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Video / 30 June 2017 at 7:55 GMT

From the Floor: Week of central bank confusion leads to fresh selloff

#SaxoStrats
  • Equities and bonds fall in unison as central bank confusion produces fresh selloff
  • US technology stocks, especially less liquid shares, battered again
  • Heavy data calendar includes key Eurozone flash CPI estimate and US PCE inflation
  • USDJPY falters at new highs despite higher yields
  • Bloomberg commodity index rises for first time in six weeks
  • Dollar, weather and oversold market conditions came to the rescue of commodities
  • WTI trades higher as shorts are squeezed
  • Red spring wheat the high flier of the week in commodities

Saxo Strats banner
By John Acher

Things turned ugly again for global stocks and bonds on Thursday in a week when the European Central Bank outdid itself by confusing the financial markets with mixed signals.

It all started on Tuesday with surprisingly hawkish inflation remarks from ECB president Mario Draghi, followed by the bank's efforts on Wednesday to walk back that message, which triggered a rebound. But the markets weren't convinced, and Thursday brought a new selloff in equity and fixed-income markets.

“This week will probably not go down in history as one of their finest at the ECB,” Saxo Bank's fixed-income trader Michael Boye says on Friday.

The market's risk-off sentiment and central bank confusion sent global government bond yields higher, with the 10-year Bund yield looking towards 50 basis points, Boye says.

Key macroeconomic data on Friday include the Eurozone's June flash CPI estimate and US May PCE inflation, which is a key measure for the Fed.

"There is a low bar for US data to surprise," says Saxo Bank's head of FX strategy, John J Hardy.


Tech selloff

US technology stocks, which have also had a bumpy week, were sold again on Thursday, with smaller, less liquid tech stocks among the heaviest hit.

"Yesterday was another ugly one," says Saxo Bank's equities strategy chief Peter Garnry. "The carnage was most brutal among the small technology stocks."

The Nasdaq fell 1.4%, while the Dow industrials ended 0.8% lower on Thursday.

Shares in US sports shoe and apparel maker Nike leapt 8% on strong fourth-quarter results, with earnings per share of $0.60 beating the market's estimate of $0.50 and revenue of $8.7 billion surpassing the Street's expectation of $8.6 billion, says Garnry.

Nasdaq 100 futures remain under pressure. "We are still in the lower end of yesterday’s range and definitely below the 50-day moving average," Garnry says. 

"We are really battling with some critical levels in the Nasdaq here," Garnry says, adding that his June 28 trading idea to sell US technology stocks remains intact.

Nasdaq 100 futures under pressure
Nasdaq 100 futures
Source: Bloomberg 

In the FX markets, USDJPY faltered at new highs despite higher yields, EURUSD is at a very key inflection point,  and USDCAD broke through 1.3000, says Hardy. (Read also Hardy's latest FX Update here on TradingFloor.)

Key inflection point for EURUSD – shifting forecast to 1.20-1.25
EURUSD
Source: Saxo Bank 

In the commodities markets, a short squeeze has lifted crude oil prices, and a break above $46/barrel for WTI would likely accelerate the short-covering, says Saxo Bank's commodities strategy chief Ole Hansen.

The Bloomberg commodities index rose for the first time in six weeks, with strength in all segments except for precious metals, as the dollar, weather and oversold market conditions came to the rescue.

"The weather is really back in play," says Hansen. "The high flier this week is red spring wheat."


Confusion
 The ECB thoroughly confused financial markets this week. Image: Shutterstock


John Acher is a consulting editor at TradingFloor

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