Market Quick Take – November 18, 2020

The market mood has turned a bit more cautious yesterday and overnight, with equity markets generally losing steam after a recent run higher, although US small cap stocks remain an outlier on the strong side. US Retail Sales in October showed the weakest growth in six months, suggest a more cautious attitude and that the stimulus effects from the spring are fading.

What is our trading focus?

Nasdaq 100 (USNAS100.I) and S&P 500 (US500.I) – both the Nasdaq 100 and the broader S&P 500 index closed a bit weaker yesterday, even as small cap stocks managed another strong session. The key for bulls is for the S&P 500 Index to stay north of the 3,575-3,550 area after this recent run higher to new all-time highs. For the Nasdaq-100, there is a clear struggle at this 12,000 area and the 11,500 zone lower is one that needs to serve as support to maintain an upside focus tactically.
Bitcoin EUR (BITCOIN_XBTE:xome) – Bitcoin (XBTUSD) rallied to nearly $18,500 in the Asian session overnight after a rally of nearly 1,000 dollars yesterday, but then suffered a more than 1,000 dollar correction suddenly this morning, highlighting the volatility of this remarkable crypto asset. The major technical break recently was of the 13,000 area. The all-time high from late 2017 is just under 20,000.
Nikkei 225 (JP225.I) – the remarkable run of strong sessions in the Nikkei finally ended overnight, as the index had corrected around 1.5% as of this writing, perhaps in part due to a stronger Japanese yen. The major technical level that was broken on the way up was the 2018 high near 2,4450, so there is considerable further room for the index to consolidate without a threatening the bullish implications of the recent surge.
USDJPY– is getting interesting again as risk sentiment has cooled this week and as US long yields retreat from the major breakout areas that threatened recently. The 104.00 level that was of technical significance on the USDJPY decline that fell briefly after the US election is back in play, although the tendency is for JPY to move the most against riskier currencies (AUD, NZD and EM currencies) when it is more volatile (normally when yields are falling and risk sentiment is struggling).
Brent crude oil (OILUKJAN21) and WTI crude oil (OILUSDEC20) both trade lower after API reported a 4.2m barrels jump in U.S. stockpiles while the XLE:arcx ETF which tracks the performance of large-cap U.S. energy stocks extended its recent rally to reach a three-month high. It highlights a spot market battling with Covid-19 related demand concerns and rising production, and the stock market looking beyond this towards a vaccine driven recovery next year. The inventory rise beat expectations of 1.2m expected with the EIA reporting later today at 15:30 GMT. Brent remains rangebound after finding resistance around $45/b.
Walgreens Boots Alliance (WBA:xnas) fell almost 10% yesterday and CVS Health Corp. (CVS:xnys) fell 8.6% after Amazon announced its plans to sell prescription drugs to its Prime members. All told, Bloomberg calculated that top drugstores, drug distributors and health insurers lost some $22 billion in market capitalization on the announcement, a testament to the threat from the online giant to their market share.
Pfizer (PFE:xnys) – the drug company’s Covid-19 vaccine candidate reached an important safety milestone that allows the company to apply for emergency authorization from the FDA in the US, which would allow it to administer the vaccine by the millions. Pfizer CEO Bourla admitted that the company does not yet know the durability of the protection provided by the vaccine.

What is going on?

US Retail Sales disappointed in October after a multi-month surge – US consumers, despite having saved large portions of the prior stimulus from the spring, were in less of a spending mood in October, with sales less the volatile auto and gas category rising only +0.2% month-on-month versus +0.6% expected, and the September number was revised down –0.4% to +1.2%.
Soft commodities trading sharply higher so far this week with cocoa and Arabica coffee both up by more than 6%. Coffee on a combination of worries over dryness for the Brazilian crop which will be harvested in 2021, damage to Central American plantations from Hurricane Iota and the stronger Brazilian real. Cocoa’s recovery to near a two-month high came after regulators in Ghana and Ivory Coast planned to suspend exporters’ sustainability programs in a move that could see them get more control over the pricing of the beans.
Soybeans (SOYBEANSJAN21) has reached a four-year high in Chicago with U.S. sourced beans now the cheapest as dry weather continues to threaten production in South America, most noticeable Brazil, the world’s biggest producer. Chinese demand look set to remain strong due to rising feedstock demand and as the Chinese currency continues to strengthen. At $11.72/bushel, the front month January contract is getting close to $12.08/bushel, the June 2016 high.

What we are watching next?

Uncertainty on Fed nominee Judy Shelton continues – with two Republican senators out sick, a vote on the controversial Fed nominee failed, but a move by Republican majority leader Mitch McConnell could allow another vote soon once his colleagues return for a vote. Shelton has spoken harshly against Fed policy and has advocated using the Fed’s policy to devalue the dollar.

Q3 earnings season continues this week. The list below shows the largest companies reporting this week:

Today: AP Moller – Maersk, SSE, NVIDIA, Copart, ZTO Express Cayman, Keysight Technologies, Lowe’s Cos, Target, TJX Cos
Thursday: Tokio Marine Holdings, NetEase, Ross Stores, Intuit, Workday, Knorr-Bremse

Economic Calendar Highlights for today (times GMT)