We move past a busy week in markets and onto an even busier one, littered with potential landmines for traders to navigate.
One key theme which has legs this week are moves in Chinese markets, China went after short sellers with several targeted measures. We also saw a 50bp cut to banks Reserve ratio requirements (RRR) amid reports of an RMB2t package for offshore State Owned Enterprises to buy Chinese equities. That said, with big inflows into mainland funds, the HK50 and CSI 300 managed an unimpressive 4.2% and 2% weekly gain respectively.
Judging by price action in the HK50 market, players seem unsure about building on the move from 15k. I would look to trade a break of 16300 (longs) and 15809 (shorts)
European equities in beast mode
While hindsight is a wonderful thing, the equity index to be long on the week was the EU Stoxx 50, which is in beast mode (even when priced in USD). The European Central Bank (ECB) refraining from pushing back on market pricing has certainly helped, while EU earnings also ramp up. Looking ahead, Thursdays EU CPI could be very important for both the EUR and EU equity, where a weak core CPI print – below 3% – could open the door for the ECB to signal a big change from the collective at the 7 March ECB meeting. However, we can gauge an immediate response to the CPI data from ECB members Lane and Centeno, who both speak after the CPI data.
- Armchair Academy: Introduction to Equity Sector Futures
- Crude oil futures ramping up fast on Middle East escalation fears
- Share Tip: Dutch stock is strong China tech investment play
- Sentiment Solid As Jobs Day Approaches – trader’s weekly playbook
A big week ahead for US earnings
US data last week, for the most part, impressed and should result in the FOMC statement being little changed this week. Nuance and positioning will play a key role in the moves in rates, the USD, Gold, and equity. FOMC aside, it’s a big week ahead State Side, with a raft of key labour market reads, growth data points, the US Treasury Quarterly Refunding Announcement (QRA) as well as it being the marquee week of US earnings with Microsoft NASDAQ:MSFT, Apple NASDAQ:AAPL, Alphabet NASDAQ:GOOGL and Amazon NASDAQ:AMZN reporting.
It’s not a shock that longs in Nasdaq100 and S&P500 have had a collective rethink and thought twice about building on the move into 4900. That said, if we look at the volatility markets there has been no pickup in hedging activity with limited propensity to buy downside puts. In fact, all the talk has been that funds are selling index calls to collect premiums and enhance returns on their underlying equity positions. This is subsequently having a big effect in dampening volatility.
Movers in the Commodities markets
Crude Oil and Natural Gas are where the moves are taking place, and certainly, SpotCrude had a flyer, gaining over 6% on the week, trading into the November range highs and taking out the 200-day MA. US data has been a factor, but geopolitics is also a growing issue, and we watch headlines roll in. The bulls seem to have control for now, so upside risks remain – a break higher could also become problematic for future headline inflation, although we’re not at levels too concerning yet.
All in, we see a new week littered with key event risks. Economic data flow, central bank meetings and corporate earnings. It pays to be aware of the calendar, whether one is day trading and navigating these potential volatility events through the day, or holding positions but not in front of the screens. Consider if the event holds the potential for outsized moves, where the skew of risk resides, and what that means for the stop placement and position sizing.
It’s the week that has it all. Good luck.
