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From the Floor: Equities returning to normal? — #SaxoStrats

#SaxoStrats
   • S&P 500 index clears key 2,727 level
   • 'Don't focus on ETF redemptions': Garnry
   • Commodities enjoy best week in six months
   • Gold still trying to challenge crucial resistance
   • Copper outperformance supported by zinc, nickel

SaxoStrats
By Michael McKenna

Today's equities session is likely to represent a fairly light end to a volatile week, says Saxo Bank head of equity strategy Peter Garnry. With the S&P 500 north of the key 2,727 area and the VIX volatility index below 20, Garnry feels that risk can be scaled up although investors would do well to maintain some form of defensive hedging.

"One of the big stories across financial media right now concerns ETF redemptions," notes Garnry, pointing to the mechanism that allows ETF prices to closely track the value of the underlying asset(s). 

"[At the moment I would caution investors] not to focus on redemptions, as there is no clear relation betweenr edemption and future price decreases".

In a broad sense Garnry says that we are likely in a normalisation phase for equities. Looking at today's data calendar, we have US housing data (new residential construction) out at 13:30 GMT, and Saxo's equities head confirms that he remains bullish US housing.

S&P 500 (hourly):
S&P 500

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Source: Saxo Bank

The return of risk sentiment along with a weaker USD and the inflation focus have given commodities as represented by the Bloomberg index their best week in six months with Saxo Bank head of commodity strategy Ole Hansen pointing to today's COT report as crucial for gauging hedge fund activity in general and the culling of bullish bets in particular.

"Gold is still trying to challenge key resistance at $1,365.75/oz," says Hansen, adding that a plethora of failed attempts to breach this level dating back to 2016 creates a degree of nervousness in gold markets.

In crude, meanwhile, prices are holding Wednesday's gains but Hansen cautions that the risk/dollar/inflation troika is not a strong enough foundation for a sustained recovery, adding that Libyan production is estimated to have risen to 1.1 million barrels/day, or 300,000 b/d above the 2017 average.

"We have also seen copper enjoy its best week since November 2016, supported by the highest zinc close in a decade and nickel's highest close since 2015."

Gold
 Can gold break the $1,365.75/oz mark? Photo: Shutterstock

Michael McKenna is head of editorial content at Saxo Bank
1y
Cat Cat
Suggest you add UK Retail Sales data to your event list on TF. It wasn't listed last month either. Thank you.
1y
Clare Mac Carthy Clare Mac Carthy
Thanks, Cat. I'll get onto it.

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