Volumes could have been better, certainly in Europe, where turnover through the EU Stoxx 50 was 33% below the 30-day average. However, we’ve seen strong gains in European equities markets, although they were clearly outpaced by moves in the US, where we’ve seen the S&P500 close +7%, Dow +7.7% and NAS100 +7.4%. In terms of sectors, tech-led (+8.8%), although the gains were broad-based and should provide Asia with a solid platform to progress.
By way of a guide, if I look at the equity index futures markets and the change since 16:10 aest (close of the cash ASX200 and Nikkei225), I can see Aussie SPI futures +2.4%, and Nikkei 225 futures +1.4%. Hang Seng futures sit +1%. S&P500 futures are also +2.4% since 16:10aest, so we can use this as a guide to see where markets are likely to open.
I like the technical set-up on the S&P500, although it needs a bit of work. On the daily, the index has been consolidating after rejecting the 38.2 retracement of the 35% sell-off seen between Feb-March. Price has now closed above this level now, as we see, but whether this has legs or proves to be a failed break is something we watch for because if we hone into a lower timeframe the move wasn’t overly convincing. Still, it did come on the back of a 7% rally, so that is bullish.
You can almost smell FOMO from active managers here.
It’s hard not to look at liquidity and think this is partly behind the risk rally. Here we see ECB (blue) and Fed excess liquidity (white) and the S&P500 in the lower pane.
In vol (implied volatility) markets, we see the VIX index come down a touch to 45%, with FX vols coming with AUDUSD 1-week -3 vols to 19%. We’ve seen a 74bp decline in high yield credit index, even if Brent and WTI crude are lower by 2.9% and 7.2% a piece and we look to this weeks OPEC meeting as the event risk of the week. US Treasuries yields are up a touch, with 5s +6bp to 44Bp. 5-yr Inflation expectations are up 7bp, so we see 5-yr ‘real’ yields -2bp and whether this has had a helping hand, one of the big themes of the day is the move in gold.
Gold futures are flying with a gain of 3.6% and have broken out to new highs. Our gold cash price has traded into 1669, and also looks strong, although in the underlying market the difference between spot gold and futures has blown out again to $49. Hard to see too much downside here in the yellow metal, although spreads in the underlying market make it expensive to do so.
In FX markets, the USD is up 0.1% but that is a function of the greenback closing up against the JPY, GBP and EUR. GBP reacting to news that Boris Johnson has been admitted to ICU, with GBPUSD moving into 1.2220, and like everyone, our thoughts are with him today. Dominic Raab steps into his shows in the interim.
All the buying has been in ZAR and NOK, although as you’d expect AUDUSD will be closely watched today with today’s RBA meeting in play at 14:30aest. I can’t see any new measures being announced, although, there will be some focus on its bond-buying program and the commitment to anchor yields, rather than commit to an absolute level of bond purchases. The market is pricing a 99-pip move on the day (with a 68.2% degree of confidence).