Can Stocks Keep Rallying?!

Okay, very good morning to you. My name is Anthony Cheung, I'm the head of market analysis here at Amplify Trading in London. It's Wednesday the 10th of June, so I'm going to get you up to speed hopefully of everything that's happened both overnight and the general outlook for today. Don't forget on YouTube if you are watching this or however other means you are accessing this video, just let me know and I'll put in YouTube in the description of the video the link to the registration for tonight's kind of exclusive online session that we're going to be doing, myself and the team, for the FOMC this evening. So feel free to join us. It's limited to 500 spots on the, the private Zoom link, and it's a first-come, first-served basis. So hopefully you can join us then for the live release. But just looking over the markets And I guess starting off with this heat map I've got in front of me, this is the close on the S&P 500 from yesterday, and you can see the tech giants still supporting this equity market recovery after what did look like a momentary blip off a bit of profit taking perhaps from those all-time highs that we were hitting in the Nasdaq. And with those headlines of course where we had kind of erased the year-to-date losses from the, from the pandemic in the likes of the S&P and so on. Apple shares, you can see, up 3.16%, so very much so outperforming the market. The Nasdaq in fact briefly topping 10,000. Apple shares being supported by news it's preparing to announce a shift in its own main processors in its Mac computers from Intel to its own at its annual developer conference, and that helping support the company shares. But the the big tech giants, which we know proportionately make up such a phenomenally large amount of the index, just helping prop things up. And once again, the Nasdaq seeing a little bit of outperformance. But looking at the cross-asset class mix this morning, it was interesting yesterday. We were talking at the time, we was having a chat very early in the morning to some of the traders, and we were seeing this pressure that was coming in. We eventually broke through that area of previous resistance, and markets ran down quite aggressively. And as we were talking during the morning and we were down at this level, you know, Sam and I were commenting to the guys that we were like, well, look, you know, when you get such overwhelmingly kind of sensational positive news in the headline and we hit these kind of milestones like a year-to-date reversal or all-time high in the case of the Nasdaq, It's not unusual to see some people just taking some off at these types of levels. It's a bit of profit-taking perhaps materializing, is not particularly unusual. And we were saying, you know, above or beyond that point, we still remain very confident that the trend as it exists at this point in time, which has been this kind of continuous grind higher, we don't really see that dissipating anytime soon. And this was as the market was falling. Which a couple of the guys, the more, the more junior traders, were kind of questioning, uh, you know, how, how do you kind of formulate that view? And it was more to do with the, the function that yesterday there wasn't really much in the way of a singular headline driving price activity. It was a little bit more behavioral in my point of view. And when it's like that, I think that was exactly the type of movement that you, you quite typically see, which is kind of exhaustion in the very short-term profit-taking. The market comes back down And then if anything, it gives up other people more reason to just get long again, and we see the, the bounce as we've seen so many times before. Given that, then, as I've said before, there has been a relative inverse correlation between risk being reflected when equities are generally moving higher, the dollar goes weaker, and the dollar just continues to weaken at this point. The Dixie coming quite close to a 96 even kind of handle at the moment, and that is continuing to support these major currency pairs. When I look at EURUSD here this morning and I put it back onto those longer time frames, on the weekly, you know, we're right up to that ECB spike high that we saw last week when we had the additional ECB German kind of top-up to stimulus, both fiscal and monetary. And we saw the euro appreciation, which in itself is a kind of counterintuitive move to the usual response. But given the fact that authorities backstopping then, um, the economy from it deteriorating further and also assisting the economic recovery post, um, the coronavirus pandemic, that was all seen as a positive. And the kind of risk premium coming out of the dollar, which continues to happen. So quite interested to see You know, we are right back up to that point, you know, the 200 DMA, the long-term trend line going back to the beginning of 2018, uh, is being tested once again. And as we've talked about before, any break above this with a more— with more force and conviction, then don't really see too much getting in its way from a technical perspective until we get up to around the 115 mark over the, the kind of more medium term. When it comes to cable It's kind of a similar story. I mean, there's definitely a little bit of, you know, talking to a couple of the guys yesterday, perhaps a little bit of apprehension kicking in to a certain degree because we know that there's this looming deadline in Britain with Europe in order to come to some kind of deal at this point, or otherwise request an extension to the present transition period, which is due to elapse at the end of the year. But cable just keeps rising at this point. So we've managed to get above a relatively key area. So you can see here the kind of fib retracement from the December high to the low that we printed in the middle of March. As we've gone through that 618 fib retracement now, which was also the rejection of that high— I'm looking at a weekly candle here— so last week, which was also for 2 weeks, a strong support level back in late February, early March. So quite interested to see how this performs. At the moment, I would say, despite all the British politics going on, um, the popularity kind of levels in opinion polls for Boris taking a bit of a beating upon the kind of dealing and handling of the pandemic and the kind of speed of which the government went into lockdown, that's all kind of been overwhelmed at the moment by just the ongoing weakness in the, in the greenback more than anything else. Nothing really particularly concrete from a, uh, an economic point of view from the UK that's looking particularly positive. It's just the dollar movement at the moment helping accelerate this. What this does mean though, um, over the next coming weeks that could become quite interesting is just given the strong recovery we've had in the pound going from around 1.14, uh, which was a multi-decade low, up to where we are at the moment, which is coming in toward a 1.28 handle. Is what if we do get to a point where this game of brinksmanship between the UK and Europe going into that deadline at the end of the month doesn't materialize in anything? And the fact then that increases the risk of potential no deal being back on the table, uh, many other speed bumps to obviously encounter before that would inevitably become the case. But do you— would you then— the pound be somewhat susceptible given its market positioning and the relative complacency at this point in time, uh, of that, that no-deal risk being priced in, which you would say in this extent is very little at this point. So yeah, a couple of interesting things just to have a think about on the, I guess, slightly longer time horizon. But at the moment, intraday, yeah, currency markets, the pairs here, EURUSD and Cable top left, supported by the weaker dollar. The Dixie in itself this morning this morning, taking a bit of a dip as Europe's come in. It's down about 0.2%. And gold then up about $4, not too far off the high print that was seen yesterday afternoon, trading about $4 shy of that at the moment. And the 10-year has basically just held on to some of the movement that was seen during the earlier part of the week. Fairly quiet session overall yesterday. Obviously a lot of market participants are awaiting the FOMC later this evening, so Just discussing a couple of things, I want to run you through some of the headlines and what people are talking about. And this is obviously one of the main talking points at the moment, is this kind of, uh, the extreme nature of the, the recovery that we've had from the initial pandemic lows that we were seeing in that stock market rout in the middle of March. And this is kind of one of the lead headlines from Bloomberg, so I just wanted to run through a couple of the points of which they're making. And they're talking about, I mean, their headline in itself doesn't get more sensational than that really. Signs the stock market rally is doomed to end. It's kind of famous last words for making me want to get long in some respects because as we've seen, you know, the kind of the hedge fund managers calling this wrong a couple of weeks ago when they were all calling for the top. And the market's gone multiple percentage points higher, and now you're getting this type of headline. And yeah, certainly there's a couple of indicators here, as I'll show you, that would suggest that there is substance to this, this kind of argument. Um, JP Morgan for one, they're talking about the risk of correction to rise if good news rapidly priced in. And I do think that is a good point if you think about it. You know, what is underlying this recovery in equities? Well, really it's this kind of everything-in-the-kitchen-sink mentality from central banks and governments to just really conduct an unprecedented level of support for the global economy. And so therefore, there's a degree now of, of positivity priced in for what the type of recovery that we should be seeing on the back of the scale of the intervention that we've had. That as well in step with the fact that from the coronavirus point of view, I was reading Anthony Fauci, the, the US corona advisor, still very downbeat. He always has been. But so far there has been probably not as, um, the kind of tracking of the cases of new coronavirus confirmed cases after the initial peak and decline that we've had, uh, the materializing of a secondary wave really hasn't happened as yet. And as I've said before I do still see that as one of the key potential risks going forward, particularly given market pricing right now where we are. But at the moment, if it, if it doesn't happen, if it never happens, well then, you know, markets are kind of reflecting that, and that's partly part of the reason why we continue to move higher. So definitely the more good news gets priced in, the more good news needs to be delivered. And if it's not, then that's not meeting expectations and markets do need to come off. So I do see what JP Morgan is saying there. Um, a few of the, few of the graphics then and indicators that this article looks at. One is, you know, the kind of extreme nature of what the 12-month forward price-to-earnings ratios are looking like at the moment. Um, that would suggest that global stocks are trading at their highest valuation since 2002 at this present point in time, as you can see here. Well above anything that we've seen in recent years, and also above those highs that we had in kind of late 2004. Um, daily moving averages, when we're looking at the MSCI, uh, so the kind of world index is, you know, we're way above that at the moment, all on all three measures, on the 50, 100, and 200. Um, so, you know, is this indicative of being overbought? If you were looking at the relative strength index, there could be some suggestions that that is the case at the moment. And then there's a few other things here. I've got some notes here of quite an interesting statistic that I've seen in the options market, and it was basically suggesting that traders have established fresh bullish positions. And this was looking last week— this article actually did come out last week— but it's another thing to be aware of. So traders established fresh bullish positions positions last week by buying around 35.5 million new call options on equities, and that's up from a peak of 28.7 million in February, as you can see on the chart. At the heart of the speculative activity, when you scratch beneath the surface, is smaller investors. Small trader call buying made up 50% of the total volume last week, the highest since 2000. Past instances where bullish small trader positions made up 45% or more of the volume preceded a median loss for US stocks of around 3% in 2 months' time and 15% in a year. So it's one of those age-old sayings in, in professional trading, which is, you know, when the retail market starts getting overtly, let's say, long in this instance, it's kind of like the telltale sign that a market rally has hit its peak when retail people start sniffing around. And, you know, definitely, I mean, I've been getting slightly caught up in some of these headlines about, uh, the Robinhood kind of euphoria that's happening at the moment. And these guys kind of picking up these basically bankrupt firms like Hertz, for example. What is it, it's rallied something like 800% or something crazy like that. You know, these companies which have filed for bankruptcy, which you know, these people kind of just taking a punt basically, that they're so depreciated in their value, but what if something happened and there was a last-minute way of just bailing them out and you could get humongous returns on their stock price? And people in that kind of new— I guess the, the investor in a Robinhood sense is slightly different in terms of its demographic, uh, and, you know, the ability then for the, the perception to spread and people just start flying into these stocks without really looking too much at the underlying kind of balance sheet fundamentals, more so just chasing these kind of, you know, the rumor mongering in that sense, trying to look for the next big kind of golden ticket returns. So yeah, that's another interesting thing. I guess I'll summarize all of this. I saw a really great comment from a chap at Rabobank. And he said that if everyone is holding stocks just to pass on the next— on to the next greater fall, and if the greatest fall is a central bank with infinite liquidity to buy them, then sure, prices can keep going up. And, you know, this is one of the things that my colleague Eddie has mentioned in some of the videos that he's done in— that you can find on our YouTube channel. But it's one of those things where if the Fed start, you know, they're going in every possible length to support the economy. And if the, the last, the buyer of last resort is the Fed, well then who's to say the stocks can't continue to go higher? So yeah, it's interesting at the moment. Um, certainly, um, I guess what I'll be looking for is even if the market does eventually peter out, and you know, sometimes this can be behavioral in a sense of big round figures, targets. Now the Nasdaq's at 10,000. That's pretty interesting, I guess, for the first time ever at these double-digit kind of 10,000 increment. Is that a reason for a bit of just, you know, profit-taking? You know, this is how that human kind of rational mind tries to make sense of these types of things. The point being is, is that, you know, without an escalation in confirmed corona cases or the trade war, I would say that even if we did see a bit of a pullback, I would actually see that more of a consolidation at this point rather than a complete breakdown in markets where we see something akin to what we had a couple of weeks ago in March. That would be my overall summary. All right, well, let's move on. As I said, I'll put a link on— if you're watching this on YouTube— into the video description to to register for the event. I'll be covering the Fed live this evening, so I'd absolutely love to have you on board, and you can ask me any questions that you have in the run-up to that. So I'll be joined by some of the other members of the team as well who'll be trading the event. But let me give you a summary. Uh, the central bank, basically, uh, people are looking out for them to outline or shed more light on the various lending plans that they have at the moment unlikely that they're going to intonate towards any further easing. That seems to be the job done for the time being, at least for the current economic situation. But I guess more detail— one of the things that they're going to be unveiling later tonight is their, their kind of summary of economic projections, their outlook or forward guidance that they give. And that means then looking into what do they see employment, what do they see their growth targets looking like over the end of the year and the subsequent years thereafter. And that gives us an idea then of where we can anticipate rates to start to come off, kind of ground zero. At the moment, the latest economists' survey that's been conducted by Bloomberg, they say that the FOMC is likely to project that it will raise rates only in 2022, while some see no hikes before 2023 or later. So this kind of zero interest rate policy is here to stay for the foreseeable future. That I have no doubt in. The FOMC, if you remember, they took the unusual step of suspending their forecasts in March. So remember, there's 8 interest rate meetings from the Fed every year, every alternate meeting. So in the US, it falls on every end of calendar kind of quarter. So March, June, Sep, Dec, they'll release these projections. They suspended March because of the fact that it was right in the middle of the pandemic kicking off and it was zero visibility really that they had. The, the forecast would have been null and void the moment they were written at that point. So this is going to be the first real concrete, tangible update to these forecasts since going back right to the beginning of the year in that sense, or the end of last year. So there are definitely going to be some radical changes for sure. Powell did say at the time the projections would be released in June. Might they not release it? Perhaps, but I think the central bank's job is to provide some form of guidance to what the future looks like, and that's a very important part of companies having that. Being able to visualize what that looks like in order for them to make some decisions about, you know, how they operate and who they employ and so on. In terms of the importance for their recovery, I think the Fed has no other choice but to offer this guidance. The Fed can, though, you know, from a market reaction point of view, the projections you'll like to see are going to be pretty dire. Don't forget that they're going to go through a radical shake-up given the fact that the existing projections are so outdated. However, remember, markets are forward-looking, and, you know, as we saw with the ECB looking for a contraction of somewhere in the likes of 8% for this year, they then look for a sharp recovery of, I think it was 5%, the following year. So it's the idea there that, you know, for the ECB it was a revision from around 0.8% to -8%. Massive. But the markets were actually focusing on, well, that's okay, we know that. What, what is the future looking like? So that's what's going to be important for Jerome Powell. And perhaps the press conference will hold the key then to, to how optimistic he now is about all of the different things in which the Fed have deployed and, and, and how effective that is going to be going forward in time. And how does he they see the shape of that recovery looking like and over what time horizon will be important. The committee is likely to discuss clarifying the, the kind of monetary policy intentions, including targeting yields for some Treasury maturities, or otherwise known as yield curve control, which has been adopted by some other major central banks. Economists do expect the committee to adopt this tactic but most say that they'll probably wait for September for an announcement. The Fed is currently purchasing Treasuries and mortgage-backed securities in the amounts needed. There are also a couple of suggestions from some analysts that they could increase that figure on the monthly purchases. I'd probably see that as lesser the case right now because markets seemingly are functioning okay for the moment in terms of there's no you know, great panic being observed. And so I don't really see the need for adding too much more beyond the more functional liquidity kind of programs. And the things like the Main Street Lending Program changes, which they did yesterday, I think are more probably appropriate for the time being. Uh, the bottom line here is we can expect the Fed to kind of re-emphasize their willingness and readiness, um, to use a full range of tools to support the economy. That's kind of the main thing, but we'll go into this a lot more detail later. A few other headlines just to round things off. This was an exclusive in Reuters this morning, sticking with the central banks. The European Central Bank officials are drawing up apparently a scheme to cope with potentially hundreds of billions of euros of unpaid loans in the wake of the coronavirus outbreak, according to two people familiar with the matter. So the ECB preparing effectively a bad bank to buy up, um, what is expected to be a wave of coronavirus toxic debt. Just look at the charts this morning to tell you that this isn't an immediate market mover at this point in time. I don't think it's really a particularly surprising thing just given the state of which, uh, the corporate environment is at the moment. And so I guess this is just the next logical evolution of what it is that they that they've been doing. So yeah, I wouldn't really be factoring this too much in for any short-term trading decisions in European assets. Overnight we did have some Chinese inflation metrics come out, um, and a few things to be aware of, I guess. For one, we had factory deflation deepen in May amid a slow recovery. So CPI year-on-year came in at 2.4%, expectations were for 2.6%. 7. The PPI came in at a negative 3.7%, expectations were for a negative 3.3%. So both figures lower than anticipated. Um, demand remains weak, essentially, is what that information is telling you. Uh, the factory gate deflation dropping, uh, to its lowest in almost 4 years. Uh, that's bad news for corporate profitability, investment, employment. So despite everything the Chinese Central Bank and the government have tried to do in order to stimulate the economy, it still isn't having a, a potent effect, albeit it has helped stabilize their market. So pork inflation slows. Remember, that was incredibly high just given the African pig swine flu that was affecting pork prices, and this was even before everything started happening with the pandemic. And as, as I've said there, producer price is falling the fastest since March 2016. So is there much to read into this even though they're weaker than expected? My overall assessment is no, not, not really, not for, not for this morning's open at least. It just goes to show then that the pressure is probably likely to be on the Chinese authorities to continue helping supporting their local economy going forward. So, you know, if you hear any more rhetoric out of the central bank, it's probably going to be something along those means. In order to counteract this type of thing. But just goes to show that, you know, China, who are several stages ahead, you could say, in terms of where they're at with this coronavirus post the peak, they are still going through quite a slow, protracted, arduous process of getting their feet back under the table again, you know. And is that indicative of what other countries are going to see? Who are further behind on that kind of infections curve. Yeah, this is just a look at, at those figures which we've just discussed. So the CPI, you can see here, dipping after that elevation that we saw, but predominantly based on the lack of an acceleration in food prices in particular at the beginning of the year going into the Lunar New Year period. However, obviously demand dropping dramatically during the pandemic, so both those numbers moving lower. And probably the more worrying one, more reflective of their economy given export dependency on manufacturing, is the PPI decline. Overnight you had the oil inventory numbers. Just a quick look at how the initial reaction here— it was, it was pretty tame, to be honest. We had a bit of a downtick here at the time the numbers came out. So in WTI crude futures, what were those numbers? Well, we had a crude build fairly sizable comparative to what market expectations were of 8.42 million. Expectations were for a draw of around a million. Cushing draw 2.285 million gasoline, just shy of 3 million distillate, just over 4.27 million. One thing that I was looking at yesterday was the tropical storm Cristobal However, that now is the— basically has continued to dissipate as it's moved further inland. So it's now just the remnants of— in that respect, the latest update I was reading last night, and you know, it's moved on considerably, is that US Gulf of Mexico oil producers, so down in this region here, have returned about 60,000 barrels per day back into service after about 35% of the Gulf's oil and gas production was temporarily taken offline when that previous tropical storm was passing through that region. So I'd anticipate then that also they'll be bringing more and more back online as we go forward through the next 24 hours. The NHC website, obviously something that needs tracking at this type of time of year. You can see here there is now a disturbance taking place within the Atlantic with a 10% chance of a cyclone, cyclone formation in 48 hours. Probably a little bit early yet to see its projected direction, but perhaps something else to keep an eye on as we go through the next coming days. Looking at the calendar for today, it is actually particularly quiet for the morning. There's no actual major UK/European data coming, so it's very much a US-centric session with the focus of course on the Fed later on this evening. You do have US CPI coming out, um, again similar to other inflation readings that we're seeing around the globe at the moment, just given the lockdowns that have been in place, can expect demand to be reflective of that. And so CPI is expected to decrease slightly. The year-on-year in the US expected at 0.2%, the core year-on-year expected at 1.3%. The DOE oil inventory levels will obviously come out later, uh, and now just using that as a reference point with the quite large build that we had, um, as our baseline expectation for when the DOE's hit and then you've got the Fed coming later. Speaker-wise, ECB Schnabel, uh, Vice President Di Guindos speaking midday and this afternoon. And of course, we'll be monitoring with great interest the press conference with Jerome Powell at 7:30 London time, so 1:30 if you're in Chicago. That is it. Any questions, please do feel free to leave a comment, let me know. I hope that was informative. Remember to like and subscribe to the YouTube channel if you're watching this there, and I'll see you same time tomorrow. Thanks very much.