Blue Wave Thinking Continues To Overshadow Trump Distraction

Good morning, it is Tuesday, the 12th of January. Hope you're doing well. Gonna get straight into the briefing, but if you're watching this on YouTube, don't forget to like and subscribe to the video, always appreciated. But just having a look firstly where we finished on Wall Street last night before we look at the charts, and this is a look at the heat map of the S&P 500, which finished down around 0.66%. The Dow was down just 0.3%. The underperformer yesterday, very much so, was the Nasdaq 100, down 1.55%. A bit of a combination of different things yesterday rather than one singular, uh, kind of headline that was moving markets. Looked a little bit heavy at the initial pre-open, but ultimately was only a moderate down day. But they'd come in the context of 5 consecutive up days, so just given the digestion now and the relative short-term pricing in of the blue wave that we saw materialize through the second half of last week. But a profit taking I don't think comes as too much of a surprise. The tech space underperforming on the fear of any reprisal from Donald Trump after he was banned from the likes of some of those social media names. So Twitter was quite heavy down yesterday. I think they closed down around 6-7%. Facebook, as you can see here, down 4%. The likes of Tesla. Elsewhere, again, still up hugely over the period of recent weeks and months, so coming off around 8% comparative to any other company would sound like a large number, but for them that's actually, I'd say, relatively small in the grand scheme of things. So nothing to get too panicked about on that for the time being at least. Otherwise, elsewhere, the standout really was Eli Lilly. They had some positive developments on an Alzheimer's experimental testing that's going on at the moment. And a few other hotspots as well. Got these bank earnings coming out obviously at the end of the week, and some of those a little bit positive yesterday with the idea still of rising yields at the moment helping some of that sector. But look, let's get into the charts and how things are moving this morning. And equity index futures relatively flat, not really a great deal going on. Um, in the currency markets, quite interestingly, the dollar just backing down a little bit, very minor negative territory, but that has helped, um, just alleviate some of the downside pressure that's been emerging obviously on a lot of these currency pairs. In the case of EURUSD and Cable over the course of the last 5 sessions or so since the US dollar really has woken up to the upside with the movement in yields on the back of the anticipated greater stimulus coming coming out of the Democratic control of Congress. Also elsewhere then, with some of that reversal in the dollar, at least for the time being, gold also just reversing course on what otherwise has been a directional trade just generally lower over recent days. And we've just broken out of the— or broken out of the range high that was really capping some of the price activity both from Friday session and also yesterday. So a bit of a springboard out of that move through 1852, just helping accelerate the move back up to the R1 for the moment. Upside here technically 65.5 in the futures would be these previous lows and highs that were seen on Friday on that downward move. And then above there, any further recovery would be looking then for, for last Thursday morning's low and then breakthrough that we had that came in at 1875. If we see further retracement on those moves The oil market as well, similarly, same story with the commodity space following suit, seeing a bit of upside this morning and just having a retest, as you can see quite clearly here, of the previous kind of recent, um, move, multi-month move higher. That being, obviously, if we look at the daily continuation, puts us right back up here to the highest levels that we were prior really to the, the pandemic really taking hold. And so we've got the R1 today with that previous high that was seen on Friday ramped up right into the close of electronic trade. So a good area of resistance here, and you can see some short-term profit taking on that run-up that we've had at the European open. It's just bounced off there around 13 cents now from that initial high, but a key level to look out for later on today. So let's get into it. Let's talk about some of the headlines that have happened, and going to start off with Trump. What's the latest going on here? House Democrats on Monday introduced resolution to impeach Trump for the second time. Of course, it seeks to remove him from the presidency and prevent him from ever holding office again. So if this ever did have any legs in it, the latter one is perhaps the slightly more interesting element, given the fact that, uh, as things stand at the moment, I wouldn't be surprised if he'd have another run things again in 4 years' time, but this would put heed to that. However, the House Majority Leader Hoyer told Democrats the chamber would start impeachment proceedings Wednesday if Vice President Pence does not respond to a request to invoke 25th Amendment to remove Trump from office. And I must say that if you're gonna put your decision on the back of Pence taking that action, well then you're going to be disappointed. So The, the idea here is the House will push forward. The Senate currently is in recess, and any trial of Trump could not begin until around the 20th of Jan at the earliest without the backing of all senators. And among Republicans, there's no unified position that's emerged at the moment, meaning that response to Trump's actions back on the 6th on the Capitol Hill storming, it's clear most will have oppose in the Senate from a Republican point of view the impeachment calls from the Democrats. So again, these headlines are really, are quite a dominating theme in the news cycle at the moment. But as I've said before, they're really not that meaningful as far as short-term market sensitivity and sentiment is concerned at this present point in time. So therefore, going to move on to the COVID situation. Quick look at the UK, the EU, then we'll look at the US. And here I'm looking at a, a graphic where more than 2.2 million people in the UK have received their first shot of a vaccine. That's over 3 doses per 100 people, which is 4 times the rate of that in Germany and more than 15 times the rate of that being administered in France at the moment. This strategy though, although the UK has been very quick obviously to get approval and therefore out and distributed the the initially the first drugs coming out of Pfizer, but now AstraZeneca. This is seen as really critical at this point in time, as there is a bit of a disparity at the moment because of the outbreak of the new variant of the strain emanating from the UK. It's meant that case rates are a little bit ahead of Europe, as well as then capacity rates in the hospital infrastructure in the NHS, which is quite different from where things currently reside. At least in mainland Europe for the time being. Yesterday, Pfizer and BioNTech boosted their vaccine output goal by 50%, up to now 2 billion doses by the end of the year. But I must stress that they've kind of already tapered back their initial estimate, and now they're increasing it again, uh, half the amount at which they originally cut it. So it's a little bit of a moving goalpost at the moment, and this will probably continue to be the pace. But overall then, The UK has been, as the government were quite clear to make a bit of a point of yesterday, as a short-term win, the quick rollout of this. And with their rollout kind of plan being unveiled yesterday, they're looking to open various different supercenters to vaccinate people over the course of the coming weeks. So something to just keep an eye on and how quick they can reach that target of mid-February to have the initial round of people inoculated. Otherwise, as far as the US is concerned, a couple things to have a look at. Although COVID cases, as you can see here, deaths remain near record levels, the trend in hospitalizations has been a little bit more optimistic. And this is, this one here, this is looking at the 7-day change in COVID-19 hospitalized in half of that of a couple of weeks ago. And a lot of this in terms of daily number of new admissions is moderating due to the targeted rollout of administered at long-term facilities, so basically care homes. And as you can see here, going back to mid-December to the Christmas period, so hospitalizations from long-term care facilities decline 14 days after vaccinations have begun. So at the moment Hospitalizations elsewhere are still fairly plateaued at high levels, just off the peak, if anything actually slightly rising, but care homes has declined substantially, and hence the reason why that data is showing in the way that it is when it looks at hospitalizations declining in contrast then to the COVID cases and deaths rising in North America. A couple of the other things that people have looked at here, um, with COVID in America is the reported pace of hospitalizations in the Northeast is showing some preliminary signs of easing, adding to hopeful indicators in the Midwest where the latest viral wave begun. So some positive signs, but you know, there are stressed hotspots like still in California and places like that. So, uh, definitely not out of the woods yet, and Obviously, nearly all of this hinges on the successful implementation of speeding up the vaccination process. And with the new variant as well present now in United States, there are other challenges to be aware of. But as things stand at the moment, markets, as you've seen from the charts this morning, relatively calm. And I'd say it's because of the balance of some of these things at the moment, the general adoption at the moment of vaccines as they start to pick up a little bit of pace now. Now we're up and running and administered rates start to increase, and hopefully more so in the future. But then similarly, with some of the pressure coming off on the hospitalization rates, at least for now, in some of the hotspots in America. So the other thing I wanted to mention, uh, just to round off the kind of news cycle for this morning is and some comments out of some Fed speakers. Today's actual calendar is particularly quiet as far as economic data is concerned. Really, there is nothing of great magnitude coming out. Things like the NFIB Business Optimism Index in the US, JOLTS job openings, the Fed discount minutes are really not going to be market movers for the session ahead. So overall, I would say this overall sentiment of the day is still likely to be derived from yield and dollar direction. We've already seen a little bit of movement in the currency space already this morning, and just given then the, the scope of the dollar and yield appreciation of late, be interested to see whether or not there's a little bit of short-term profit taking on that move. Again, I would really— with a lack of data catalysts on the docket, I'd look at directional movement in those assets to derive then the type of day that we might be in store for. There are though quite a few speakers to be aware of. You've got Bank of England's Broadbent who is speaking at 10 AM this morning. He is the Deputy Governor of the Bank of England. I don't expect him to really deviate too much from the party line of the kind of more centrist view of what the bank has at the moment. He's certainly probably not as vocal as the likes of Tenreyro we had yesterday talking about negative rates. So not expecting too much there from Broadbent, but is talking about COVID-19 and consumer spending, two super important areas obviously for the UK economy and subsequently UK monetary policy at the Bank of England. You've then got Fed's Brainard, voting member of course at Fed, and her speech I don't think is going to be too important. She's talking about artificial intelligence and financial services, a bit off topic. But going back to this article here, there are a couple of Fed speakers, and these are new, new voting members now in the FOMC for 2021. That is Barkin and Bostic. And just to give you a kind of general flavor for what they said, Barkin and Bostic said that more fiscal support and the mass distribution of vaccines could lead to a strong US economic recovery in the second half of the year, setting the stage for a discussion of potential tapering of bond buying before year's end. So yeah, pretty punchy on the slightly more optimistic bullish side. I just want to remind you here what does the hawk-dove kind of scale look like. So if you center your eyes on the middle column here, because we're obviously into 2021 now, you can see Bostic is fairly neutral typically by stance. Barkin perhaps a little bit more hawkish. So I guess on balance, not wholly surprising to hear them say such commentary pertaining to more optimism over the second half of this year. But the— just the idea of discussion of tapering of bond purchasing before year end is just another reason for the whole kind of yield-dollar move that we've had of late. So So that's something I would be mindful of just tracking and monitoring with some of these speakers. You've got Kaplan, Mester, Rosengren all speaking today. Some of those, though, I must say, other than Brainard, are non-voting members of the FOMC. All right, I'm going to leave it at that. Let you guys get on with the day. And yeah, any questions at all, feel free to leave a comment. And I wish you a good day ahead. Thanks very much.