Can Markets Hold On As Yields & USD Move Higher Again

K, good morning, happy Friday, 12th of March. Gonna get up to speed on everything that's going on, and definitely this morning after we had the Dow scale a record high for the 4th straight session, the S&P futures touched on its all-time high, and the Nasdaq is now less than 5% below its Feb 12th peak. After slumping over 10% to confirm a correction at the beginning of the week. That recovery kind of movement is just coming under a little bit of pressure this morning. And I think the rationale behind that generally has been that Biden has now signed into law in the US that $1.9 trillion stimulus bill. Yesterday, the jobless claims printed at 712,000. That was for the first week of March and the lowest reading since the first week of November. so a multi-month best performance for that figure. And in terms of the 30-year auction, which rounded off that $120 billion worth of US issuance this week, it was relatively lackluster, but again, far from a disaster from the 7-year we saw 2 weeks ago. So all in all, that's what helped really continue the more positive finish to yesterday. The S&P was up about 1%, the Dow was up 0.6%, the NASDAQ Coming back, obviously, was Force, was up 2.4%. However, as we come into this morning session in Europe, there hasn't really been anything new, I think, in news. But as I cycle through these charts, there's definitely some technical levels on the upside, plus as well overall, I think, then a little bit of a fatigue to the positive move that's occurred of the last 3 sessions, just because now that news is very much baked in. And at these strategically key levels. Like for example, in the S&P, we pushed up to the all-time high, literally had a test to the tick, as you can see here, of the high we had on the 16th of February. And then good reason to take some profit, I think, at this point. I don't think there's enough new information here on the table now for us to just break in above and push on without something new developing. So I think a good place here to, to book some profit. And then across the board, we're kind of seeing a similar type of move where the dollar is up about a third of 1% this morning. It's pretty much reversed all of the downward move the Dixie saw yesterday afternoon, and yields are picking up. So as you can see here down on the bottom, uh, right, the 10-year has come under a little bit of pressure here as Europe has stepped in and technically short-term just breaking below the support area from Wednesday night session, Thursday session. And so technically that breaking down and having a run down to Wednesday's low before finding a bit of support as well. So with dollar strength, as you would imagine, then commodity markets under a bit of pressure here. Just keeping an eye on spot gold and silver under some continuous pressure. Gold having made a bit of an about-turn yesterday as Yields did start to see a bit of a turn, and technically speaking, yesterday was a nice respect to the previous highs we were seeing back on the 2nd of March. That also lined up with one of the, um, respective pivot levels at the time, and then the market's just come under continuous pressure here. And as we come down at session lows now, we're speaking down $15 at $17.06 and a half. You've got those lows in sight now that we saw back on Wednesday's session seen at 1705.6. And as you can see, that had some previous significance going back to these previous price points in the first week of March, as well as a retest on the 5th and on the 9th as well. So definitely worth keeping an eye on that. The S2 residing on the daily pivots just below at 1704. Oil as well, just, just softening a touch. Nothing too pronounced here, I must admit. And we have technically just got beneath then these previous areas of resistance yesterday morning and a rejection and bounce off support in the Asia-Pac session. That now, as you can see, has found a bit of a, an area of resistance now as the price tried to come back up through pivot here more recently and it's just, just slipped beneath there now at 6555. So we're just keeping an eye there as well if the dollar continues to remain well bid. Given some of the upward moves seen over the last 24 hours or so. Yields, I think, really are quite key. As I said, there's not been any real new news catalyst here. I think it's just a bit of fatigue to the overall move that we had seen. Obviously this week we've had the inflation figures come out. That was really quite a significant turning point because everyone leaning on the higher side of inflation expectations, and that core reading for US CPI, of course, coming in a little bit soft. Is what helped that pullback in yields. But now that's kind of fading, if you like, and definitely quite keen to keep an eye on yields as the trigger for any subsequent movement across the other markets. As you can see here, as the 10-year does come under a bit of pressure, this kind of area here at 3203s is going to be quite key to watch, that being then Tuesday's low and the upside range high of the price activity on Monday, which is when on Monday, remember, things were still in quite a negative mindset. It's really only from Tuesday onwards that the markets put in this kind of recovery move that we've had of late. So yeah, really important, I think, for today, all about the general notion of, you know, can the market hold on, or is there a bit of a fourth quarter comeback for, for the yield narrative and that could potentially destabilize markets short-term, intraday, given the fact that, you know, things like equity markets are particularly elevated given the recovery that we've had. Just having a look at the NASDAQ here on a daily chart— on a, on a 30-minute chart, excuse me— and you can see just how far we've come in a short space of time. This was Friday's low, you know, Friday's low to the peak that we had yesterday evening in US trade, we're talking about nearly an 8% move. So a bit of a pullback here I don't think is too untoward given the extremity of, of that. So it definitely will be, will be interesting to watch. And yeah, the other thing I just wanted to mention which I forgot with the technicals here in gold, as I said, that $1,705.50 is quite a key area for that horizontal line of support and resistance over the, over the March month. That is also the 50% Fib retracement of the low from Monday to the peak that we had yesterday, comes in exactly to the tick with that low seen on Wednesday. So quite strategically key level there for gold on the support side to watch going forward. But let's just have a quick run through the news then, a few things I did want to update you on. Um, The first is what is, I think, the third ECB source comment that we've had. It's been quite incredible now. And, you know, ECB source comments, to give anyone new to markets a bit of context, what a source is, it isn't a rumor. They're quite clearly different. A source is an informed kind of contact with the ear of the Governing Council at the ECB. Of which major financial news services like Bloomberg or Reuters talk to and get inside information about what the ECB could be thinking or what they might do with future monetary policy. Now, this isn't like a leak or anything like that, far from it. This is usually intentional on the side of the central bank in order to use a backdoor route in order to communicate potential ideas or policy changes to the market without explicitly going on the record saying it. So it's a mutually kind of beneficial relationship. So that used to happen if there was a particularly kind of indecisive market expectation going into a meeting. Sometimes sources would be deployed in order to kind of tip the balance one way or the other, because central banks don't really like to surprise the market and create market volatility. They'd rather the market have a pretty good idea of what's going to happen to control that. However, what's been happening, and particularly under the reign of Christine Lagarde, for whatever reason— I'm sure people can speculate— but source comments have been coming out not just before or after, but during the actual ECB press conference. And we had that exact case yesterday. There were two on the day. We've had another one, or third one, that came late in the evening, and this was it. It said that most policymakers have no intention of expanding the €1.85 trillion pandemic emergency purchase program, the PEP, despite the pledge on Thursday to step up the pace of bond buying to keep yields in check. And remember, the big comment really yesterday— I thought Lagarde actually did an okay job managing things. The biggest move came actually in the most surprising point, which was the first half of the actual announcement, the actual statement. Typically, people were looking for the press conference for direction, but in the statement they made this highlighted point here, as I've kind of, uh, shown you. Based on joint assessment of financing conditions and the inflation outlook, the Governing Council expects purchases under the PEP over the next quarter to be conducted in a significantly higher pace than during the first months of the year. And this was particularly important. It was seen at the time as quite dovish Although the markets did, you know, reverse that, there were other things to be aware of, but this was probably the real take-home point. And this comes then in the context of obviously yields having risen, and what is the ECB's threshold? How active are they going to be? Um, the things looking forward to be aware of is that every Monday we get a PEP definitive update from the ECB about the level of purchases being made. One thing to be clear of what she said yesterday but that don't look for Monday's number to be, you know, particularly big or shocking because the inaction of decision yesterday only came into fruition yesterday and into today. And so that data is not going to show up until at the earliest the 22nd of March anyway. So the other thing here with this source comment to kind of wrap this discussion up is that, Here they're talking about the idea that most policymakers have no intention of expanding the current $1.8 trillion envelope. And remember, no one's expecting that at this point in time. You know, there's many different things to happen before that discussion would ever be a talking point, such as are they going to use the full availability of that envelope, the pace of which is increasing. Generally, economists are of the view that it might create a necessity when yields spike in order to accelerate, but they're going to use then market forces to determine the pace of it. Hence the reason why she couldn't pre-commit when asked about what is the specific number you have in mind. Well, there is no specific number when you're responding to market conditions, right? And then that being then economists are anticipating a rollover of the length of which the PEP is in play, going from March 2022 out into the summer, basically. They've not said that yet, but that's the general expectation, not then increasing the upper limit of the overall $1.85 trillion. So I didn't really think this source comment has, has much significance, to be quite frank. The other thing then to talk about is, um, COVID vaccines, and I'll give you a bit of an overall update just with COVID in general. But the vaccine stuff, let's start there at the moment. And this was You know, this is kind of the area that's really coming to the forefront at the moment. That's Europeans' vaccination push was being dealt another severe blow when Brussels warned supplies from AstraZeneca threatened to fall short in the first quarter, and hopes have faded as well that the US would provide extra jabs. Now, the US being one of which they've ordered well in excess of probably the amount of vaccines that they need in order to cover themselves, I guess spreading across different orders from different manufacturers in order to then offset any supply issues. They've talked about Biden's strategy basically, look, let's get everyone administered in the US first before we start helping other people. The, the problem here then is AstraZeneca originally offered to ship at least 100 million doses of the Oxford-Astra vaccine to the EU by the end of March. Now, this was that story that really came up in January earlier this year and brought up the friction, and obviously comes post-Brexit, between the UK and Britain and the EU. AstraZeneca's CEOs subsequently agreed then to a revised target of 40 million doses in the first quarter. I think the original target was 100 million, so it's already been slashed by more than half. And now he's saying basically that the Commission— or Europe is saying the Commission now believes the company is on track to miss even that target. So it's gone lower and lower and lower and lower. Meanwhile, Johnson Johnson's single-shot COVID-19 won approval, their vaccine, yesterday from the EU medical regulator. Um, the problem you have there though is this, this J&J drug isn't available yet, or vaccine. The drugmaker's had problems with its production capacity and has been unable to confirm how many doses it will ship to the EU next month or when that will happen, full stop, according to people familiar with the matter. So not a good situation really for Europe. And, and the reason why I kind of say that is because this is looking at the daily new COVID-19 vaccination doses administered per 100 people. And the one thing that we saw quite clearly switch at the beginning of this month was that after the big acceleration in the UK to hit that mid-February kind of timeline to then unveil the roadmap and so on, the UK is kind of flattened out a little bit, but America continues to increase. So US now the kind of leader on that front. Big gap, of course, between then second place UK on this selection of countries to then mainland Europe. And they have been moving in the right direction. Things have been picking up. But if you think about it, the context is quite key because COVID cases in the likes of Italy and France are picking up at the moment. And you can see here In both countries, they're about at the highest levels, definitely in the case of Italy, that they've been so far this year, and that's not heading in the right direction. And now we're hitting these kind of speed bumps in some of these vaccinations, although Europe more probably heavily tilted towards drugs like Pfizer, Moderna, as we say, J&J, but the timing of that is uncertain. The AstraZeneca one is another blow for sure. So interesting to see, um, how all this is playing out at the moment. And again, playing into that potential divergence of timing of exiting on the, on the roadmap for the US and UK comparative to a lot of major nations in Europe. Okay, quick look at the calendar. We have had UK GDP come out, um, it's just really not that important, I don't think, because this GDP data is, is dated and it's looking at a period we already know of UK contraction. You know, what's important now for UK investors really is about the outlook and the continuation of the speedy vaccination rollout program accompanying then the deadlines being met for the reopening on the roadmap tiered system that the UK government has outlaid. So I don't think backward-looking Looking at the fact that, you know, if you're looking at GDP in the UK, UK GDP estimate year on year minus 9.2%. It's a touch better than a contraction of 10.9% expected. On the month to month GDP reading is minus 2.9% versus expected minus 4.9%. Again, I don't, I don't think that really has much, much interest generally. So moving on then, what else have we got throughout the morning? Um, we've got some inflation numbers coming out from the likes of Spain, but these are final readings. Um, the euro industrial production rarely has much of a market impact. So really we look to the US afternoon where you've got PPI. Now the PPI perhaps could have been a little of a little bit of interest, um, at the beginning of the week. Obviously the CPI, generally the market rightly or wrongly tends to pin a lot of its focus on that figure. Despite the Federal Reserve's more kind of alignment with things like core PCE, the market still is quite reactive to that consumer price index figure. That this week came in obviously a little bit softer than expected and actually promoted quite a meaningfully good response in markets. And that is another key reason for what's added to that midweek positivity, was that people were getting, you know, the underpinning a lot of that yield scare has been increasing inflation expectations. And so that number softened that a little bit, and that's what's helped get equities up to these re-elevated levels at record highs in the S&P and the Dow. So the difference here now is that context, because the PPIs I don't think are going to have as big a bang for their buck because ultimately the CPI has, has kind of diminished that a little bit. So I'd definitely be looking out for these at 1:30 I don't think, you know, an inline reading would be perceived in the same way as what the general data was like on Wednesday, is what I'm trying to say. Those, those kind of runaway expectations of inflation have receded a little bit for these data points. Otherwise, some CAD jobs data at 1:30 as well, and then you've got University of Michigan, the March preliminary figure at 3 o'clock. And that's pretty much it, no major central bank speakers otherwise. The Fed Fed obviously in the blackout period will have the FOMC meeting next week. So that is it. So at the moment, equity softening up a little bit. I think that's a byproduct of some profit taking, a sharp run-up higher that we've had through the middle of the week. There hasn't been any new fundamental news headlines that act as catalyst to promote this. So as I said, I think just a bit of a pullback on those fairly quick run-up higher in the equity market. Yields have started picking up, and in tandem with that then means the dollar starts increasing in strength, which weighs on the major pairs and the precious metal space. So trigger point to watch throughout the rest of the session is, is yields. The US 10-year is at quite a key level on the downside at the moment at 1.3203. That's it. So the new Market Watch podcast coming out usual time bit later on, late morning, around 10, 11 o'clock. Do check that out. I'll be joined by Head of Trading Piers, and we'll, we'll kind of go over the entire week and our thoughts for the week ahead. Otherwise, have a good session ahead. I'll see you in the Amplify Live Discord room. If you're not part of the community, check out the link below, and have a great weekend. Thanks very much.