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Market Wrap
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When the volatility index is rising, it is generally a good idea to stay short the Nasdaq. However, todays US session has been almost a perfect rollercoaster ride and quite predictable based on the limit orders placed in the overnight session. I would hazard a guess the idea today was to get enough traders to exit their shorts when the US session opened, so that they (the market makers) could sell into the retail buy orders and get rid of supply at 13347. Ready for the inflation data tomorrow.
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I am wrong if the Nasdaq trades higher at the close, but in my opinion, tomorrow is going to be a down day, if we close the US session above 13260 on the cash index and inflation comes in as high as expected.
I will keep an eye on the VIX as when that is travelling higher the Nasdaq prefers the short side, I will also keep an eye on the US10 year yields as these have been the catalyst recently for a selloff in the inflation sensitive tech stocks. 1.630% at the London close was the price ceiling, so maybe they want to test 1.70% again or the March highs of 1.78%.
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Apple Inc.’s -1.47% drop was a big drag on the Nasdaq, but Tesla dropped -2.58%, with Google and Microsoft down around -1.0% each. The green came from Amazon and Netflix up 0.46% and 1.32% respectively. Apple dropped like a lot of the other tech firms because of the sensitivity to growth performance in increasing inflationary pressures but also because the iPhone 12 production at Foxconn’s India plant had dropped 50% due to COVID-19 disruptions. Whereas Tesla was suffering due to having to put their plans to extend their Shanghai plant on hold in increasing US-China tensions.
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The ActivTrader sentiment index has moved to 75% of traders bearish the GBPUSD, which does not bode well for the retail traders. But if you are trading counter to them the signal to exit the long is when they switch to being net long the GBPUSD.
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Bank of England’s Bailey gave a speech on “Descending safely: Life after Libor” and that the use of Secured Overnight Financing Rate (SOFR) in the US dollar markets is increasing. The central banks have been keen to move away from the London Interbank Offered Rate (LIBOR). LIBOR is the current benchmark interest rate at which major banks lend to each other. The transition to SOFR is December 31, 2021, but many market participants remain unclear about the level of risk that converting existing contracts might pose. The transition has been talked about for a few years now since a scandal of market manipulation blew up, so the banks are obviously unwilling to undo the Eurodollar/ LIBOR system, that all of their deals have been done by for several decades.
Tomorrow is a big day for UK data, with GDP Q1 preliminary and Business Investment out before the London open. There is also Industrial and manufacturing data too before the Bank of England governor speaks at 10:00am.
The JOLTS job openings for Mar beat market expectations, with the number of job openings increasing by 597,000 to 8.123 million in March 2021. This marked the highest level since the series began in December 2000.
Tomorrows US data includes the highly anticipated Core inflation rate with expectations of inflation coming in above 2.0% with the headline Year on Year inflation rate above 3.6%.
