A Key Risk Beyond The Election: US Virus Numbers Are Rising

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to you, it is Friday 23rd of October And just before I begin, just going to give another quick word on the US election preview webinar that we're going to be hosting on Friday the 30th, a couple days then before then the full US election coverage that we'll be doing all throughout the night. Um, so get registered for this event. The link I will share and distribute and put on the description if you're watching this on YouTube, and you can find out more details. But hopefully you can join us then. But let's get straight into it and talk about what's going on in markets this morning and relatively quiet overall. There are certain stories I'm going to update you on, but nothing really that stands out to really dictate proceedings here right from the get-go at the European Open. Probably more so it's going to be derived from the flash October PMI numbers, which are probably going to have come out by the time that a lot of you see this if you're watching the recording, not the live version. So they are particularly key. Um, for anyone new to markets, with the PMI data, generally people look at the flash, which is the first reading for that month, these data points being for October, and these being soft indicators of the Purchasing Managers' Index. And it's really a kind of a good signal as to people's appetite about what does the future look like. And obviously, in a very clouded future full of uncertainties, the confidence of which these purchasing managers have in terms of potential future activity, whether manufacturing or the service industries, is really key for us to define then what current market prices should be valued at, essentially. So those data points will be important. They kind of get drip-fed in through France, Germany, then Eurozone number. And again, for anyone new, the Eurozone number is really of no consequence because it's a summary of its parts. So the ones you really should be looking out for are the French numbers and then the, then the German numbers. And again, the composition of those economies in itself are slightly different, so the service number can have a slightly more greater influence in France, whereas manufacturing, of course, in Germany being more of an export-based nation. So ways to interpret that data, but that's likely to be market moving. And the reason for the quiet nature perhaps of the open has been the fact that a lot of people just awaiting those figures. And then we'll get the corresponding US release later on this afternoon. But again, Again, from a data point of view, from the US perspective, they have the release of their ISM manufacturing PMIs. That's not today, it's the market PMIs that are coming out. There is a difference between the two, and in America they tend to focus more on ISM than they do the market PMI data. But for the UK and Europe, this inherently normally is a market mover, so watch out for that. Otherwise, overnight we had the presidential debate. I'm going to kick off the news with that, but As you can see, the charts really tell you. I mean, one of the things I do when there is a big overnight event, if I'm not going to stay up, is the first thing I do, turn my screens on, I look at the charts, and immediately I can see, well, Trump-Biden was nothing there because the charts would have already moved at that point. And that pretty much sums it up. Elsewhere then, in terms of what we've got, the, the dollar's up about 0.1%. Bit of a pullback. Obviously, it's been pretty seesaw kind of week overall, I guess, in terms of how the major currencies have been concerned. And EURUSD and cable have continued to back off. So that kind of relief, I guess, of the inevitable Brexit talks resuming, just a little bit coming off now. We're going to talk about a few other things as retail sales confidence data that's come out already this morning that we'll get to in a moment. And then the euro, after kind of surging higher, continues to back off. As the dollar kind of just pulls back a little bit on that overextended nature of the quite key level in Dixie, which broke in midweek. And it's just kind of some of that, that kind of short-term profit taking, I think, on those euro longs just coming off a little bit. Otherwise, in the equity space, it's pretty quiet really. There's a few earnings to, to be aware of. There's one after market which I'm going to talk about as well in a second, Intel. There's been a few European-based ones as well this morning, but stock futures are relatively flat overall. Main considerations there, I'd still say, are the ongoing stimulus talks and also the COVID situation. And there's a couple of numbers I want to share with you this morning. Otherwise, T-notes pretty flat. Same case for gold, very quiet overnight, trading at $1,907, up just $2. And oil not really showing any definitive direction at this point in time. Currently down 30 cents at $40.34. So let's get straight into the headlines and start talking about what's been going on overall. And starting off with the debate, what have we had then? Well, overall, you know, an interesting fact here is that just given the coronavirus at the moment, a lot of the mail-in kind of ballot voting has been happening in certain states for a period of time already. And in fact, more than 47 million Americans have already voted. In the election. And as such, then, it does take a bit of a sting out of these kind of— the importance of these, these presidential debates. I mean, if there was no voting until one singular day, well, every, every kind of encounter is really important. But if you think about it, some people might have already voted already, matter of fact, irrespective of the fact that they've not yet seen what the, the latest debate, what might materialize. So overall, the debate, I'm not going to spend much time talking about it. It was a little bit more, let's say, manageable than the very first one, but there was no real great outcomes, shocks, or surprises. It was the usual kind of things. One talking head, I did say, commented that President Trump's more civil, calm, and reasonable approach this time may work slightly in his favor. But there were some instant polls that came out from debate watchers This is something in markets we, we sometimes look for as a little bit of guidance to the public perception of how the initial snap polling reaction is to the, to the debate. And CNN had Biden 53% versus 39% for Trump. YouGov America had Biden 54% against Trump 35%, and Data Progress had Biden at 52% against Trump's 41%. So overall, the snap pollings were quite heavily in, in Biden's favor. And as such, then the kind of even the gap in those polls is very much reminiscent of what we're seeing in a national RCP average polling anyway. So hence the reason why I think there was kind of limited movement. So that kind of fear, I guess, around Biden that perhaps he could just break down under the assault of President Trump, that kind of whole thing about Slow Joe and so on hasn't happened, hasn't materialized. So at the moment, the, the gap between the two candidates is likely to remain relatively constant for the time being. Moving on then, a few other things. Given the talk about the US election, I just wanted to let you know that I did share this morning— I've tweeted it from my own account. My Twitter handle is here if you want to follow me. But there was Bloomberg released a guide to trading European markets ahead of the US election. Quite an interesting piece. It's not really Bloomberg's opinion. They've cited various different banks, JP Morgan, Morgan Stanley being two of them, and they talk about kind of the sectors that might outperform, underperform under different US election outcomes. So whether it's a blue sweep, whether it's kind of the status quo, and so on and so forth. So definitely worth a read if you have time. On the stimulus side of things, where are we at with that? Well, you know, the show goes on really, and Nancy Pelosi reported progress in talks with the Trump administration for another round of financial aid. Said that legislation could be hammered out, quote, pretty soon. However, the White House economic advisor Larry Kudlow cautions significant policy differences did remain and they are unlikely to be resolved before the November 3rd election. So, um, the headline suggesting they're zeroing in on a near $2 trillion package— I mean, that has been the case, the gap is reducing, but again, I still have the view that they're not going to do anything at this point in time for the reasons we've mentioned multiple times this week. Um, one thing though that is, and I've mentioned this a few times this week, and I do think, um, this, this is of growing concern. Obviously market sentiment is relatively stable at the moment, and I don't necessarily think that today is the day, but I do think that, you know, X-ing out the election, the COVID cases US and globally, I find quite worrying at the moment. And as we've already been witnessing here in the UK, but also in the broader mainland Europe, restrictions are getting more stringent. And obviously that's going to have subsequent economic impact for sure. So in the US, things are, things are no different. And I just wonder, once the election is done, given the seasonal part, and given the fact that, you know, neither political candidate would be particularly interested in going into any form of lockdown at the moment, not when that's going to impede kind of economic activity just before you need maximum kind of political payoff for an election. And that in itself I find quite troubling because these numbers in the US are rising fairly rapidly. This is looking at the number of positive COVID-19 cases per day. And we had 76,560 on Thursday. That's the second highest single day total. 7-day average, the highest now since the beginning of August. Uh, Illinois, Ohio, North Dakota reported daily records. Florida, New Jersey saw quite a significant jump in their infection rate. Uh, in Chicago, for one, a nighttime curfew will be imposed for non-essential businesses starting this Friday. And with case numbers going up, as you would anticipate, then the number of US COVID-19 deaths per 7-day average has also started to tick up. Hasn't quite got to the levels what we were seeing in July as yet, which were more around the 1,000 marker, but it is heading in the wrong direction at this point. And as we know, with containment of the virus and its transmission and spread, which can be like wildfire if not contained. It's all about early preemptive action. But the fact that authorities are so sidetracked by delivering an election and their, I think, reluctancy to do so early, I think we could be looking at a fairly bad situation in America in particular come post-election into November, late November, December. It's going to be interesting how that, how that plays out. So yeah, maybe not one for now, but certainly one for later. On the COVID front, actually just going to jump over to what's happening in Europe. And you can see here the numbers are moving higher all of the time at this point. France reporting more than 40,000 new cases for the first time yesterday. Record infections in Italy, Germany, and at least 8 other European-based locations. And so hence the reason why now Italy is suggesting a curfew in a similar fashion to what France has been adopting, which could come into effect in the coming days. Um, on that front, talking of vaccines, uh, Gilead's Remdesivir— you'll remember this one was quite linked to Trump when he was getting treated just around a week and a half or so ago— um, the US FDA have approved Gilead Sciences antiviral therapy remdesivir yesterday, making it the first drug to obtain formal clearance for treating the coronavirus. Remember, this is a therapy. Hospital patients who got treated using this therapy recovered 5 days faster than they otherwise would have done so without taking the therapy. This does not reduce deaths. This isn't an antidote for a vaccine in the truest sense for coronavirus. It just basically helps patients recover faster, that's all. Um, so hence the reason why the market hasn't really reacted to this, but definitely worth just being aware of. Um, okay, gonna go jump back to a few other things. Firstly, with the earnings picture at the moment, Intel shares took a bit of a beating last night. They missed their third quarter revenue estimates for its data center chip unit as COVID-19 crippled sales to, you know, big customers. And those big customers, of course, being governments and businesses, not so much individual consumers on the high street. And their shares then— so what they look like in aftermarket trade— they actually finished down in excess of 9% for Intel. So worth keeping an eye on the chipmakers today. In terms of earnings for today's session, uh, Amex is probably the biggest one that you're going to get before the market open. No major significant aftermarket earnings as normal on a Friday. Um, worth bearing in mind, although Intel was very downbeat, a quarter of the companies in the S&P 500 that have reported so far, um, more than 4 out of 5 have exceeded analysts' expectations. So we're only a quarter of the way through and 4 out of 5 companies coming out are beating expectations. So hence the reason why at the moment I think this is managed by the fact that people's perception of corporate profitability in a pandemic environment is so depressed that it's not too tough a job. Let's say companies were pretty sure to just realign people's expectations about what and how challenging the future is going to be. And so those numbers have been outperforming, but of not too much consequence to the market. I guess if anything, it limits any negative perception and downside movement on the back of the earnings report because most of them are beating. This is one thing I wanted to mention, uh, just looking elsewhere. There's a couple of UK data points. UK retail sales came out this morning. It was a lot firmer than expected, the month-on-month at 1.5% for September against 0.4%, and all of the metrics, they're beating expectations. However, not even a flicker in the sterling currency. And I think that's really important because retail sales is a fixed data point, it's backward-looking, it's a measurement of services and transactions from September. But who cares about September, right? People are looking about what's going on now. The country is getting worse in terms of its COVID cases, which is causing further restrictions in lots of areas. I mean, nearly majority at the moment of the UK is in a more stringent tiered level of lockdown, which ultimately a lot of people believe will lead to some kind of circuit breaker type national lockdown like we're seeing in other parts of, of the United Kingdom, like in Wales for example. So even though that data is good, it doesn't matter because people are more focused on, well, it's going to get a lot worse in the future. And, and that is reflected in the other data point that came out overnight, which is the UK consumer confidence number from the GfK. Now, this isn't really a market-moving number. It never really is. But I think it really summarizes where the consumer's head is at, at the moment, because consumer confidence has dropped to its lowest reading since May, where, given the fact that coronavirus infections are rising, restrictions are tightening, meaning that consumers are becoming more pessimistic about general economic situation for the economy, but also their personal finance situation. As well. And just given that if we, if we get a repeat, of course, of what we had in the national lockdown back in March, April, May, then that's obviously going to have a further consequence to already very precarious situations for a lot of small and medium businesses and people getting fearful about their employment situation. So that, I think, is why you've got to look always with economic data with context. It's super important. The pound hasn't really reacted in either way to this, this information because it's not really new. Uh, we know things were better before, things are getting worse. So it doesn't really come as much surprise, but definitely, um, it says a lot, I think, about what potential central bank action that we are going to be seeing in November and later on into the end of this year and the beginning of next year, because inherently this COVID situation is going to get worse before it gets better. And with a lot of focus on the Bank of England, of course, of late, I do think that they will inherently increase their quantitative easing program or their asset purchase program, as they call it. That leads us on also then to, to similar case for, for Europe, of course. And Bloomberg have released their latest economist survey, and it's forward-looking to the next, next week's ECB rate decision, where at the moment economists do believe that the ECB are going to increase their, their kind of responsive pandemic emergency purchase program further. Now, it's not going to happen as soon as next week, but the way that central bank communication works is that— is Lagarde, as the ECB president, going to give a certain signal and hint towards it is coming in the future? They tend to go in very small, moderate, progressive steps rather than just bang, hitting you with a new policy twist. So that signal could be enough for the markets rather than the actual tangible implementation of the policy, kind of by the rumor sell the fact in this case. Now, what would that look like? Well, the ECB is seen boosting its PEP by another €500 billion in December is the timing which most people are looking for. So given the timing now in October, the end of October, that would be the most pertinent timing if the ECB were going to deliver it. My expectation is that they will, because ultimately the mainland European situation with the pandemic is getting materially worse and economic activity is going to decrease, which is going to heighten this idea about this kind of double-dip recession— I did— recovery. And so they're going to have to provide more. The interesting thing here about central banking is that if you actually look here, the APP is their ongoing kind of asset purchases that they've been doing into the system since the onset in the beginning of Q1 of 2015. Uh, the, the PEP is due to run now. They obviously extended that a few months ago to the end of 2021, and this is the additional amount that they've pledged. But if you look at the blue amount, that's the amount that they've actually purchased. So here you might be thinking, well, why do they need to add another $500 billion when they haven't even got anywhere close to exhausting the current ceiling? And this in itself is what central banking is all about. If you're trying to manipulate and almost, um, make market sentiment change in your favor in a more positive way, because when people get fearful, that is a very potent force in a negative way for markets, over and above sometimes the more tangible realities of economic outcomes. Because if investors and consumers become fearful, then the whole show can grind to a halt rapidly. And so what central banks tend to do, as is what the ECB's intention will be here, is that they might not ever even utilize the entire full capacity. But that's not the point. They want to send a signal and a strong one to markets that, look, we are willing to really throw the kitchen sink at this. And so then me as a market participant go, well, even if it gets worse, ultimately the ECB are going to backstop whatever happens. And so therefore, there's no need to panic now. And therefore we never sell off in the first place. So this is kind of the art of the, the central banker in that sense. So I do believe that will have to be forthcoming just given the way that these COVID numbers are developing in Europe at this present point in time. All right, quickly, the calendar. As I said, you've got the PMIs coming out. These really are the, the critical numbers for the session ahead. You get the French numbers coming out momentarily and the German numbers later on, so keep a close eye out for those. Otherwise, it is a pretty quiet day. Keep an eye out, of course, for any stimulus headlines. They do tend to come late London time in the evening, so in toward the kind of latter hours of the Wall Street session. And markets do tend to be still fairly sensitive, irrespective of the fact that I think most people now— I think we've moved on from Monday to where we are today on Friday, where most people have got a little bit fatigued and these headline noises now. And I think the market generally is a little less sensitive unless something really definitive comes out, like deal or no deal kind of scenario. But at the moment, I don't see any political possibility really. I'd say the likelihood of that is very low because both want to appear to be posturing towards trying to collaborate but not actually wanting to realistically do a deal. All right, that is it. I'm going to leave you with that. I'm going to wish you a fantastic weekend. Do not forget to check out that link and sign yourself up for our election preview. Got a couple of special guests, Michael Brown from Caxton FX. You might have seen him on Twitter, he's very prevalent there. He's going to be joining me as well to talk about more medium, longer-term portfolio implications depending on different scenarios for the outcome of the election, to accompany my more intraday trading perspective of how I'll be tackling it minute by minute on the night. So, uh, hopefully you'll find that useful. Okay guys, thank you very much for listening and have a great weekend. Take care.