European stocks pull back while dollar feels weak

Morning Note

European equities edged lower on opening this morning as investors respond to the flurry of earnings season reports from across the week.

A range of European-listed large caps are reporting today. Renault, Air France-KLM, BNP Paribas and IAG are some of the headliners today. It’s also a fairly busy day for US earnings too, with the likes of Proctor & Gamble, Chevron and ExxonMobil sharing their latest quarterly financials.

It will be interesting to see how Chevron and ExxonMobil perform. Oil prices have strengthened across 2021, despite recent dips due to OPEC+ wrangling, so this may have fed into resurgent revenues for the oil supermajors.

In terms of European earnings, BNP Paribas has shared headline profits of €2.9bn – a 26% annual rise – this quarter. Renault has also shared some insights already, noting €345bn in first half profits for 2021. It’s a major reversal for the French automaker, which posted a €7.3bn loss during the same period in 2020 after the Covid-19 caused mass factory shutdowns.

Looking at indices, we can see drops on the key European bourses. The FTSE 100 was down 73 points at the start of Friday at 7,005.2. Germany’s DAX is about 117 points lower, at 15,492, and the French CAC40 dropped 28 points at 6,605.

Conversely, the NASDAQ was at 14,778, showing a small 15.8 jump. The Dow Jones was up 153 points too at 35,083. The S&P 500 continues the positive trend for US indices, up by 18.51 to reach 4,419.

Asian markets were performing lower, especially Hong Kong’s Hang Seng, which had dropped nearly 1.56% at 24,905 at the time of writing. Shares in Asia are possibly on course for their worst month since May 2020 as trading volatility steps up.

Turning to the dollar, the Dollar Index, which weighs the greenback against six other major currencies, looks like it’s on track for more dismal performance following a dovish Fed outlook. It is currently rated at 91.88, after reaching a low of 91.85 – the lowest level seen since June 29th.

The Fed committed to boosting its monthly Treasury securities purchases by $80bn at its meeting on Wednesday July 28th. An accommodative approach to the economy, despite hot inflation and disappointing Q2 GDP performance, appears to be Chairman Jerome Powell and the Fed’s direction.

US GDP grew at 6.5% in the quarter ending June, falling way below the Dow Jones estimated 8.4%. A combination of higher consumer prices, high commodities prices, and falling manufacturing and services output contributed to the worse-than-expected second quarter growth rate.

WTI oil contracts started this morning at $73.48. Brent has dipped just below $75 at $74.99 but could be on course to crack that threshold by the end of the day. At week’s end, oil should have gained around 2%, with higher demand in the US and tighter supplies cited as supports.

Bitcoin had cleared $40,000 earlier in the week, but as of today had fallen back to $39,677 at its lowest. The world’s most popular cryptocurrency has had a bit of a torrid July and looks like it’s struggling to establish a breakout.

European stocks steady after Dow clears ‘sacred’ 30k

Morning Note

European stocks moved tentatively to the upside after a record-breaking session on Wall Street in the previous session. US stocks are on course for their best month since 1987 with the Dow Jones up over 13% so far. The mood in global markets has been lifted by a combination of three doses of very encouraging vaccine news, the US election finally being ‘settled’, and I think it’s worth noting the appointment of Janet Yellen to the US Treasury.

She’s someone who, as Fed chair, repeatedly called on Treasury to do more and is viewed as a dove in relation to the deficit. Her first task won’t be made any easier after incumbent Steve Mnuchin moved to tied up $55bn in unspent Cares Act funding in a pot that will require Congressional approval to spend.

The Dow Jones industrial average smashed through 30,000 for the first time and in a sign of confidence in the move, closed above the level, too. Energy +5% and Financials +4% led the way as the rotation/reopening/reflation trade – whatever you want to call it – carried the day. The S&P 500 rallied 1.62% to 3,635, while small caps led tech. The Russell 2000 is now up 20% in November, its best ever month. President Trump called 30,000 for the Dow a ‘sacred number’.

Tesla shares rose another 6% to $555. I can’t put this down to anything other than a kind of mania akin to Bitcoin ‘HODLers’ who simply love the security too much to ever part with it and are ‘holding on for dear life’. On that front, Bitcoin eased back off the highs after breaking $19,000 yesterday, hitting an intra-day high at $19,495. Bloomberg will call an all-time high if it exceeds $19,511.

In early trade this morning the FTSE 100 rose to 6,466, just breaking above last week’s high at 6,463. Jun 8th highs at 6,511 are the next level up to be taken out for the bullish trend to continue. The FTSE is up over 13% this month alone, on course for its best monthly performance since 1989 but remains down over 14% YTD – if you think we get back to where things were before the pandemic at the end of 2019, there is plenty more upside to get to that level.

Over in Europe, the ECB says it may lift the ban on bank dividends next year.

In FX, the dollar is offered with DXY dropping under the big 92 number and now faces key support at 91.70, the September low. Flows are indicating moves out of USD into EM, while the euro is also making progress with EURUSD at 3-month highs above 1.19. GBPUSD was steady around 1.3350, close to its recent highs. Relative silence over Brexit talks in the last couple of days is only raising expectations that there is a deal in the offing.

Rishi Sunak to deliver his Spending Review later today. Spoiler alert: the public finances are awful and the Chancellor will prioritise protecting jobs. It’ll be a lot of green stuff, a lot of levelling up not down but he probably doesn’t think it’s time yet to turn the screw on investors with a hike to capital gains tax.

With the US Thanksgiving holiday tomorrow, we get a slew of data today from across the pond. US durable goods seen at +1% vs +1.9% last month, with the core reading expected at 0.5% vs 0.9% previously. Initial jobless claims seen at 732k, vs 742k last week. Continuing claims are see falling to 6m. Preliminary GDP figures for the third quarter (second reading) expected to be unchanged from the first reading at +33.1%. Core PCE index seen flat after +0.2% last time, with the personal spending down to +0.4% from +1.4% last month and personal income down to 0% from +0.9% previously.

Crude oil marched higher as the risk-on sentiment overcame doubts about demand over the winter. Whilst momentum is strong to the upside, near-term inventory builds still need to be watched. There is a risk that also that the recovery in prices is an overshoot when considering near term demand problems. The rally may also dissuade some OPEC members and allies from delaying the tapering of production cuts in the New Year. Technically, the 14-day RSI has reached overbought levels on WTI as it trades above $45, with Brent above $48.

Gold slipped but found support at the 200-day moving average support on $1,800. What’s interesting is that the breakdown in gold has occurred even as real rates declined deeper into negative territory. Turning to Goldman Sachs for explanation: “We believe it is due to a combination of pro-cyclical rotation in equities combined with lack of increase in breakeven inflation expectations, which drove gold higher in late spring/summer. Therefore, gold suffered from strong rotation without reflation.”

Gold slipped but found support at the 200-day moving average support on $1,800.

Dow hits record high amid big risk-on move

Indices
  • Dow record intra-day high, energy & financials lead
  • Bitcoin closes in on record high
  • Tesla marks new high
  • Crude breaks out of multi-month range
  • Gold tests 200-dma

We’re seeing some big risk-on moves this afternoon in the market which we can attribute to some very favourable pre-Thanksgiving flows off the back of Trump giving the green light to the transition, news that Janet Yellen is heading to Treasury and vaccine positivity increasing as the Astra news gets fully digested. Uncertainties about next year are being cleared out of the way and the vast liquidity put is still positive even if this all looks like it’s a little exuberant. 

 

The Dow rallied over 1% in early trade to a record high at 29,974 as it closes in on 30k and looks to cement the best month since 1987. Boeing and Chevron led the way, with financials following strongly, perhaps with expectations that Yellen at the Treasury will make for a steeper yield curve. Tech is the only Dow sector in the red with Apple (AAPL) and Microsoft (MSFT) lower, whilst Energy +3.5%, Financials +2.75% and Industrials +2.55% were the top gainers. We’ve also got small caps leading tech (Russell 2000 is +1.3% vs Nasdaq 100 almost flat on the session) as the rotation trade is strong. The S&P 500 holds the 3,600 handle again after a gain of 0.9%. Tesla opened at a record high with a market cap of more than $500bn. Shares last up 3% at $539.

 

The FTSE 100, which is up 15% this month, has been solid enough today and risen above 6,400 again but still a little short of last week’s peak at 6,463. Solid gains for crude oil lifting energy stocks (+5%) but we have also seen strong bid for travel stocks today after the UK announced a way for travellers to endure a shorter quarantine.

 

Reopening trade in play – UK leaders today looking like rotation trade remains driver.

 

UK leaders today looking like rotation trade remains driver

Bitcoin has cleared fresh 3-year peaks and for all the world seems destined to take out the all-time highs.

 

Bitcoin has cleared fresh 3-year peaks and for all the world seems destined to take out the all-time highs.

Crude oil jumped to clear the August high and finally broke out of the range it’s been idling in for months. WTI (Jan) broke north of $44 at the US open to close the gap back to the early March levels, as the positive momentum from the big outside day reversal calendar on Nov 2nd. (marked)

 

Crude oil jumped to clear the August high and finally broke out of the range it’s been idling in for months.

Gold remains offered after breaking down at the two key levels flagged previously ($1,850 and then the 38.2% retracement around $1,835). Key support at the 200-day SMA/EMAs looking vulnerable. This would be the first break of the 200-dma since March and may herald further weakness.

 

Gold remains offered after breaking down at the two key levels flagged previously ($1,850 and then the 38.2% retracement around $1,835).

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