Risk mildly higher
Dollar slightly weaker across the board
Nikkei -0.6% Dax 0.65%
UST 10Y 0.66%
Asia and the EU
North America Open
Its been a choppy, hesitant, tepid trade in Asian and early European session with markets essentially consolidating the gains from yesterday as investor attention turns to earnings with several marquee names reporting after the close.
On the commodity side, oil continued its slide with June contract trading towards the $10 handle as global glut and lack of storage continue to weigh on crude. Ove the past week much has been written about the retail interest in USO ETF with mom and pop accounts trying to bottom tick the price action in the underlying which suggests there could be yet more carnage in oil as capitulation is yet to set in.
Many analysts have pointed out the discrepancy between the price action in oil which represents the “real” economy and the massive rally off the lows in stocks which are now trading on very aggressive assumptions about a return back to “normal”. The lift in equities has been breathtaking and is a testament to the massive central bank infusions into the system all across the OECD. At this point, however, so much positive expectation has been priced in that its difficult to imagine a further rally.
Nevertheless, for now, equities maintain a bid as investors focus will turn to earnings with Alphabet, AMD, Starbucks and Yum China reporting after the bell. The results should offer insight into just how bad business was in Q1 and more importantly provide some guidance going forward. Of all the names on the docket, Alphabet may of greatest interest as it could provide a reasonable proxy for business spending into the near future given its dominance of the online ad business. If the company warns expect other digital leaders to get hit including Facebook which in turn could drag Nasdaq lower. The index was the leader of the prior bull market but is now a laggard as investors fear that the days of torrid growth for high tech are over.
In FX land price action was muted as well with eco calendar basically barren today and dollar continuing its mild weakness against the majors. Despite the well-known issues in the Eurozone the EURUS continues to form a bottom at the 1.0700 figure suggesting that the bearish sentiment may have peaked. Although the EZ faces massive challenges in the post-COVID world the price action in the pair indicates that currency traders are no less optimistic about US prospects as well. With Fed balance sheet ballooning by trillions of dollars in a month and US deficits running as much 10-20% of GDP the flight to safety trade to the dollar may come into question which is why the move in the EURUSD could continue higher catching many by surprise.