'Blue Wave' Thinking Leads Stocks Higher

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, a very good morning to you. It is Tuesday the 13th of October. Hope everything is going well. As you can see, going to start with an absolute sea of green that was seen yesterday after all three of the major US indices moved into positive firm territory. And we were looking at in yesterday's briefing some key upside levels, and they got absolutely obliterated yesterday as the technology large-cap names, as you can see here, the biggest sizable and brightest green squares. Amazon was up nearly 5%, Apple was up 6.35%. You know, do bear in mind though, with Apple, they have got their event today where they're going to unveil their latest suite of iPhone 12 phones with 5G connection. And it is— although this move was broader context for an upward move across all markets and outperformance in big tech, Apple often sees this type of movement in terms of buy the rumors, sell the facts. So it'll be interesting to see how they perform given the context of yesterday's general price movement. Uh, but as you can see, Facebook, Google, Microsoft, and when those guys are higher, we know what happens. The whole market is dragged up and the NASDAQ 100 typically outperforms. And in fact, this is a quick chart to show you here of the NASDAQ 100 posted yesterday. In fact, with a gain of just short of 3.1%, was the biggest gain we've had since April. And you'll remember what the market looked like in April. This was after we'd come off the most, um, severe sell-off in March, and then the Fed had come out made unprecedented monetary easing and the market was already starting to powerfully rally back up, um, in a kind of V-shaped recovery from that initial move that we had on the onset of the pandemic. So one of the biggest rallies we've had, uh, in a while there. And before I get into some of the other overnight news, there's a particular big story about Johnson Johnson, the pharmaceutical company, that's broken overnight. But I wanted to talk let's just bookmark the end of a lot of the reasoning of why this rally in equities is happening at the moment. And I just want to talk about the US elections. Of course, this is a big focal point coming up for financial markets and something that has seen a distinct sea change of late, particularly this month, in the month of October. And really, it was initiated after that first presidential debate that they had. Remember the one where Trump was kind of barking and wouldn't let Biden get a word in sideways. But one thing is Biden didn't perform as badly perhaps as some had feared. It's not that he really dominated, it just wasn't so, so clear-cut as people expected. And as such then, what we've been seeing really since that point in time is a couple of things which I'm going to show you, and the first of which is then a continued divergence in the average poll of polls. Now, the resource that we look at is the same one which is looked at by the broader market, and that's the RealClearPolitics average. What that does is it encapsulates all of the major polls that come out in the United States across all the different networks— so The Hill, YouGov, Reuters, CNBC, Rasmussen, and so on— and it calculates then an average of which at the moment Biden is ahead by 10.2 points. Now, as you can see here, that's quite a significant divergence that we had where Trump had narrowed prior to the, um, the actual first presidential debate to just around 6 points. So things have got worse for Trump and certainly hasn't been reflective here of any sympathy for the fact that he contracted the COVID-19 virus only around a week or so ago either. Now, what does this mean for markets? Because initially, I think A lot of people had been a little bit apprehensive about what a Biden presidency might mean for US equities, given the fact that US equities have been on this phenomenal surge, of course, under the stewardship of Trump. And people were thinking, well, if Biden comes in, perhaps the tax rate gets bumped back up from 21% to 28%. You know, there's some other sectors which are going to suffer, perhaps which are already beaten down, like the energy sector, because of the particularly low oil price that we've had in the prior quarter. And that in this earnings season is going to really, um, come to fruition. But a couple of things here. So investors, um, if you actually look at it, have rotated towards value stocks, uh, away from growth companies, as investors are preparing for the likelihood of a big fiscal package coming, if by way of what we get— what people are calling is a blue wave. Remember that pyramid of power, if you like, on Capitol Hill If Biden wins the presidency, that's not the be-all and end-all, but it could be for, for the Democrats if they can secure not just the House but also the Senate, which is looking increasingly likely at this point in time. Now, the prevailing market narrative a few months ago was that a blue election outcome would be a negative generally for equities because it would result, as I said, in higher corporate taxes, more regulation in particular. But in the past couple of weeks and really since we've moved into October, that narrative has completely flipped on itself. Biden's widening lead then, as we're seeing in the polls here and also in prediction markets— and when we talk about prediction markets, we look at the betting market. Now, what was really interesting was only about, I'd say, a month ago, it really was a toin' coss, 50/50 of what the betting market was seeing comparative to what still was quite a clear lead in the polls for Biden. Now Biden's not only increased the lead in the polls, but the betting markets have shifted significantly in Biden's favor. And this is reflective of where market sentiment is and underpins really why equity markets directionally, although we've had fluctuation, continue to push higher irrespective of the will they or won't they provide a fiscal stimulus in terms of the current negotiations that are happening. The market's looking at this big event, of course, coming in, you know, a little over 3 weeks' time, and the outcome that that could be if there is in fact a blue wave, which no one really gave too much tangible prospect of occurring only a month ago. So here you can see Biden, it's almost 70-30 in his favor, which is a big shift in his direction over recent weeks. So this is definitely something to be aware of. I definitely think that, you know, one of the biggest things to understand here is that something the market was particularly apprehensive about was a contested election. Now, the closer the potential outcome would have been, then the more higher the probability of it being contested by Trump. He's already said he wouldn't kind of go down without a fight in that respect. Hence the big tussle they had over the Supreme Court, which would be a particularly important, um, court in order to settle these types of matters. But here, if the divergence becomes so wide, well then all the more conclusive actually the election could get wrapped up. And rather than having this protracted, long, unknown, uncertain period of potentially that could have ran all the way up to the end of November of Thanksgiving, perhaps then a more definitive and clear Biden win and a blue sweep wraps things up and eliminates that uncertainty. And that's how markets are feeling at the moment, and likelihood explains then a lot of this reasoning while we continue to punch on higher. The one thing I would stress though is that, look, markets don't move in a uniform fashion and just go up 3% in the NASDAQ every single day. You know, the quicker it rises, it will have its fairly violent but perhaps short-term pullbacks on what otherwise is a trend higher back up to even all-time highs. So don't just come into the market blindly. You've got to pick your spots and also keep into context the severity of the rally that was seen on the prior day, because without a fresh renewed catalyst, it can be difficult for the market just to continue going higher. Bearing in mind, there has been an update on another news story this morning, which is this one. You've probably read about it already, but Johnson Johnson, one of the world's largest pharmaceutical companies, has said its COVID-19 vaccine study was temporarily halted at trial, or clinical trial, as a participant experienced an unexplained illness. No real other details more than that at the moment, but of course this move follows what we saw from that temporary halt to phase 3 trial testing in the US, and it is still halted in the US only at the moment for AstraZeneca. This isn't too uncommon. We've covered this ground before with AstraZeneca, of course, that late-stage testing, it's quite routine to see pauses at this point in time. But keep in mind, the developmental process, which would normally take really several years to bring a vaccine to market, is being accelerated to the period of just a few months. So perhaps that explains the relative calm nature of why markets have not seen too much reaction this morning because of the fact that, look, they are trying to push these things at a, you know, an incredibly fast pace. So you'd say it's probably anticipated at some point there's going to be pauses. But one thing I would say is that there's obviously multiple drugs in these phases. Pfizer have said they could provide data to support an application for an emergency authorization as soon as this month. And Moderna, the other key company to keep an eye on, doesn't expect to have such data until late November. But if we start to see a recurring pattern here of delays across all of these as we go into the colder winter months, and as we're seeing at the moment in the UK, mainland Europe, and potentially in the US, naturally COVID rates start to go up as transmission rates, as weather keeps people indoors and things like this starts to increase, then this could be problematic later on down the line. So it definitely warrants watching at the moment. And given the context of the sharpness of the rally yesterday I don't think the markets would need too much of an excuse to at least see a bit of short-term profit taking. Not to say though that once we come lower down, the move higher might not continue from a trend or more multiple-day scenario basis. The other thing from overnight I just wanted to mention was this: China's trade data came out and quite positive actually. Giving you the top-level summary, China's imports grew grew at the fastest pace this year in September, while exports extended strong gains as trading partners lifted coronavirus restrictions in a further boost to the world's second biggest economy. So by the numbers, their imports grew at the fastest pace this year actually in September. So quite a positive sign on the domestic front, while exports extended strong gains as more trading partners, as I, as I just said, lifted coronavirus restrictions. How long that can last though is, is questionable, I would say, just given what's happening with increased restrictions happening in certain pockets of the world at the moment. Exports in September were up 9.9% from a year earlier. That was broadly in line with market expectations and up from a solid 9.5% we saw in the prior month in August. A few other points from the overnight session, I guess, just to be aware of while I'm talking about that geographic region. You've probably seen the Australian dollar got hit overnight. Now technically it broke out the bottom side of the trading range it was trading yesterday, and it dropped straight through its S1 to its S2 and daily pivots. Now that came on the back of reports that China has suspended purchases of Australian coal. So part of this whole situation at the moment where for various different matters a number of countries have been taking a somewhat anti-China stance. China has been retaliating. And as far as Australia is concerned, China, of course, is the key trading partner. And particularly the types of goods is natural resources that Australia would export to China. So this kind of tweaking and suspension of purchase of Australian coal, we've seen this sort of thing before. It does have a very short-term negative impact on the Aussie. So a lot of that already has been priced in. Um, it really is a little bit counterbalanced by the fact that that's a negative, but the fact that Chinese trade data and economy is performing okay at the moment is a positive. Doesn't make me feel particularly comfortable about reasserting a short at this point in the Aussie when it's already come down a decent amount overnight session. So that ship might have potentially sailed on that point. I guess one thing to keep an eye on today will be performance of the dollar. The DXY is currently flat-ish at the moment, up just 0.05%. If the dollar really starts to firm up, if equities do start to pull back in a kind of risk-off type move across assets, then perhaps then there could be a short opportunity from a fundamental perspective in the Aussie, given that news from China overnight on the, the suspension of coal imports. Um, quick look then at some other things just to wrap up. This was an exclusive story I saw last night on Reuters, and a lot of people of course talking about the ECB and whether or not they're going to follow the Federal Reserve, which of course has kind of led the way with the adoption of average inflation targeting away from this kind of fixed 2% format which has been adopted for many years in developed market Western central banks. And it's quite interesting read, actually. I mean, it's nothing really to, I'd say, create a trade opportunity in European assets this morning, but it certainly is something to be aware of because it will have a significant impact later on down the line. And that is that sources say there is reluctance among ECB policymakers to follow the Fed. They're fearing that that could tie their hands. The fear is that going down the root of AIT, uh, could risk encouraging financial markets to jump to the wrong conclusions about future policy decisions based simply on where the average happened to be at any given point in time. So they're kind of saying, well, look, the world's changed and inflation perhaps isn't the best singular metric. And what they are— if they draw too much emphasis on averaging inflation, then they feel as though it could be and this is apparently shared as a view between the hawks and the doves on the council— that the market might just hang on every single inflation reading where that average number resides as to then what the ECB are going to do in future. And they don't want to be so shackled in that way. So it's interesting. The actual review, I think off the top of my head, from the ECB's monetary policy is not really due until next summer, I think it is. So this is all early kind of conversation at the moment. Quite interesting in the context of what the Fed have done. Okay, the other thing to mention today is you do have a couple of earnings. Um, it really kicks off with some of the big banks, and actually you've got Johnson Johnson. Tough time for their, for their board, of course, that, that COVID-19 vaccine halt coming the day of which they released their corporate earnings. But J&J are coming. But from the bank side, you get JP Morgan, Citigroup, and BlackRock reporting earnings, and these will all be prior to the market open. Another thing to be aware of today, and it could be interesting to track their numbers, is if they start releasing very early preliminary results both today and tomorrow is Amazon Prime Day. So it's Amazon Prime Day today and tomorrow. So I love the way retailers work, they call it Amazon Prime Day and it's 2 days actually. But that could be quite interesting. And also you've got that Apple event which kicks off at 6 o'clock London time this evening as well to see how their share price reacts. But again, with Apple events, there's nothing really new or shocking that's going to come. We know what's going to happen given a lot of the source reports we've had of late. Otherwise, quick look at the calendar then. In terms of UK economic data, we've already had the UK average earnings numbers come out, ex bonus 0.8% against expected 0.6%. Still keeping an eye, of course, on the Brexit situation. Nothing to comment on this morning that's new in, in the national press, but again, it's a situation in flux. And obviously that's— that soft deadline is due for this Thursday. Not that we're expecting anything conclusive other than a commitment to continue talking and open dialogue going beyond that point ahead of the EU meeting on Thursday and Friday. Otherwise, you've got the German ZEW numbers. As I said yesterday, it's the first time we get to have a little bit of a sense check of how analysts are feeling about current and future expectations over the next 6 months for now, October. So good chance to see where sentiment resides on that side of things. The IMF World Economic Outlook is published as well later on this afternoon, and you've got US CPI data which is expected to slightly tick up, but again shouldn't really create too much in the way of uncertainties or market movement, just given where it is against the, the general average at this moment in time. So yeah, that pretty much is it. So I know it's been mainly me talking and not too much on the charts, but equity index futures are relatively flat. The, the futures have pulled back a little bit. As I said, market's a little bit tentative just given the run-up yesterday, the severity of it. And now layer in the fact that you've had this J&J COVID temporary halt, and of course the timeliness of a vaccine coming to market is going to be particularly particularly important for the shape and speed of the economic recovery. So that does impede some of that perhaps positivity from yesterday. T-notes are pretty flat. Gold, top right here, was down in the overnight session as Asia just followed suit and generally positive movements that were seen also with that overlay of Chinese positive trade data. We dipped lower, got to the S2 in the futures, and you can see now we've just Managing quite a key technical level here that I definitely keep an eye on, which is around 1923.5 here in the gold future, as we've come back up to having broke that now as an area of resistance. Otherwise, in the currency pairs, as I said, the dollar index is pretty flat. That's generally mimicked by some of the major pairs, euro and sterling, down about 10 pips each respectively, with some minor dollar strength up about 0.1 in the Dixie. Then oil just recovering a touch after a fairly heavy down day yesterday, having broken down through the, the $40 handle. Okay guys, that is it from me. So I'm gonna wish you a good day ahead. If I can help at all, just let me know, drop a comment into the chat. And yeah, subscribe to the channel, more videos coming tomorrow. Have a good day.