What is our trading focus?

• US500.I (S&P 500 Index) and USNAS100.I (NASDAQ 100 Index) – the US equity market saw another strong session yesterday, but one still marked by notable divergences and with more than a little profit taking into the close. The Nasdaq 100 pulled to a new all-time high, while the S&P 500 has yet to break above local resistance in the tight trading area of late capped around 3,155.

• XAUUSD (Spot Gold) – reached a fresh 8-year high as surging virus cases across the U.S. throws the reopening into disarray and after Mnuchin said the administration is discussing another stimulus package. Broad dollar weakness and lower real yields supported the break which occurred without triggering a cascade of fresh buying. A sign that very few short positions exit with many investors being long already, and that further – but expected – support from other markets will be needed to carry it higher towards the next key level at $1800/oz. The latest COT report showed hedge funds turning net buyers for the first time in four weeks. Having cut net longs by 50% since February the breakout is likely to force some buyers back into the market. Note: The break occurred without the sort from silver which remains perched below $18/oz.

• OILUSAUG20 (WTI) and OILUKAUG20 (Brent) – both trading softer after hitting levels last seen in early March. The combination of a new virus threat potentially slowing the recovery in fuel demand and the API reporting a 1.75 million barrel climb in crude stocks last week the main reasons. Focus today on the weekly inventory report from the U.S. Energy Information Administration (EIA) at 14:30 GMT with surveys looking for a mixed result with rising oil stocks and falling product stocks. Overall, the market remains in crude health on a combination of dramatic production cuts and a rapid rebound in demand as regions across the world ease lockdown restrictions. But the virus threat remains acute hence the potential limited upside until the impact of and the reaction to the latest spikes becomes clearer.

• WDI:xetr (Wirecard) – shares rebounded 19% yesterday but investors should stay cautious and not getting too optimistic on Wirecard. The company is facing an existential risk if card companies such as Mastercard or VISA revoke their licenses due to the ongoing scandal with €1.9bn in cash missing. Without those Wirecard cannot do business, but even with the license several large clients have spoken publicly about finding a substitute for its payments infrastructure which jeopardizing the whole rebounding case for Wirecard.

• DELL:xnys (Dell Technologies) – the company has kicked off a process to start divesting its $50bn share in VMware which aims to unlock the value of Dell’s core PC and data-storage business. With Dell’s market value of $36bn the market is not putting any value on its core business. The divestment could become a longer term catalyst for the share price.

• USDZAR – with the emergency South African budget announcement up today, we look for the ZAR to prove reactive after a period of passively following the improvement in EM credit spreads over the last two months. The debt dynamics for South Africa are unsustainable in the longer term and will require difficult austerity and reforms to avoid defaults or a potential IMF bailout, as Finance Minister Mboweni has warned.

• USDJPY – the US dollar wilted broadly yesterday and USDJPY saw a sudden jolt lower that took out support levels below 106.58 and triggered stops before rebounding slightly – an odd move considering muted trading in safe haven fixed income and strong risk appetite across equities yesterday. The 106.00 area is even more prominent on the chart if the selling resumes and could open up considerable further downside, while a move and close back above 107.00 suggests yesterday’s move was a misleading development (possibly on SoftBank’s readying a massive, approximate  $20B sale of T-Mobile shares).

• AUDNZD – watching this NZD cross for relative weakness in NZD after the RBNZ maintained its dovish reputation overnight and the pair leaped higher on the new statement that added foreign asset purchases to its list of “deployable tools”, indicating a readiness to do direct currency intervention to help support the economy.

What is going on?

• The RBNZ continues to look at expanding its tool kit to support the economy in a dovish meeting and in its new statement, added foreign asset purchases to the list of “deployable tools” that it was looking into readying for possible use because it doesn’t see the economy recovering to pre-crisis levels until late 2021.

• Hungary’s central bank surprised with a 15 bps rate cut to take the rate to 0.75%, taking the HUF lower across the board as the central bank had generally maintained a more restrictive posture during the early phase of the coronavirus crisis as HUF was under significant pressure at the time, but much of which had eased over the last two months.

• Global Flash June PMI’s show mixed recovery: Australia had a strong Services PMI above 53 yesterday, while Japan’s Manufacturing PMI was still very weak below 40. Europe’s PMI’s were better than expected, but both were still below 50 (46.9 for Manufacturing and 47.3 for Services), while the US Services PMI number actually underperformed expectations at 46.7, with the Manufacturing survey reading at 49.6.  

What we are watching next?

• South Africa supplementary budget announcement – To be announced today, with Finance Minister Mboweni leaning against support for SOE’s and pointing to the risk that South Africa eventually needs to ask the IMF for help in coming years if its deficit trajectory is not improved.

Economic Calendar Highlights (times GMT)

• 0800 – Germany Jun. IFO Business Sentiment Survey
• 1100 – Czech Central Bank Announcement
• 1430 – US Weekly DoE Crude Oil and Product Inventories
• 1630 – US Fed’s Evans (Non-voter) to Speak
• 1900 – US Fed’s Bullard (Non-voter) to Speak