- US ISM manufacturing release shows August contraction
- Sterling squeeze sends GBP higher; 'more upside likely' says Hardy
- WTI prices retrace 61.8% of late-August rally
- 'We are selling the Stoxx 50 index on the sentiment shift': Garnry
- CLICK HERE FOR A REPLAY OF OUR MORNING CALL
By Michael McKenna
Just ahead of yesterday's New York open, Saxo Bank head of equities strategy Peter Garnry weighed in against electric carmaker Tesla
, stating that the company's shares appear set to drop as low as $180 in the mid- to longer-term following the difficult merger with SolarCity.
As if on cue, Tesla shares plunged at the US bell from an opening price of 211.03 to 200.77. The problems with Tesla, explains Garnry, are varied, from the company's need to raise either capital or debt ahead of end-2016 to the high risks involved with the execution of its Model 3 launch.
"I expect a test of 190 in the near-term... sentiment has really accelerated to the downside", says Saxo's equities head.
Elsewhere in stocks, Garnry tells us that he is looking to short the Stoxx 50 index on the sentiment shift that occurred yesterday in the wake of poor US ISM manufacturing data (the reading came in at 49.4 versus 52 expected, and down from July's level at 52.6).
"I have placed the order and will sell at market with a stop at €3,055; I am looking to take profit at €2,980," says Garnry.
In terms of the poor ISM showing, it came at an unfortunate time for the USD which as of yesterday was preparing for a triumphant run into today's nonfarm payrolls release
. "The USD rally has broken," says Saxo Bank head of forex strategy John J Hardy, adding that EURUSD could sell off to the 1.10 handle if today's jobs data are strong.
"The key area in EURUSD is the 1.12-1.1250 range", says Hardy, noting that a pronounced break below this area could see the pair head pronouncedly lower.
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Source: Saxo Bank
Another pair that could move sharply on a poor NFP print, says Hardy, is GBPUSD. Cable squeezed higher yesterday and although Hardy does not think we have yet seen the cycle lows for this pair, he does caution that a bad US print could send the pound up as high as 1.35 versus the dollar.
Finally, Saxo's head of FX strategy reports that the Canadian dollar is weak – "and deservedly so" – as WTI crude prices head lower and in the wake of a dismal current account statement from Ottawa.
At least insofar as oil is concerned, however, the CAD could potentially catch a break if crude breaks back into the $45-50/barrel range that Saxo Bank head of commodity strategy Ole Hansen sees as the key trading band into the end of the year.
"Yesterday's trade saw us hit our Monday target
of $43.60/barrel," says Hansen, adding that he expects buyers to "come in ahead of $42/b with major resistance seen at $43.75 and $45.40/b."
Beyond the technical aspects of this potential turnaround, Hansen notes that oil producers are again attempting to juice markets with verbal intervention as prices hit the 61.8% retracement of their late-August rally.
"This morning we saw Russian president Vladimir Putin out pushing for an Opec freeze agreement that exempts Iran," reports Saxo's commodities chief.
In the end, however, all of these varied and dispersed conversations circle back, in their own ways, to one central point today – the US nonfarm payrolls release. With many investors seemingly convinced that a strong NFP print and a Federal Reserve rate hike (and policy normalisation, and economic recovery, and all of those good things we have been denied so long...) are one and the same, there is a lot of stored energy in world markets ahead of today's release.
Will the US economy surge ahead, like some sort of gleaming, high-tech, battery-powered supercar? Or will it sputter and cough like a Tesla?
That's a bit unfair, we admit: the cars are great. But those shares... Photo: iStock
From the Floor takes advantage of TradingFloor.com's unique real-time access to Saxo Bank’s various trading desks around the globe to put our community in touch with the developments that matter to their portfolios.