2nd Wave Virus Concerns Persist

Okay, very good morning to you. Anthony Cheung here. I'm the head of market analysis at Amplify Trading. If you go to my Twitter account, so my handle AWM Cheung, you'll be able to find the latest macro menu. I've pinned it to the top of my, my latest tweets. But as you can see, a lot of stuff I'm talking about this morning is in regards to North America and the potential tracking of the second or the size of the second wave of the coronavirus in America. There's also been developments in Beijing over the weekend. Japan as well has seen a pickup over the weekend. And so this is definitely what's dominating market psyche at the European Open this week. Also, if you are watching this on YouTube and you wanted to get the morning briefings earlier, then check out Amplify Live. I'll put a link in the description of this video. If you want to have a look and to get that and more other exclusive content before everyone else does, that's the place to go. But having a look then at the charts this morning, let's just discuss then how things are performing at the commencement of trade. And as you can see, we've had a gap down in the US equity index futures. This has come, as I said, with focus still on the second wave risk emerging with the increase in the trajectory of the coronavirus rates in various different areas in America. Uh, which we'll have a look at in a moment. But as you can see here, from the, the Dow to the S&P, these charts here breaking through quite key technical levels. The, the charts somewhat mirroring each other to some extent, because if I just remove that horizontal line, you can see here in the S&P 500 the gap down and the overnight opening test that we had on the low on Friday, which is around that S1 level. So if I just put a support level there, you can see as Europe has come in early, we've broken through that level. The Dow pretty similar setup. But here you've got Thursday and Friday low, the reopening low. So on the fourth attempt really, and through that S1 on the daily pivots, we've had a run down to now just kind of settle at around the S2. But already down about 837 points here this morning in the down. So it's a pretty, pretty heavy move in that respect. And as you would imagine then, that's generally being reflected in the other asset classes. The dollar has been rising of late and that's putting a little bit of moderate downside pressure in the major, major pairs. Perhaps a little bit of discrepancy between EURUSD left and cable. A couple of cable headlines to be aware of: you've got the recommencement of top-level talks between European Commission and Boris Johnson taking place later on today, and obviously you're coming closer towards that looming deadline, and a lot of the weekend press suggesting of the UK pursuing its kind of push to accelerate negotiations or to face the risk of a no deal has been the talk. And then elsewhere, T-notes up around 9.5 ticks, where we're just above the high that we've seen in the Asia-Pacific session. Oil lower, as you would imagine, kind of tracking in step with the ramifications that a COVID pickup would have in a second wave form for global growth potential. So not just equities, oil also lower. And retesting at the minute around the low that was seen on Friday. The only asset that isn't really reflecting this general risk-off sentiment is gold. Don't have too much of an explanation for that, to be quite honest with you. Right now, um, technically we're below the S1. We've seen a bit of a downfall as Europe has come into the market. Perhaps then now we've got a fairly strong level of of potential resistance now on any recovery that we might see. But of course, when the US come in and if things do trade quite heavy, the logical response would be that would provide a bit of supportive tone for gold. But now any push back up towards really the S1 and then just above around 27 to encapsulate some of that previous high and low from last week's price activity could be something to watch as well. So let's have a look then at this story that's been in development over the weekend and gonna kick off things with a map here of hotspots in the United States of America. And what we're looking out, we're looking at here is a map of America by different states and the color code key is blue where coronavirus cases over a 2-week period are declining and red, the more deeper, darker the red color, the more it's rising. And as you can see here, there are a number of highly populated areas which are seeing quite a distinct pickup. And in fact, more than 20 US states did see a pickup in cases over the weekend. Alaska, Arizona, Arkansas, California, Florida, North Carolina, Oklahoma, South Carolina all experienced record increases in coronavirus during the past 3 days. And so here are some of those key areas of which caused the catalyst for the sell-off on Thursday, if you remember, which was really these, these big significant areas as far as the economic situation of America is concerned, and which is causing some to kind of reprice these assets for them. What had been a fairly smooth process of reopening the economy with fairly limited new cases has now started to see quite a more steeper curve of infections materializing. So here California, Texas, Florida, obviously very much in focus. Arizona being another one which has seen a very steep incline. Florida is one of those— I remember seeing photos on Saturday, I think Miami Beach was just packed the weekend. Florida, they reported 75,658 COVID-19 cases on Sunday. That's up 2.7% from a day earlier. And compared with an average of 2.3% over the previous 7 days. And so as it was last week, it will remain now and in the coming days. Really important to keep a very close eye on these daily rates that come out. Now, from recollection last week, when it gets London time to around the afternoon, sort of 2 or 3 o'clock, that's when we start to see updates from each daily kind of stamp, if you like. If you think about it in North American hours, that's first thing in the morning. They issue then the previous day's logging of infection rates. And really you're looking at the increase of that figure over then the 7-day kind of average. And at the moment that has been going on a steady incline in some of these key areas, and that could be a trigger point then depending on how big those jumps are for another negative run or impact on markets. The other thing that's happening is not just in America Um, in Beijing, there's been quite a distinct pickup in the fact that what was shut at the weekend was the city's largest fruit and vegetable supply center. Uh, and what it's led to is locking down nearby, uh, neighboring housing districts as dozens of people associated with a wholesale market tested positive for the virus. Now, what's always problematic in China is just how densely populated it is. And to give you an idea, this market in question. It's not like the farmers markets you'll get on a Sunday afternoon in Britain. This market covers 112 hectares and has 1,500 management personnel and over 4,000 tenants. So it's huge. And just given the nature of this, this spread, and there's been some talk as well that could cause complications, that some of the latest strains of which they've been testing could show that that actually this is, this has been brought in as well to some extent with some European movement back into the country, um, has caused complications. And China are not taking any risks. They're looking to shut down things as quickly as possible to regain control. But just given the, uh, the development and the potential for this to spread quite quickly, uh, this again is kind of in combination with those US figures is what's causing some of the nervousness in markets this morning. Elsewhere globally. Although places like New York and London continue to be fairly contained, and if anything have seen some of the lowest cases that we've had ever since the onset of the outbreak, places like Japan, for example, have seen a jump over the weekend. So it's a little bit of a mix, but very much more dominated by the fact that if you think about the UK, they're a little bit behind in regards to— we're only just about to go into a reopening of, say, non-essential retail shops today on June 15th. And so these other countries have already kind of are further down that reopening route, and so therefore they're kind of further down this kind of second case virus. So that's definitely what's driving sentiment and what will probably dictate proceedings for not just today but throughout the entire week. One thing to be aware of with equity index futures down already quite heavy, the S&P down over If you go on my Twitter account, I've reshared basically a tweet from Newsquawk which have put out the circuit breakers, the limit downs for Globex trade. So here, the 5%— if I go to the S&P first, we're trading this morning at 2929 now, the, the session lows at 2923.75. The 5% stop comes in basically at 2888, so a little bit further to go as yet. But worth bearing that in mind if we get to that 5% limit down. And then once we go into the, um, the NYSE and the open, then here are the respective level 1, 2, and 3 increments with the, the levels for both the S&P, the NASDAQ, and the Dow. Probably worth having those jotted down on a piece of paper in case things do get quite volatile to the downside later on in the session. Other things to be aware of for this week We do have an EU leaders gathering, virtually at least, at the end of the week, culminating on discussions on Friday where they'll look to debate the recovery fund to repair the COVID-19 damage that we've seen in the eurozone. And the main thing that people are looking at here is this, the kind of meat and bones around this €750 billion European-wide recovery fund. This few weeks ago, and as you can see on this chart here, I've got the yellow, which we've seen as a real distinct pickup in EURUSD. Now what that had been before last week's nervousness on the second wave had been a reversal of the risk premium in the flight to quality in the dollar following what we had seen through March. And so dollar weakness was promoting some euro strength by default. But overdelivery from the ECB in their QE program, a second larger-than-expected stimulus coming out of Germany, and then this kind of Franco-German plan for a rescue fund, then the tentative agreement on a European-wide basis had seen the euro really outperform. So this week's going to be quite important because now we need to see really the facts and figures of what does this deal consist of. And obviously the frugal four— Netherlands, Austria, Denmark, and Sweden will be the ones to watch. Are they going to be resistant at the final hurdle to getting this deal over the line? And so what would be susceptible is not just the euro-dollar currency, given some of the recent market positioning, but also Southern European bonds. So the red line here is looking at what we have seen over the last real 6 weeks, is generally the tightening of the German, the Italian-German 10-year bond yield spread, indicative of more I guess, confidence about the future. But any fall down of this European-wide fiscal deal would see then more pressure coming onto those bonds. The respective yields would rise, which could blow out those spreads. And Friday is going to be quite a key day for monitoring those for sure. Sticking with Europe but with the UK kind of thrown in, Boris Johnson returns to Brexit with the aim of firing up faltering talks. So the PM will say that while the UK still wants a free trade agreement with the EU, it isn't afraid to walk away at the end of the year without one. This is what a lot of the UK press was suggesting at the weekend. So as far as the meetings that are happening today, Prime Minister and EU officials holding a teleconference call, I would not be expecting any kind of concrete developments to materialize as soon as now. I would say it's still pretty much setting out the, the, the route that they're on, which is for the UK. Um, I think it's still really a little bit early perhaps then, uh, toward the deadline at the end of the month for the transition. But what it's looking more likely at this point is that they're not going to press the transition, that we're going to push through. And some of the reports today have said that if discussions can make progress in July and August and wrap up in September, EU leaders could be asked to ratify a deal at their scheduled summit in October. So that's the kind of timeline of which the UK government apparently is working to at this point in time, which does mean then that there is still a risk of a no-deal materializing. And you, you could see a bit of an increase in the, in, in some weight for the British pound as we get towards the end of this month, as then we've not in action, that request for a transition just increases the— still based on expectation that some kind of deal might get done, but obviously we've removed one of those, um, kind of potential obstacles that could have caused a more positive reaction if the UK had agreed to extend by another 2 years or not. All right, the other things to be aware of, a couple of interest rate decisions. Now we do have some UK data coming out throughout the week. You get retail sales, unemployment numbers, inflation numbers. So we get a good economic kind of health check out of the UK. And this, of course, comes after the disastrous kind of April GDP reality that we had. And so given that and given the types of language that we've seen from this chap, the Governor Andrew Bailey, just last week, who basically said he's ready to take further action. All expectations are that the Bank of England will increase their quantitative easing program. The expectation from quite a few banks is around £150 billion. That would then buy them enough few months, given the pace of purchasing that they're doing at the moment, enough, enough months further down the road in order to see just how this plays out in terms of the economic recovery at this point, and also the significance or not of the secondary wave virus. And so rather than doing these kind of short-term gap fills in policy, if you like, and then that's going to make the market kind of increasingly nervous at every review, probably better they go for something like 150 to just kind of kick the can down the road a couple of months and then, and then revise things as they see fit further down the line. So Yeah, Bank of England, I guess if they don't do that, if they don't increase their QE by that type of magnitude, then that's when it could be an interesting event from a trading perspective because there will be a lot of people disappointed at that point in time if they don't pull the trigger and increase by that kind of amount. BOJ, they've also got an interest rate decision. However, I'm not expecting a great deal here. Officials likely to consider the impact of measures taken so far, according to people from the matter reported in Bloomberg this morning. So anticipated to leave their main policy kind of levers untouched, as it were. Um, quickly having a look at the calendar, I've pretty much covered over all of the major things. We did have some Chinese data overnight. Retail sales, industrial output were marginally weaker than expectations in May, albeit a slight improvement from the prior month. Other interesting data you've got coming out of the States, you've got US retail sales coming on Tuesday. You get your regular weekly jobless claims, still going to be somewhat elevated, but albeit on that downward trajectory we've had over recent weeks. But that comes alongside the Philly Fed Business Index we'll get on Thursday. US building permits, housing starts will come on Wednesday. And so yeah, a few things to, to keep an eye out on. Throw in the mix as well quadruple witching, which will get towards the end of the week. So if people are still somewhat nervous about the development of the virus, particularly in North America, I could see quite a volatile end to the week at that point if you throw in the fact of those expirations in options and futures. So that's it. Any questions at all, feel free to leave a comment on the video. Obviously this morning, as far as markets are concerned, we are awaiting now the US entrance to see where they take this market, just given some of the overnight and European movement that we've had. As far as the S&P is concerned, from a longer time frame here on a daily continuation, you know, interestingly, last week's sell-off that we had and then the Friday volatility we did manage to close above the 200-day moving average, but the gap down, the reopening of trades, just given some of the weekend's news, we came back up to test that same level before then pushing down here. And now that we've made a concerted move beneath that 200 DMA, that resistance point in the April-May, um, kind of resistance area, then the next logical target might well be down at that 2903, which if seen pre-market opening hours which is also that low on the 22nd of May, uh, then that circuit breaker resides just below the 29 marker, 2888. So yeah, could be in for an interesting start to the week for sure, and all eyes and ears remain on the updates on the trajectory of the coronavirus in America in several key states. All right guys, that's it from me. I'm going to wish you a good day. And week ahead, and I'll see you tomorrow. Thanks very much.