Biden Willing To Compromise On Stimulus Package

Okay, very good morning. It's Thursday the 8th of April. Hope everything is going well. And as usual, I'm going to get you up to speed on what happened on the close of Wall Street, some of the major news that's come out from overnight, and then a view just generally on the outlook for the day ahead across assets. But don't forget, if you're watching this on YouTube delayed, don't forget to subscribe to the channel. And we've also got the latest podcast as well from myself and the head of trading, the from Piers Curran coming out tomorrow called The Market Watch. So you can also check that out on Spotify and Apple. But getting straight into it, let's talk about what's going on this morning. And as far as the closing Wall Street was concerned, another, another relatively quiet day. Volume still pretty low. And we had a marginal positive finish. The S&P and Dow up about 0.2%, 0.1% respectively. The Nasdaq up just over a quarter percent. Um, the overnight session, we've had a bit of a breakout in price action. And so just looking at a couple of these, these charts here in the center, so this is the NASDAQ 100 future. You can see here a bit of a breakout of what had been a period of consolidation we had been seeing. Um, kind of looking at the— this, this week's price activity really in 3 segments so far, that being the, the Easter Monday when it was only the US that were in the market as much of the rest of the globe was still on on the Easter break. We had that big push-up on that breakout from the consolidation that was seen prior to that in the few sessions running up to the Monday session on the 5th. Then we've kind of gone sideways pretty much. I mean, it's been a quiet week in terms of major macro kind of catalysts. The calendar economic data has been pretty quiet as well. And then we've had a bit of a breakout here in the overnight Asia-Pac session, which has just seen a further push on the upside. So don't directionally following the trend that we've seen materialize throughout the entire week. On the daily chart then, I mean, technically at the moment now it seems like, um, almost inevitable that we're going to push up at some point to the all-time high in the coming day or days. Uh, $13,900 would mark that in futures, which was printed back in kind of middle of February on the 16th. So technically does look quite bullish now for, for further upside to emerge in these US equities. The S&P, obviously a similar kind of case study here. You've had the rally, if you like, on Monday, the consolidation over the course of the last 2 and a bit sessions, and then the breakout seen overnight at the commencement of the Asia-Pac session, and we've just pushed on since there. Um, rationale behind the, the rally, well, I mean, there hasn't really been anything new. We did have the Fed minutes, of course, come out last night As far as the Fed minutes were concerned, they really just encapsulated the dovish view that we already knew from the previous meeting, where we saw the latest projections showing that rates, in terms of irrespective of higher yields that we've seen and some developments with the vaccination program going quite successfully now in the US with its rollout, that they're not going to change their— what the Fed think is the timing around the interest rate hike expectation. So they also kind of commented that they'd likely need more time before scaling back their massive bond buying program. So all kind of fit the narrative, if you like, of a dovish Fed for the moment. And I think largely that what's, what's really underpins a lot of this directional move at the moment. I guess the big question point remains is with the— although yields have kind of settled, the move higher generally in yields is going to continue in the period ahead, as it has done in the recent weeks and months. But is that a reflection of an ongoing positive growth story, or is that more tied to concerns about inflation? Now, for, for me, I think that the, the latter definitely was overdone in the first instance, and so I'm definitely much more a believer in the first, which is that the high yield movement got a little bit exacerbated by kind of runaway inflation fears, which I thought were a little bit misaligned, as I was commenting on in briefings over the last few weeks. I think that we can have a higher yield, higher equity environment, and that, that can be digested by the markets in a positive way. And so at the moment, equities continue to push on, on the upside. T-notes have been flat in the overnight session. Gold's had a little run-up with just a bit of a pickup in volume, uh, just as the European traders have come into market. Nothing substantial though to underpin that fundamentally, so the price has backed off after a brief flirt with the R1 seen up at around the 1745, which was the prior, what, Tuesday's highs from a range perspective, and also that brief breakout high that we had on the 25th. You can see on the left-hand side Silver was kind of similar price pattern, but again, nothing to sustain that price for the moment. Really looking at dollar movement to direct some of that. As far as the DXY is concerned, this morning we are trading at 92.40, which is basically flat, down a touch, just 0.1%. Not too much reaction seeing overall in the major currency pairs at the moment. Both are up a kind of uniform 25 pips or so, kind Cable, bit of a bounce from the selling pressure that we've seen yesterday. I did comment on this in my, my kind of morning notes. If you don't do so already, then you can follow me on Twitter, and every morning I put out my kind of fundamental wrap-up of the news and some thoughts for the day ahead early in the morning. And a lot of people are talking about downside in sterling, and they're pinning it on the obvious things, which is the kind kind of disruption to the vaccination rollout that we've had, and obviously supply being short of the AstraZeneca drug. And then the question marks in themselves about the Astra drug with the blood clot issue that's emerged more recently. But there's a couple of things here that I'd like to go over with this because I definitely don't buy into a lot of that simplicity of argument. And there's a few things that we can talk about. So for one is this, uh, I thought this was quite an interesting article. This isn't the reason but just one of, and it was an exclusive in The Telegraph newspaper, and it was talking about the fact that Britain will achieve herd immunity on Monday. UCL modeling has said that the number of people with protection either through vaccinations or having had a previous infection will hit around 73.4% on the 12th of April. And of course, the 12th of April is when the next kind of step of reopening is happening in the UK. Not only that though, one— the, the main thing for me is that if you're going to pin recent sterling weakness on a disruption to the vaccination rollout program, well then why is it only happening now when I could have told you vaccinations were going to slow down in April about 6 weeks ago. That was when, if you remember, the NHS came out and they said that due to the consignment from India and Serum is going to be disruptive of 5 million shots, it means then that Astra drug we're not going to be able to produce, and therefore we're going to pivot our strategy to doing second shots using Pfizer-BioNTech for the period of April, targeting the older demographic, meaning that the younger kind of sub-30, 40-year-old nationwide are going to have to wait for their shots, and then they'll receive theirs going in through, um, new bookings in May. And then with it ramping up, with still several more pharmaceutical shots to come to market, of course, like J&J and so on, going through then late May into June, acceleration July, for then full inoculation of the population by the end of that month. So to think that the pound is weakening on that disruption, I find it's hard to believe when all of that has been known information for a number of weeks and the pound was rallying at the time. So, um, looking at the, the sterling on the, on a daily as well, I think is, is, is important because one of the things to look at when you look at sterling on a, on a daily chart is this is what we did this rectangle box here on the left— excuse me— this rectangle box on the left here was February's price action. And as you can see here, we saw a really stark outperformance in February for sterling. Now, whether that was reflection of, um, you know, all the things I've just mentioned at the time— the vaccination program going very well, it's kind of the post-Brexit environment being so far kind of non-disruptive in that sense. Um, and we moved from around a low point of around 1.35 all the way up to almost a 1.43 handle to come off a little bit, um, as we have done, and to be sitting here around a 1.37 handle. I don't think really causes— is cause for concern at all. I mean, yesterday we saw a bit of a technical break in EUR/GBP, which I think explains a little more probably why you had a bit of read across into downside weight in, in the cable currency pair. Here then, on this rectangle on the right, down at the late March lows that we saw around just sub the 137 handle here in the futures, I don't see any reason why this won't act as a good area of support, because fundamentally, as I said, I don't really see much in the way of, uh, of the arguments that are being put forward at the moment in my humble opinion. So yeah, I don't feel too spooked by that sterling weakness. If anything, I think lower levels could be opportune targets for anyone looking to pick up on the opposite side of that trade, if anything. So yeah, definitely wanted to point that out because I know a lot of people were looking at that yesterday. A few other headlines then to get you up to speed on. One called Joe Biden And he's been talking a little bit more about his stimulus package. Yeah, he's open to compromise apparently on his $2 trillion infrastructure plan amid the backlash that has come by businesses because the fact that a lot of his spending is going to come through tax rises. This was always going to be the case. It was almost inevitable that this confrontation was going to materialize. The important part here for the outcome of this stimulus and also for the The size of that stimulus and how it will be funded, therefore the impact it will have on markets, is about how much does he compromise. And what's being talked about in our latest Reuters analysis piece is they conducted an interview with dozens of corporate and White House officials, um, and they've engaged— who have engaged with this infrastructure push, and most expect the White House and business groups to basically compromise and find a middle ground at 25%. So remember, we've gone from a corporate tax rate of around 35% down to 21% through Trump. Biden's gone from 21% to a table offer of 28%, and we get a compromise at 25%, which seems absolutely in the realms of possibility and very realistic, I would say. This is an important thing to understand, I guess, with the stimulus proposals at this point in time. They are in fact proposals, and so they are subject to negotiation. Biden, by making that clear that he is open to compromise, I think it's inevitable that the tax rate probably is going to land in this type of 25% area. Is that important for markets right now? No. Is it important going forward? A little bit more important over the medium term. Definitely. Do I see any kind of delay in his stimulus package? Well, no, because 25% are fairly realistic numbers for both parties, I think, to be able to to compromise on. I guess it's what are all the other details that come around, this headline tax figure, uh, that will be interesting for the package in itself. Another headline just to quickly mention, just because it's a, um, headline kind of stock, is Apple. And this is in the Nikkei Asia, um, news. They were talking about production of some MacBooks and iPads have been postponed due to the global component shortage that's being observed at the moment. A portion of the component orders have been pushed back to the second half of this year instead of the first half. So be interested to see if this has any impact on Apple when their shares get underway on the NYSE later on today— on the NASDAQ. Um, in terms of the calendar for today, it is again pretty quiet. You've got the construction PMI numbers coming out later, but not going to have any market impact on the euro or sterling. Then you've got the ECB minutes, again just kind of like the Fed minutes last night, nothing really, um, new as far as information is concerned, and thus probably, um, fairly benign market impact upon its release. Weekly jobless claims coming out 1:30 after we had a slight upside surprise last week, looking for reversion back down to around 680 from 719. And then from a speaker's point of view, do note you've got Jerome Powell, the Fed chair, he's speaking on an IMF panel later on today. That'll be at 5 PM London time. And the other notable speaker you've got, because the two Fed guys are non-voters, is Bank of England's Haldane at 4 PM. He's the chief economist at the BoE, speaking at the Norges Bank event. And that is it. So let you guys get on with your day. I'll catch those on Amplify Live in the, in the chat room, and I'll see you on the live stream. All right, thanks very much. Have a good day, guys.