California Shutdown Causes Late Sell-off In Markets

Okay, very good morning. It's Anthony Cheung here from Amplified Trading. It's Tuesday the 14th of July. Really two things for me to talk to you about in the briefing this morning. Firstly, the late sell-off on Wall Street that came after the governor of California issued then a warning about closing indoor operations statewide, that including bars, restaurants, dining, that kind of thing. And then secondly, renewed tension between the US and China, this time about rhetoric over the South China Sea. So the two main focal points that caused a late sell-off on Wall Street. We're also going to have a look at a couple of other things in the UK in regards to Huawei, in regards to Chinese data. We've had UK GDP as well come out, so quite a few things for me to get through. Let's Let's start off then with the charts and talk about what exactly is the sentiment for the European Open. And if anything, we've had a little bit of a pickup from the somewhat oversold move that we had last night, given it was very aggressive. So first things first, let me just bring up a chart that's going to make it way more easier for you to comprehend exactly what was going on. And I guess fortunately, from a timings perspective, um, Will and I were actually delivering a session for Credit Suisse in the US. So we were in fact still on our computers pretty late last night, and so we managed to capture quite a big portion of this move. And this is an annotated chart which probably makes it a little bit easier to see how it unfolded. Essentially, just before 8 PM UK time, we had the US denounce China claims in the South China Sea, and I'll talk about a little bit around the reasons why that's quite significant. The S&P started to come off, and at the time symbolically it's more important for the NASDAQ than it is for the S&P. But we were touching around fresh all-time highs, uh, we were up around 11,000 in the NASDAQ. And if we're looking about where we are in the S&P here, we've kind of reversed course from a large portion of that move. We literally touched pretty much to the tick here that high that we were printing back in the early part of June. And you can see here again another annotated chart that I was using discussing to a few new traders yesterday about the kind of ebb and flow and the fundamental capitalists that have happened in this narrative that we've had in this seesaw performance of the S&P so far. But yeah, technically we got to a really interesting point. As I said, similar setups that were seen in other US indices as well all came then on a breakdown with some fundamental catalysts, which is often the case then when we've hit this kind of maximum point of resistance on a, on a longer-term trend. So after the announcement of China claims in the South China Sea, this was really the main headline which saw the selling intensity really pick up, and that was California orders indoor activities to close. So let me just show you exactly how that came out. That was basically the governor Gavin Newsom came out, and it was a tweet actually that caused the markets to react rather than a headline coming out on Bloomberg or Reuters. And this was the tweet: California is now closing indoor operations statewide. Restaurants, wineries, movie theaters, family entertainment, zoos, museums, card rooms, bars must all close all operations. Also mandatory now to wear face masks in public spaces. And the reason why this is so significant is exactly what we've been saying for the last week or two, really. There's a lot of information to focus on when it comes to monitoring COVID in in the US, but really predominantly comes down to 3 main areas, that being California, Texas, and Florida, given the fact that they represent, you know, nearly a third of the entire population of the United States of America. And California in particular, very important of course for the economic prosperity and the performance and shape of the recovery in the United States. And the fact now that they're taking quite a significant step in order to reverse, let's say, the reopening process, then that's going to have some implications then for the shape and speed of that recovery. And as such, the markets had to reprice. And then just going back to the, um, the chart here, the other news that came out only a few minutes after that initial tweet from, from Gavin Newsom was that Apple doesn't expect a full US office return this year. I mean, it just happened to come at the same time. The California headline itself was definitely the market mover. But remember how sensitive the markets were to that initial commentary when Apple also delayed the reopening of some stores. After reopening some, they decided to reclose others. Now they were acting as a bit of a— almost litmus test for the ability to reopen on a much grander scale, even though the actual number of shops was relatively small. It was more of a sentiment play for physical shops on the high street. And the fact that they've come out and also said they don't— do not expect a full US office return, uh, this year was, was, was quite, quite telling. So yeah, the market came down quite heavy. Um, you can see here technically we broke through some, some key areas, uh, that at the time exacerbated some of the selling. It's hard to see it here on a 30-minute candlestick. The market did see some reaction around that 81.75 level, which was that high that we printed at the close of the end of trade of last week, the reopening double bottom that we had in both the Asia-Pacific session and yesterday European morning. And that was that previous high as well. You can see back on the far left that we had on the 7th of July, broke through that quite rapidly. You can then see the market responded. You can see a slight wick there on that next following candle. That was around those resistance levels that we had in the second half of last week. It broke, came back to that level, and then pushed down. And we're just keeping an eye on a trend line here forming from what was what Friday's morning's price activity in the futures market in terms of European trade has been touched now a couple times and worth keeping an eye on going forward here in the S&P on about 4, 4 or 5 tests now that it's had this morning though a little bit of a pop higher this isn't really too unusual it was such an aggressive and quick sell-off that we had last night for people to just be closing out some of those shorts I think is is fair. There's probably going to be a few people as well looking to, in the very short term, just, you know, pick up some prices relatively low comparative to where we were in the last 24 hours, just to ride the move back up. Because, um, you know, how sustainable is this move? I'm not so sure. I think it was just a byproduct of when you were actually looking at the order flow going through the market last night. It really was getting hit quite aggressively, and so maybe the move somewhat exacerbated by the, the time of day as well. So a little bit of a bump back up. Next, um, as per those key levels on the downside, be looking at those key levels on the upside. And a fairly significant obstacle here technically being those previous highs and that pivot level sitting just above around 70 and 72. And then any push above there back up to 81 would be a key area to keep an eye on. In the NASDAQ, as I said, the NASDAQ was an interesting one to watch as well yesterday. If we look on a daily Um, let me just move— make this chart a little bit bigger. So a few things here. Uh, one, I've just been keeping an eye on a couple of tests on, on these two trend lines of price activity. We've just had this phenomenal rally in the NASDAQ, outperformance of, of tech in particular. When I was talking yesterday to a couple of guys, I think Amazon's added over $200 billion in market cap in the last literally 14 days, which actually is bigger than the market capitalization of 95% of the S&P 500 as an entire index. So it's a phenomenal how it's all getting squeezed into some of these big tech firms. Uh, the top 5 continue to dominate, um, in regards to the S&P weightings. And interestingly, we broke above that trend line, but also that symbolic 11,000 in the NASDAQ. As we did, we had a massive rejection off around those levels, and we've come all the way back down again. The blue line here is the 21 DMA. A couple people have been looking at that as a, as a level of relative significance that has held up the price on a couple of different occasions. A little bit messy through June and, well, early and late June, but otherwise is a decent line to have, I think, on your charts just to mark up any further pullback here. Then I'll just be looking at that 10,500 level and just kind of monitoring the market all the way back down. But I don't think we're going to get back down there today. I think if anything, around this area here might offer the opportunities for those still of a more bullish disposition to just get long again, uh, on the eventual play and push back up to the upside. It's one of those where, you know, it's interesting. The Fed, you know, the, the balance sheet has been tightening, if anything, of late as normal conditions have somewhat been restored. The market seems to be satisfied with the liquidity situation I just feel that if we do see a meaningful correction, perhaps that's a healthy thing to happen given the growing disconnect between, uh, kind of market prices and the fundamental underlying reality economically. And so a little bit coming off might be what's needed just to recalibrate this massive outperformance that we had more recently, and nothing more telling and being somewhat of a trigger point than Tesla shares. I mean, Tesla was just unreal yesterday. I mean, it started— it shot out the gate, um, and some really aggressive buying. I think on initial open when I was monitoring it, it was up 11-12%. You know, looking at this is the relative market caps overlaid against some of the other I guess mega caps that represent different sectors like Bank of America, Intel, Netflix, Walmart. And you can see the acceleration we've had here is just phenomenal. But Tesla shares, you know, really quite technical. And, you know, the way that shares were trading yesterday, there was lots of jibes on Twitter, for example, that this is the new kind of Bitcoin. You know, I'm not here to criticize the company in that way, but in terms of the share price movement, Um, it does need to be treated in a fairly similar fashion because, you know, any underlying intrinsic value of this company has kind of gone out the window at these types of levels when you're seeing price activity that's seen a percentage swing of roughly about 17% in the last 24 hours. Um, so yeah, we were looking here, this, this price movement, this is one of the things that you need to be very mindful of with a with a stock that's moving in this fashion, or any asset in fact. And that says, as the market came back down, look how the market responded to some of these, these previous technical points of interest. So pretty much to the tick, when we got back down to 15, 30, 35, you can see that pullback here when the selling took place, came all the way back down to a technical relevant point. You can see there on slightly to the right-hand side, we came back down had a retest, then the eventual break. Where do we target? Back to the psychological handle, 1500, which was also the resistance point that we were trading, uh, back just at the end of last week on Friday. So here, if we were applying the same principle, then any break to the downside, if that was to materialize, you'd be looking at 1450 and then down to here, which was an area of significant resistance which was going back then to Again, this 14, 18, 17 level, that's the way I'd be reading this type of price activity if you were very short-term individual stock trading on this premise. On the flip side, any pullback higher, then 1550 is a key area of resistance. Any push back up, then 1600, and that previous high that we had on the bounce at 1622 yesterday. Again, 1700, nothing other than psychological there on the market dip through the, through the handle, comes back up, retest it before the push lower. So again, very much trading herd behavior here. Um, you know, the price pattern to me is very behavioral rather than anything intrinsically fundamental. So you do have to readjust when you're looking at these types of price activity. But again, as far as the, the overall broader index is concerned, I don't feel particularly spooked by the move that happened yesterday. It just looked, when it was occurring last night, quite heavy Uh, but I would expect the market to find a bit of a floor here at around that 10,500 level. If we did come down lower, that would be a key market to keep an eye on. Um, the other asset as well that was moving it a little bit is oil. As I mentioned, tensions brewing again, the US-China trade war, and that does then disrupt the overall kind of view that the market has about the um, the return of demand for energy products given a tit-for-tat trade war when it's escalated is typically being negative for global growth. And so again, just on the longer time frame daily charts here, oil still getting rejected at that key level. Situation hasn't really changed. Price still remains relatively squeezed in at around the $39.50, $40, $41 is the upside kind of level that's been restricting some of the price action of late. So that meeting of the JMMC not happening until tomorrow. So definitely it's lining up for potentially quite an interesting week for oil to make a decision about where it's heading in the short term at least. So otherwise, this morning the dollar's a little bit firmer. I think if anything, that's a natural bounce then from some of the selling that was happening last night when— um, or the dollar's a bit firmer, excuse me, just to reiterate, as it was strengthening when some of that equity selling was happening. So again, Despite the kind of logical assessment that you would normally think that, you know, equities selling off heavy as they were last night would be a bad US narrative and the dollar would weaken, actually it still is at the moment preserving this somewhat flight-to-quality status. And the dollar was actually strengthening at that point, and that has just weighed on the major pairs. Some UK data has come out this morning, um, significant in terms of what it is. UK GDP estimate year-on-year for May was -24%. that was weaker than expected, -20.4%. The GDP estimate month-on-month, 1.8% below the expected 5.5%. So that in itself, yes, I mean, we're talking about GDP on a year-on-year basis down, you know, 24%. But the fact is markets already are fully prepared for this. So if you look at cable, the market is unreactive to that data. This is more just reflective of the dollar movement that was seen late in the session as the sell-off took hold. On the shutting down of California, given its importance to the, the economic picture in the US. Quick look then at some charts. Let's have a catch up on some other points. This is the COVID situation. So you can see Florida now has overtaken Arizona. Texas and California are still somewhat on the increase on a statewide picture. On a global picture, Japan still on the precipice of renewing some more stringent lockdown measures. Australia is almost caught up now in terms of the number of confirmed cases. The UK just given an outbreak that was seen in Melbourne last week, they continue to try to get that under control. And then in Hong Kong, I think they're about to implement some of their most onerous measures. And in the UK, I think face masks in terms of hitting the high street, going shopping, are going to be mandatory as well on as of July 24th, I believe. So there's quite a few things in flux at the moment, but again, definitely the trigger point was the, um, the California headline last night. The other thing then, a little bit more detail on this headline pertaining to the South China Sea. So relations between the US and China basically have deteriorated once again. This comes with Washington rejecting Beijing's claims in the South China Sea. So essentially, this has always been a hotly contested area about the sovereignty of this particular geographic location in the South China Sea. China always staking claim to it. The US typically though would normally not get involved, not pick a side, just be fairly passive. Although the US have a military presence there in order to kind of keep the peace, so to speak, they politically do not normally say anything definitive. This time though, very different. The move came and the US came out and basically rejected the notion of China's claim to that particular area on those territorial disputed seas. So that in itself is a bit of an escalation. The market did kind of— that was right when we were up at the equity peak and it was almost like the first trigger The California one certainly was that, that pushed it over the cliff, so to speak, in late trading. But where does this head? I mean, quite frankly, I don't think this is too big a deal. Yes, it's a bit of movement from the regular, more passive stance that the US would have on this particular issue. I don't think it's a massive thing that's gonna escalate and get out of control. I just think it's a slight evolution of the trade war rhetoric which we've had of late. I don't really see too much in the way of any bites behind the bark of this type of commentary coming out of the US, if I'm being honest. The other thing that's happening with China is today Prime Minister Boris Johnson is set to give an update about banning Huawei from Britain's 5G network, which again is only going to kind of further stir the hornet's nest in regards to relations with China. So very much China's having a bit of a difficult time getting anyone on the side at the moment. But such is the political narrative in both America and the UK to try and almost frame China as a responsible person in terms of, certainly from Trump's vision, for the, the what's happening now globally with the pandemic and subsequently the economic reaction to that. So again, this, if anything, would be a positive for relations between the US and the UK, which certainly the UK needs to be mindful of brokering some kind of trade deal with America given the looming deadline that is that of fully exiting the European Union at the end of the year. So perhaps there is kind of a subtle undertone there that's going to bring those two nations closer together in United against then, um, the Beijing and China at this point. On China's side though, they did have some economic data overnight, and China posted a surprise June trade gain as economies tried to reopen. Uh, just having a look here, exports in dollar terms rose 0.5%, imports were up 2.7% against last month. So you can see here on the chart on the black line, you've had a little bump here back into positive territory, although the cumulative numbers will take a little bit of time to kind of pick back up again. Importantly then, we are starting to see the exports, which is pivotal for the, the health of the recovery in China, then to pick up given the kind of composition of how their economic output is constructed. The main thing though is, and the reason why I don't think we should get too excited about these types of figures that come out of China, is that China heavily is dependent on exports, and that then by de facto is reliant on the performance of other nations externally, globally, like in mainland Europe— excuse me— in the UK or in America, all reopening their economies. And what we've seen just yesterday then is the absolute opposite of that, the reversal of reopening happening in America. Which is only going to impede the pace of recovery in China given its dispense— dependency on external sources to import their goods. So I don't think the market really gets too excited by this. Um, it's still well down for the first 6 months of 2020, but nonetheless, I thought I'd post it out given the surprise June trade gains that were seen in China overnight. Uh, oil, I just mentioned, yeah, we're going into that quite key meeting Again, it's twofold really, the themes playing out in the oil market. One is what are they going to do about this end of July looming decision about whether or not they follow course to start tapering down the severity of their supply cuts, looking most likely that they will. But episodes like a further escalation in trade war and a further reversing or rewind of the reopening of such an important economy as the US could see them start to make, uh, perhaps a slightly more difficult decision. But that in combination then with these, these US-China tensions has bumped oil a little bit lower this morning, but nowhere near a sharp sell-off. Just again more of a rejection of upside prices than anything else. Having a look at the calendar for today, As I said, we've already had that UK data come out. As we look further forward into the European morning, you've got the German ZEW numbers looking to remain fairly static as analysts and economists will be putting out their latest view on current conditions and forward-looking expectations. You've then got US CPI numbers for June coming out. They are 1:30. You've got the weekly oil inventories coming out, the API, later on this evening. OPEC released their monthly oil market report as well That's going to be coming out normally, I think it's around midday London, but I'll keep you, you posted over the, the chat room when that happens. And then speaker-wise from the Fed, there are two that could be quite interesting. One, a voter, Brainard, speaking at 7 PM London, so 1 in Chicago. And Bullard, a non-voter, speaking on the US economy and monetary policy, 7:30 London, 1:30 Chicago time. Fixed income supply We've got some coming out of the UK as well as around 8.5 to 10 billion, so significant amount of BTP supply coming out of Italy as well today. And then earnings to finish up on, um, we really— well, we kicked things off yesterday. If you remember, we had PepsiCo that had slightly better than expected figures for the second quarter ending in June, showing that consumers obviously locked in at home were, were snacking more than ever. Uh, but one thing that we were looking at yesterday, and it's the big banks that we're looking out for, um, the S&P 500 companies are expected to unveil an overall close to 45% plunge in quarterly profits. And as I was discussing yesterday, this is going to be one of the worst then corporate profit pictures that we're likely to see since the onset of the global financial crisis back in 2008. However, that is largely as expected. Around— as a statistic that I saw this morning, around 150 companies within the S&P 500 alone have already withdrawn their formal guidance on profits because of the uncertain nature around the, the pandemic. But it is this forward-looking commentary, which as I said yesterday, which is going to be more important than ever to monitor with these numbers, not so much what just happened in the prior 3 months. Bank stocks of course will, will be the focal point You've got some of the bigger banks coming out today, so Wells Fargo, JP Morgan, I think Citi— that's normally the three that kick things off. JP Morgan, for example, has forecast a 50% year-over-year rise in its markets revenues led by fixed income division. So those FICC numbers will be particularly important to watch given some of the market volatility the trading divisions should have outperformed. So for some of those more investment bank type firms, so particularly GS and MS, which are coming out later in the week, they should perform or outperform that of the more lending-oriented firms like Wells Fargo and Citi, for example. But on a, on a sector breakdown, as we go further forward into earnings, obviously the biggest casualties are going to be those most lock and tied to the performance of the global economy under the pandemic. So energy, given the absolute roller coaster oil prices have been on over the previous quarter in Q2, followed by industrials, consumer discretionary, and materials. So all very much linked to that global picture and the sensitivity to those developments of the, the main part of the pandemic. Okay, that is it from me. Gonna let you guys get on with your day, but any comments or questions, please do feel free to just leave a comment. I'm happy to help, and I'll see you in the chat room on Amplify Live, and I'll catch you tomorrow on YouTube. Thanks very much.