The Invesco DB US Dollar Bullish ETF (UUP) remains a key chart to monitor for determining the likely path of risk assets. The fund is above the near-term support level at $25 and the OB / OS Indicator is working toward an overbought position. Chaikin Money Flow is bullish but UUP remains below the declining long-term trend line.
Take Away: Equity markets came under intense pressure last week but have thus far held above their important support levels. It is interesting to note that treasuries did not provide a “safe haven” as they were sold off along with other risk assets. Oil weakness is weighing in the broader commodity complex as COVID restrictions in Europe weigh on the demand outlook.
As we have been saying for the past few weeks, the news flow is likely to get noisy. This week, in addition to the election, there is a Fed meeting (Wednesday and Thursday) and the payrolls report on Friday. Holding key levels will be important for equity bulls and risk management should be a top priority.
Market Commentary / Looking Ahead
US equities fell on Friday, but closed off the lows thanks to a late rally. The S&P 500 and the Nasdaq logged their worst weekly performances since March. Treasuries were mostly weaker with the curve steepening. The dollar was stronger against the euro, little changed on the yen cross. Gold finished up 0.6%. WTI crude settled down 1.1%, dropping more than 10% for the week.
- Outperformers: Financials +0.27%, Energy +0.19%, Healthcare (0.07%), Industrials (0.09%), Materials (0.15%), Consumer Spls. (0.46%), REITs (0.72%), Utilities (0.94%), Communication Svcs. (0.99%)
- Underperformers: Consumer Disc. (3.00%), Tech (2.44%)
The selling pressure on the week can be attributed to a number of factors. Rising COVID cases, election uncertainty and lack of stimulus remained the key macro drivers. At the micro level, earnings season continues to exhibit an elevated bar in the minds of investors. Reports from the “market generals” have failed to inspire bullish activity despite beats on the revenue and earnings lines. Given all of the above, the major market ETFs held important support. Volatility is likely to remain a fact of life in the equity market until there is a shift or more clarity on the above issues.
As we get to the desk this morning, S&P futures are up 1.3% after Asian markets were higher overnight with Japan, South Korea and Hong Kong all up nearly 1.5%. European markets are rallying after their big selloff last week. Treasuries are mostly weaker with the curve steepening. The dollar is slightly stronger on the major crosses. Gold is up 0.4%. WTI crude down 2.2%, extending last week’s decline.