Biden Unveils His Stimulus Plan While UK PM's Lockdown Strategy Gets Questioned

Okay, very good morning, happy Friday to you. It is the 15th of January, so I'm going to keep the briefing relatively brief and on point and just focus really on 3 things, that being Biden, what exactly is the details, how's the market react to his latest stimulus plan and timeline going forward. And then two, Jerome Powell had some comments yesterday. Obviously a lot of focus this week on things like taper talk. So what's the latest there? And then also a little bit of mounting pressure on Boris Johnson at the moment on his lockdown strategy from some internal Conservative members, which we can discuss as well. So just going straight in and looking at the charts then, uh, in terms of the overall reaction, because I did have a number of discussions with some of the internal traders yesterday about is it worth staying up overnight to trade, you know, something like a Biden event? And yeah, there was a number of ways I said to them that I would approach that type of situation. And for one is, what type of trader are you? Meaning that, you know, if you are slightly more conservative, more kind of pragmatic with your general trading style, i.e. Being more perhaps technical-led, preferring more range, more cleaner directional rather than news catalyst type movement, then often, you know, just kind of building up for a big event like that and trying to trade the actual moment of release can often be quite difficult. And so when you do have these big events, you know, something to keep in mind is there's always a further digestion of the move and kind of secondary, possibly third, fourth kind of phases to the move. And so the other thing, of course, is just kind of management of oneself and thinking, um, you know, if I'm going to stay up through the early hours, and, you know, it's always hard to pinpoint exactly how long that's going to take. And so, you know, you could be vested into a trade through all through the early hours. So you've got to think about, you know, you're kind of forward planning. Then, you know, Friday would be a bit of a write-off if you were going to trade through the night because you know, you're asking a lot of yourself then to just come back in Friday for things like retail sales this afternoon in the US, for example, and then expect yourself to be able to trade that effectively, uh, given just general physical mental fatigue. So there's a number of things to weigh up, you know. And then ultimately, when it comes to the news event in itself, I tend to ask myself things like, well, how actually market moving is this going to be? And, you know, a thing I was trying to stress to some of the more junior traders was this idea of A week like this where there's a really big singular event like a Biden proposal, it tends to kind of saturate a lot of the market focus and consequent kind of general activity in markets, as we've seen relatively quiet movement across assets in the last 2 days in the build-up to it. There's this idea of kind of FOMO that this is the event, I've got to trade it. And that's not— definitely not always the case because there's always another big event. There's always another big Biden speech and so on and so forth. You know, it's really important, I think, to, to always realize that. But look, let's get straight into things and look at some of these asset class movements. So as you can see, we've had a bit of a drift off in the US index futures, albeit fairly moderate. And I would say that word is probably a good description of the overall cross-asset class move. There really hasn't been a great deal of movement. So it'd be really interesting to see how today plays out, particularly when the US come back in and they've had a bit of time to kind of sleep on exactly the proposal that came out from Biden. Dollar a little bit firmer overnight, it's just picking up a little bit of pace as we come into the UK European Open. So consequently, EURUSD just seeing a little downside pressure here. And we did break the weekly low yesterday. Euro did trade a little heavy. Um, on the daily chart, it's quite an interesting area actually, so it's definitely worth keeping an eye directionally downside for EURUSD if the dollar in itself continues to just pick up some traction on this latest fiscal plan from Biden, given the fact that technically that was a good area of previous resistance turned support. And so failed break, bounced back yesterday, but if we can maintain a move below there, I'd be looking down towards the 21 handle in the futures and then down to 1.2060 50, which would be that initial low that we had back on the 9th of Dec. Uh, cable likewise, um, still weighed in a similar fashion by the dollar, maybe a little less so for right now, down 15 comparative 35 in the euro. But the overall same kind of theme, it is a repeat of what we were just discussing. Otherwise Um, oil markets, really not a great deal of movement. We're down about 40 cents. Uh, T-notes, pretty unreactive really to what was going on post-Biden. If anything, the actual Treasury market actually moved up, and it's just basically trading a relative range, I would say, of the last 2 days, which is defined by that 17 on a low, 27. I got the R1 providing a short-term degree of resistance here, but I I'd just be looking at that range play for the time being. I think all things remaining the same. So look, let's get into the news. Let's talk about Biden. What did he say? What's going on? So let me transition my screen. So here it is. President-elect Joe Biden will ask Congress for a $1.9 trillion pandemic aid bill package. Then that does risk obviously the next step, Republican opposition. Over some of the big-ticket spending on Democratic policies, including things like state aid, local governments. Important to understand here that there's kind of two elements to Biden's proposal. This is more kind of COVID relief type pandemic aid, and then a secondary one, which he's going to outlay details in a month's time, is more to do with the broader economic recovery. And that's where he'll talk about things like internal infrastructure, climate change, things of that nature. Some measures in this proposal— this is something I was discussing quite a lot yesterday in Amplify Live— was about the including aid to states and money for healthcare is likely to need 60 votes in the Senate. Now, as you all know, given the runoff that we had in Georgia, the Senate is currently 50-50 in a complete split. But the way it works, of course, is that Vice President Kamala Harris then has the deciding vote, and hence the control in the Democrats and the blue wave scenario. But it's obviously particularly tight, and particularly with some of these measures requiring 60 votes. This was that idea where I was talking about yesterday, a blue ripple rather than a blue wave. And, and the idea being here then What's interesting now is really how much can they get, get through? I think with any political proposal on its first instance, it is exactly that. It's like the opening bid then to go into congressional discussion. The interesting thing now is, well, how much does that actually pass through? What does the end result look like compared to the overall proposal? Because that in itself is particularly important for markets because markets inherently are forward-looking. They like to latch on to top-level figures. The detail kind of comes later when you're talking about intraday reaction, at least. And so the $1.9 trillion came as no surprise. I mean, what a world we live in where you say $1.9 trillion and the market goes, um, it's okay, it's nothing that big, is it? And welcome to 2021. Um, but yeah, if you look at the S&P 500 here, I think it's really telling of kind of a, a light buy the rumor, sell the fact type movement. I mean, this is looking on a 60-minute candlestick. I've just marked it up here with the Georgia Senate race, and this was that reaction that we saw when the confirmation— you know, remember, it wasn't expected, although the polls were slightly tipping in the Dems' favor. You you know, the confirmation of the blue wave was something that definitely was not a focal point going into the initial elections in November. So we've had a really meaningful equity response since that. Markets pricing in obviously large-scale now potential stimulus coming in, in the US. And so the market is already up a fairly decent amount. And if I was just to look at the percentages from where we were from that kind of initiation of the rally that we saw then the stocks open after the confirmation of the, the Dem win in Georgia. And, you know, we rallied up to an all-time high, about 3.5%. So now he comes out and says what he said last night. You know, if anything, we've actually moved lower. So from when he spoke to where we are now, we're basically down, you know, a percent or so. And, and so last night, for any new traders, just to understand It's not like you come in and go, wow, $2 trillion, got to be buying stocks. You should have been buying stocks about 10 days ago. And that was what was driving that price movement then. So this is the way that markets react. And so there was nothing really surprising or shocking. A lot of it was drip fed, obviously, in. We were talking about the $2 trillion figure yesterday. So, yeah, a couple of things to just be aware of. Going back to the actual news, jobless benefits, stimulus payments, and possibly a minimum wage hike could go through a simple majority under a special budget tool. Um, but I think it's important to remember, as I said, about, you know, what, what's said now, what goes through in the future. I mean, there's some talk I was reading in some US press about the Democratic Party using a process called reconciliation, which basically means you can bypass than the need for Republican support to push through certain proposals. However, my understanding of that is, in reading a few different bank commentary pieces, that given he wants to bring forward an economic recovery plan, um, later, i.e., next month, he's probably more likely to keep that aside because that's going to be more long-lasting, integral to his presidency and administration. Post-COVID-19. So rather than use that kind of trump card— not to mention his name— but rather than use that get-out-of-jail-free card, if you like, then, of trying to have a way to bypass the Republicans in the Senate, don't use it for COVID-19. Get that over the line. Use it for more of your bellwether kind of key proposals that will define your, your campaign. So I definitely see that as hap— as not happening with this and happening later on down the line. Looking forward, Biden is going to be talking later today on the idea of his coronavirus containment plans. Definitely, this is quite key for what the recovery is going to look like in time. Had some conversations again with a few people yesterday talking about, you know, is he going to lock down the country? Absolutely, I do not see that happening. You know, the US is run in a very different way to, say, England here in the UK, for example, where the national government makes a decision and that's it, it gets implemented across the board. Whereas in the US, obviously, it's a lot more fragmented onto the state level. So I'd see it as incredibly— it would be a self-harming move because on an individual state level, the circumstances pertaining to COVID-19 are quite different. And so it probably doesn't require a blanket coverage kind of national lockdown, irrespective of what Biden said, obviously, a few months ago in the political kind of televised debates. So that's that. The other thing we've got, of course, is Powell. I've talked about this all week, really, and I've tried to stay on the side of trying to get people to just kind of rein in this expectation of inflation. I think it's unwarranted for a number of different reasons I've talked about over the last few briefings. And Jerome Powell has come out, and as the headline suggests, he's batted down taper talk. And absolutely, I think that is the case. And, you know, it really comes down to this idea that My experience tells me that whenever there's kind of one little, what I call, breadcrumb of information— so here it could be the idea that stimulus in a binary fashion is going to accelerate demand and create inflation further than what's going to happen already under a successful rollout of a vaccine that's going to see the US economy explode and therefore inflation is going to run rampant. So just the idea of that starts to bring out then several dominoes falling, and people start thinking— and triggered, I must say, by Fed officials Barkin and Bostic right at the beginning of the week talking about, look, if all things play out and we see a decent recovery in the second half, we're going to have to start having discussions on tapering. It's like, for me, if you go back to that Monday briefing, I was saying, look, hold your horses here, guys. We're nowhere near that discussion, I don't think. So the Fed, I think, have made a coordinated effort throughout the week. I think we must have seen at least 15, if not more, speeches from different members throughout the entire week, and nearly all of them have then started to push back against this notion of taper, on fear, of course, of markets getting particularly apprehensive of what a tightening of policy could do at what otherwise is a still fairly early phase of rolling out the vaccine, which of course then the economy rebounding is almost entirely dependent upon. So Powell did exactly that. Um, we need to be careful about talking about tapering, warning against an early exit. So everything that you would expect, I would say. So I don't think it was wholly surprising. The other thing to talk about, and the final thing I'll go into, is Boris Johnson. This came out yesterday, but just wanted to give a bit of context really. It's not, it's not a market mover. It's not something in the pound that I'd be applying to any intraday type strategy. It's just something to be aware of. And Conservative member Steve Baker, so Anthony Cheung. So those who follow UK politics will obviously recognize his name. He is a fairly vocal player in the whole Brexit saga. He wrote a letter to his Tory colleagues in what he titled could be a, quote, disaster if the pandemic restrictions last until the spring. Now, why is this such a talking point? Well, remember the government's kind of self-imposed deadline that they've put on the current status of lockdown nationally is 15th of February, and then they'll look to reevaluate. And what is dependent then on the loosening of restrictions is a certain quota being hit of vaccine being administered to certain key demographics. Now there's a big question or not whether that's going to be achieved first, and then secondly, with new strains of virus, the UK government this week's been trying to take preventative measures against Brazil, South Africa, other areas as well, in addition to this UK variant which has seen the recent acceleration in cases. There's been a little bit more positive news actually yesterday about the case rates. However, hospitalizations are still at a point of where the NHS is about to burst at the seams, and that is incredibly problematic. And so at this point in time then, these MPs know this. Someone like Steve Baker, you know, this is politics, I'm afraid. As much as this is a humanitarian crisis, this is what politicians are in it for. It's power grab. And, you know, good time to hit the Prime Minister right now if you want to just make a bit of a point. And so that's what I see with this. Not much beyond that, if I'm quite honest, at this point in time. The obviously talk has been if the government doesn't hit its self-imposed objectives with the rolling out the vaccine, then the lockdown— a lot of conversation has moved until March. Germany, some other mainland European countries, and I think a penciled-in area on the calendar that would make a lot of sense is Easter, which is obviously right at the beginning of April. But obviously the longer we get locked down, the more that some people will be critical of that, that it's impeding then the economic recovery, people's jobs and livelihoods and so on. So again, the balance obviously that a government has between dealing with a health crisis and dealing with management of an economy and the kind of longer-term impacts of people's livelihoods and not having employment and so on. Few things here to be aware of. Steve Barker was previously a pro-Brexit— he was leader of a group of pro-Brexit MPs. He did actually tweet though he still is in full support of Boris, but for me, you know, the seed has been sown. I mean, he definitely is clear what his intentions are here, despite him still saying what he said about backing Boris. So Boris is not going to be happy about this, I'm sure. From a numbers point of view, a few things to be aware of. He is one of the 55 Tories who voted against Johnson's pandemic plan for a tougher system of tiered restrictions organised by regions in December. So if you remember, we went from kind of a multi-tier system that's increased— we've now got 5 levels of thresholds, and he's been against that. So it's not— this isn't completely out of the blue, I would say. On paper, it would take only another 40 MPs from the Tory Party to vote against the government to inflict a defeat on Johnson if all the opposition parties also decide to block the Prime Minister's plan. So again, this is what makes it quite unlikely, because people like Keir Starmer has been very— leader of the opposition party— quite clear that he would want to, you know, lock down. It's about, you know, priorities, about acting fast to get on top of the virus, and he's been critical of the government in, in doing so. So I can't see him going against and wanting loosening of restrictions. So I think it's highly unlikely that Barker again has got any real validation what he's calling for. It's more a political, um, kind of little cut to Boris while he's, while he's on the ropes almost. So Similarly, if 55 Conservatives submitted letters of no confidence in the Premier, it would trigger a vote on whether he could continue as the party leader. I mean, feels like we're back at Theresa May Brexit scenario. Um, but to give you again a bit of color on that, in last week's vote on the third lockdown, only 14 Tories opposed his measures. So again, it's far too early to really get into any idea about you know, kind of confidence on his leadership. I think any headlines suggesting that are misplaced at this particular point in time. It will intensify though, should the government go beyond then the middle of February deadline. And we don't need to wait until the middle of February. We'll probably already know by the end of this month whether or not that's going to get rolled over or not, because we'll be able to see quite clearly on the vaccination rates and the current developments on COVID-19. Okay, that's all I'm going to say on that. All right, so for the rest of the day, a few things to look out for. You've already had UK GDP come out, no reaction in the pound. There's just so much other bigger, more important things happening. But I must say that the figure did come out a month-to-month basis at -2.3, -2.6% versus expected -5.7. So it was actually better than expected. Um, car manufacturing supported by foreign demand house building, infrastructure grew, and as such are all above actually pre-pandemic levels. But obviously our economy is driven heavily by services, and that acted as the main drag to that figure overall. So moving on, as I said, it hasn't really impacted the pound. That's more influenced at the moment by other factors in particular as well. Not only all the UK stuff we've just discussed, but the dollar movement is key today. Digestion of Biden's proposal. Going further forward in terms of the, the day, um, into the US afternoon really is the focus. You've got New York Fed manufacturing and the US retail sales report, then industrial production, um, coming out, and the University of Michigan preliminary number for January. So quite a busy docket actually, US session, um, should be interesting. So you've got quite a few economic data points to watch out for. You've got the US then reaction really to what they think about Biden yesterday, with the focus being on, I guess, is it enough and what can he pass? And if there's any disappointment in that belief, then, you know, do we start to see a bit of a pullback in the equity space and so forth? Then the other thing is US earnings. We've had a couple of smaller cap companies report already, but it kind of unofficially kicks off today. Because we've got JP Morgan, Citi, and Wells Fargo all reporting pre-market. My colleague Eddie did a good chat with the guys yesterday. We've just recorded a shorter version of that and we've made it available on our YouTube channel, and I'll share it in the Discord room as well, the full, the full conversation with all the metrics you need to look out for. But that is it, going to leave it at that, let you guys get on with the day. So have a good session ahead. Have a lovely weekend and stay safe.