The Daily Fix – the rise and rise of US equity markets

• The S&P500 closes above 5500, NAS100 above 20k – the bulls in firm control
• The form guide for US equity indices – long and strong
• Tesla flying high – the worst is behind the EV name
• Fed chair Powell reinforces the ‘Fed put’
• Developments in the French election
• Asia opening calls and the event risk in play

European equities indices may have closed lower in cash trade, but the silver lining was that respective EU markets did close near session highs, and given the tape seen in the S&P500 and NAS100, one would suspect they get support upon reopening today. Asia too will take some inspiration, not just from the net change in US markets, but because it wasn’t just tech (plus Amazon & Tesla) that has propped up the respective indices, and we’ve seen somewhat better breadth and participation.

From a price action perspective, both the S&P500 and NAS100 futures printed a bullish reversal (price traded below Monday's low but ultimately closed above Monday’s high), showing the sellers tried to pull the market lower, but the buyers regained control and asserted their authority – if the intraday flow of supply and demand is akin to a battle, the bulls won today’s affair and statistically this bodes well for further upside.

The fact that the S&P500 cash closed above 5500 and NAS100 cash 20k – both new closing all-time highs, could also be taken as another win given the psychological significance that ‘round numbers’ hold.

One can then also revisit the form guide where the S&P500 has gained in July for the past 9 years, while the NAS100 has closed higher in July every year since 2007. History may not repeat, but it could rhythm once again.

Again, the one factor that does concern is the incredibly starched equity positioning – where investors and traders have gone all in on tech and discretionary names. Positioning - in isolation - is not a signal to trade on the short side, but if the market environment did change sufficiently, it would result in a more aggressive move – should it happen.

Tesla is the stock of the day gaining 10.2% and closing higher for a sixth consecutive day, with the market seeing Q2 delivery numbers coming in at 443,956 and beating analysts’ consensus estimates – the market clearly feeling the worst is behind the EV play, although that’s easy to say with the share price 66% off its April lows. The options market would have played a part too in the magnitude of the day’s rally, where 2.45m call options were bought on the day, double the 10-day average. Options dealers would have been buying the underlying shares to hedge their exposures, so as the price of the stock traded towards or through the various fixed strikes, options dealers (who sold the calls) would have been buying to hedge. I remain a buyer of this name and see higher levels in the near term.

We’ve also seen new all-time highs in Apple, Microsoft, and Amazon, and while Nvidia closed -1.3%, when 6 of the MAG7 names close higher, then large-cap indices will typically fare well. US financials also look in a really good place, and we see new highs in JP Morgan and Bank of America, with MS, Citi and Wells Fargo not far off – further upside seems likely in these names.

The equity bulls received some additional tailwinds from Fed chair Powell’s speech at the ECB’s Sintra conference – disinflation, he feels, is back on track and making progress, where he expects inflation to fall to the “low to mid-2s” in a year’s time. In a tilt to the ‘Fed put’, Powell acknowledged that he would not be happy to see a further increase in the unemployment rate and that a weaker labour market from here could bring the Fed into play – this, therefore, puts additional weight on the unemployment rate, which is due as part of Friday’s US payrolls report.

We’ve also seen better buying emerge in the US Treasury market – despite a higher-than-expected US jobs openings (JOLTS) report - with yields lower by 1bp to 3bp across the curve. Hardly huge moves and the intraday tape was choppy, but the net change was lower (in yields) and this may have offered equity additional tailwinds.

On the FX side, the USD is modestly lower (the DXY sits -0.2%) with the MXN, COP, and CAD the outperformers, while the ZAR saw fairly heavy losses. EURUSD traded into 1.0710 but the buyers stepped in, and we see spot close to 40 pips off the lows. European CPI came out largely in line with expectations at 2.5% y/y, with core CPI at 2.9% y/y (vs 2.8% expected), with ECB speakers at Sintra leaning somewhat hawkish relative to market pricing.

One point on the French elections is that some 218 candidates have dropped out of the second vote this coming Sunday, which has decreased the 3-way races by some 70%, with the majority of these coming from the left bloc (NFP). Mathematically, the Le Pen’s RN party can still get a working majority, and it will be interesting to view the polls in the coming days to see if voting intentions change because of candidates dropping out – however, the prospect of a hung parliament has increased.

In commodity markets crude trades -0.3%, gold -0.2% at $2329, copper +0.3%.

In the session ahead our calls for Asia equity suggest the ASX200 opens at 7731 +0.2%, NKY225 +0.4% and HK50 +0.6%. By way of event risk in the session ahead, we get Australia retail sales (11:30 AEST – consensus +0.3% m/m), US ADP payrolls, weekly jobless and continued claims, ISM services, and the June FOMC meeting minutes.

It's hard to see which of these could really promote sizeable market volatility. US Jobless claims could move the dial, but we’d need to see a number above 243k. The FOMC minutes are largely stale given the raft of recent Fed chatter and the ISM services print would need to be a big beat/miss to consensus (at 52.6). The real vol event remains Friday's US payrolls, which come at a time when liquidity may be reduced due to traders taking an extended break post the 4 July holiday.