Written Commentary
STOCK INDEX FUTURES
Global equity markets overnight were lower with declines typically ranging from -1.6% to as high as -2.1%. While some will suggest that the equity markets are primarily under pressure due to weakness in tech sector stocks, we suspect the surge in daily infections is the primary driving force. On the other hand, the President is engaged in a war of words with Facebook regarding misinformation killing people and with the tech sector has been the stalwart performer in the markets since the May lows that is not insignificant. Traders should monitor the CDC website today for the latest update on the number of US infections. However, it should be noted that the next reading released will be for Sunday and Sunday figures have been lower than other days of the week. Earnings announcements will include Prologis before the Wall Street opening while IBM, PPG Industries and J.B. Hunt Transport Services report after the close.
CURRENCY FUTURES
DOLLAR: Obviously, the dollar is in a flight to quality mode this morning with the index spiking higher in a move that could set the stage for return to the late March high which is another 50 points above the early trade. While one might have expected the dollar to have been undermined as-a-result of the significant US infection jump last Friday and Saturday, the trade instead is discounting the wave or thinks the Delta wave will wreak more havoc outside of the US than inside. The July 13th Commitments of Traders report showed Dollar Non-Commercial & Non-Reportable traders net bought 3,704 contracts and are now net long 16,723 contracts.
EURO: With a downside breakout to the lowest price since April and fears that Europe might be more vulnerable to a Delta variant wave of infections, we see the next downside support/targeting level 1.1740. Euro positioning in the Commitments of Traders for the week ending July 13th showed Non-Commercial & Non-Reportable traders were net long 102,086 contracts after decreasing their long position by 18,647 contracts. With the net spec and fund long in the euro considerable and severe chart damage this morning we suspect follow-through stop loss selling. Given big picture issues the euro is not drafting support from a favorable overall Euro zone construction output reading for May.
INTEREST RATES
Not surprisingly, US treasury prices have forged another upside breakout with the market reaching the highest level since February 5th. The sharp decline in US treasury yields gained its foothold last week in the face of a significant bounce in US daily infections. In fact, the US has posted 2 straight days of infections near 40,000 and it should be noted that the jump in infections was very quick! In retrospect, we have been noting the disjointed and uneven economic data flow from the US which suggests the miracle recovery was already leveling out. The big question for the treasury-trade this week, is will the current infection surge result in the Fed pushing back the timing of tapering? While a large portion of the extremely vulnerable portion of the US population has been vaccinated (79.5% of those over 65, 59.4% of the population over 18, those under 18 at 56.8% and the overall percentage of the US population only at 48.6%) there is residual vulnerability in the US. Vulnerability remains high enough to cause a noted washout in equities which in turn should feed treasury prices sharply higher and should feed treasury bond prices toward the 166-00 level in the September contract. In fact, with the treasury markets since May 4th consistently reducing the magnitude of a very large net spec and fund short, those looking to re-hedge is probably moderately large. The Commitments of Traders report for the week ending July 13th showed Bonds Non-Commercial & Non-Reportable traders net bought 35,363 contracts and are now net short 74,712 contracts. In the T-Note market Non-Commercial & Non-Reportable traders net bought 101,102 contracts and are now net short 87,491 contracts. The North American session will only have one 2nd-tier economic number, the July NAHB housing market index which is expected to have a minimal uptick from June’s 81 reading.
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