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From the Floor: Bonds on the block, equities at a crossroads

   • Equities in focus with 2,750 the key line to watch in the S&P 500
   • Tariff threat from Washington weighing on industrial metals
   • ZEW survey on watch with consensus calling for a decline
   • $179 billion in US Treasury bonds on the auction block today

By Michael McKenna

Volatility may be returning to pre-shock levels, but the recent equities selloff is still very much in focus with Saxo Bank's John J. Hardy pointing to 2,750 as the key line in the sand for the S&P 500 as it represents a major Fibonacci retracement of the big spike lower.

Saxo technical analyst Kim Cramer Larsson is of a similar view, reporting that a bearish session today could open things up for a re-test of 2,564. "There remains a risk that we could move lower again, and I would need to see a close above Friday's highs across all exchanges in order to take a bullish view on US shares," says Larsson.

One of the major factors facing markets today is the $179 billion US Treasury note auction, which represents a good chunk of the $258bn in Treasuries on the block this week. The outcome of these auctions is critical for the dollar says Hardy, adding that the bellwether greenback pair remains USDJPY where the 107.50-108.30 area is in focus as key resistance.

USDJPY (hourly):
Source: Saxo Bank

The second major event today is the German ZEW indicator of economic sentiment set for release at 10:00 GMT. Saxo Bank head of equity strategy Peter Garnry reports that this release could be a major factor in European markets, adding that consensus is calling for a decline.

"The recovery seen in European equities has been disappointing, and a decline in the ZEW reading [could potentially represent a broader rollover in macro]," says Garnry.

Finally, Saxo Bank head of commodity strategy Ole Hansen says that industrial metal prices are headed lower as Washington weighs the possibility of punitive tariffs on aluminium and steel. According to Hansen, the imposition of such tariffs could raise prices in the US while crating a price-lowering excess of supply in the rest of the world. 

Beyond Trump's tariffs, Hansen reports that gold resistance remains firm at $1,360/oz while the headlines of London's IPWeek remain supportive of crude oil.

Michael McKenna is head of editorial content at Saxo Bank


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