CDC Warns Americans To Prepare For Coronavirus

Okay, very good morning to you. Hope you are well. Wednesday, 26th of February, going to talk over what has been pretty dramatic 2 days in markets, certainly from an equity perspective. I think the Dow, uh, closed down of 879 points from the close of what, 1,031 or so that we had on Monday. So The continued dominant theme, of course, being the outbreak outside of China and the impact that this could have then on the potential to spread, but also ramifications on the, the extent on the global economy, still right at the forefront of investors' attentions for this time being. So looking at the asset classes this morning, a little bit of stabilization, you could say, but definitely will be interesting as we go in towards the rest of the session because from a calendar perspective It is relatively light today. We've said this before when we've looked ahead right from the beginning of the week about how or what the landscape is like in terms of scheduled events for this week. And it's certainly from a data perspective, lots more speakers and stuff like that are coming out on Thursday and Friday. So it does then leave a relatively clean slate for traders still to very much focus in on, on the virus to be the defining factor to probably drive short-term sentiment. Particularly so given the context of what's happened in the last 2 days. So I'm not really going to look at the charts too much. I'll leave Sam to do that. But I definitely want to recap exactly what is the current status. And then probably more important for, for you guys is what is it that I think that you need to look out for? As for then, what could be a trigger point for another extension of the moves we've been seeing if that were to materialize? What would the headline hypothetical news need to be I think it's prudent to make that thinking now ahead of time so you can be more proactive, if you like, if that scenario does unfold. So, and I must— word of caution, I'm not trying to scare anyone when I talk through these scenarios. But let's have a look then at the main kind of reason why and what's, what's really kicked off this, this dramatic risk-off move that we've seen. Since the commencement of trading this week. And this is looking at the cumulative confirmed cases outside of mainland China. Now I'm going to show you the numbers in China in a moment, and actually it's dropping off quite rapidly in China. But that's not the issue of which markets are facing right now. It's this idea about, you know, actually this outbreak, particularly Italy, because I'm going to run you through and you'll see that Italy is almost the epicenter now. It's like the European version of Wuhan. Anyone who's been to Milan is then moving and causing issues elsewhere, is what's happening at the moment. And it's hard, remember when several weeks ago, it was really hard at the beginning to get any sense as to qualify accurately what the potential impact could be because we didn't know when China would have actually put the lockdown on And so therefore, well, how many people actually had freedom of movement? And that's kind of what's happened in Italy, where people in the Western European cities would have been aware of coronavirus, but, you know, transportation links, major airports, infrastructure of that nature was by nowhere near on lockdown. So how much movement happened and where have they gone before now greater, more stricter action has taken place? And that's what's causing a little bit of fear clear trade in the market. Now, when we're looking at these numbers, obviously South Korea is— and Japan within the region is much more distinct. So sticking with South Korea, South Korea in context is Asia's fourth largest economy, so it's particularly important in that region from a kind of implications on the, on the, the local but also global economy. And its national total for coronavirus cases now is Actually, the latest numbers are it's more than 1,000 now. And if you think about it, what's again been one of the main factors here is the speed of which it's picked up. I think about a week ago, South Korea was about 51 cases. It's now north of 1,000. So it's this kind of nature of the compounding growth that you see in this, this, the way of which you have the human-to-human transmission of this virus. Other areas in that region, Japan has urged businesses yesterday to have their staff work from home. Now that is one thing where in a digital world, for many jobs, obviously that doesn't have too much of a ramification. I mean, if you're a trader, you can trade from home. I can do my job on an audio squawk from, from wherever, really, realistically. However, for factory workers, That's definitely not the case, and that's where you've had in China, in an area like Wuhan in Hubei Province in China, such dramatic impact on their economy. And that bottleneck, if you like, of them reverberating down the global supply chain is where those major issues come. So yeah, the more apprehensive people become, the more then significant the potential impact could be on that side. In Hong Kong, overnight they've unveiled measures where they've basically— measures worth $15 billion US dollars they've added into their annual budget overnight to bolster their economy. Now don't forget, for Hong Kong, they've not— it's kind of like a double whammy now. They've had the implications on their economy from the anti-government protests that have been going on for many months and were kind of escalating, and now you've got this virus. So, you know, particularly difficult for the Hong Kong Monetary Authority as well at the moment. And then a quick look through some of these other areas. Italy, of course, is the one that's really drawn attention this week, but you can see Iran and Singapore have stepped up. Singapore have banned any inbound tourists coming from Daegu, from South Korea. And then Iran's coronavirus death tally now is at 16, a relatively high proportion comparative to confirmed cases there, rather than looking at other countries. Algeria, first confirmed case from an Italian man who had been traveling back. In Germany, the southern state of Baden-Württemberg tested positive for coronavirus after a trip to Milan. And then you've probably seen quite a lot on the news, at least in England that is, about a large Canary Island hotel lockdown. Austria have sealed off a Grand Hotel Europa. And so, you know, this is what's going causing a lot of this. The big thing yesterday was this headline, and I think this is then going down that discussion of what have we got to look for next if this is going to become something more significant in terms of a market correction, particularly in the equity space. And this was yesterday and was definitely an adding or a contributing factor to some of the moves that we saw. And this is coming from the American CDC and saying Americans should prepare for coronavirus crisis in the US. Quote, "It's not so much a question of is this or if this will happen anymore, but rather a question of exactly when." So again, these types of comments coming out of the National Center for Immunization Respiratory Diseases, so the Center for Disease Control, which is what the CDC stands for, you know, this is again, it's gonna, it's gonna just spook investors and also the public in that extent. And you know, if you think about how an economy functions, if the public do get spooked, you know, think about what this has on a knock-on domino effect. People will be— there'll be less travel, so tourism-related stocks, airline firms, things like that will get dramatically hit on the back of this. If consumers stop spending money because they're not going out onto the high street, for example, this this will hurt retailers in many different ways. You know, this is where that impact— where markets are trading today, tomorrow's expectation of the future. And hence we've had quite violent movements in markets so far. This does rise then an important point, and I'm going to flip over here to a look at North America. And total confirmed cases in America at the moment is 57. So considering the, the population size and also in certain geographic areas like California, for example. The kind of ethnic mix, you know, Chinatown in San Francisco is massive. And actually San Francisco has already put parts of that area onto a bit more of a formal lockdown, just given the size of that population and the likelihood of travel to and from China to that area. But the number in the US is pretty small actually, and the number has only grown very slowly. But as per what the CDC was saying, um, the ability for that— then this number is the one I would say you've got to watch going forward that could cause another severe shakeout in the market. Now, is that going to happen today? It could do. Is it going to happen though over the coming days? I'd say you've got to just be super vigilant on numbers related to the US. If it was, say, New York— and then this leads us on to another key city, of course particularly given how cosmopolitan London is. You know, London— what I've always found quite uniquely different whenever I've had the luxury of being able to travel is that London is so ethnically diverse as a city. You know, you're kind of almost hard-pressed to find an English person in London, and that means then that the likelihood of movement and travel, I think, is a lot more risk. And particularly in a city which has an underground infrastructure like the Underground system, which is very old and compact and confined in its space, I think the ability to spread a virus, if it was to take hold in London, would be quite a dramatic turn for the ability of this to really flare up considerably. And so, yeah, so far, in terms of the UK, I mean, let's just have a quick look if we scroll down the list here. In the UK, there's only been 13 cases so far, and if you actually zoom in, there's a little hotspot here you can see right in the north of England. So London, though, is the one you'd want to look out for, perhaps Birmingham, Manchester, these other bigger cities as well, but specifically London. I think if that happens, you might get another run in that respect. So just things to heads up to, to be vigilant for. As I said though, on the Chinese side, and as much as right now I think the last two days has been more of a fear trade, from an actual physical point of view, China has been slowly returning to some degree of normality. This is looking at some of that alternative data I've mentioned before. This is looking at daily coal consumption of major electricity producers. Now obviously, being such a manufacturing hub, the amount of coal consumption is quite a good kind of precursor then of the rate at which they are returning to some degree of normality as they start to loosen the kind of containment, if you like, of the lockdown on these various different cities. So that's been slowly edging higher. This is something called the Baltic Dry Index, and those of you who are more experienced will probably have heard of this before. Before. It is something that traders do monitor, particularly in the commodity space, of course. What this is, is members of the exchange— so the Baltic Dry— they directly contact shipping brokers that assess price levels for given shipping paths, a product to transport, and time to delivery or speed. So essentially, it's a way of acting as a proxy for dry bulk shipping stocks and general shipping market sentiment. So if you think about it, if you're thinking about that production chain, you've got the coal consumption rates right at the base in the factory to power those machines, and then it's about the transportations of goods. So then you can see if these things start to, start to pick up, that's a sign then of some degree of manufacturing activity to returning to some degree of normality. So that, that again, slightly positive on the— and probably to do with the, the pickup in Chinese on the losing loosening then of the lockdown they've had since the Lunar New Year. And then there's a look at the actual corona numbers. Here you can see on the left-hand chart the number of cases, and if you look here, the new broader definition in Hubei, in that main province in China, has dropped. The amount of new cases is dropping quite rapidly, and the rest of mainland China in the old definition is also dropping quite dramatically. The other thing that people look at, obviously not Google in China, but Baidu, their search index, coronavirus and mask tracking for searches, you can see spiked right at the end of Jan, and then it's been decreasing really ever since. So again, when you're trying to monitor people's general confidence in those localized areas, These can be quite telling signs. So the long story short here is that at the moment the market is fearful of what's happening outside of China. And as I've just described in those various different cities, whether it has been some cases in Algeria, in the Canary Islands, in Germany, these are all people coming to and from Italy, the northern part near Milan. And so it just goes to show where you have an explosion like you did over the weekend in the numbers in that area, and how then it's like dropping these little time bombs out into different geographic regions, which then flare up, of course. So this is the risk and why the markets have moved. I think now, given we've had a near 2,000-point move in the Dow, obviously technicals are key that was quite— I saw Charlie doing some trades yesterday and a really nice short on the Dow on the break, and you had a simultaneous move in oil and the S&P was all moving in sync. But now I think the technicals are quite important to reassess things. But, you know, from a fundamental point of view, I think unless you start to see that breakout in the likes of Germany, France, perhaps UK, London, and also US numbers, I think that's the next episode of a violent move like what we've just seen. From a headline perspective. The other thing that's happening, of course, is that as stocks get hit, naturally people flock to safe havens. And so gold obviously has been a clear play over the last few weeks. But an interesting thing here is US 10-year yields are down around record lows. You can see here what they printed down in 2016. And I've been reading a couple of bank comments this morning on my way into work, and quite a lot of big financial institutions, Bank of America being one, are calling for US yields down at 1.25%. Some banks are saying that if coronavirus does indeed spread and we have a, a full-blown pandemic, then, then actually 10-year yields are going to be heading towards 1%, and if not lower. And so that does bring about a really interesting concept because in the world of negative yielding debt you know, where most German bonds out to maturities quite far out are negative yielding. You've got zero negative interest rates in many different countries. The US has been one area where yields have offered some type of return. But if the US yield comes to join the Club Zero, well then where, where do investors, where do portfolio managers look to put their cash? And you know, the most kind of I guess clear play would be in gold, uh, and that probably emphasizes the reason why gold's been, you know, a decent performer in the last week or so. But the difference between gold and bonds, of course, is that there's no, there's no, there's no yield, there's no coupon with gold. You don't get a, a regular payout. So definitely an interesting scenario here if yields do start to dramatically come under further pressure. And, and the key here then is, well, what are the Fed saying, because if you think about it now, the pressure on the Federal Reserve to cut rates is only increasing at this present point in time. Now, this was a comment, and I think, I think Federal Reserve rhetoric now, speeches, is really key to try and factor in then what happens next. And the Fed Vice Chair Richard Clarida spoke yesterday but gave no hint of a rate cut despite the coronavirus turmoil. He said the central bank is keeping close tabs on the disease spread. Now this harks back to an interesting comment that I saw someone mention, which is this sounds awfully familiar to when the US-China trade war was first happening. Do you remember when they were first going blow to blow with the escalation of you do tariffs, I'll meet you, and the US would be the aggressor? And this was having then a building up of a negative implication for the global economy as time went on through 2018, 2019. Now, what happened there was at the time, Federal Reserve communication was saying it's too early to tell the impact of the trade war. However, it started— as time went on and the tariffs started to increase, it became clearly evident this was having an impact on the economy And subsequently, we saw the Fed cut rates 3 times, of course, as to where they are now in a holding pattern. Now, it's almost like a copy-repeat of that process. We're at the beginning of the virus, and rightly so, it's hard to really yet understand how far-reaching this becomes. But in my mind, the Fed are gonna have to start at some point. It almost feels like it's inevitable. The Fed are probably likely to start cutting again. The problem is, of course, rates are already quite low and there's only a limited room of ammunition left in the box. So, you know, the most dramatic scenario, US yields start collapsing down to zero. All of a sudden then, the Fed, we start looking at this idea of Fed rates at zero again, back to post-financial crisis era, and they've got to start warming up those printers again to start firing up the QE machine. So that does happen. Well, remember, Alex and I have been looking at the Dixie going up to these levels, kind of way up at around 100, with a long-term kind of trend channel on the upside where we've had some key levels to look out for technically. But, you know, if we start talking about those most dramatic scenarios, which aren't my base case, but if it did happen, then obviously that would have repercussions as well on the, on the dollar. What is the expectations in markets at the moment? Well, the next Fed meeting is only in a few weeks actually, it's on the 18th of March, and this was a bit of a, a non-event where it was very much expected they'd hold rates. But obviously as things have started kicking off in the last few days and the virus has really taken hold and captured traders' imagination, the, the prospect of a rate cut has crept higher now to 28%. So still very much expected to hold If we go out to the April meeting, though, that has now shifted. And a few weeks ago, market pricing for a Fed rate cut was tipped on the balance towards November, December time. That's been brought all the way up now to April, where the markets are pricing in a 25 basis point rate cut. So definitely this warrants monitoring at the moment. Final thing I wanted to mention was oil. These are the oil infantry numbers from yesterday. However, I am going to make a bit of a brash, bold statement. I don't care about these infantry numbers. Doesn't matter, because what matters is the virus. That is the dominant theme right now. And if you look at oil yesterday, oil is playing the same narrative as the global asset reaction to the virus, that being stocks down, oil down. This is about a loss of consumption. This is about bad economic future for the global economy. And if actually then, if I remove my camera, let's go back to that technical chart we've been looking at for many occasions over the last few weeks. Look where we're at. We're right back down to some key interesting levels again. Remember, we had that verbal intervention on behalf of OPEC+. They were talking up the prospects 600K cut, potentially emergency meeting. They didn't need to do that because markets bounced dramatically last week. However, here we are again, right down at these key levels around the $50 price point, which in the futures we trade below at the moment. I would say keep an eye on those lows that we printed back in early Feb, because if we do get through there and we start to push lower through $49, then this could spell further weight and quite a dramatic technical move then much lower down. And so that could be something for sure to keep an eye on as we go through the, the days ahead. So in terms of the inventory data, the things like the API, the DOE, of course we've got coming later on, I mean, it's more of a short-term distraction to the other otherwise more broader, bigger situation that's going on, and which is a much stronger influence beyond just the short-term volatility you'll see on the, the inventory at least. Okay, Sam's going to come over, but while he makes his way over, I'm just gonna quickly run through the calendar. As I said, it's pretty quiet for this morning. There's not really a great deal at all going on, so I would say pretty much a US-centric session. And again, it's about markets taking a little bit of a stock of where are we at the moment. Keep an eye on those numbers, keep an eye on those other significant cities in the Western world. I think the market's somewhat acclimatized now to the acceleration in numbers in the areas of like Korea and Japan. It's all about mainland Europe and America now if we are to see further outbreak. Okay, speakers, final thing, a couple people. ECB's Panetta coming out shortly. Christine Lagarde is speaking, but there's no expected text that's at 1:30. EU chief Brexit negotiator Michel Barnier talking at 2. Again, expect tough talk but nothing really market moving for the pound would be my base case expectation. Fed's Kaplan, Fed's Kashkari, both of which are voting members, one neutral, one dovish, are speaking afternoon and later this evening. Any fixed income traders, you've got the 5-year note, $41 billion from US Treasury as well. All right. Good luck out there. Um, listen up to Sam. I think the, the level picking now is quite key to have good strategic kind of frameworks around any trade considerations, uh, because then it's not that I, I don't feel like fundamentally that the market's just going to rebound aggressively. I think the best case, like with yesterday, I think you should plan accordingly for either scenario, perhaps a little bit of consolidation, and then when the US come in, decision time, then from the Americans when the volume picks up. Do we see a repeat, or do we see a little bit of pushback to pull back some of the losses we've had of late? All right guys, good luck out there. See you in the chat room.

Hi guys, yeah, I'd absolutely go with that. I don't think there's really a need to, to get too involved in a, in a bias. As such. Well, if we just bring in oil here because this is catching my attention, I think this is a good guide if you're after one. $50 perhaps can sort of be that for a bit of sentiment for, for the day. And yeah, you know, below there then fine, there's still a bit of pressure on and we drift lower. And maybe, you know, looking for stocks to, to continue to go short, then, you know, that's, that's fine. I think there's some big levels coming up here in, in oil. Just going to put this onto the weekly chart. I mean, other than the yearly lows, you can see why this area is just so important. Bringing on the rectangle here just to some levels that we had back in the beginning of 2019, then December 2018. You've got to feel if it clears this, then, you know, there's, there's room for it to, to push down towards 47 as well. If we put the trend line here on the weekly chart, you can just see how important this a zone is, uh, it feels at the moment like OPEC are gonna have to save the day for this, uh, to, to go higher. Uh, we did have a good bounce, but obviously these fears and, uh, the rejection of a previous area— I mean, what a short that would have been. Incredible. Um, to look back at that, shoulda, coulda, woulda, of course. But yeah, keep an eye, I think, on these lows here, just this trend line for, for oil, and then intraday 52 dollar handle as a good guide, as you'd like. Bringing on the Dow here, got the daily continuation trend line. It's a good guide as well. I'd say you can see we broke through last night, we came back to, to test the 27,000 handle, some support from October last year, and we pushed higher off that. And then we're just finding resistance on what was the previous low from December and also this the retest of this trendline. I know S&P had a similar trendline which I think has actually held. It's just— bring that in around here. Maybe it's a bit further down actually. I have to check where that's from. But that's— yeah, here we go. I was thinking, because it broken through it, it hasn't. That's the December 2018 low. You can to see that in the camera. Just going to move that now out the way and bring that in. That's a good guide here, I think, for stocks later on. If we get below there, then it could well be a quicker move down to 3100. I, I think today is, is a day not to necessarily go in with, with a bias. I think let's get that trend line on, let's get your pivots on, let's mark up important highs and lows and, you know, areas just to, to be aware of. Are there any other trend lines to, to maybe get on? I mean, possibly get it on a little 15-minute today and, and see, are we getting squeezed from those lows? Let's have a quick look. Probably worth having on, and then the highs as well, as a bit of a guide. But, you know, here now you've got some key levels to, uh, to have marked up, and it's kind of— these are your areas you can trade from. I think anywhere now in between these two points is you know, not going to be the highest probability in predicting what's happening. You can see we're just coming to a bit of support now, which was a key level, but is this really going to be the low, then we push all the way up? Or if we break, does that mean we're guaranteed to, to make fresh new lows? I'm not too sure. So just be a bit careful out there, uh, I think, and, you know, trade what you see. I think one of the, the trades I would prefer is if we do break all of these lows and you get that continuation or to the upside, we break 31.60 and you can get a push towards 31.75, which becomes, you know, then a very key resistance level. So do I think we're going to go down or up today? To be honest, I don't really have a bias on it. I'll just trade as it, as it comes out. The DAX this morning, uh, just on its low from yesterday almost, uh, so keep a watch, a key view on that. If we put this on the daily, I mean, a lot of these, these markets are on incredible areas of support. If there wasn't the coronavirus drama floating about, you'd be saying, well, what a place to get long. However, of course, if we were down here in another scenario, there's probably another reason for it. But technically, I mean, have a look at here. They got the Nikkei, you know, hit some incredible support. The, the low that we had from October and has bounced incredibly well from there. Uh, the NASDAQ, obviously, we love it. All stocks have come down and tested previous areas of support. However, likewise for the Dow and the S&P, which have found resistance here, you've got the NASDAQ— if you want a line in the sand, how about the, the low that you've got from the 27th of Jan? Broke through, came back, found resistance, albeit relatively choppy. But we failed to close above there. We're now drifting back lower, and that's the way I would look at all of these, these levels here. Just those key points, at least a 60-minute, to define your levels and then trade off that if you feel there's the opportunity to do so. Moving over to currencies, uh, said yesterday is probably better things or easier moves perhaps elsewhere. And the euro, you can see, was having decent pops and then slow moves down, decent pops. And it's, uh, I think looking at this, if we just draw up a bit of support again— do I necessarily think we're going to go higher or lower? Not too sure for the euro, but this is another area where I would have that guide. I think if we can get below 1.0875, then we can start to drift lower as a bit of intraday support for this move that's gone up. I'd say 108.91 on the futures. This is on the 15-minute, previous resistance there. As long as we're about there, I think, you know, 109 can, can come in. And then we put this onto the 240. You can just see how important just above where we're trading is as an area of resistance. You can see was the high that we had back on the 13th, also the low the 11th, just around there. 109, let's say, to the top 14, 8 to the bottom, as well as a level where perhaps resistance-wise people might start to, to get a bit more excited. I know I'm patiently waiting for some of these previous lows to come in just a bit above that as well. 109.37, you can see that triple bottom here on the daily chart from September last year, 2019. So keep on watching that. Decent recovery so far for the euro, but it had been on a massive move lower. And I think gold surprised a lot of people yesterday, had been on a massive move higher, but we did drift lower yesterday. I know we're just recovering a bit, but we just couldn't break that area here you see marked up, 1660. And, and this is just the importance of having, uh, the, the market tell you what's going on. If someone explained what happened yesterday, it's well, gold's got to be through the roof, hasn't it? Well, it just couldn't break through this resistance. So that's, you know, absolutely important level that I'm marking up today, the R1, uh, the highest from yesterday. Let that be the, the guide for, for what's really going to be, be happening there. You could argue we're trending a bit from those lows, so let's get a bit of a trend line on here just as, uh, again, a guide for, for price below there. Fine, we can start to push back, but for me it's all about that 16 16.61 to the upside. We just could not break above there yesterday. Let's keep a watch what happens on that. Through there, then you can see, uh, price would potentially find resistance on all these points here. 16.66.6, a bit of a naughty number that. 16.72, just a bit above, uh, as well. So keep a watch on, on that going forward. A quick look over just how stocks have progressed in the last few minutes while I've been doing this. The DAX still just testing that area. Keep a watch on that. I think a close below there on the hour, we could start to, to push lower. But like I was saying, a lot of support levels, uh, just where we are on stocks, and a lot of big-term resistance levels just a bit above as well. So be patient out there. Let the market tell you what's, uh, going on. And again, don't feel like you have to even be in a trade today. It's Uh, not one to go chasing. Uh, have patience and trade what you see. Hope you all have a good trading day. Any questions, please do let us know, and I'll catch you all later on.