reducing the potential peak in the Fed fund rates, thereby improving the growth outlook. In addition, the weaker dollar and improving demand, especially in the US where gasoline prices at the pumps have fallen below $4 per gallon for the first time since March.In addition, the International Energy Agency (IEA) lifted its global consumption estimate by 380 kb/d, saying soaring gas prices amid strong demand for electricity is driving utilities to switch from expensive gas to fuel-based products. Meanwhile, OPEC may struggle to raise output in the coming months due to limited spare capacity. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold (XAUUSD) The recently under siege yellow metal was heading for a fourth weekly gain, supported by a weaker dollar after the lower-than-expected US CPI and PPI data helped reduce expectations for how high the Fed will allow rates to run. However, rising risk appetite as seen through surging stocks and bond yields trading higher on the week have so far prevented the yellow metal from making a decisive challenge at key resistance above $1800/oz, and the recent decline in ETF holdings and low open interest in COMEX futures points to a market that is looking for a fresh and decisive trigger. We believe the markets newfound optimism about the extent to which inflation can successfully be brought under control remains too optimistic and together with several geopolitical worries, we see no reason to exit our long-held bullish view on gold as a hedge and diversifier. Gold has found some support at the 50-day moving average line at $1783, and needs to hold $1760 in order to avoid a fresh round of long liquidation the short-term. While some resistance is located just above $1800 gold needs a decisive break above $1829 in order to trigger the momentum needed to attract fresh buying in ETFs and managed money accounts in futures. Source: Saxo Group Industrial metals (Copper)   Copper has rebounded around 18% since hitting a 20-month low last month, thereby supporting a general recovery across industrial metals, the hardest hit sector during the recent correction. Supported by a softer dollar, data showing the US economy remains robust, easing concerns about the demand outlook in China and not least disruptions to producers in Asia, Europe as well as South America potentially curtailing supply at a time when exchange-monitored inventories remain at a decade low. All developments that have forced speculators to cut back recently established short positions.The potential for an improved demand outlook in China and BHP's recent announcement that it has made an offer for OZ Minerals and its nickel and copper-focused assets, is the latest in a series of global acquisitions aimed at shoring up supplies of essential metals for the energy transition. With its high electrical conductivity, copper supports all the electronics we use, from smartphones to medical equipment. It already underpins our existing electricity systems, and it is crucial to the electrification process needed over the coming years in order to reduce demand for energy derived from fossil fuels.Following a temporary recovery in the price of copper around the beginning of June when China began easing lockdown restrictions, the rally quickly ran out of steam and copper went on to tumble below key support before eventually stabilizing after finding support at $3.14/lb., the 61.8% retracement of the 2020 to 2022 rally. Since then, the price has recovered strongly but may temporarily pause after reaching finding resistance in the $3.70/lb area. We maintain a long-term bullish view on copper and prefer buying weakness instead of selling into strength. Source: Saxo Group The grains sector traded at a five-week high ahead of Friday’s supply and demand report from the US Department of Agriculture. The Bloomberg Grains Index continues to recover following its 28% June to July correction with gains this past week being led by wheat and corn in response to a weaker dollar and not least hot and dry weather in the US and another heatwave in Europe raising concerns about yield and production. Hot and dry weather at a critical stage for yield developments ahead of the soon-to-be-harvested crop has given the World Agricultural Supply and Demand Estimates report some additional attention with surveys pointing to price support with the prospect of lower yields lowering expectations for the level of available stocks ahead of the coming winter. Cotton, up 8% this month has seen the focus switch from growth and demand worries, especially in China, to deepening global supply concerns as heatwaves in the US and China hurt production prospects. Friday’s monthly supply and demand report (WASDE) from the US Department of Agriculture was expected to show lower US production driving down ending stocks by around 10% to 2.2 m bales, an 11-year low. Arabica coffee, in a downtrend since February, has also seen a steady rise since bouncing from key support below $2/lb last month. A persistent and underlying support from South American production worries has reasserted itself during the past few weeks as the current on-season crop potentially being the lowest since 2014. Brazil’s drought and cold curbed flowering last season and severe frosts in July 2021 led farmers to cut down coffee trees at a time of high costs for agricultural inputs, notably fertilizer. In addition, Columbia another top producer, has seen its crop being reduced by too much rainfall. Source: WCU: Commodity correction may have exhausted itself
The Entire Movement Of EUR/USD Pair Still Looks More Like A Flat

EUR/USD, GBP/USD. Is It Worth To Invest Today?

InstaForex Analysis InstaForex Analysis 11.08.2022 15:40
Relevance up to 11:00 2022-08-12 UTC+2 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade. EUR/USD   Higher timeframes Bulls yesterday attempted to go beyond the nearest limit—the weekly short-term trend (1.0285). Their task now is to stay above the level and fix the achievement at the close of the week. In this case, the chances that the weekly upward correction will have development prospects will increase. On the daily timeframe, the nearest reference point for the continuation of the rise is now the Ichimoku cloud, the breakdown of which will form an additional upward reference point—the target for the breakout of the cloud. Among the supports today, we can note the levels of the daily golden cross (1.0246 – 1.0210 – 1.0160 – 1.0111). H4 – H1 The main advantage now belongs to the bulls, as the work is carried out above the key levels, but the pair is in the correction zone. The interests of bulls within the day today are the resistance of the classic pivot points (1.0378 – 1.0457 – 1.0545). The key levels now at 1.0290 (central pivot of the day) and 1.0226 (weekly long-term trend) separate the pair from a reprioritization in favor of a more bearish sentiment. Targets for decline today can be noted at 1.0211 – 1.0123 – 1.0044 (classic pivot points). *** GBP/USD Higher timeframes Bulls yesterday managed to push off the supports, around which the last few days have been consolidating (the main level 1.2082 is a weekly short-term trend), and enter the daily Ichimoku cloud. The breakdown of the cloud (1.2323) and consolidation in the bullish zone are the main tasks for bulls in the near term. When the mood changes, the relevance will return to supports. The support zone is now quite wide and includes 1.2174 (lower boundary of the daily cloud) – 1.2148 – 1.2089 – 1.2026 – 1.1963 (levels of the daily Ichimoku cross), as well as 1.2082 (weekly short-term trend) and 1.2000 (an important psychological level). H4 – H1 In the lower timeframes, the main advantage now belongs to the bulls. Among the bullish reference points during the day today, we can note 1.2303 – 1.2396 – 1.2515 (classic pivot points resistance) and 1.2301–34 (target for the breakdown of the H4 cloud). The balance of power will change if bears consolidate below key levels 1.2184 (central pivot point of the day) – 1.2120 (weekly long-term trend). After that, the reference points will be the support of the classic pivot points (1.2091 – 1.1972 – 1.1879). *** In the technical analysis of the situation, the following are used: higher timeframes – Ichimoku Kinko Hyo (9.26.52) + Fibo Kijun levels H1 - Pivot Points (classic) + Moving Average 120 (weekly long-term trend) Source: Forex Analysis & Reviews: Technical analysis recommendations on EUR/USD and GBP/USD for August 11, 2022
Gas And Oil Prices Are Higher Too Ahead Of The EU Embargo On Russian Products

Large Chinese Gas Companies Delisting Their American Stocks! What Is Going To Happen?

Saxo Bank Saxo Bank 16.08.2022 08:50
Summary:  PetroChina, Sinopec, Sinopec Shanghai Petrochemical, Chalco and China Life Insurance notified the New York Stock Exchange on 12 Aug 2022 of their intended application for voluntary delisting of their American depository shares and terminating the relevant ADR programs. The question now is if this is an example set for mega-cap Chinese internet and platform companies to follow. Five Chinese Central State-Owned Enterprises (“Central SOEs”) apply for delisting from the New York Stock Exchange   On August 12, 2022, after the close of the regular session of the Stock Exchange of Hong Kong, PetroChina (00857:xhkg/PTR:xnys), China Petroleum & Chemical Corporation, also known as Sinopec (00386:xhkg/SNP:xnys), Sinopec Shanghai Petrochemical (00338:xhkg/SHI:xnys), Aluminum Corporation of China, also known as Chalco (02600:xhkg/ACH:xnys), and China Life Insurance (02628:xhkg/LFC:xnys) announced that they had notified the New York Stock Exchange (“NYSE”) that they are will apply for delisting of their American depository shares (“ADSs”) from the NYSE. It is expected that the American Depository Receipt (“ADR”) programs will be terminated between September 1 and October 16, 2022, and the ADSs issued under these ADR programs can be surrendered for their underlying H shares, which will continue to trade in the Stock Exchange of Hong Kong (“SEHK”). PetroChina, Sinopec, Sinopec Shanghai Petrochemical and Chalco are Central SOEs that are owned (80.4%, 68.8%, 32.2%, and 50.4% respectively) and controlled by the State-owned Assets Supervision and Administration Commission of the State Council (“SASAC”).  These, together with 93 others that are also owned and controlled by the SASAC are known as Central SOEs or “Yang Qi” in Chinese.  China Life Insurance, not one of those under the SASAC, is not a Central SOE in the strict sense but it is usually considered a Central SOE due to the fact that it is 62.4% owned and controlled by the Ministry of Finance.  All five companies are on the U.S. Securities and Exchange Commission’s (“SEC”) conclusive list of identified entities under the HFCAA    In the U.S., the Sarbanes-Oxley Act enacted in 2002 requires publicly traded companies to give the U.S. Public Company Accounting Oversight Board (“PCAOB”) access to audit work papers. In 2009, the China Securities Regulatory Commission (“CSRC”) issued a rule that forbids overseas regulatory authorities from inspecting Chinese auditing firms without CSRC’s prior approval and audit work papers containing state secretes from being taken outside China.  The PCAOB’s attempt to inspect the China-based affiliates of the “Big”-4” accounting firms in 2010 was rejected by the CSRC.  The SEC subsequently prosecuted these China affiliates of the Big-4 and the cases were subsequently settled. In order to tighten the enforcement of the audit work papers requirement provided in the Sarbanes-Oxley Act, the U.S. enacted the Holding Foreign Companies Accountable Act (“HFCAA”) in 2020 which provides that companies failing to make available audit work papers for inspection by the PCAOB cannot be traded in a U.S. exchange.  Since March 2022, the SEC has put 162 Chinese companies listed in a U.S. bourse first on a provisional list and then 155 of them subsequently on a conclusive list of issuers identified under the HFCAA. After rounds of negotiations, the U.S. and China have so far not been able to come to some resolutions.  While the Chinese authorities have sounded optimistic, especially earlier in April and May, about eventually reaching an agreement with the U.S., SEC Chairman Gary Gensler has expressed doubts about any eventual agreement.PetroChina, Sinopec, Sinopec Shanghai Petrochemical, Chalco, and China Life Insurance are among those on the conclusive list and facing the plausibility of being delisted by the U.S. regulators from the NYSE.  The deadline for delisting is in 2024 but the U.S. Congress is considering passing a bill to bring the deadline forward to 2023.  Actions were seemingly in concert  Each of the five companies notified the NYSE on the same day, August 12, and provided similar reasons for their decisions in their filing with the SEHK, namely relatively small capitalization of H shares being represented by ADSs, small ADS trading volume compared to the turnover of H shares and administrative burden for performing reporting and disclosure. The China Securities Regulatory Commission (“CSRC”) said on Friday that the delisting decision had been made out of these companies’ own business decisions. Nonetheless, given the identical timing, similar reasons provided and status of Central SOEs, one has to wonder if they were acting in concert with coordination from the Chinese authorities.  The other two Central SOEs controlled by the SACAC and on the SEC conclusive list, China Eastern Airlines (00670:xhkg/CEA:xnys) and China Southern Airlines (01055:xhkg/ZNH:xnys) will probably apply for ADS delisting soon as well.  Chinese internet and platform companies are the focus in the coming weeks  While these Central SOEs are thinly traded on the NYSE, the shares of Chinese internet and platform private enterprises, including Alibaba (09988:xhkg/BABA:xnys), Baidu (09888:xhkg/BIDU:xnas), Bilibili (09626:xhkg/BILI:xnas), JD.COM (09618:xhkg/JD:xnas), Pinduoduo (PDD:xnas), Sohu (SOHU:xnas), iQiyi (IQ:xnas), KE Holdings (BEKE:xnys), Weibo (09898:xhkg/WB:xnas), Tencent Music Entertainment (TME:xnys) are widely held and actively traded on the NYSE or Nasdaq.  For examples, Bilibili and Weibo have larger average daily turnover in Nasdaq than in the SEHK and Pinduoduo, iQiyi, KE Holdings, Sohu and are listed only on Nasdaq and Tencent Music on the NYSE.  Alibaba is on the provisional list and the other names above are on the conclusive list of issuers identified under the HFCAA. All of them will be subject to mandatory delisting from the NYSE or Nasdaq if the Chinese and U.S. regulators cannot reach an agreement to resolve the audit work paper inspection issue in the coming months.  Given these internet and platform companies hold a huge amount of potentially sensitive data of hundreds of millions of Chinese individuals as well as numerous private as well as public enterprises and institutions, the plausibility of the Chinese government being willing to make a concession to the SEC and PCAOB regarding the latter’s unfiltered access to audit work papers of these companies is getting increasingly slim in the midst of pervasive Sino-American strategic competition.  Through the voluntary delisting of nstitutional money which is restricted by their investment mandates and retail investors who tend to have a home bias will unload their holdings instead of exchanging their ADSs for H shares.  In the case of those companies that do not yet have a listing in the SEHK, the uncertainty and disruption will be even more significant.  The southbound stock connect flows of money from mainland investors may mitigate somewhat the impact but some turbulence initially can probably be expected.   Source: China Update: State-owned giants seek to delist from the New York Stock Exchange
The Commodity Sector Has Dropped Significantly

People Are Buying Gold. SIlver And Copper Stopped? Crude Oil Weakness

Ole Hansen Ole Hansen 16.08.2022 09:23
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 9. A relatively quiet week where a continued improvement in risk appetite drove stocks higher while softening the dollar. Some commodity positions, with crude oil the major exceptions, showed signs of having reached a trough following weeks of heavy selling Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 9. A relatively quiet summer holiday impacted week where stocks traded higher ahead of last week’s CPI and PPI print after better than expected economic data helped reduce US recession fears while the market was looking for inflation to roll over. The dollar traded a tad softer, bond yields firmed up while commodities showed signs of having reached a trough following weeks of heavy selling.    Commodities Hedge funds were net buyers for a second week with demand concentrated in metals and agriculture while the energy sector saw continued selling. Overall the net long across 24 major commodity futures rose for a second week after recently hitting a two-year low. Buying was concentrated in gold, platinum, corn and livestock with crude oil and wheat being to most notable contracts seeing net selling. Energy: Speculators responded to continued crude oil weakness by cutting bullish bets in WTI and Brent crude by a combined 14% to a pre-Covid low at 304.5k lots. The reductions were primarily driven by long liquidation in both contracts following a demand fear driven breakdown in prices. Gas oil and gasoline longs were also reduced. Metals: Buying of metals extended to a second week led by gold which saw a 90% jump in the net long to 58.2k lots. Overall, net short positions were maintained in silver, platinum and copper with the latter seing a small amount of fresh selling due to profit taking on recently established longs. Agriculture: Grains were mixed with corn and soybeans seeing continued buying ahead of Friday's WASDE  report while the CBOT corn net short jumped 36% to 20k lotsand the Kansas net long was cut to a two-year low. The total grain long rose for second week having stabilised around 300k lots having collapse from a near record 800k lot on April 22.Soft commodities saw elevated short positions in sugar and cocoa being maintained with price gains in coffee and not least cotton supporting a small increase in their respective net longs. This before Friday's surge in cotton which left it up 13% on the week after the US Department of Agriculture slashed the US crop forecast by 19% to a 12-year low. Driven by a high level of abandonment of fields in the drought-stricken Southwest.      Forex In the week to August 9 when the dollar traded close to unchanged against a basket of major currencies, speculators increased to three the number of weeks of continued dollar selling. The pace of selling even accelerated to the highest since January after the gross long against ten IMM futures and the Dollar Index was slashed by 20% to $17.4 billion, a nine week low. Most notable selling of the greenback was seen against GBP and JPY followed by EUR and CHF. The Japanese yen, under pressure for months as yield differentials to the dollar widened saw its net short being cut by 22% to a 17-month low.     What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming  Source: COT: Speculators cut oil long to pre-covid low
China: PMI positively surprises the market

Hurtful News For Chinese Economy... Is China Able To Get Up? US Use The Situation

Saxo Strategy Team Saxo Strategy Team 16.08.2022 09:40
Summary:  The weaker-than-expected economic data from China caught much of the attention and dragged U.S. bond yields and commodities lower. U.S. equities have been in a 4-week rally. Investors are weighing if the U.S. economy is heading into a soft-landing or a recession and if the Chinese economy can recover in the coming months. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities opened lower on weak economic data prints from China as well as a weaker-than-expected Empire State manufacturing survey but climbed towards midday and finished higher. S&P 500 rose 0.4%. Nine of its 11 sectors gained, with shares of consumer staples and utilities outperforming. Nasdaq 100 rose 0.75%, led by a 3% jump in Tesla (TSLA:xnas).  U.S. treasury yields fell Treasury yields fell across the front end to the belly of the curve after a bunch of weak economic data from China and the Empire State manufacturing survey came in at -31.3, much weaker than 5.0 expected. Two-year yields fell by 7bps to 3.17% and 10-year yields declined 5bps to 2.78%.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hong Kong and mainland Chinese equities tried to move higher in early trading but soon reversed and turned south, Hang Seng -0.7%, CSI300 -0.1%.   The People’s Bank of China cut its policy on Monday but the unexpected move did not stir up much market excitement. The visit of another delegation of US lawmakers to Taiwan within 12 days of Speaker Pelosi’s visit stirred up concerns about the tension in the Sino-American relationship.   Container liner, Orient Overseas (00316:xhkg) plunged nearly 15%.   Stocks that have a dual listing of ADRs, in general, declined on Monday’s trading in Hong Kong following Friday’s decisions for five central SOEs to apply for delisting from the New York Stock Exchange, PetroChina (00857:xhkg/PTR:xnys) -3.4%, Sinopec (00386:xhkg/SNP:xnys) -2.9%, Alibaba (09988:xhkg/BABA:xnys) -1.2, Baidu (09888:xhkg/BIDU:xnas) -1%, Bilibili (09626:xhkg/BILI:xnas) -1%. SMIC (00981:xhkg) dropped more than 6% on analyst downgrades.  Chinese property names dropped as home prices continued to fall in China.  USD broadly firmer against G10 FX, expect JPY The US dollar started the week on the front foot, amid a weaker risk sentiment following a miss in China’s activity data and the disappointing US manufacturing and housing sentiments. The only outlier was the JPY, with USDJPY sliding to lows of 132.56 at one point before reversing the drop. The 131.50 level remains a key area of support for USDJPY and a bigger move in the US yields remains necessary to pierce through that level. The commodity currencies were the hardest hit, with AUDUSD getting in close sight of 0.7000 ahead of the RBA minutes due this morning. NZDUSD also plunged from 0.6450 to 0.6356. The Chinese yuan weakened and bond yields fell after disappointing economic data and surprising rate cuts USDCNH jumped more than 1% from 6.7380 to as high as 6.8200 on Monday following the weak credit data from last Friday, disappointing industrial production, retail sales, and fixed assets investment data released on Monday morning, and unexpected rate cuts by the People’s Bank of China. The 10-year Chinese government bond yield fell 8bps to 2.67%, the lowest level since April 2020, and about 20bps below the yield of 10-year U.S. treasury notes. Crude oil prices (CLU2 & LCOV2) Crude oil prices had a variety of headwinds to deal with both on the demand and the supply side. While demand concerns were aggravated due to the weak China data, and the drop in US Empire State manufacturing – both signaling a global economic slowdown may be in the cards – supply was also seen as being possibly ramped up. There were signs of a potential breakthrough in talks with Iran as Tehran said it sent a reply to the EU's draft nuclear deal and expects a response within two days. Meanwhile, Aramco is also reportedly ramping up production. WTI futures dropped back below $90 while Brent touched $95/barrel. Metals face the biggest brunt of China data weakness Copper led the metals pack lower after China’s domestic activity weakened in July, which has raised the fears of a global economic slowdown as the zero-Covid policy is maintained. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. This could see further cuts to capacity over the coming months. Iron ore futures were also down. What to consider? Weak Empire State manufacturing survey and NAHB Index Although a niche measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. European power price soared to record high European power prices continue to surge to fresh record highs amid gas flow vagaries, threatening a deeper plunge into recession. Next-year electricity rates in Germany advanced as much as 3.7% to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That’s almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. European Dutch TTF natural gas futures were up over 6%, suggesting more pain ahead for European utility companies. China’s activity data China’s July industrial production (3.8% YoY vs consensus 4.3% & June 3.9%), retail sales (2.7% YoY vs consensus 4.9% & June 3.1%), and fixed asset investments (5.7% YTD vs consensus 6.2% & June 6.1%) released this more were weak across the board.  Property investment growth dropped to -6.4% YTD or -12.3% YoY in July, well below market expectations of -5.7% YTD.  Surprising rate cuts from the PBOC met with muted market reactions The People’s Bank of China cut its policy 1-year Medium-term Lending Facility Rate by 10bps to 2.75% from 2.85% and the 7-day reverse repo rate by 10bps to 2.0% from 2.1%.  Market reactions to the surprising move were muted as credit demand, as reflected in the aggregate financing and loan growth data was weak in China. BHP ‘s FY22 results better than expected The Australian mining giant reported FY22 results beating analyst estimates with strong EBITDA and EBITDA margin. Coal segment performance was ahead of expectations while results from the copper and iron ore segments were slightly below expectations.  The company announced a larger-than-expected dividend payout and a higher capex plan for 2023. RBA minutes due to be released this morning Earlier in the month, the Reserve Bank of Australia (RBA) raised the cash rate by 50bps to 1.85% and the accompanying Statement on Monetary Policy emphasized an uncertain and data-dependent outlook. The RBA releases its minutes from the July meeting today, and the market focus will be on the range of options discussed for the August hike and any hint of future interest rate path.  US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast. Source: APAC Daily Digest: What is happening in markets and what to consider next – August 16, 2022
Saxo Bank Podcast: The Upcoming Bank Of Japan Meeting, A Look At Crude Oil, Copper And More

Japanese Yen (JPY) Rise. Energy Prices Are Finally Falling!?

John Hardy John Hardy 16.08.2022 10:05
Summary:  Weak data out of China overnight, together with a surprise rate cut from the PBOC and collapsing energy prices later on Monday saw the Japanese yen surging higher across the board. Indeed, the two key factors behind its descent to multi-decade lows earlier this year, rising yields and surging energy prices, have eased considerably since mid-June with only modest reaction from the yen thus far. Is that about to change? FX Trading focus: JPY finding sudden support on new disinflation narrative Weaker than expected Chinese data overnight brought a surprise rate cut from the Chinese central bank and seems to have sparked a broadening sell-off in commodities, which was boosted later by a crude oil drop of some five dollars per barrel on the news that Iran will decide by midnight tonight on whether to accept a new draft on the nuclear deal forward by the Euro zone. In response, the Chinese yuan has weakened toward the highs for the cycle in USDCNH, trading 6.78+ as of this writing and  (there was a spike high to 6.381 back in May but the exchange rate has been capped by 6.80 since then), but the Japanese yen is stealing the volatility and strength crown, surging sharply across the board and following up on the move lower inspired by the soft US CPI data point. US long yields easing considerably lower after an odd spike last Thursday are a further wind at the JPY’s back here. In the bigger picture, it has been rather remarkable that the firm retreat in global long-date yields since the mid-June peak and the oil price backing down a full 25% and more from the cycle highs didn’t do more to support the yen from the yield-spread angle (Bank of Japan’s YCC policy less toxic as yields fall) and from the current account angle for Japan. Interestingly, while the JPY has surged and taken USDJPY down several notches, the US dollar is rather firm elsewhere, with the focus more on selling pro-cyclical and commodity currencies on the possible implication that China may be content to export deflation by weakening its currency now that commodity prices have come down rather than on selling the US dollar due to any marking down of Fed expectations. Still, while the USD may remain a safe haven should JPY volatility be set to run amok across markets, the focus is far more on the latter as long as USDJPY is falling Chart: EURJPY As the JPY surges here, EURJPY is falling sharply again, largely tracking the trajectory of longer European sovereign yields, which never really rose much from their recent lows from a couple of weeks back, making it tough to understand the solid rally back above 138.00 of late. After peaking above 1.90% briefly in June, the German 10-year Bund, for example, is trading about 100 basis points lower and is not far from the cycle low daily close at 77 basis points. The EURJPY chart features a rather significant pivot area at 133.50, a prior major high back in late 2021 and the recent low and 200-day moving average back at the beginning of the month. After a brief JPY volatility scare in late July and into early August that faded, are we set for a second and bigger round here that takes USDJPY down through 130.00 and EURJPY likewise? A more significant rally in long US treasuries might be required to bring about a real JPY rampage. Source: Saxo Group The focus on weak Chinese data and key commodity prices like copper suddenly losing altitude after their recent rally has the Aussie shifting to the defensive just after it was showing strength late last week in sympathy with strong risk sentiment and those higher commodity prices. Is the AUDUSD break above 0.7000-25 set for a high octane reversal here? AUDJPY is worth a look as well after it managed to surge all the way back toward the top of the range before. The idea that a weak Chine might export deflation from here might be unsettling for Aussie bulls. The US macro data focus for the week is on today’s NAHB homebuilder’s survey, which plunged to a low since 2015 in June (not including the chaotic early 2020 pandemic breakout months), the July Housing Starts and Building Permits and then the July Retail Sales and FOMC minutes on Wednesday. With a massive relief in gasoline prices from the July spike high, it will be interesting to see whether the August US data picks up again on the services side. The preliminary August University of Michigan sentiment survey release on Friday showed expectations rising sharply by over 7 points from the lowest since-1980 lows of June, while the Present Situation measure dropped a few points back toward the cycle (and record) lows from May. Table: FX Board of G10 and CNH trend evolution and strength. The JPY is the real story today, but as our trending measures employ some averaging/smoothing, the move will need to stick what it has achieved today to show more. Watch out for a big shift in the commodity currencies in coming days as well if today’s move is the start of something. Elsewhere, the JPY comeback is merely taking CHF from strength to strength, although even the might franc has dropped against the JPY today. Source: Bloomberg and Saxo Group Table: FX Board Trend Scoreboard for individual pairs. Big momentum shift afoot today and watching whether this holds and the JPY pairs and pairs like AUDUSD and USDCAD to see if we are witnessing a major momentum shift in themes here. Also note NOK pairs like USDNOK and EURNOK here. Source: Bloomberg and Saxo Group Upcoming Economic Calendar Highlights (all times GMT) 1400 – US Aug. NAHB Housing Market Index 0130 – Australia RBA Meeting Minutes Source: FX Update: JPY jumps on deflating energy prices, fresh retreat in yields.
Saxo Bank Podcast: Natural Gas On Colder Weather, Wheat And Coffee Under Pressure, JPY Weaker And More

Natgas Fought Back And Now Have A Solid Position! Iron And Copper Are Out Of Fashion!?

Marc Chandler Marc Chandler 16.08.2022 14:19
Overview: After retreating most of last week, the US dollar has extended yesterday’s gains today. The Canadian dollar is the most resilient, while the New Zealand dollar is leading the decline with a nearly 0.75% drop ahead of the central bank decision first thing tomorrow. The RBNZ is expected to deliver its fourth consecutive 50 bp hike. Most emerging market currencies are lower as well, led by central Europe. Equities in Asia Pacific and Europe are mostly higher today. Japan and Hong Kong were exceptions, and China was mixed with small gains in Shanghai and Shenzhen composites, but the CSI 300 slipped. Europe’s Stoxx 600 is stretching its advance for the fifth consecutive session. It is at two-month highs. US futures are softer. The US 10-year yield is slightly firmer near 2.80%, while European benchmark yields are mostly 2-4 bp higher, but Italian bonds are under more pressure and the yield is back above the 3% threshold. Gold is softer after being repulsed from the $1800 area to test $1773-$1775. A break could signal a test on the 20-day moving average near $1761. October WTI tested last week’s lows yesterday near $86 a barrel on the back of the poor Chinese data. It is straddling the 200-day moving average (~$87.95). The market is also watching what seems like the final negotiations with Iran, where a deal could also boost supply. US natgas prices are more than recouping the past two days of losses and looks set to challenge the $9 level. Europe’s benchmark leapt 11.7% yesterday and is up another 0.5% today. Iron ore has yet to a base after falling more than 5.5% in the past two sessions. It fell almost 0.65% today. September copper has fallen by almost 2.5% over the past two sessions and is steady today. Lastly, September wheat is slipping back below $8 a bushel and is trading heavily for the third consecutive session. Asia Pacific Japan's 2.2% annualized growth in Q2 does not stand in the way of a new government support package  Prime Minister Kishida has been reportedly planning new measures and has instructed the cabinet to pull it together by early next month. He wants to cushion the blow of higher energy and food prices. An extension of the subsidy to wholesalers to keep down the gasoline and kerosene prices looks likely. Kishida wants to head off a surge in wheat prices. Without a commitment to maintain current import prices of wheat that is sold to millers, the price could jump 20% in October, according to reports. Separately, and more controversially, Kishida is pushing for the re-opening of nine nuclear plants that have passed their safety protocols, which have been shut since the 2011 Fukushima accident.  The minutes from the Reserve Bank of Australia's meeting earlier this month signaled additional rate hikes will be forthcoming  After three half--point hikes, it says that the pace going forward will be determined by inflation expectations and the evolving economic conditions. The minutes noted that consumer spending is an element of uncertainty given the higher inflation and interest rates. Earlier today, the CBA's household spending report shows a 1.1% jump month-over-month in July and a 0.6% increase in June. The RBA wants to bring the cash target rate to neutral (~2.50%). The target rate is currently at 1.85% and the cash rate futures is pricing in about a 40% chance of a 50 bp hike at the next RBA meeting on September 6. It peaked near 60% last week. On Thursday, Australia reports July employment. Australia grew 88.4k jobs in June, of which almost 53k were full-time positions. The median forecast in Bloomberg's survey envisions a 25k increase of jobs in July.  The offshore yuan slumped 1.15% yesterday  It was the biggest drop since August 2019 and was sparked by the unexpected cut in rates after a series of disappointing economic data. The US dollar reached almost CNH6.82 yesterday, its highest level in three months. It has steadied today but remains firm in the CNH6.7925-CNH6.8190 range. China's 10-year yield is still under pressure. It finished last week quietly near 2.74% and yesterday fell to 2.66% and today 2.63%. It is the lowest since May 2020. As we have noted, the dollar-yen exchange rate seems to be more sensitive to the US 2-year yield (more anchored to Fed policy) than the 10-year yield (more about growth and inflation)  The dollar is trading near four-day highs against the yen as the two-year yield trades firmer near 3.20%. Initial resistance has been encountered in Europe near JPY134.00. Above there, the JPY134.60 may offer the next cap. Support now is seen around JPY133.20-40. The Australian dollar extended yesterday's decline and slipped through the $0.7000-level where A$440 mln in options expire today. It also corresponds with a (50%) retracement of the run-up form the mid-July low (~$0.6680). The next area of support is seen in the $0.6970-80 area. The greenback rose 0.45% against the onshore yuan yesterday after gapping higher. Today it gapped higher again and rose to almost CNY6.7975, its highest level since mid-May. It reached a high then near CNY6.8125. The PBOC set the dollar's reference rate at CNY6.7730, slightly less than the median in Bloomberg's survey (CNY6.7736). The takeaway is the central bank did not seem to protest the weakness of the yuan. Europe The euro has been sold to a new seven-year low against the euro near CHF0.9600 The euro has been sold in eight of the nine weeks since the Swiss National Bank hiked its policy rate by 50 bp on June 16. Half of those weekly decline were 1% or larger. The euro has fallen around 7.4% against the franc since the hike. Swiss domestic sight deposit fell for 10 of 11 weeks through the end of July as the SNB did not appear to be intervening. However, in the last two weeks, as the franc continued to strengthen, the Swiss sight deposits have risen, and recorded their first back-to-back increase in four months. This is consistent with modest intervention. The UK added 160k jobs in Q2, almost half of the jobs gain in the three months through May, illustrating the fading momentum  Still, some 73k were added to the payrolls in July, well above expectations. In the three months through July, job vacancies in the UK fell (~19.8k) for the first time in nearly two years. Average weekly earnings, including bonuses, rose 5.1% in Q2. The median forecast was for a 4.5% increase. Yet, real pay, excluding bonuses and adjusted for inflation slid 3% in the April-June period, the most since at least 2001. The ILO measure of unemployment in Q2 was unchanged at 3.8%. The Bank of England warns it will rise to over 6%. The market still favors a 50 bp hike next month. The swaps market has it at a little better than an 80% probability. The euro is extending its retreat  It peaked last week, near $1.0365 and tested this month's low near $1.0125 in the European morning. The intraday momentum indicators are stretched, and that market does not appear to have the drive to challenge the 1.2 bln euros in options struck at $1.0075 that expire today. With yesterday's loss, the euro met the (50%) retracement objective of the bounce off the mid-July 22-year low (~$0.9950). The next retracement objective (61.8%) is near $1.0110. Nearby resistance may be met near $1.0160-70. Sterling has been sold for the fourth consecutive session. It approached the $1.20-level, which may be the neckline of a double top. If violated it could signal a return to the low seen in mid-July around $1.1760. Sterling is holding in better than the euro now. The cross peaked before the weekend in front of GBP0.8500 and is approaching GBP0.8400 today. A break would look ominous and could spur a return to the GBP0.8340 area. America The Empire State manufacturing survey and the manufacturing PMI line up well  Both bottomed in April 2020 and peaked in July 2021. The outsized decline in the August Empire State survey points to the downside risks of next week's preliminary August manufacturing PMI. Recall that the July manufacturing PMI fell to 52.2, its third consecutive decline and the lowest reading since July 2020. There was little good in the Empire survey. Orders and shipments fell dramatically. Employment was also soft. Prices paid softened to the lowest this year, but prices received edged higher. The US reports housing start and permits and industrial output today The housing market continues to slow from elevated levels. Housing starts are expected to have fallen 2% in July, matching the June decline. It would be the third consecutive decline, and the longest declining streak since 2018. Still, in terms of the absolute level of activity, anything above 1.5 mln units must still be regarded as strong. They stood at almost 1.56 mln in June. Permits fell by 10% in April-May before stabilizing in June. The median forecast in Bloomberg's survey projects a 3.3% decline. Permits were running at 1.685 mln in June. From April 2007 through September 2019, permits held below 1.5 mln. The industrial production report may attract more attention Output fell in June (-0.2%) for the first time this year, and even with it, industrial product has risen on average by 0.4% a month in H1 22, slightly above the pace seen in H1 21. Helped by manufacturing and utility output, industrial production is expected to rise by around 0.3%. In the last cycle, capacity use spent four months (August-November 2018) above 80%. It had not been above 80% since the run-up to the Great Financial Crisis when it spent December 2006 through March 2008 above the threshold and peaked slightly above 81.0%. Last month was likely the fourth month in this cycle above the 80% capacity use rate. Note that the Atlanta Fed's GDPNow tracker will be updated later today. The update from August 10 put Q3 GDP at 2.5%. Housing starts in Canada likely slow last month, which would be the first back-to-back decline this year  The median forecast (Bloomberg's survey) calls for a 3.6% decline after an 8.4% fall in June. Still, the expected pace of 264k is still 10% higher since the end of last year. On Monday, Canada reported that July existing home sales fell by 5.3%, the fifth consecutive decline. They have fallen by more than a third since February. Canada also reports its monthly portfolios. Through May, Canada has experienced C$98.5 bln net portfolio inflows, almost double the pace seen in the first five months last year. However, the most important report today is the July CPI. A 0.1% increase, which is the median forecast in Bloomberg's survey would be the smallest of the year and the year-over-year pace to eased to 7.6% from 8.1%. If so, it is the first decline since June 2021. Similar with what the US reported, the core measures are likely to prove sticky. After the employment data on August 5, the swaps market was still leaning in favor a 75 bp hike at the September 7 meeting (64%). However, since the US CPI report, it has been hovering around a 40% chance. While the US S&P 500 rose reached almost four-month highs yesterday, the Canadian dollar found little consolation  It held in better than the other dollar-bloc currencies and Scandis, but it still suffered its biggest decline in about a month yesterday. The greenback reached almost CAD1.2935 yesterday and is consolidating in a narrow range today above CAD1.2890. The next important chart point is near CAD1.2975-85 and the CAD1.3050. After testing the MXN20.00 level yesterday, the US dollar was sold marginally through last week's low (~MXN19.8150). It is consolidating today and has not been above MXN19.8850. It has come a long way from the month's high set on August 3 near MXN20.8335. The greenback's downside momentum seems to have eased as it stalls in front of MXN19.81 for the third consecutive session.     Disclaimer   Source: Greenback Remains Firm
USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

USA: People Are Not Interested In Buying New Houses! Equities Are Still Trading High As The Hopes For Iran Nuclear Deal Are Still Alive

Saxo Strategy Team Saxo Strategy Team 16.08.2022 14:00
Summary:  Equities traded higher still yesterday as treasury yields fell further back into the recent range and on hopes that an Iran nuclear deal will cement yesterday’s steep drop in oil prices. The latest data out of the US was certainly nothing to celebrate as the July US Homebuilder survey showed a further sharp drop in new housing interest and a collapse in the first regional US manufacturing survey for August, the New York Fed’s Empire Manufacturing.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures extended their gains yesterday getting closer to the 200-day moving average sitting around the 4,322 level. The US 10-year yield seems well anchored below 3% and financial conditions indicate that S&P 500 futures could in theory trade around 4,350. The news flow is light but earnings from Walmart later today could impact US equities should the largest US retailer lower their outlook for the US consumer. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hong Kong and mainland Chinese equities were mixed. CSI300 was flat, with electric equipment, wind power, solar and auto names gained. Hang Seng Index declined 0.5%. Energy stocks fell on lower oil price. Technology names were weak overall, Hang Seng TECH Index (HSTECH.I) declined 0.9%. Sunny Optical (02382:xhkg) reported worse than expected 1H22 results, revenues -14.4% YoY, net profits -49.5%, citing weakening component demand from the smartphone industry globally. The company’s gross margin plunged to 20.8% from 24.9%. Li Auto’s (02015:xhkg/LI:xnas) Q2 results were in line with expectations but Q3 guidance disappointed. The launch L9 seems cannibalizing Li ONE sales. USD: strength despite weak US data and falling treasury yields and strong risk sentiment Yesterday, the JPY tried to make hay on China cutting rates and as global yields eased back lower, with crude oil marked several dollars lower on hopes for an Iran nuclear deal. But the move didn’t stick well in USDJPY, which shrugged off these developments as the USD firmed further across the board, despite treasury yields easing lower, weak data and still strong risk sentiment/easy financial conditions. A strong US dollar is in and of itself is a tightening of financial conditions, however, and yesterday’s action has cemented a bullish reversal in some pairs, especially EURUSD and GBPUSD, where the next important levels pointing to a test of the cycle lows are 1.0100 and 1.2000, respectively. Elsewhere, USDJPY remains in limbo (strong surge above 135.00 needed to suggest upside threat), USDCAD has posted a bullish reversal but needs 1.3000 for confirmation, and AUDUSD is teetering, but needs a close back below 0.7000 to suggest a resurgent US dollar and perhaps widening concerns that a Chinese recession will temper interest in the Aussie. Crude oil Crude oil (CLU2 & LCOV2) trades lower following Monday’s sharp drop that was driven by a combination softer economic data from China and the US, the world’s top consumers of oil, and after Iran signaled a nuclear deal could be reached soon, raising the prospect of more Iranian crude reaching the market. The latest developments potentially reducing demand while adding supply forced recently established longs to bail and short sellers are once again in control. Brent needs to hold support at $93 in order to avoid further weakness towards $90. Focus on Iran news. Copper Copper (COPPERUSSEP22) led the metals pack lower, without breaking any key technical levels to the downside, after China’s domestic activity weakened in July. Meanwhile, supply side issues in Europe also cannot be ignored with surging power prices putting economic pressure on smelters, and many of them running at a loss. HG copper jumped 19% during the past month and yesterday’s setback did not challenge any key support level with the first being around $3.50/lb. BHP, the world’s top miner meanwhile hit record profits while saying that China is likely to offer a “tail wind” to global growth (see below). EU power prices hit record high on continued surge in gas prices ... threatening a deeper plunge into recession. The latest surge being driven by low water levels on Europe’s rivers obstructing the normal passage for diesel, coal, and other fuel products, thereby forcing utilities to use more gas European Dutch TTF benchmark gas futures (TTFMU2) has opened 5% higher at €231/MWh, around 15 times higher than the long-term average, suggesting more pain ahead for European utility companies. Next-year electricity rates in Germany (DEBYF3) closed 3.7% higher to 477.50 euros ($487) a megawatt-hour on the European Energy Exchange AG. That is almost six times as much as this time last year, with the price doubling in the past two months alone. UK power prices were also seen touching record highs. US Treasuries (IEF, TLT) see long-end yields surging. Yields dipped back lower on weak US economic data, including a very weak Empire Manufacturing Survey (more below) and another sharp plunge in the NAHB survey of US home builders, suggesting a rapid slowdown in the housing market. The survey has historically proven a leading indicator on prices as well. The 10-year benchmark dipped back further into the range after threatening to break up higher last week. The choppy range extends down to 2.50% before a drop in yields becomes a more notable development, but tomorrow’s US Retail Sales and FOMC minutes offer the next test of sentiment. What is going on? Weak Empire State manufacturing survey and NAHB Index Although a niche and volatile measure, the United States NY Empire State Manufacturing Index, compiled by the New York Federal Reserve, fell to -31.3 from 11.1 in July, its lowest level since May 2020 and its sharpest monthly drop since the early days of the pandemic. New orders and shipments plunged, and unfilled orders also declined, albeit less sharply. Other key areas of concern were the rise in inventories and a decline in average hours worked. This further weighed on the sentiment after weak China data had already cast concerns of a global growth slowdown earlier. Meanwhile, the US NAHB housing market index also saw its eighth consecutive monthly decline as it slid 6 points to 49 in August. July housing starts and building permits are scheduled to be reported later today, and these will likely continue to signal a cooling demand amid the rising mortgage rates as well as overbuilding. China's CATL plans to build its second battery factory in Europe CATL unveiled plans to build a renewable energy-powered factory for car battery cells and modules in Hungary. It will invest EUR 7.34 billion (USD 7.5bn) on the 100-GWh facility, which will be its second one in Europe. To power the facility CATL will use electricity from renewable energy source, such as solar power. At present, CATL is in the process of commissioning its German battery production plant, which is expected to roll out its first cells and modules by the end of 2022. Disney (DIS) shares rise on activist investor interest Daniel Loeb of Third Point announced a significant new stake in Disney yesterday, helping to send the shares some 2.2% higher in yesterday’s session. The activist investor recommended that the company spin off its ESPN business to reduce debt and take full ownership of the Hulu streaming service, among other moves. Elliott exits SoftBank Group The US activist fund sold its stake in SoftBank earlier this year in a sign that large investors are scaling back on their investments in technology growth companies with long time to break-even. In a recent comment, SoftBank’s founder Masayoshi Son used more cautious words regarding the investment company’s future investments in growth companies. BHP reports its highest ever profit, bolstered by coal BHP posted a record profit of $21.3bn supported by considerable gains in coal, nickel and copper prices during the fiscal year ending 30 June 2022. Profits jumped 26% compared to last year’s result. The biggest driver was a 271% jump in the thermal coal price, and a 43% spike in the nickel price. The world’s biggest miner sees commodity demand improving in 2023, while it also sees China emerging as a source of stable commodity demand in the year ahead. BHP sees supply covering demand in the near-term for copper and nickel. According to the company iron ore will likely remain in surplus through 2023. In an interview Chief Executive Officer Mike Henry said: Long-term outlook for copper, nickel and potash is really strong because of “unstoppable global trends: decarbonization, electrification, population growth, increasing standards of living,” What are we watching next? Australia Q2 Wage Index tonight to determine future RBA rate hike size? The RBA Minutes out overnight showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, tonight sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35 bps move. RBNZ set to decelerate its guidance after another 50 basis point move tonight? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 44 bps for the October meeting after tonight’s 50 bps hike and another 36 bps for the November meeting. US retailer earnings eyed After disappointing results last quarter, focus is on Walmart and Home Depot earnings later today. These will put the focus entirely on the US consumer after the jobs data this month highlighted a still-tight labor market while the inflation picture saw price pressures may have peaked. It would also be interesting to look at the inventory situation at these retailers, and any updated reports on the status of the global supply chains.   Earnings to watch Today’s US earnings focus is Walmart and Home Depot with analysts expecting Walmart to report 7% revenue growth y/y and 8% decline y/y in EPS as the US retailer is facing difficulties passing on rising input costs. Home Depot is expected to report 6% growth y/y in revenue and 10% growth y/y in EPS as the US housing market is still robust driving demand for home improvement products. Sea Ltd, the fast-growing e-commerce and gaming company, is expected to report revenue growth of 30% y/y in Q2 but worsening EBITDA margin at -16.2%. The previous winning company is facing headwinds in its gaming division and cash flow from operations have gone from positive $318mn in Q1 2021 to negative $724mn in Q1 2022. Today: China Telecom, Walmart, Agilent Technologies, Home Depot, Sea Ltd Wednesday: Tencent, Hong Kong Exchanges & Clearing, Analog Devices, Cisco Systems, Synopsys, Lowe’s, CSL, Target, TJX, Coloplast, Carlsberg, Wolfspeed Thursday: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0900 – Germany Aug. ZEW Survey 0900 – Eurozone Jun. Trade Balance 1200 – Poland Jul. Core CPI 1215 – Canada Jul. Housing Starts 1230 – US Jul. Housing Starts and Building Permits 1230 – Canada Jul. CPI 2030 – API Weekly Report on US Oil Inventories 2350 – Japan Jul. Trade Balance 0130 – Australia Q2 Wage Index 0200 – New Zealand RBNZ Official Cash Rate announcement 0300 – New Zealand RBNZ Governor Orr Press Conference  Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher Source: Financial Markets Today: Quick Take – August 16, 2022
Volume Of Crude Oil Rose For The Second Session In A Row

The Cheapest Oil In Six Months!!! How Will It Affect The Global Economics?

Conotoxia Comments Conotoxia Comments 16.08.2022 11:55
The price of WTI crude oil remained below $90 per barrel at the beginning of the week, the level before Russia's attack on Ukraine. Oil today is the cheapest in six months. It seems that the topic of a global economic slowdown or recession and how long it may last may be important for the oil market. Chinese and U.S. economic data seem to show a weaker condition in both economies and thus could affect the decline in oil demand. This, in turn, could put downward pressure on prices. According to published data, factory activity in China declined enough in July to force the central bank to cut lending rates to keep demand from collapsing. In the United States, on the other hand, the market may have been taken by surprise by the second-largest drop in the history of the New York Empire State Manufacturing Index. The above indicators may affect the market from the demand side, but this is only one part of the puzzle. On the supply side, long-awaited changes may be brewing. Once the embargo is lifted, oil from Iran may start flowing into the market again. Iran has responded to the European Union's proposal. It may seek to re-implement the 2015 nuclear agreement. The EU is also calling on the US to show more flexibility in implementing the agreement. Saudi Arabia may also be preparing to increase its oil supply. The chairman of Saudi Aramco, the state-owned oil giant, stated over the weekend that his company is ready to increase production to 12 million barrels per day, the company's current production capacity limit. Only a decision by the Saudi Arabian government is needed to increase production. According to the EIA agency's forecast, the United States can also increase its production. US oil production in the August forecast averages 11.9 million barrels per day (b/d) in 2022. It could rise to 12.7 million b/d in 2023. If this forecast comes true, the US could set a production record next year. The current one is 12.3 million b/d and was set in 2019.   Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Conotoxia investment service) Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82.59% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Source: Oil near six-month lows
Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Walmart And Home Depot Did Better Than Expected. S&P 500 Reaches The 4,3k Level

Saxo Strategy Team Saxo Strategy Team 17.08.2022 08:35
Summary:  S&P500 index broke above the key 4,300 resistance level while the NASDAQ pushed lower amid mixed economic data and better-than-feared earnings from Walmart and Home Depot. US housing data continues to worsen, but the focus now turns to FOMC minutes due later today, as well as the US retail sales which will be next test of the strength of the US consumer. Asia session may have trouble finding a clear direction, but Australia’s wage price index and RBNZ’s rate hike may help to provide some bounce. What is happening in markets? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities were mixed. Tech names had an initial pullback, followed by short-coverings that narrowed the loss of the Nasdaq 100 to 0.23% at the close. S&P500 edged up 0.19% to 4,305 on better-than-feared results from retailers, moving towards its 200-day moving average (4,326). Walmart (WMT:xnys) and Home Depot (HD:xnys) reported Q2 results beating analyst estimates. Walmart gained 5% on strong same-store sales growth and a deceleration in inventory growth. Home Depot climbed 4% after reporting better than expected EPS and same-store sales but with an acceleration in inventory buildup. The declines in housing starts and building permits released on Monday and the downbeat comments about the U.S. housing market from the management of Compass (COMP:xnys), an online real estate brokerage, highlighted the challenges faced in the housing sector.  Short-end U.S. treasury yields rose as the long-end little changed The bigger than expected increases in July industrial production (+0.6% MoM), manufacturing production (+0.7% MoM), and business equipment production (+0.6%) triggered some selling in the short-end of U.S. treasury curve, pushing the 2-year yield 8 bps higher to 3.25% as 10-year yield edged up 1bp.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) China internet stocks were sold off on Tuesday afternoon after Reuters ran a story suggesting that Tencent (00700:xhkg) plans to divest its 17% stake (USD24 billion) in Meituan (03690:xhkg).  The shares of Meituan collapsed 9% while Tencent gained 0.9%.  After the close of the Hong Kong market, Chinese media, citing sources “close to the matter” suggested that the divesture story is not true. However, the ADRs of Meituan managed to recover only 1.7% in New York trading. The newswire story also triggered selling on Kuaishou (01024:xhkg), -4.4%, which has Tencent as a major investor. The decline in internet stocks dragged the Hang Seng Index 1% lower. On the other hand, Chinese developers soared on another newswire report that state-owned China Bond Insurance is going to provide guarantees to new onshore debts issued by several “high quality” developers, including Country Garden (02007:xhkg) +9%, Longfor (00960:xhkg) +12%, CIFI (00884:xhkg) +12.9%, and Seazen (01030:xhkg) +7.6%.  Shares of Chinese property management services also surged higher.  GBPUSD bounced off the 1.2000 support, NZD eyeing RBNZ A mixed overnight session for FX as the US yields wobbled. Risk sentiment held up with the mixed US data accompanied by a less bad outcome in the US retailer earnings than what was expected. This made the safe-haven yen a clear underperformer, and USDJPY rose back above 134. But a clear trend in the pair is still missing and a break above 135 is needed to reverse the downtrend. Cable got lower to remain in close sight of the 1.2000 big figure, but rose above 1.2100 subsequently. UK CPI report due today may confirm the need for further BOE action after labor data showed wage pressures. NZDUSD remains near lows of 0.6320 but may see a knee-jerk higher if RBNZ surprises on the hawkish side. Crude oil prices (CLU2 & LCOV2) Crude oil prices remain under pressure due to the prospect of Iran nuclear deal, and printed fresh lows since the Ukraine invasion. Some respite was seen in early Asian session, and WTI futures were last seen at $87/barrel and Brent is below $93. The EU submitted a final proposal to salvage the Iran nuclear deal, and prospects of more energy supply are dampening the price momentum. It has been reported that Iran’s response was constructive, and they are now consulting with the US on a way ahead for the protracted talks. The API reported crude inventories fell by 448,000 barrels last week, while gasoline stockpiles increased by more than 4 million barrels. Government data is due later Wednesday. European Dutch TTF benchmark gas futures (TTFMU2) touched €250/MWh, but has cooled off slightly recently, but still signals the heavy price that Europe is paying for the dependence on Russian gas. Copper holding up well despite China slowdown concerns Despite reports of weaker financing and activity data from China earlier this week, Copper remains well supported and registered only modest declines. BHP’s results provided some offset, as did the supply side issues in Europe. Only a break below the key 350 support will turn the focus lower. Meanwhile, zinc rallied amid concerns of smelter closures in Europe. What to consider? US housing scare broadens, industrial production upbeat Housing starts fell 9.6% in July to 1.446 mn, well beneath the prior 1.599 mn and the expected 1.537 mn. Housing starts are now down for five consecutive months, and suggest a cooling housing market in the wake of higher borrowing costs and higher inflation. Meanwhile, building permits declined 1.3% in July to 1.674 mn from 1.696 mn, but printed above the expected 1.65 mn. There will be potentially more scaling back in construction activity as demand weakens and inventory levels rise. On the other hand, industrial production was better than expected at 0.6% m/m (prev: -0.2%) possibly underpinned by holiday demand but the outlook is still murky amid persistent inflation and supply chain issues. US retailer earnings come in better than feared Walmart (WMT:xnys) and Home Depot (HD:xnys) reported better-than-feared results on Tuesday. Walmart’s Q2 revenues came in at USD152.9 billion (+8.4% YoY, consensus USD150.5bn). Same-store sales increased 8.4% YoY (vs consensus +6.0% YoY).  EPS of USD1.77, down 0.8% from a year ago quarter but better than the consensus estimate of USD1.63. While inventories increased 25.5% in Q2, the rate of increase has moderated from the prior quarter’s +32.0%. The company cited falls in gas prices, market share gain in grocery, and back-to-school shopping key reasons behind the strength in sales.  Home Depot reported Q2 revenues of USD43.9 billion (vs consensus USD43.4bn), +6.5% YoY.  Same-store sales grew 5.8%, beating analyst estimates (+4.9%).  EPS rose 11.5% to $5.05, ahead of analyst estimates (USD4.95). However, inventories grew 38% YoY in Q2, which was an acceleration from the prior quarter. The management cited inflation and pulling forward inventory purchases given supply chain challenges as reasons for the larger inventory build-up. Target (TGT:xnys) is scheduled to report on Wednesday. Eyes on US retail sales US retail sales will be next test of the US consumer after less bad retailer earnings last night. Retail sales should have been more resilient given the lower prices at pump improved the spending power of the average American household, and Amazon Prime Day in the month possibly attracted bargain hunters as well. However, consensus expectations are modest at 0.1% m/m compared to last month’s 1.0%. A cooling labor market in the UK UK labor market showed signs of cooling as job vacancies fell for the first time since August 2020 and real wages dropped at the fastest pace in history. Unemployment rate was steady at 3.8%, and the number of people in employment grew by 160,000 in the April-June period as against 256,000 expected. There was also a sprinkle of good news, with the number of employees on payrolls rising 73,000 in July, almost triple the pace expected. Also, wage growth was strong at 4.7% in the June quarter from 4.4% in the three months to May, which may be key for the BOE amid persistent wage pressures. Australia Q2 Wage Index to determine future RBA rate hike size? The RBA Minutes out on Tuesday showed a central bank that is trying to navigate a “narrow path” for keeping the Australian economy on an “even keel”. The RBA has often singled out wages as an important risk for whether inflation risks becoming more embedded and on that note, today sees the release of the Q2 Wage Index, expected to come in at 2.7% year-on-year after 2.4% in Q1. A softer data point may have the market pulling back expectations for another 50 basis point rate hike at the next RBA meeting after the three consecutive moves of that size. The market is about 50-50 on the size of the RBA hike in September, pricing a 35bps move. RBNZ set to decelerate its guidance after another 50 basis point move today? The Reserve Bank of New Zealand is expected to hike its official cash rate another 50 basis points tonight, taking the policy rate to 3.00%. With business and consumer sentiment surveys in the dumps in New Zealand and oil prices retreating sharply the RBNZ, one of the earliest among developed economies to tighten monetary policy starting late last year, may be set for more cautious forward guidance and a wait and see attitude, although wages did rise in Q2 at their second fastest pace (+2.3% QoQ) in decades. The market is uncertain on the future course of RBNZ policy, pricing 45bps for the October meeting after today’s 50bps hike and another 37bps for the November meeting. FOMC minutes to be parsed for hints on future Fed moves The Federal Reserve had lifted rates by 75bps to bring the Fed Funds rate at the level that they consider is neutral at the July meeting, but stayed away from providing any forward guidance. Meeting minutes will be out today, and member comments will be watched closely for any hints on the expectation for September rate hike or the terminal Fed rate. The hot jobs report and the cooling inflation number has further confused the markets since the Fed meeting, even as Fed speakers continue to push against any expectations of rate cuts at least in ‘early’ 2023. We only have Kansas City Fed President Esther George (voter in 2022) and Minneapolis Fed President Kashkari (non-voter in 2022) speaking this week at separate events on Thursday, so the bigger focus will remain on Jackson Hole next week for any updated Fed views.   For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast.   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 17, 2022
Increase In Interest Of Nuclear Energy Around The World

Decision On Closing Three German Nuclear Plants Is Not Made Yet. In France Wind Generation And Hydropower Stations Results Are Below Norms

Marc Chandler Marc Chandler 17.08.2022 15:00
Overview: The biggest development today in the capital markets is the jump in benchmark interest rates.  The US 10-year yield is up five basis points to 2.86%, which is about 10 bp above Monday’s low.  European yields are up 9-10 bp.  The 10-year German Bund yield was near 0.88% on Monday and is now near 1.07%.  Italy’s premium over German is near 2.18%, the most in nearly three weeks.  Although Asia Pacific equities rallied, led by Japan’s 1.2% gain, but did not include South Korea, European equities are lower as are US futures.  The Stoxx 600 is struggled to extend a five-day rally.  The Antipodeans are the weakest of the majors, but most of the major currencies are softer. The euro and sterling are straddling unchanged levels near midday in Europe.  Gold is soft in yesterday’s range, near its lowest level since August 5.  While $1750 offers support, ahead of it there may be bids around $1765. October WTI is pinned near its lows around $85.50-$86.00.  The drop in Chinese demand is a major weight, while the market is closely monitoring developments with the Iranian negotiations.  US natgas is edging higher after yesterday 6.9% surge to approach last month’s peak.  Europe’s benchmark is 4.5% stronger today after yesterday’s 2.7% pullback.  Iron ore fell (3.9%) for the fourth consecutive decline. The September contract that trades in Singapore is at its lowest level since July 22.  September copper is a little heavier but is still inside Monday’s range.  September wheat is extending its pullback for the fourth consecutive session.  It had risen in the first four sessions last week. It is moving sideways in the trough carved over the past month.    Asia Pacific   The Reserve Bank of New Zealand delivered the anticipated 50 bp rate hike and signaled it would continue to tighten policy    It did not help the New Zealand dollar, which is posting an outside day by trading on both sides of yesterday's range.  The close is the key and below yesterday's low (~$0.6315) would be a bearish technical development that could spur another cent decline.  It is the RBNZ's fourth consecutive half-point hike, which followed three quarter-point moves.  The cash target rate is at 3.0%.  Inflation (Q2) was stronger than expected rising 7.3% year-over-year.  The central bank does not meet again until October 5, and the swaps market has a little more than a 90% chance of another 50 bp discounted.    Japan's July trade balance deteriorated more than expected    The shortfall of JPY1.44 trillion (~$10.7 bln) form JPY1.40 trillion in June.  Exports slowed to a still impressive 19% year-over-year from 19.3% previously, while imports rose 47.2% from 46.1% in June.  The terms-of-trade shock is significant in both Japan and Europe.  Japan's ran an average monthly trade deficit of about JPY1.32 trillion in H1 22 compared with an average monthly surplus of JPY130 bln in H1 21.  The eurozone reported an average shortfall of 23.4 bln euros in H1 22 compared with a 16.8 bln average monthly surplus in H1 21.  The two US rivals, China, and Russia, have been hobbled by their own actions, while the two main US economic competitors, the eurozone and Japan are experiencing a dramatic deterioration of their external balance,     The 11 bp rise in the US two-year yield between yesterday and today has helped lift the US dollar to almost JPY135.00, a five-day high   It has met the (50%) retracement target of the downtrend since the multiyear peak in mid-July near JPY139.40.  The next target is the high from earlier this month around JPY135.60.  and then JPY136.00.  Initial support now is seen near JPY134.40.  After recovering a bit in the North American session yesterday, the Australian dollar has come under renewed selling pressure and is trading at five-day lows below the 20-day moving average (~$0.6990).  It has broken support in the $0.6970-80 area to test the trendline off the mid-July low found near $0.6965.  A break could signal a move toward $0.6900-10.  The gap created by yesterday's high US dollar opening against the Chinese yuan was closed today as yuan recovered for the first day in three sessions.  Monday's high was CNY6.775 and yesterday's low was CNY6.7825.  Today's low is about CNY6.7690.  For the second consecutive session, the PBOC set the dollar's reference rate a little lower than the market (median in Bloomberg's survey) expected (CNY6.7863 vs. CNY6.7877).  The dollar has risen to almost CNH6.82 in the past two sessions and still trading a little above CNH6.80 today but was sold to nearly CNH6.7755 where is has found new bids.      Europe   The UK's headline CPI accelerated to 10.1% last month from 9.4% in June    It was above market expectations and the Bank of England's forecast for a 9.9% increase.  Although the rise in food prices (2.3% on the month and 12.7% year-over-year) lifted the headline, the core rate, which excludes food, energy, alcohol, and tobacco rose to 6.2% from 5.8% and was also above expectations (median forecast in Bloomberg's survey was for 5.9%).  Producer input prices slowed, posting a 0.1% gain last month for a 22.6% year-over-year pace (24.1% in June).  However, output prices jumped 1.6% after a 1.4% gain in June.  This puts the year-over-year pace at 17.1%, up from 16.4% previously.  The bottom line is that although the UK economy contracted in Q2 and the BOE sees a sustained contraction beginning soon, the market recognize that the monetary policy will continue to tighten.  The market swaps market is fully pricing in a 50 bp hike at the mid-September meeting and is toying with the idea of a larger move (53 bp of tightening is discounted).    What a year of reversals for Germany    After years of pressure from the United States and some allies in Europe, Germany finally nixed the Nord Stream 2 pipeline with Russia.  Putin also got Germany to do something that several American presidents failed to achieve and that is boost is defense sending in line with NATO commitments. The energy crunch manufactured by Russia is forcing Germany to abandon is previous strategy of reducing coal and closing down its nuclear plants.  Ironically, the Greens ae in the coalition government and recognize little choice.  A formal decision on three nuclear plants that were to be shuttered before the end of the year has yet to be made, but reports confirm it is being discussed at the highest levels.     Germany's one-year forward electricity rose by 11% to 530.50 euros a megawatt-hour in the futures market years, a gain of more than 500%     France, whose nuclear plants are key to the regional power grid, is set to be the lowest in decades, according to reports.  France has become a net importer of electricity, while the extreme weather has cut hydropower output and wind generation is below seasonal norms.  The low level of the Rhine also disrupts this important conduit for barges of coal and oil. Starting in October, German households will have a new gas tax (2.4-euro cents per kilowatt hour for natural gas) until 1 April 2024. Economic Minister Habeck estimated that for the average single household the gas tax could be almost 100 euros a month, while a couple would pay around 195 euros.  Also, starting in October, utilities will be able to through to consumers the higher costs associated with the reduction of gas supply from Russia.  This poses upside risk to German inflation.     The euro held technical support near $1.0110 yesterday and is trading quietly today in a narrow (~$1.0150-$1.0185) range today    Yesterday was the first session since July 15 that the euro did not trade above $1.02.  The decline since peaking last week a little shy of $1.0370 has seen the five- and 20-day moving averages converge and could cross today or tomorrow for the first time since late July. We note that the US 2-year premium over German is testing the 2.60% area.  It has not closed below there since July 22.  Sterling held key support at $1.20 yesterday and traded to almost $1.2145 today, which met the (50%) retracement objective of the fall from last week's $1.2275 high.  The next retracement (61.8%) is closer to $1.2175.  The UK reported employment yesterday, CPI today, and retail sales ahead of the weekend.  Retail sales, excluding gasoline have fallen consistently since last July with the exception of October 2021 and June 2022.  Retail sales are expected to have slipped by around 0.3% last month.     America   The Empire State manufacturing August survey on Monday and yesterday's July housing starts pick up a thread first picked up in the July composite PMI, which fell from 52.3 to 47.7 of some abrupt slowing of economic activity  The Empire State survey imploded from 11.1 to -31.3.  Housing starts fell 9.6%, more than four-times the pace expected (median Bloomberg survey -2.1%).  It was small comfort that the June series was revised up 2.4% from initially a 2.0% decline.  The 1.45 mln unit pace is the weakest since February 2021 and is about 9% lower than July 2021.  However, offsetting this has been the strong July jobs report and yesterday' industrial production figures.  The 0.6% was twice the median forecast (Bloomberg's survey) and the June decline (-0.2%) was revised away. The auto sector continues to recover from supply chain disruptions, and this may be distorting typically seasonal patterns.  Sales are rose in June and July, the first back-to-back gain in over a year. To some extent, supply is limiting sales, which would seem to encourage production.  Outside of autos, output slowed (year-over-year) for the third consecutive month in July.     Today's highlights include July retail sales and the FOMC minutes     Retail sales are reported in nominal terms, which means that the 13% drop in the average retail price of gasoline will weigh on the broadest of measures.  However, excluding auto, gasoline, building materials, and food services, the core retail sales will likely rise by around 0.6% after a 0.8% gain in June.  The most important thing than many want to know from the FOMC minutes is where the is bar to another 75 bp rate hike.  The Fed funds futures market has it nearly 50/50.     Canada's July CPI was spot on forecasts for a 0.1% month-over-month increase and a 7.6% year-over-year pace (down from 8.1%)     However, the core rates were firm than average increased.  The market quickly concluded that this increases the likelihood that the central bank that surprised the market with a 100 bp hike last month will lift the target rate by another 75 bp when it meets on September 7.  In fact, the swaps market sees it as a an almost 65% probability, the most since July 20.  Canada reports June retail sales at the end of the week.  The median forecast in Bloomberg's survey is for a 0.4% gain, but even if it is weaker, it is unlikely to offset the firm core inflation readings.     The dollar-bloc currencies are under pressure today, but the Canadian dollar is faring best, off about 0.25% in late morning trading in Europe     The Aussie is off closer to 0.75% and the Kiwi is down around 0.5%.  US equities are softer. The greenback found support near CAD1.2830 and is near CAD1.2880.  Monday and Tuesday's highs were in the CAD1.2930-5 area and a break above there would target CAD1.2985-CAD1.3000.  However, the intraday momentum indicators are overextended, and initial support is seen in the CAD1.2840-60 area. The greenback has forged a shelf near MXN19.81 in recent days.  It has been sold from the MXN20.83 area seen earlier this month.  It has not been above MXN20.05 for the past five sessions.  A move above there, initially targets around MXN20.20.  The JP Morgan Emerging Market Currency Index is off for the third consecutive session. If sustained, it would be the longest losing streak since July 20-22.     Disclaimer   Source: Markets Look for Direction
Saxo Bank Podcast: US Equities Continue To Trade Up, Natural Gas In Europe, Bank of Japan Meeting Ahead And More

Natural Gas Is More Valuable Than Crude Oil!? Carbon Emission Is Almost The Highest In History!!!

Kim Cramer Larsson Kim Cramer Larsson 17.08.2022 16:02
Dutch TTF Gas is resuming uptrend taking out July peak testing the 0.618 Fibonacci retracement at around €242.75.RSI has broken its falling trend and is likely to trade out/cancel the divergence since mid-July. If Dutch gas closes above the 0.618 retracement the 0.764 retracement at around 281.82 is next level likely to be reached. The upper rising trend line is likely to be reached and possibly broken in a gas price that seems to accelerate.To reverse the uptrend a close below 187.50 is needed.However, a correction over the next couple of days is not unlikely given the Spinning Top Candle formed yesterday. IT is often a top and reversal indicator but needs to be confirmed by a bearish candle the following day. IF Dutch Gas closes above its peak the potential top and reversal is demolished. Source: Saxo Group Henry Hub Gas has taken out resistance at the 0.618 retracement at around $8.90 and now also 0.764 retracement indicating previous highs at $9.66-9.75 are likely to be tested. If Henry Hub Gas closes above previous highs new price targets Source: Saxo Group Brent Crude oil continue its downtrend closing in on support at around $90. RSI is testing previous lows. There is divergence indicating a weakening of the downtrend but if RSI makes a new low the $90 support could be broken. Next support would be at around the 0.764 retracement at 85.76To set the downtrend on pause a close above 100.38. That will most likely not reverse the trend but merely just put it on pause. Source: Saxo Group WTI Crude oil was rejected at the short-term falling trendline and is now back below the 0.618 retracement. Next support at 81.90. There is divergence on RSI indication the downtrend is weakening. However, if RSI closes below If WTI closes back above the 200 SMA i.e. above $95 thereby also breaking above the short-term falling trendline, a larger correction to around 105-110 is likely. Source: Saxo Group Carbon Emissions broke its falling trendline last week and has now also broken above resistance at 92.75 closing in on its all-time high just below €100. RSI is entering over-bought territory but there is no divergence indicating higher levels (above 100) is likely. However, do expect a correction from just below previous highs.            Source: Saxo Group   Source: Technical Update - Natural Gas powers higher. Oil downtrend weakening, close to and end? Carbon Emission close to all-time highs
The Elasticity On Supply Of Fossil Fuels Is Low And The Green Transformation Is Accelerating Electrification

We Need To Build Our Green Energy Future. Here Is Why

Peter Garnry Peter Garnry 17.08.2022 16:26
Summary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future. The energy crisis keeps getting worse Electricity prices in Europe are nine times higher than the historical average since 2007 as lack of investments and cutting the ties to Russia’s energy supplies are severely constraining available energy in society. Since before the pandemic we have written many equity notes on the green transformation which involves building out renewable energy sources and electrifying everything in the economy to reduce the carbon emissions involved with our current living standard. Switching a large part of the transportation sector to electricity or green fuels, switching the heating source from natural gas to renewable energy through electrification (air-to-water heat pumps) etc. is very difficult as our rising wealth (measured by GDP) is finely mapped to carbon emissions over the past 300 years. We described this in our note The inconvenient truth on energy and GDP. Decoupling our wealth generating function from that of carbon emissions is probably the greatest task humans has ever set out to do. German baseload electricity 1 year forward | Source: Bloomberg There is not ‘one solution’ that fixes our energy crisis As BP’s 2022 Statistical Review of World Energy pictures primary energy demand in 2021 eclipsed 2019 suggesting the world’s demand for energy is now higher than before the pandemic and the usage of fossil fuels (82%) is only slightly down compared to five years ago (85%). We very much still live in a fossil fuel based economy. Things will change over time and the share of fossil fuels will likely decline, but the idea that the world can do the green transformation by electrifying everything based on renewable energy sources is naïve. Investors should also remember that the change in primary energy demand is mostly driven by the non-OECD countries. Renewable energy does not scale fast enough for a complete transition due to the speed on electrification and recently the CEOs of Orsted and Vestas complained about bureaucracy related to get new offshore wind power projects approved. The recent Climate & Tax Bill is acknowledging that we will need oil and gas for longer than expected just three years ago and thus our current energy crisis will allow both renewable energy and fossil fuel energy to be good investments in parallel. Renewable energy is the third best theme basket this year while the commodities basket (which includes oil & gas and mining companies) is the best performer. Our view of the future of energy is that there is no ‘one solution’ to our energy problem. We must move to a mindset of energy diversification. We will need many different sources of energy and never rely too much on one source. Germany’s reliance on natural gas for its economic model has proved fragile. Even France’s concentrated bet on nuclear power has proved to be fragile due to corrosion and now too hot rivers. The world must invest in all types of energy and thus our view is that investors mut get broad exposure to energy going forward. The non-renewable energy sector at a glance In this equity note we will focus on the non-renewable energy because this is the part of the energy sector which has changed the most relative to market pricing and expectations and where there is more room for valuations changing. Despite high oil and gas prices the energy sector is still relatively cheap as we described already back in May in our note Global energy stocks are the cheapest in 27 years where we measured valuation on the free cash flow yield. The high oil and gas prices have also led to record profits for refiners and recently the highest quarterly profit ever recorded in the global energy sector which we described in our note Earnings hit new all-time high as inflation lifts all boats. The global energy sector (defined by GICS and being the non-renewable energy sector) is still cheap relative to the global equity market with the 12-month EV/EBITDA being two standard deviations below the average valuation spread since 2005. In terms of total return the global energy sector has delivered a higher return than the global equity market since 1995 (see chart). It is also worth noting that measured on the 12-month forward EV/EBITDA the renewable energy sector has twice the valuation level compared to the non-renewable energy sector reflecting the different in expectations for the future priced in the market. As we described in our Q1 Outlook the current dividend yield and expected dividend growth suggest that the global energy sector has an expected long-term return of 10% annualised subject of course to a large degree of uncertainty related to equity valuation compression in the industry or lower dividend growth in the future than expected today. Global energy vs global equities | Source: Bloomberg The easiest way to invest in the energy sector is through ETFs tracking the sector and most investors should do that. A different approach is investing in specific parts of the non-renewable energy sector. The tables below show the top five company on market value in each of the GICS industries in the GICS energy sector. As the five-year total returns in USD column show, the industries related only to drilling and providing equipment for drilling activities have done the worst because the decline in capital expenditures since 2015 has dried up activity for this industry. The integrated oil and gas majors have done better due to refining and trading businesses. Over the past five years, the best performing industries in the energy sector have been refining and marketing due to the crack spreads (the difference between crude oil and refined products) have expanded during the pandemic. The global coal industry has also done very well which in terms of climate change and reducing carbon emissions is a sad observation but we should be aware of that the primary fuel source for power generation globally is still coal. GICS industries in the energy sector | Source: Bloomberg and Saxo Group Source: How to invest in energy and the unfolding energy crisis?
US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

US: Drivers Demand Of Oil The Highest This Year! Silver Lost Almost The Half Of Its Recent Gaines

Saxo Strategy Team Saxo Strategy Team 18.08.2022 10:50
Summary:  US equities traded a bit lower yesterday after the S&P 500 challenged the 200-day moving average from below the prior day for the first time since April in the steep comeback from the June lows. Sentiment was not buoyed by the FOMC minutes of the July meeting suggesting the Fed would like to slow the pace of tightening at some point. Crude oil rose from a six-month low on bullish news from the US and OPEC.   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures rolled over yesterday wiping out the gains from the two previous sessions and the index futures are continuing lower this morning trading around the 4,270 level. US retail sales for July were weak and added to worries of the economic slowdown in real terms in the US. The 10-year yield is slowing crawling back towards the 3% level sitting at 2.87% this morning. A move to 3% and potentially beyond would be negative for equities. The next levels to watch on the downside in S&P 500 futures are 4,249 and then 4,200 Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Shares in the Hong Kong and mainland China markets declined. China internet stocks were weak across the board with Tencent (00700:xhkg) +2.7% and Meituan (03690:xhkg) +1%, being the positive outliers. Tencent reported a revenue decline of 3% y/y in Q2, weak, but in line with market expectations. Non-GAAP operating profit was down 14% y/y to RMB 36.7bn, and EPS fell 17% y/y to RMB 2.90 but beating analyst estimates. Revenues from advertising at -18% y/y were better than expected. In the game segment, weaker mobile game revenues were offset by stronger PC game revenues. Beer makers outperformed China Resources Beer (00291:xhkg) +3.8%, Tsingtao Brewery (00168:xhkg) +1.7%. COSCO Shipping Energy Transportation (01138:xhkg) made a new high at the open on strong crude oil tanker freight rates before giving back some gains. USD pairs as the USD rally intensifies The US dollar rally broadened out yesterday, as USDJPY retook the 135.00 area, but needs to follow through above 135.50-136.00 to take the momentum back higher. Elsewhere, AUDUSD has broken down again on the move down through 0.7000 and USDCAD has posted a bullish reversal, needing 1.3000 for more upside confirmation. The GBPUSD pair looks heavy despite a massive reset higher in UK rates in the wake of recent UK inflation data, with a close below 1.2000 indicating a possible run on the sub-1.1800 lows, while EURUSD is rather stuck tactically, as price has remained bottled up above the 1.0100 range low. USDCNH, as discussed below, may be a key pair for whether the USD rally broadens out even more aggressively, and long US treasury yields and risk sentiment are other factors in the mix that could support the greenback, should the 10-year US treasury benchmark move higher toward 3.00% again or sentiment roll over for whatever reason. Certainly, tightening USD liquidity could prove a concern for sentiment as the Fed turns up the pace of quantitative tightening – something it seems behind schedule in doing if we look at the latest weekly Fed balance sheet data.  USDCNH The exchange rate edged higher again to above 6.80 overnight after a brief spike higher earlier this week as China’s PBOC moved to stimulate with a small 10-basis point rate cut of the key lending rate. There is no real drama in the exchange rate yet after the significant rally this spring from below 6.40 to 6.80+, but traders should keep an eye on this very important exchange rate for larger volatility and significant break above 6.83, as China’s exchange rate policy shifts can provoke significant volatility across markets. Crude oil Crude oil (CLU2 & LCOV2) bounced from a six-month low on Wednesday in response to a bullish US inventory report that saw big declines in gasoline and crude oil stocks as demand from US motorist climbed to the highest this year while crude exports reached a record $5 million barrels per day. The prospect for an Iran nuclear deal continues to weigh while OPEC’s new Secretary-General said spare capacity was becoming scarce. US strategic reserves are now at the lowest level since 1985 and the government has by now sold around 90% of what was initially offered in order to bring down prices. While demand concerns remain a key driver for macroeconomic focused funds selling crude oil as a hedge we notice a renewed surge in refinery margins, especially diesel, supported by increased demand from gas-to-fuel switching Gold and silver Gold has so far managed to find support at $1759, the 38.2% retracement of the July to August bounce, after trading weaker in response to a stronger dollar and rising yields. Silver (XAGUSD) meanwhile has almost retraced half of its recent strong gains with focus now on support at $19.50. The latest driver being the FOMC minutes which signaled ongoing interest-rate hikes and eventually at a slower pace than the current. The short-term direction has been driven by speculators reducing bullish bets following a two-week buying spree in the weeks to August 9 which lifted the net by 63k lots, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication investor, for now, trusts the FOMC’s ability to bring down inflation within a relatively short timeframe   What is going on? Financial conditions are tightening, if modestly. Recent days have brough a rise in short US treasury yields, but more importantly it looks as though some of the risk indicators like corporate credit spreads may have bottomed out here after a sharp retreat from early July highs – one Bloomberg high yield credit spreads to US treasuries peaked out above 5.75% and was as low as 4.08% earlier this week before rising to 4.19% yesterday, with high yield bond ETFs like HYG and JNK suffering a sharp mark-down yesterday of over a percent. Factors that could further aggravate financial conditions include a significant CNH weakening, higher US long treasury yields (10-year yield moving back toward 3.00%, for example) or further USD strength. Adyen sees margin squeeze. One of Europe’s largest payment companies reports first-half revenue of €609mn vs est. €615mn despite processed volume came significantly above estimates at €346bn suggesting the payments industry is experiencing pricing pressures. Cisco outlook surprises. The US manufacturer of networking equipment surprised to the upside on both revenue and earnings in its fiscal Q4 (ending 30 July), but more importantly, the company is guiding revenue growth in the current fiscal quarter of 2-4% vs est. -0.2% and revenue growth for the current fiscal year of 4-6% vs est. 3.3%. Cisco said that supply constraints are beginning to ease and that customer cancellations are running below pre-pandemic levels, and that the company’s growth will be a function of availability. Stale FOMC minutes hint at sustained restrictive policy, but caution on pace of tightening. Fed’s meeting minutes from the July meeting were released last night, and officials agreed to move to restrictive policy, with some noting that restrictive rates will have to be maintained for some time to bring inflation back to the 2% target. Still, there was also talk of slowing the pace of rate hikes ‘at some point’, despite pushing back against easing expectations for next year. The minutes were broadly in-line with the market’s thinking, and lacked fresh impetus needed to bring up the pricing of Fed’s rate hikes. Chairman Powell’s speech at the Jackson Hole Symposium next week will be keenly watched for further inputs. US retail sales were a mixed bag. July US retail sales were a little softer at the headline level than the market expected (0% growth versus the +0.1% consensus) but the ex-auto came in stronger at 0.4% (vs. -0.1% expected). June’s growth was revised down to 0.8% from 1%. The mixed data confirmed that the US consumers are feeling the pinch from higher prices, but have remained resilient so far and that could give the Fed more room to continue with its aggressive rate hikes. Lower pump prices and further improvements in supply chain could further lift up retail spending in August. The iron ore miners are resilient despite price pressures Despite China planning more fiscal stimulus to fund infrastructure investment, the iron ore (SCOA, SCOU2) price paired back 8% this week, retreating to its lowest equal level in five weeks at $101.65, a level the iron ore price was last at in December 2021. Since March, the iron ore price has retreated 37%, with the most recent pull back being fueled by concerns China’s Covid cases are surging again with cases at a three-month high, as the outbreak worsens in the tropical Hainan province. Despite iron ore pulling back, shares in iron ore majors like BHP, remain elevated, up off their lows, with BHP’s shares trading 14% up of its July low, and moving further above its 200-day moving average, on hopes of commodity demand picking up. What are we watching next? Norway’s central bank guidance on further tightening. The Norges Bank is expected to hike 50 basis points today to take the policy rate to 1.75% despite an indication from the bank in June that the bank would prefer to shift back to hiking rates by 25 basis points, as a tight labour market and soaring inflation weigh. The path of tightening for the central bank has been an odd one, as it was the first G10 bank to actually hike rates in 2021, but finds itself with a far lower policy rate than the US, for example, which started much later with a faster pace of hikes. But NOK may react more to the direction in risk sentiment rather than guidance from the Norges Bank from here, assuming no major surprises. The EURNOK downtrend has slowed of late – focusing on 10.00 if the price action continues to back up. Japan’s inflation will surge further. Japan’s nationwide CPI for July is due on Friday. July producer prices came in slightly above expectations at 8.6% y/y (vs. estimates of 8.4% y/y) while the m/m figure was as expected at 0.4%. The continued surge reflects that Japanese businesses are grappling with high input price pressures, and these are likely to get passed on to the consumers, suggesting further increases in CPI remain likely. More government relief measures are likely to be announced, while signs of any Bank of Japan pivot away from its low rates and yield-curve-control policy are lacking. Bloomberg consensus estimates are calling for Japan’s CPI to accelerate to 2.6% y/y from 2.4% previously, with the ex-fresh food number seen at 2.4% y/y vs. 2.2% earlier.   Earnings to watch In Europe this morning, the key earnings focus is Adyen which has already reported (see review above) and Estee Lauder which is deliver a significant slowdown in figures and increased margin pressure due to rising input costs. Today’s US earnings to watch are Applied Materials and NetEase, with the former potentially delivering an upside surprise like Cisco yesterday on improved supply chains. NetEase, one of China’s largest gaming companies, is expected to deliver Q2 revenue growth of 12% y/y as growth continues to slow down for companies in China. Today: Applied Materials, Estee Lauder, NetEase, Adyen, Nibe Industrier, Geberit Friday: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 0800 – Norway Deposit Rates 0900 – Eurozone Final Jul. CPI 1100 – Turkey Rate Announcement 1230 – US Weekly Initial Jobless Claims 1230 – Canada Jul. Teranet/National Bank Home Price Index 1230 – US Philadelphia Fed Survey 1400 – US Jul. Existing Home Sales 1430 – EIAs Weekly Natural Gas Storage Change 1720 – US Fed’s George (Voter) to speak 1745 – US Fed’s Kashkari (Non-voter) to speak 2301 – UK Aug. GfK Consumer Confidence 2330 – Japan Jul. National CPI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 18, 2022
A Pick Up In Yields May Come, The Question Is Open As US Treasury Yields Remain Rangebound

A Pick Up In Yields May Come, The Question Is Open As US Treasury Yields Remain Rangebound

Saxo Bank Saxo Bank 18.08.2022 11:38
Summary:  Today we note a further softening in sentiment, in part on a pick up in yields, but that story has yet to really trigger as long US treasury yields remain rangebound, if teasing important levels. We note important supports for the crude oil outlook, the crack spread picture in the energy complex, the still very low valuation of energy stocks relative to the broader market, stocks and earnings on our radar, FX developments as we keep the USDCNH chart front and center as a potential aggravator of weakening risk sentiment and more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: As risk sentiment rolls over, is crude oil set to rally?
West Texas Intermediate (WTI) Price Analysis: The Oil Price Has Corrected And Dropped

Crude Oil Price Probably Not Reach 100$(USD) Shortly

Swissquote Bank Swissquote Bank 18.08.2022 15:56
The equity rally in the US didn’t pick up momentum after the Federal Reserve (Fed) released its latest meeting minutes, which sounded more hawkish-than-expected, or more hawkish-than-what-was-needed-to-give-another-boost to the US stock markets. The biggest take was that the Fed will continue tightening its policy until it sees that inflation is ‘firmly on path back to 2%’. The S&P500 fell 0.72% as Nasdaq gave back 1.20%, although the jump in the US 2-year yield was relatively soft, and the Fed funds futures scaled back the expectation of a 75 bp hike in the next meeting. Crude price completed an ABCD pattern, and it is more likely than not we see the price rebound to the $100 level in the medium run. In China, Tencent announced its first ever revenue drop as government crackdown continued taking a toll on its sales, and the pound couldn’t gain even after the above 10% inflation data boosted the Bank of England (BoE) hawks and the call fall steeper rate hikes to tame inflation in the UK. Watch the full episode to find out more! 0:00 Intro 0:28 As expected, Fed minutes were more hawkish-than-expected 3:39 Crude oil has more chance to rebound than to fall 6:02 Tencent posts first-ever revenue drop 7:14 Apple extends gains, but technicals warn of correction 8:38 Pound unable to extend gains despite rising Fed hawks’ voices Ipek Ozkardeskaya has begun her financial career in 2010 in the structured products desk of the Swiss Banque Cantonale Vaudoise. She worked at HSBC Private Bank in Geneva in relation to high and ultra-high net worth clients. In 2012, she started as FX Strategist at Swissquote Bank. She worked as a Senior Market Analyst in London Capital Group in London and in Shanghai. She returned to Swissquote Bank as Senior Analyst in 2020. #Fed #FOMC #minutes #USD #GBP #inflation #Tencent #Alibaba #earnings #crude #oil #natural #gas #coal #futures #SPX #Dow #Nasdaq #investing #trading #equities #stocks #cryptocurrencies #FX #bonds #markets #news #Swissquote #MarketTalk #marketanalysis #marketcommentary ___ Learn the fundamentals of trading at your own pace with Swissquote's Education Center. Discover our online courses, webinars and eBooks: https://swq.ch/wr ___ Discover our brand and philosophy: https://swq.ch/wq Learn more about our employees: https://swq.ch/d5 ___ Let's stay connected: LinkedIn: https://swq.ch/cH
Oil Is An Indicator Of The Health Of The Global Economy

Crude Oil Has A Selling Weariness? Europe Prefers Oil Over Gas!?

Ole Hansen Ole Hansen 18.08.2022 16:14
Summary:  Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being an increased gas-to-fuel switching supporting the demand outlook for crude oil. Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driving by China’s troubled handling of Covid outbreaks, and its property sector problems as well as rapidly rising interest rates, were the main drivers behind the selling seen across commodities in recent months. Crude oil with its strong underlying fundamentals, with tight supply driven by Russia sanctions and OPEC struggling to lift production, was the last shoe to drop and since the mid-June peak, speculators and macroeconomic focused funds have been net sellers of both WTI and Brent crude oil futures. With most of these market participants using the front of the futures curve, the selling has seen the forward curve flatten, a development that is normally viewed as price negative as it signals reduced tightness in the market. However, for that to ring true we should see inventory levels of crude oil and fuel products rise while refinery margins should ease. None of these developments have occurred and it strengthens our belief that the weakness sign has more to do with position adjustments and short positions being implemented by traders focusing on macro instead of micro.  In the week to August 9, the combined net long in Brent and WTI slumped to 304k lots a level last seen in April 2020, and 209k lots below the mid-June peak.  While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The energy crisis in Europe continues to strengthen, most recently due to lower water levels on the river Rhine preventing the movement of barges carrying coal and fuel products such as diesel. The result being surging gas prices as utilities are forced to buy more gas to keep the turbines running. This week the cost of Dutch TTF benchmark gas reached $400 per barrel of crude oil equivalent. Such a wide gap between oil and gas has and will continue to attract increased demand for fuel-based product at the expense of gas and this switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published the incentive to switch has increased even more, adding more upward pressure on refinery margins, so called crack spreads (EU diesel crack shown below as an example) As mentioned, the recent selling pressure together with a deteriorating macro-economic backdrop have been the main drivers behind crude oils near 40-dollar slump since mid-June. The WTI chart below points to support at $85.50, a level almost reached on Tuesday. The price action is currently confined within a declining wedge and a break to the upside could trigger a strong buying response. For that to happen the price first needs to go back above $92 and the 21-day simple moving average, currently at $92.85. Source: Saxo Bank   How to invest in energy and the unfolding energy crisis? By Peter Garnry, Head of Equity StrategySummary:  We are used to not think about the energy sector, but the galloping global energy crisis has illuminated our deficits in primary energy due to years of underinvestment in fossil fuels and renewable energy sources inability to scale fast enough with the green transformation and electrification of our economy. It seems more likely now that the non-renewable and the renewable energy sector will both provide attractive returns as we will need both to overcome our short-term energy crisis and long-term aspirations of a greener energy future.   Source: Refinery margin jump lends fresh support to crude
Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Ukraine Saves The Day For The World As The Corridor Shipping Crops Is Opened. Other Countries Harvest Is Quite Low Therefore To Weather Issues

Saxo Strategy Team Saxo Strategy Team 19.08.2022 11:33
Summary:  Equity markets managed a quiet session yesterday, a day when the focus is elsewhere, especially on the surging US dollar as EURUSD is on its way to threatening parity once again, GBPUSD plunged well below 1.2000 and the Chinese renminbi is perched at its weakest levels against the US dollar for the cycle. Also in play are the range highs in longer US treasury yields, with any significant pull to the upside in yields likely to spell the end to the recent extended bout of market complacency.   What is our trading focus?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures bounced back a bit yesterday potentially impacted by the July US retail sales showing that the consumer is holding up in nominal terms. The key market to watch for equity investors is the US Treasury market as the US 10-year yield seems to be on a trajectory to hit 3%. In this case we would expect a drop in S&P 500 futures to test the 4,200 level and if we get pushed higher in VIX above the 20 level then US equities could accelerate to the downside. Fed’s Bullard comments that he is leaning towards a 75 basis point rate hike at the September meeting should also negatively equities here relative to the expectations. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index edged up by 0.4% and CSI300 was little changed. As WTI Crude bounced back above $90/brl, energy stocks outperformed, rising 2-4%. Technology names in Hong Kong gained with Hang Seng Tech Index (HSTECH.I) up 0.6%. Investors are expecting Chinese banks to cut loan prime rates on Monday, following the central bank’s rate cut earlier this week. The China Banking and Insurance Regulatory Commission (CBIRC) is looking at the quality of real estate loan portfolios and reviewing lending practices at some Chinese banks. The shares of NetEase (09999:xhkg/NTES:xnas) dropped more than 3% despite reporting above-consensus Q2 revenue up 13% y/y, and net profit from continuing operations up 28%.  PC online game revenue was above expectations, driven by Naraka Bladepoint content updates and the launch of Xbox version. Mobile game segment performance was in line. USD pairs as the USD rally intensifies The US dollar rally is finding its legs after follow up action yesterday that took EURUSD below the key range low of 1.0100, setting up a run at the psychologically pivotal parity, while GBPUSD slipped well south of the key 1.2000 and USDJPY ripped up through 135.50 resistance. An accelerator of that move may be applied if US long treasury yields pull come further unmoored from the recent range and pull toward 3.00%+. A complete sweep of USD strength would arrive with a significant USDCNH move as discussed below, and the US dollar “wrecking ball” will likely become a key focus and driver of risk sentiment as it is the premiere measure of global liquidity. The next key event risk for the US dollar arrives with next Friday’s Jackson Hole symposium speech from Fed Chair Powell. USDCNH The exchange rate is trading at the highs of the cycle this morning, and all traders should keep an eye out here for whether China allows a significant move in the exchange rate toward 7.00, and particularly whether CNH weakness more than mirrors USD strength (in other words, if CNH is trading lower versus a basket of currencies), which would point to a more determined devaluation move that could spook risk sentiment globally, something we have seen in the past when China shows signs of shifting its exchange rate regime from passive management versus the USD. Crude oil Crude oil (CLU2 & LCOV2) remains on track for a weekly loss with talks of an Iran nuclear deal and global demand concerns being partly offset by signs of robust demand for fuel products. Not least diesel which is seeing increasing demand from energy consumers switching from punitively expensive gas. Earlier in the week Dutch TTF benchmark gas at one point traded above $400 per barrel crude oil equivalent. So far this month the EU diesel crack spread, the margin refineries achieve when turning crude into diesel, has jumped by more than 40% while stateside, the equivalent spread is up around 25%, both pointing to a crude-supportive strength in demand. US natural gas US natural gas (NGU2) ended a touch lower on Thursday after trading within a 7% range. It almost reached a fresh multi-year high at $9.66/MMBtu after spiking on a lower-than-expected stock build before attention turned to production which is currently up 4.8% y/y and cooler temperatures across the country lowering what until recently had driven very strong demand from utilities. LNG shipments out of Freeport, the stricken export plant may suffer further delays, thereby keeping more gas at home. Stockpiles trail the 5-yr avg. by 13%. US Treasuries (TLT, IEF) The focus on US Treasury yields may be set to intensify if the 10-year treasury benchmark yield, trading near 2.90% this morning, comes unmoored from its recent range and trades toward 3.00%, possibly on the Fed’s increase in the pace of its quantitative tightening and/or on US economic data in the coming week(s). Yesterday’s US jobless claims data was better than expected and the August Philadelphia Fed’s business survey was far more positive than expected, suggesting expansion after the volatile Empire Fed survey a few days earlier posted a negative reading.   What is going on?   Global wheat prices continue to tumble ... with a record Russian crop, continued flows of Ukrainian grain and the stronger dollar pushing down prices. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat (ZWZ2) futures contract touch a January on Thursday after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. Existing home sales flags another red for the US housing market while other US economic data continues to be upbeat US existing home sales fell in July for a sixth straight month to 4.81 mn from 5.11 mn, now at the slowest pace since May 2020, and beneath the expected 4.89 mn. Inventory levels again continued to be a big concern, with supply rising to 3.3 months equivalent from 2.9 in June. This continues to suggest that the weakening demand momentum and high inventory levels may weigh on construction activity. The Philly Fed survey meanwhile outperformed expectations, with the headline index rising to +6.2 (exp. -5.0, prev. -12.3), while prices paid fell to 43.6 (prev. 52.2) and prices received dropped to 23.3 (prev. 30.3). New orders were still negative at -5.1, but considerably better than last month’s -24.8 and employment came in at 24.1 from 19.4 previously Fed speakers push for more rate hikes St. Louis Federal Reserve President James Bullard 2.6% with more front-loading in 2022. Fed’s George, much like Fed’s Daly, said that last month’s inflation is not a victory and hardly comforting. Bullard and George vote in 2022. Fed’s Kashkari said that he is not sure if the Fed can avoid a recession and that there is more work to be done to bring inflation down, but noted economic fundamentals are strong. Overall, all messages remain old and eyes remain on Fed Chair Powell speaking at the Jackson Hole conference on August 26, next Friday.  Japan’s inflation came in as expected Japan’s nationwide CPI for July accelerated to 2.6% y/y, as expected, from 2.4% y/y in June. The core measure was up 2.4% y/y from 2.2% previously, staying above the Bank of Japan’s 2% target and coming in at the strongest levels since 2008. Upside pressures remain as Japan continues to face a deeper energy crisis threat into the winter with LNG supplies possibly getting diverted to Europe for better prices. Still, Bank of Japan may continue to hold its dovish yield curve control policy unless wage inflation surprises consistently to the upside.   What are we watching next?   Strong US dollar to unsettle markets – and Jackson Hole Fed conference next week? The US dollar continues to pull higher here, threatening the cycle highs versus sterling, the euro and on the comeback trail against the Japanese yen as well. The US dollar is a barometer of global liquidity, and a continued rise would eventually snuff out the improvement in financial conditions we have seen since the June lows in equity markets, particularly if longer US treasury yields are also unmoored from their recent range and rise back to 3.00% or higher.  The focus on the strong US dollar will intensify should the USDCNH exchange rate, which has pulled to the highs of the cycle above 6.80, lurch toward 7.00 in coming sessions as it would indicate that China is unwilling to allow its currency to track USD direction. As well, the Fed seems bent on pushing back against market expectations for Fed rate cuts next year and may have to spell this out a bit more forcefully at next week’s Jackson Hole conference starting on Thursday (Fed Chair Powell to speak Friday). Earnings to watch The two earnings releases to watch today are from Xiaomi and Deere. The Chinese consumer is challenged over falling real estate prices and input cost pressures on food and energy, and as a result consumer stocks have been doing bad this year. Xiaomi is one the biggest sellers of smartphones in China and is expected to report a 20% drop in revenue compared to last year. Deere sits in the booming agricultural sector, being one of the biggest manufacturers of farming equipment, and analysts expect a 12% gain in revenue in FY22 Q3 (ending 31 July).   Today: China Merchants Bank, CNOOC, Shenzhen Mindray, Xiaomi, Deere Economic calendar highlights for today (times GMT) 1230 – Canada Jun. Retail Sales 1300 – US Fed’s Barkin (Non-voter) to speak Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 19, 2022
Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Commodities: Deglobalization, Green Transformation, Urbanization And Other Things That Got Involved

Ole Hansen Ole Hansen 19.08.2022 15:50
Summary:  Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. Overall, however, we do not alter our long-term views about commodities and their ability to move higher over time, with some of the main reasons being underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Commodities traded with a softer bias this week as the focus continued to rest on global macro-economic developments, in some cases reducing the impact of otherwise supportive micro developments, such as the fall in inventories seen across several individual commodities. The dollar found renewed strength and bond yields rose while the month-long bear-market bounce across US stocks showed signs of running out of steam.The trigger being comments from Federal Reserve officials reiterating their resolve to continue hiking rates until inflation eases back to their yet-to-be revised higher long-term target of around 2%. Those comments put to rest expectations that a string of recent weak economic data would encourage the Fed to reduce the projected pace of future rate hikes.The result of these developments being an elevated risk of a global economic slowdown gathering pace as the battle against inflation remains far from won, not least considering the risk of persistent high energy prices, from gasoline and diesel to coal and especially gas. A clear sign that the battle between macro and micro developments continues, the result of which is likely to be a prolonged period of uncertainty with regards to the short- and medium-term outlook.Overall, however, these developments do not alter our long-term views about commodities and their ability to move higher over time. In my quarterly webinar, held earlier this week, I highlighted some of the reasons why we see the so-called old economy, or tangible assets, performing well over the coming years, driven by underinvestment, urbanization, green transformation, sanctions on Russia and deglobalization. Returning to this past week’s performance, we find the 2.3% drop in the Bloomberg Commodity Index, seen above, being in line with the rise in the dollar where gains were recorded against all the ten currencies, including the Chinese renminbi, represented in the index. It is worth noting that EU TTF gas and power prices, which jumped around 23% and 20% respectively, and Paris Milling wheat, which slumped, are not members of the mentioned commodity index.Overall gains in energy led by the refined products of diesel and US natural gas were more than offset by losses across the other sectors, most notably grains led by the slump in global wheat prices and precious metals which took a hit from the mentioned dollar and yield rise. Combating inflation and its impact on growth remains top of mind Apart from China’s slowing growth outlook due to its zero-Covid policy and housing market crisis hitting industrial metals, the most important driver for commodities recently has been the macro-economic outlook currently being dictated by the way in which central banks around the world have been stepping up efforts to curb runaway inflation by forcing down economic activity through aggressively tightening monetary conditions. This process is ongoing and the longer the process takes to succeed, the bigger the risk of an economic fallout. US inflation expectations in a year have already seen a dramatic slump but despite this the medium- and long-term expectations remain anchored around 3%, still well above the Fed’s 2% target.Even reaching the 3% level at this point looks challenging, not least considering elevated input costs from energy. Failure to achieve the target remains the biggest short-term risk to commodity prices with higher rates killing growth, while eroding risk appetite as stock markets resume their decline. These developments, however, remain one of the reasons why we find gold and eventually also silver attractive as hedges against a so-called policy mistake. Global wheat prices tumble The prospect for a record Russian crop and continued flows of Ukrainian grain together with the stronger dollar helped push prices lower in Paris and Chicago. The recently opened corridor from Ukraine has so far this month seen more than 500,000 tons of crops being shipped, and while it's still far below the normal pace, it has nevertheless provided some relief at a time where troubled weather has created a mixed picture elsewhere. The Chicago wheat futures contract touched a January low after breaking $7.75/bu support while the Paris Milling (EBMZ2) wheat traded near the lowest since March. With most of the uncertainties driving panic buying back in March now removed, calmer conditions should return with the biggest unknown still the war in Ukraine and with that the country’s ability to produce and export key food commodities from corn and wheat to sunflower oil. EU gas reaches $73/MMBtu or $415 per barrel of oil equivalent Natural gas in Europe headed for the longest run of weekly gains this year, intensifying the pain for industries and households, while at the same time increasingly threatening to push economies across the region into recession. The recent jump on top of already elevated prices of gas and power, due to low supplies from Russia, has been driven by an August heatwave raising demand while lowering water levels on the river Rhine. This development has increasingly prevented the safe passage of barges transporting coal, diesel and other essentials, while refineries such as Shell’s Rhineland oil refinery in Germany have been forced to cut production. In addition, half of Europe’s zinc and aluminum smelting capacity has been shut, thereby adding support to these metals at a time the market is worried about the demand outlook.An abundance of rain and lower temperatures may in the short term remove some of the recent price strength but overall, the coming winter months remain a major worry from a supply perspective. Not least considering the risk of increased competition from Asia for LNG shipments. Refinery margin jump lends fresh support to crude oil Crude oil, in a downtrend since June, is showing signs of selling fatigue with the technical outlook turning more price friendly while fresh fundamental developments are adding some support as well. Worries about an economic slowdown driven by China’s troubled handling of Covid outbreaks and its property sector problems as well as rapidly rising interest rates were the main drivers behind the selling since March across other commodity sectors before eventually also catching up with crude oil around the middle of June. Since then, the price of Brent has gone through a $28 dollar top to bottom correction. While the macro-economic outlook is still challenged, recent developments within the oil market, so-called micro developments, have raised the risk of a rebound. The mentioned energy crisis in Europe continues to strengthen, the result being surging gas prices making fuel-based products increasingly attractive. This gas-to-fuel switch was specifically mentioned by the IEA in their latest update as the reason for raising their 2022 global oil demand growth forecast by 380k barrels per day to 2.1 million barrels per day. Since the report was published, the incentive to switch has increased even more, adding more upward pressure on refinery margins. While pockets of demand weakness have emerged in recent months, we do not expect these to materially impact on our overall price-supportive outlook. Supply-side uncertainties remain too elevated to ignore, not least considering the soon-to-expire releases of crude oil from US Strategic Reserves and the EU embargo of Russian oil fast approaching. In addition, the previously mentioned increased demand for fuel-based products to replace expensive gas. With this in mind, we maintain our $95 to $115 range forecast for the third quarter. Gold and silver struggle amid rising dollar and yields Both metals, especially silver, were heading for a weekly loss after hawkish sounding comments from several FOMC members helped boost the dollar while sending US ten-year bond yields higher towards 3%. It was the lull in both that helped trigger the recovery in recent weeks, and with stock markets having rallied as well during the same time, the demand for gold has mostly been driven by momentum following speculators in the futures market. The turnaround this past week has, as a result of speculators' positioning, been driven by the need to reduce bullish bets following a two-week buying spree which lifted the net futures long by 63k lots or 6.3 million ounces, the strongest pace of buying in six months. ETF holdings meanwhile have slumped to a six-month low, an indication that investors, for now, trust the FOMC’s ability to bring down inflation within a relatively short timeframe. An investor having doubts about this should maintain a long position as a hedge against a policy mistake. Some investors may feel hard done by gold’s negative year-to-date performance in dollars, but taking into account it had to deal with the biggest jump in real yields since 2013 and a surging dollar, its performance, especially for non-dollar investors relative to the losses in bonds and stocks, remains acceptable. In other words, a hedge in gold against a policy mistake or other unforeseen geopolitical events has so far been almost cost free.   Source: WCU: Bearish macro, bullish micro regime persists
China Rolled Out A Special Loan Program! Fed's News

China Rolled Out A Special Loan Program! Fed's News

Saxo Strategy Team Saxo Strategy Team 22.08.2022 12:33
Summary:  Equities closed last week on the defensive as a rising US dollar and especially US treasuries weighed. The US 10-year yield is threatening the 3.00% level for the first time in a month ahead of the important US July PCE inflation data and Fed Chair Powell’s speech on Friday. How forcefully will Powell push back against the virtual melt-up in financial conditions after the market felt the Fed pivoted to less tightening at the July meeting?   What is our trading focus? Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) S&P 500 futures are still rolling over as the US 10-year yield zoomed to 3% on Friday with the index futures trading just above the 4,200 level this morning. The next levels on the downside sit around the 4,100 to 4,170 range, but in the longer term the 4,000 level is the big level to watch. Energy markets are still sending inflationary signals which is key to watch for sentiment this week. In terms of earnings, Palo Alto Networks and Zoom Video will report earnings. Hong Kong’s Hang Seng (HSI.I) and China’s CSI300 (000300.I) Hang Seng Index and CSI300 were moderately higher, +0.2% and +0.8% respectively. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and last Friday’s report that the PBoC, jointly with the Housing Ministry and the Ministry of Finance to roll out a program to make special loans through policy banks to support the delivery of stalled residential housing projects. Great Wall Motor (02333:xhkg) soared 11%. In A-shares, auto names were among stocks that outperformed. Xiaomi (01810:xhkg) dropped 3% after reporting Q2 revenues -20% YoY and net profit -67% YoY, largely in line with expectations.  US dollar dominates focus in forex this week The US dollar rally picked up speed last week, with key levels falling in a number of USD pairs last week that now serve as resistance, including 1.0100 in EURUSD and 1.2000 in GBPUSD, both of which now serve as resistance/USD support. A significant break of EURUSD parity will likely add further psychological impact, and more practically, an upside break in yields at the longer end of the US yield curve is playing a supportive roll, one that will intensify its driving roll if the benchmark 10-year US Treasury yield follows through higher above the 3.00% level it touched in trading overnight. A complete sweep of USD strength also threatens on any significant follow through higher in USDCNH as it threatens an upside break here (more below). The next key event risk for the US dollar arrives with this Friday’s Jackson Hole symposium speech from Fed Chair Powell (preview below). USDCNH Broad USD strength is helping to drive a move to new cycle highs above 6.84 as the week gets underway, but CNH is not weak in other pairings with G10 currencies, quite the contrary. Still, a move in this critical exchange rate will remain a focus, and the contrast between an easing PBOC (moving once again overnight) and tightening central banks nearly everywhere else is stark. The USDCNH moving higher will receive considerable additional focus if the 7.00 level. Crude oil prices (CLU2 & LCOV2) Crude oil turned lower in the Asian overnight after modest gains last week as the focus continues to alter between demand destruction fears and persistent supply shortages. Fears of an economic slowdown reducing demand remains invisible in the physical market but it has nevertheless seen crude oil give up all the post Russia invasion gains while speculators or hedge funds have cut bullish bets on WTI and Brent to the lowest since April 2020. WTI futures trades back below $90/barrel while Brent futures dipped below $96. Still, the gas-to-fuel switch led by record gas prices in Europe has seen refinery margins strengthen again lately and it now adds to the fundamental price-supportive factors. Focus may turn back to Iranian supply early in the week though, with reports that a deal is ‘imminent’. Cryptocurrencies The crypto market took a major hit on Friday with the total crypto market cap diving by more than 9 %, but prices have stabilized over the weekend. The total market cap is now close to the psychological $1 trillion level. US Treasuries (TLT, IEF) Rising US Treasury yields are pushing back against the strong improvement in financial conditions of recent weeks after the US 10-year Treasury yield benchmark jumped to new highs on Friday, well clear of the prior range after a few teases higher earlier in the week and bumping up against the psychologically key 3.00% level. Any follow through higher toward the 3.50% area highs of the cycle would likely add further pressure to financial conditions and risk sentiment more broadly. What is going on? German PPI shocks on the upside Germany’s July PPI smashed expectations to come in at 5.3% MoM, the biggest single gain since the Federal Republic started compiling its data in 1949 and above the consensus estimate of 0.7%. The data suggests potentially a lot more room on the upside to Eurozone inflation, and a lot more pain for German industries. European PMIs due this week will gather attention, as will Germany’s IFO numbers. Berkshire Hathaway wins approval to acquire Occidental Petroleum Warren Buffett’s industrial conglomerate that recently increased its stake in Occidental Petroleum to over 20% following the US Climate & Tax bill which adds more runway for oil and gas companies has now won regulatory approval for acquiring more than 50% the oil and gas company. This means that Berkshire Hathaway is warming up to its biggest acquisition since its Burlington acquisition. The power shortage in China China is currently being hit by a heatwave with a large part of the country experiencing -degree Celsius temperatures since the beginning of August. The surge in air conditioning caused electricity consumption to soar. To make things worse, drought has reduced hydropower output.  Some provinces and municipalities, especially Sichuan, are curbing electricity supply to industrial users in order to ensure electricity supply for residential use. This has caused disruptions to manufacturing production and added to the headwinds faced by the Chinese economy. China cut its 5-year loan prime rate loan prime more than expected China’s National Interbank Fund Center, based on quotes from banks and under the supervision of the PBoC, fixed the 1-year loan prime rate (“LPR”) 5 bps lower at 3.60% and the 5-year loan prime rates (“LPR”) 15 basis points lower at 4.30%. The larger-than-expected reduction in the 5-year LPR, which is the benchmark against which mortgage loan rates in China are set at a spread, may signal stronger support from the PBoC to the housing market.  The Chinese authorities are coming to the developers’ aid in delivering pre-sold homes Last Friday the Housing Ministry, the Ministry of Finance, and the PBoC, according to Xinhua News, jointly rolled out a program to make special loans through policy banks to support the delivery of presold residential housing projects which are facing difficulties in completion due to lack of funding.  Investors will monitor closely this week to gauge if there is additional information about the size of the program and if the PBoC will print money to fund it.  The resurgence of Covid cases in China Daily locally transmitted new cases of Covid-19 in China persistently stated above 2,000 since August 12, 2022, with Hainan, Tibet, and Xinjiang being the regions most impacted. The constituent companies of the Hang Seng Index will increase to 73 from 69 Hang Seng Indexes Company announced last Friday to add China Shenhua Energy (01088:xhkg), Chow Tai Fook Jewellery (01929:xhkg), Hansoh Pharmaceutical (03693:xhkg), and Baidu (09888:xhkg) to the Hang Seng Index, bringing the latter’s number of constituent companies to 73 from 69. The changes will take effect on September 5, 2022. In addition, SenseTime (00020:xhkg) will replace China Pacific Insurance (02601:xhkg) as a constituent company of the Hang Seng China Enterprises Index.  Australian share market at a pivotal point After rising for five straight weeks including last week's 1.2% lift, many market participants hold their breath this rally will continue. However, standing in the way are profit results from a quarter of the ASX200 companies to be released this week. For the final week of profit results, we hear from Qantas (Australia's largest airline), Whitehaven Coal (Australia's largest coal company), as well as other stocks that are typically held in Australian superannuation funds; including Coles, Woolworths, Wesfarmers, Endeavour. And lastly about 20 companies trade ex-dividend this week, however they are not expected to move the market's needle. Money managers increased their commodity exposure for a third week to August 16 The Commitment of Traders (COT) Report covering positions and changes made by money managers in commodities to the week ending August 16 showed a third week of net buying with funds adding 123k lots to 988k lots, a seven-week high. The buying was broad led by natural gas, sugar, cattle and grains with most of the selling concentrated in crude oil and gold. More in our weekly update out later. Prior to the latest recovery in price and positions hedge funds had been net sellers for months after holding 2.6 million lots at the start of the year. What are we watching next? USD and US Treasury yields as Jackson Hole Fed conference is the macro event risk of the week Friday The US dollar strengthened sharply, with EURUSD challenging near parity, USDCNH breaking higher today after another PBOC rate cut, and USDJPY not far from cycle highs. US Treasury yields have supported the move with the entire curve lifting over the last couple of weeks and longer yields pulling to new local highs last week. The Fed has pushed back consistently against the market’s pricing of a Fed turnaround to easing rates next year with partial success, as expectations for rate cuts have shifted farther out the curve and from higher levels. This week, the key test for markets is up on Friday as the US reports the Fed’s preferred measure of inflation, the July PCE inflation data, while Fed Chair Powell will also speak on Friday, offering the most important guidance on how the Fed feels about how it feels the market understands its intentions.   Earnings to watch Plenty of important earnings releases this week with the largest ones listed below. Today’s key focus is Palo Alto Networks, Zoom Video, and XPeng. Cyber security stocks have done reasonably well over the past year despite valuations coming down as demand is still red hot, Analysts expect Palo Alto Networks to report revenue growth of 27% y/y. Zoom Video, which was the pandemic superstar, is also reporting today with estimates looking for 9% revenue growth, down considerably from 54% y/y growth just a year ago. Monday: Palo Alto Networks, Zoom Video, XPeng Tuesday: CATL, Intuit, Medtronic, JD.com Wednesday: LONGi Green Energy, Royal Bank of Canada, PetroChina, Ping An Insurance Group, Nongfu Spring, Mowi, Nvidia, Salesforce, Pinduoduo, Snowflake, Autodesk Thursday: South32, Toronto-Dominion Bank, Fortum, Delivery Hero, AIA Group, China Life Insurance, CNOOC, CRH, Dollar General, Vmware, Marvell Technology, Workday, Dollar Tree, Dell Technologies, NIO Friday: Meituan, China Shenhua Energy, China Petroleum & Chemical Economic calendar highlights for today (times GMT) 0800 – Switzerland SNB weekly sight deposits 1230 – US Jul. Chicago Fed National Activity Index 2300 – Australia Aug. Flash Manufacturing/Services PMI 0030 – Japan Aug. Flash Manufacturing/Services PMI Follow SaxoStrats on the daily Saxo Markets Call on your favorite podcast app: Apple  Spotify PodBean Sticher   Source: Financial Markets Today: Quick Take – August 22, 2022
What Happened In Jackson Hole Besides The Fed's Powell Speech?

All Eyes On Fed Chair Powell's Speech. Latest Natural Gas Developments

Saxo Bank Saxo Bank 22.08.2022 12:52
Summary:  The US dollar wrecking ball is in full swing, taking even USDCNH to new highs for the cycle after another rate cut in China overnight. Longer US treasury yields are also pressuring financial conditions and risk sentiment as the 10-year benchmark yield threatens 3.00% again. The chief event risk for the week will be the Jackson Hole, Wyoming speech from Fed Chair Powell. We also discuss the latest natural gas developments in Europe, speculative positioning in the commodities markets, the long term perspective for tangible vs. intangible stock returns over the last couple of decades, upcoming earnings, & more. Today's pod features Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX. Listen to today’s podcast - slides are found via the link Follow Saxo Market Call on your favorite podcast app: Apple  Spotify PodBean Sticher If you are not able to find the podcast on your favourite podcast app when searching for Saxo Market Call, please drop us an email at marketcall@saxobank.com and we'll look into it.   Questions and comments, please! We invite you to send any questions and comments you might have for the podcast team. Whether feedback on the show's content, questions about specific topics, or requests for more focus on a given market area in an upcoming podcast, please get in touch at marketcall@saxobank.com.   Source: Podcast: USD and US yields brewing up trouble ahead of Jackson Hole
Gold Has A Chance For Further Downside Movement - 30.12.2022

Gold Is At Risk Of Being Liquidated!? Ukraine Shipment Accelerates

Ole Hansen Ole Hansen 22.08.2022 13:47
Summary:  Our weekly Commitment of Traders update highlights future positions and changes made by hedge funds and other speculators across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks and where the dollar and treasury yields both traded calmly before pushing higher. Commodities meanwhile continued their recent recovery with funds being net buyers of most contracts, the major exceptions being gold and crude oil Saxo Bank publishes weekly Commitment of Traders reports (COT) covering leveraged fund positions in commodities, bonds and stock index futures. For IMM currency futures and the VIX, we use the broader measure called non-commercial. Link to latest report This summary highlights futures positions and changes made by hedge funds across commodities and forex during the week to August 16. A week that potentially saw a cycle peak in US stocks with the S&P 500 reversing lower after reaching a four-month high, and where the dollar and treasury yields both traded calm before pushing higher. Commodities meanwhile continued their recent recovery with all sectors, except precious metals and grains recording gains. Commodities Hedge funds were net buyers for a third week with the total net long across the 24 major commodity futures tracked in this update rising by 14% to reach a seven week high at 988k lots. Some 56% below the recent peak reached in late February before Russia’s attack on Ukraine drove an across-the-board volatility spike which forced funds to reduce their exposure. Since then and up until early July, worries about a global economic slowdown, caused by a succession of rapid rate hikes in order to kill inflation, was one of the key reasons for the slump in speculative length.Returning to last week, the 123k lot increase was split equally between new longs being added and short positions being scaled back, and overall the net increase was broad led by natural gas, sugar, cattle and grains with most of the selling being concentrated in crude oil and gold. Energy: Weeks of crude oil selling continued with the combined net long in WTI and Brent falling by 26k lots to 278k lots, the lowest belief in rising prices since April 2020. Back then the market had only just began recovering the Covid related energy shock which briefly sent prices spiraling lower. While funds continued to sell crude oil in anticipation of an economic slowdown the refined product market was sending another signal with refinery margins on the rise again, partly due surging gas prices making refined alternatives, such as diesel, look cheap. As a result, the net long in ICE gas oil was lifted by 24% to 62k lots while RBOB gasoline and to a lesser extent ULSD also saw net buying. The net short in Henry Hub natural gas futures was cut by 55% as the price jumped by 19%. Metals: Renewed weakness across investment metals triggered a mixed response from traders with gold seeing a small reduction in recently established longs while continued short covering reduced bearish bets in silver, platinum and palladium. With gold resuming its down move after failing to find support above $1800, the metal has been left exposed to long liquidation from funds which in the previous two weeks had bought 63.3k lots. Copper’s small 1% gain on the week supported some additional short covering, but overall the net short has stayed relatively stable around 16k lots for the past six weeks. Agriculture: Speculators were net buyers of grains despite continued price weakness following the latest supply and demand report from the US Department of Agriculture on August 12, and after shipments of grains from Ukraine continued to pick up speed. From a near record high above 800k lots on April 19, the net long across six major crop futures went on to slump by 64% before buyers began dipping their toes back in to the market some three weeks ago. Buying was concentrated in bean oil and corn while the wheat sector remained challenged with the net long in Kansas wheat falling to a 2-year low. The four major softs contract saw strong buying led by sugar after funds flipped their position back to a 13.4k lots net long. The cocoa short was reduced by 10% while the coffee long received a 25% boost. Cotton’s 18% surge during the week helped lift the long by 35% to 44.7k lots.     Forex A mixed week in forex left the speculative dollar long close to unchanged against ten IMM futures and the DXY. Selling of euro saw the net short reach a fresh 2-1/2-year high at 42.8k lots or €5.3 billion equivalent while renewed selling of JPY, despite trading higher during the reporting week, made up most of the increase in dollar length. Against these we saw short covering reduce CHF, GBP and MXN short while CAD net long reached a 14-month high.    What is the Commitments of Traders report? The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class. Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and otherFinancials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and otherForex: A broad breakdown between commercial and non-commercial (speculators) The reasons why we focus primarily on the behavior of the highlighted groups are: They are likely to have tight stops and no underlying exposure that is being hedged This makes them most reactive to changes in fundamental or technical price developments It provides views about major trends but also helps to decipher when a reversal is looming   Source: COT: Gold and oil left out as funds return to commodities
Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Japan's Prime Minister Tested Covid Positive. Gazprom Confirmed Gas Shipment Would Be Stopped!

Marc Chandler Marc Chandler 22.08.2022 16:28
Overview: The euro traded below parity for the second time this year and sterling extended last week’s 2.5% slide. While the dollar is higher against nearly all the emerging market currencies, it is more mixed against the majors. The European currencies have suffered the most, except the Norwegian krone. The dollar-bloc and yen are also slightly firmer. The week has begun off with a risk-off bias. Nearly all the large Asia Pacific equity markets were sold. Chinese indices were a notable exception following a cut in the loan prime rates. Europe’s Stoxx 600 is off by around 1.20%, the most in a month. US futures are more than 1% lower. The Asia Pacific yield rose partly in catch-up to the pre-weekend advance in US yields, while today, US and European benchmark 10-year yields are slightly lower. The UK Gilt stands out with a small gain. Gold is being sold for the sixth consecutive session and has approached the (61.8%) retracement of the rally from last month’s low (~$1680) that is found near $1730. October WTI is soft below $90, but still inside the previous session’s range. US natgas is up 2.4% to build on the 1.6% gain seen before the weekend. It could set a new closing high for the year. Gazprom’s announcement of another shutdown of its Nord Stream 1 for maintenance sent the European benchmark up over 15% today. It rose almost 20.3% last week. Iron ore rose for the first time in six sessions, while September copper is giving back most of the gains scored over the past two sessions. September wheat rallied almost 3% before the weekend and is off almost 1% now.  Asia Pacific Following the 10 bp reduction in benchmark one-year Medium-Term Lending Facility Rate at the start of last week, most observers expected Chinese banks to follow-up with a cut in the loan prime rates today  They delivered but in a way that was still surprising. The one-year loan prime rate was shaved by five basis points to 3.65%, not even matching the MLF reduction. On the other hand, the five-year loan prime rate was cut 15 bp to 4.30%. This seems to signal the emphasis on the property market, as mortgages are tied to the five-year rate, while short-term corporate loans are linked to the shorter tenor. The five-year rate was last cut in May and also by 15 bp. Still, these are small moves, and given continued pressures on the property sector, further action is likely, even if not immediately. In addition to the challenges from the property market and the ongoing zero-Covid policy, the extreme weather is a new headwind to the economy. The focus is on Sichuan, one of the most populous provinces and a key hub for manufacturing, especially EV batteries and solar panels. It appears that the aluminum smelters (one million tons of capacity) have been completed halted. The drought is exacerbating a local power shortage. Rainfall along the Yangtze River is nearly half of what is normally expected. Hydropower accounts for a little more than 80% of Sichuan power generation and the output has been halved. Officials have extended the power cuts that were to have ended on August 20 to August 25. Factories in Jiangsu and Chongqing are also facing outages. According to reports, Shanghai's Bund District turned off its light along the waterfront. Japan's Prime Minister Kishida tested positive for Covid over the weekend  He will stay in quarantine until the end of the month. In addition to his physical health, Kishida's political health may become an issue. Support for his government has plunged around 16 percentage points from a month ago to slightly more than 35% according to a Mainchi newspaper poll conducted over the weekend. The drag appears not to be coming from the economy but from the LDP's ties with the Unification Church. Meanwhile, Covid cases remain near record-highs in Japan, with almost 24.8k case found in Tokyo alone yesterday. Others are also wrestling with a surge in Covid cases. Hong Kong's infections reached a new five-month high, for example. The dollar reached nearly JPY137.45 in Tokyo before pulling back to JPY136.70 in early European turnover  It is the fifth session of higher highs and lows for the greenback. The upper Bollinger Band (two standard deviations above the 20-day moving average) is near JPY137.55 today. We suspect the dollar can re-challenge the session high in North America today. The Australian dollar is proving resilient today after plunging 3.45% last week. It is inside the pre-weekend range (~$0.6860-$0.6920). Still, we like it lower. Initial support is now seen around $0.6880, and a break could spur another test on the lows. That pre-weekend low coincides with the (61.8%) retracement of the rally from last month's low (~$0.6680) to the high on August 11 (~$0.7135). The Chinese yuan slumped to new lows for the year today. For the second consecutive session, the dollar gapped higher and pushed through CNY6.84. The PBOC set the dollar's reference rate at CNY6.8198. While this was lower than the CNY6.8213, it is not seen as much as a protest as an at attempt to keep the adjustment orderly. Europe Gazprom gave notice at the end of last week that gas shipments through the Nord Stream 1 pipeline would be stopped for three days (August 31-September 2) for maintenance  The European benchmark rose nearly 20.3% last week and 27% this month. It rose 35.2% last month and 65.5% in June. The year-to-date surge has been almost 380%. The energy shock seems sure to drive Europe into a recession. The flash August PMI out tomorrow is expected to see the composite falling further below the 50 boom/bust level. Bundesbank President Nagel, who will be attending the Jackson Hole symposium at the end of this week recognized the risk of recession but still argued for the ECB rate increases to anchor inflation expectations. The record from last month's ECB meeting will be published on Thursday. There are two keys here. First, is the color than can be gleaned from the threshold for using the new Transmission Protection Instrument. Second, the ECB lifted its forward guidance, which we argue is itself a type of forward guidance. Is there any insight into how it is leaning? The swaps market prices in another 50 bp hike, but a slight chance of a 75 bp move. The German 10-year breakeven (difference between the yield of the inflation linked bond and the conventional security) has been rising since last July and approached 2.50% last week  It has peaked in early May near 3% before dropping to almost 2% by the end of June. It is notable that Italy's 10-year breakeven, which has begun rising again since the third week of July, is almost 25 bp less than Germany. Several European countries, including Germany and Italy, have offered subsidies or VAT tax cut on gasoline that have offset some of the inflation pressures. Nagel, like Fed Chair Powell, BOE Governor Bailey, and BOJ Governor Kuroda place much emphasis on lowering wages to bring inflation down. Yet wages are rising less than inflation, and the cost-of-living squeeze is serious. They take for granted that business are simply passing on rising input costs, including labor costs, but if that were true, corporate earnings would not be rising, which they have. Costs are being passed through. Later this week, the UK regulator will announce the new gas cap for three months starting in October  Some reports warn of as much as an 80% increase. It is behind the Bank of England's warning that CPI could hit 13% then. The UK's wholesale benchmark has soared 47.5% this month after an 83.7% surge last month. Gas prices in the UK have nearly tripled this year. The UK's 10-year breakeven rose by 38 bp last week to 4.29%, a new three-month high. Although the UK economy shrank slightly in Q2 (0.1%), the BOE warned earlier this month that a five-quarter recession will likely begin in the fourth quarter. Unlike the eurozone, the UK's composite PMI has held above the 50 boom/bust level. Still, it is expected to have slowed for the fourth month in the past five when the August preliminary figures are presented tomorrow. The euro and sterling extended their pre-weekend declines  The euro slipped below parity to $0.9990. The multiyear low set last month was near $0.9950. The break of parity came in the early European turnover. Only a recovery of the $1.0050-60 area helps stabilizes the tone. Speculators in the futures market extended their next short euro position in the week through August 16 to a new two-year extreme and this was before the euro's breakdown in the second half of last week. The eurozone's preliminary August composite PMI due tomorrow is expected to show the contraction in output deepened while the market is expecting the Fed's Powell to reinforce a hawkish message on US rates. After falling to almost $1.1790 before the weekend, sterling made a marginal new low today, closer to $1.1780. The two-year low set last month was near $1.1760. The $1.1850-60 area offers an initial cap. Strike activity that hobbled the trains and underground spread to the UK's largest container port, Felixstowe, which handles about half of the country's containers. An eight-day strike began yesterday. Industrial activity is poised to spread, and this is prompting Truss and Sunak who are locked in a leadership challenge, to toughen their rhetoric against labor. America This is a busy week for the US  First, there is supply. Today features $96 bln in bills. Tomorrow sees a $60 bln three-week cash management bill and $44 bln 2-year notes. On Wednesday, the government sell another $22 bln of an existing two-year floating rate note, and $45 bln five-year note. Thursdays sale includes four- and eight-week bills and $37 bln seven-year notes. There are no long maturities being sold until mid-September. The economic data highlights include the preliminary PMI, where the estimate for services is forecast (median in Bloomberg's survey) to recover from the drop below the 50 boom/bust level. In the middle of the week, the preliminary estimate of July durable goods is expected. Shipments, which feed into GDP models is expected to rise by 0.3%. The revision of Q2 GDP the following day tends not to be a `big market movers. Friday is the big day. July merchandise trade and personal income and consumption measures are featured. Like we saw with the CPI, the headline PCE deflator is likely to ease while the core measure proves a bit stickier. Shortly after they are released, Powell addresses the Jackson Hole gathering.  Canada has a light economic diary this week, but Mexico's a bit busier  The highlight for Mexico will be the biweekly CPI on Wednesday. Price pressures are likely to have increased and this will encourage views that Banxico will likely hike by another 75 bp when it meets late next month (September 29). The July trade balance is due at the end of the week. It has been deteriorating sharply since February and likely continued.    The US dollar rose more than 1% against the Canadian dollar over the past three sessions. It edged a little higher today but stopped shy of the CAD1.3035 retracement objective. Initial support is seen near CAD1.2975-80. With sharp opening losses expected for US equities, it may discourage buying of the Canadian dollar in the early North American activity. The greenback is rising against the Mexican peso for the fifth consecutive session. However, it has not taken out the pre-weekend high near MXN20.2670. Still, the next important upside technical target is closer to MXN20.3230, which corresponds to the middle of this month's range. Support is now seen near MXN20.12.    Disclaimer   Source: No Relief for the Euro or Sterling
China's Plan For Dying Property Markets. Nasdaq 100 And S&P 500

China's Plan For Dying Property Markets. Nasdaq 100 And S&P 500

Saxo Strategy Team Saxo Strategy Team 23.08.2022 08:37
Summary:  Equities were sold off on Monday, continuing a slide from their summer rally high, in the midst of position adjustments ahead of the Jackson Hole central banker event later this week. U.S. 10-year yields returned to above 3%. China cut its 5-year loan prime rates and plans to extend special loans to boost the ailing property markets. What is happening in markets?   Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I)  U.S. equities lost ground and continued to retrace from the high of the latest rally since mid-June.  The market sentiment has become more cautious ahead of Fed Chair Powell’s speech this Friday at the Jackson Hole symposium and a heavy economic data calendar, S&P 500 – 2.1%, Nasdaq 100 -2.7%.  The rise of U.S. 10-year bond yield back to above 3% added to the selling pressures in equities.  Zoom Video (ZM:xnas) fell 8% in after-hours trading as the company reported Q2 revenues and earnings missing estimates and cut its full year revenues guidance. U.S. treasuries (TLT:xnas, IEF:xnas, SHY:xnas) Bonds were sold off as traders adjusted positions ahead of the Jackson Hole.  The treasury yield curve bear flattened with 2-year yields surging 8bps to 3.30% and 10-year yields climbing 4bps to 3.01%, above the closely watched 3% handle.  Hong Kong’s Hang Seng (HSIQ2) and China’s CSI300 (03188:xhkg) Hang Seng fell 0.6% while CSI300 climbed 0.7% on Monday. Chinese developers gained on today’s larger-than-expected cut in the 5-year loan prime rate and the Chinese authorities plan to provide special loans through policy banks to support the delivery of stalled residential housing projects, CIFI (00883:xhkg) +11.5%, Country Garden (02007:xhkg) +3.2%.  China extended EV waivers from vehicle purchase tax and other fees to the end of 2023, but the share price reactions of Chinese EV makers traded in Hong Kong were mixed.  Great Wall Motor (02333:xhkg) soared 11%, benefiting from launching a new model that has a 1,000km per charge battery while Nio (09866:xhkg) and Li Auto(02015:xhkg) fell 4.2% and 1.4% respectively. Xiaomi (01810:xhkg) dropped 3.3% after Q2 revenues -20% YoY and net profit -67% YoY, on lower smartphone shipments (-26% YoY).  Smartphone parts suppliers, AAC Technologies (02018:xhkg) and Sunny Optical (02382:xhkg) declined 5.6% and 4.2% respectively.  The share price performance of the four companies that will be added to the Hang Seng Index was mixed, Baidu (09888:xhkg) +0.9%, China Shenhua Energy (01088:xhkg) +2.1%, Hansoh Pharmaceutical (03692:xhkg) +3.2% but Chow Tai Fook Jewellery (01929:xhkg) -0.6%.  SenseTime (00020:xhkg) gained 4.2% as the company will replace China Pacific Insurance (02601:xhkg) -2.8% as a constituent company of the Hang Seng China Enterprises Index.  ENN Energy (02688:xhkg) plunged more than 14% after reporting H1 results below market expectations.  China retailer Gome (00493) collapsed 20% after resuming trading from suspension and a plan t buy from the controlling shareholder a stake in China property assets.  EURUSD falls below parity, eyes on 0.9500 The latest concerns on the European energy crisis weighed on the Euro which was seen sipping below parity to the US dollar. Higher US yields and gains in the US dollar also underpinned, taking EURUSD to lows of 0.9926. The European recession is coming hard and fast, and the PMIs today will likely signal increasing pressure on the region. Also on the radar will be Fed Chair Powell’s speech at the Jackson Hole later this week, with a fresh selloff in the pair likely to target 0.9500 next. USDCNH heading to further highs After PBOC’s easing measures on Monday, the scope for further yuan weakness has increased. USDCNH broke above 6.8600 overnight and potentially more US dollar strength this week on the back of a pushback from Fed officials on easing expectations for next year could mean a test of 7.00 for USDCNH. Still, the move in yuan is isolated, coming from China moving to prevent the yuan from tracking aggravated USD strength rather than showing signs of desiring a broader weakening. EURCNH has plunged to over 1-month lows of 6.8216 on the back of broader EUR weakness. Crude oil prices (CLU2 & LCOV2) Crude oil prices made a recovery overnight despite the strength in the US dollar. A global shift from gas to oil, from Europe to Asia, has taken a deeper hold amid gas shortage fears accelerating in the wake of another upcoming maintenance of the Nordstream pipeline. Diesel and refinery margins have also been supported as a result, with Asia diesel crack rising to its previous high of $63 amid low inventory levels. WTI futures reversed back to the $90/barrel levels and Brent were back above $96. Comments from Saudi Energy Minister threatening to dial back supply also lifted prices, but these were mis-read and in fact, focused more on the mismatch between the tightness in the futures and the physical market. Gold (XAUUSD) and Silver (XAGUSD) Gold broke below the key $1744 support and is now eying $1729, the 61.8% retracement of the July to August bounce. Dollar strength and a run higher in US yields weighed on the shine of the yellow metal, which has seen downside pressures since last week after touching the critical $1800-level. Hawkish Fed talk this week could further weigh on the short-term prospects for Gold. Silver also dipped below the key 19 handle, erasing most of the gains seen since late July.   What to consider?   German year-ahead power prices hit a fresh record high German year-ahead power prices surged to EUR 700/MWh with Dutch TTF gas prices close to EUR 300/MWh. The surge came on the back of another leg higher in natural gas prices which rose over 8% in Europe amid concerns around the next scheduled 3-day maintenance of the Nordstream pipeline. It appears that demand destruction remains the most obvious but painful cure right now, along with a longer-term focus on ensuring a broad-based supply of energy from coal, gas, nuclear, solar, hydrogen, and more.  Australia and Japan services PMIs plunged into contraction Australia saw its services PMI drop to 49.6 in August in a flash print, from 50.9 in July. Manufacturing PMI, however, held up at 54.5, just weakening slightly from last month’s 55.7. The spate of rate hikes seen from Reserve Bank of Australia is likely taking its toll on demand and manufacturing. Meanwhile, prices remain elevated amid the persistent supply chain issues, and more rate hikes are still on the cards. Japan’s flash manufacturing PMI for August came in lower at 51.0 from 52.1 previously, nut stayed in expansion territory. Services PMI however plunged into the contraction zone below 50, coming in at 49.2 for a flash August print from 50.3 in July. The fresh COVID wave in Japan, although comes without any broad-based new restrictions, is impeding the services demand and will likely weigh on Q3 GDP growth. Europe and UK PMIs may spell further caution The Euro-area flash composite PMI and the UK flash PMI for August are both due to be released on Tuesday. Following a slide in ZEW and Sentix indicators for July, the stage is set for a weaker outcome on the PMIs too. July composite PMI for the Euro-area dipped into contractionary territory at 49.9, while the UK measure held up at 52.1. The surge in gas and electricity prices continue to weigh on GDP growth outlook, with recession likely to hit by the end of the year. China’s plan to provide loans to ensure delivery of presold residential projects is said to be of the size of RMB 200 billion Last Friday, Xinhua News reported that the PBoC, jointly with the Housing Ministry and the Ministry of Finance rolled out a program to make special loans through policy banks to support the delivery of stalled residential housing projects but the size of the program was not mentioned.   A Bloomberg report yesterday, citing “people familiar with the matter”, suggested the size of the support lending program could be as large as RMB 200 billion.  Beijing municipal government rolled out initiatives to promote hydrogen vehicles The municipal government of Beijing announced support for the construction of hydrogen vehicle refueling stations with RMB500 million for each station, aiming at building 37 new stations by 2023 and bringing the adoption of fuel-cell cars to over 10,000 units in the capital. Earlier in the month, the Guangdong province released a plan to build 200 hydrogen vehicle refueling stations by 2025. Since last year, there have been 13 provinces and municipalities rolling out policies to promote the development of the hydrogen vehicle industry.  Earnings on tap Reportedly there have been shorts being built up in Dollar Tree (DLTR:xnys) as traders are expecting that discount retailer missing when reporting this Thursday.   On the other hand, investors are expecting Dollar General (DG:xnys) results to come in more favourably, , which also reports this Thursday.  Key earnings scheduled to release today including Medtronic (MDT:xnys), Intuit (INTU:xnas), JD.COM (09618.xhkg/JD.xnas), JD Logistics (02615:xhkg), Kingsoft (02888:xhkg), and Kuishaou (01023:xhkg). Singapore reports July inflation figures today Singapore's inflation likely nudged higher in July, coming in close proximity to 7% levels from 6.7% y/y in June. While both food and fuel costs continue to create upside pressures on inflation, demand-side pressures are also increasing as the region moves away from virus curbs. House rentals are also running high due to high demand and delayed construction limiting supplies. The Monetary Authority of Singapore has tightened monetary policy but more tightening moves can be expected in H2 even as the growth outlook has been downwardly revised.     For a week-ahead look at markets – tune into our Saxo Spotlight. For a global look at markets – tune into our Podcast   Source: APAC Daily Digest: What is happening in markets and what to consider next – August 23, 2022
Investors Are Exposing Themselves To Global Energy Crisis!

Covid Vaccine Caused The World Of Business To Come Back From The Dead, The History Repeats Itself

Peter Garnry Peter Garnry 19.08.2022 16:42
 Summary:  The world and the global equity market can be divided into two parts; the tangible and the intangible. Since 2008 the tangibles driven industry groups have severely underperformed the intangibles driven industry groups due falling interest rates and an explosion in profits by companies utilising a lot of intangibles in their business model. However, since the Covid vaccine was announced the world came roaring back causing demand to outstrip supply and thus fueling inflation. The lack of supply of physical goods in the world and deglobalisation will be a theme going forward and our bet is that the tangible world will stage a comeback against the intangible world. The Great Financial Crisis proved to be the end of the tangible world The SaxoStrats team has been talking a lot about how intangibles took over the world and now the time has come for the tangible world to win back some terrain as years of underinvestment has created enormous supply deficits in energy, food, metals, construction materials etc. We have finally created two indices capturing the market performance of intangibles and tangibles driven industry groups. These indices will make it easier to observe performance in these two parts of the economy and will enable us to quantify whether our “tangibles are coming back” thesis is correct. When we look at intangibles vs tangibles over the period 1998-2022 it is clear we two distinct periods. From 1998-2008 the tangible part of the economy delivered the best total return to investors driven by a booming financial sector, rising real estate prices, and a commodities super cycle. Since 2008, the separation of the two parts of the economy becomes very clear. Lower and lower interest rates are inflating equity valuations of growth assets and intangibles driven industry groups are seeing an unprecedented acceleration in profits due to software business models maturing and e-commerce penetrating all consumer markets fueling the outperformance. If we look at the relative performance the tangible world peaked in April 2008 and was more or less in a continuous decline relative to the intangible world until October 2020. In November 2020, the revelation of the Covid vaccine reopened the economy so fast that demand come roaring back to a degree in which the physical supply of goods could not keep up. Prices began to accelerate causing the current run-away inflation and headache for central banks. The tangible world has since done better relative to intangibles and if we are right in our main theme of an ongoing energy and food crisis combined a multi-decade long deglobalisation then tangibles should continue to do well. Intangibles are still ahead despite rising interest and the current energy crisis During the pandemic the intangibles driven industry groups did better than the physical world because the whole world went into lockdown. Intangibles driven industries were suddenly necessary for making the world go around when we could not operate in the physical world. Government stimulated the economy in extraordinary amounts across monetary and fiscal measures and the demand outcome from this stimulus has caused global demand to outstrip available supply and especially of things in the physical world. The outcome of this has been inflation and also a comeback to the tangible world, but the tangibles driven industry groups are still behind the intangibles measured from the starting point of December 2019. It is our expectations that as interest rates are lifted to cool demand and inflation in the short-term the tangible world will gain more relative to intangibles. What has been the best performing industry group since 1998? One thing is to look at the aggregated indices of the tangibles and intangibles driven industry group, but another interesting observation is to look at the best performing industry. There were three close industry groups, but by a small amount the performing industry group has actually been the retailing industry. The industry group was not creating a lot of shareholder value until after the Great Financial Crisis when the e-commerce, automation, and digitalization combined with expansion of manufacturing in China lifted profitability and market value of retailing companies. The largest retailing companies in the industry group today are Amazon.com, Home Depot, Alibaba, Lowe’s, Meituan, and JD.com. Our definition of tangible and intangible industry groups Tangible assets are loosely defined as physical assets one can touch and feel, and which can be collateralised for loans. This definition is too broad and not meaningful, because in the consumer services industry group, which we have defined as driven by intangibles, you find companies such as Starbucks and McDonald’s which both employ a lot of physical assets in their business. The way we have defined intangibles and tangibles driven industry groups was going back to 1998 and calculate the market value to assets for all the active companies at that point in time. We need calculated the average ratio for each of the 24 industry groups. All the industry groups with a ratio above the average of all groups we put into the intangibles. If the market value is substantially above the book value of assets on the balance sheet it must mean that the market is putting a value on something that is not there, or at least in accounting terms, and this is clearly the intangibles. So for McDonald’s they do employ a lot of physical assets but it is the branding, store network, product etc. that derives the meaningful value creation and thus the market is valuing the company way above the book value of its assets. One could argue that McDonald’s is a hybrid company but for our purposes we define it as being mostly intangibles driven. The full list is presented below. Banks are interesting because many think they are driven by intangibles because it employs a lot of people, but the thing is that banks are essentially deriving their profits from the spread between loans and deposits. The majority of bank loans are tied to physical assets and thus banks are tightly connected to the physical world. Tangibles driven industry groups Automobiles & Components Banks Capital Goods Commercial & Professional Services Consumer Durables & Apparel Diversified Financials Energy Food & Staples Retailing Insurance Materials Real Estate Telecommunication Services Transportation Utilities Intangibles driven industry groups Consumer Services Food, Beverage & Tobacco Health Care Equipment & Services Household & Personal Products Media & Entertainment Pharmaceuticals, Biotechnology & Life Sciences Retailing Semiconductors & Semiconductor Equipment Software & Services Technology Hardware & Equipment Source: The tangible world is fighting back

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