China State Backed Funds Sell To Tame Market Rally

Okay, very good morning. It is Friday the 10th of July. We've had the Chinese state authorities come out looking to cool the phenomenal rally we've seen in Chinese equities this week, where their local market has added nearly $1 trillion to its value. So that's dampened a little bit of the sentiment from overnight, and we're shifting back towards a bit of an emphasis on onto the coronavirus situation, with record deaths tallied in both Florida and California yesterday. So I'm Anthony Cheung, I'm the head of market analysis here at Amplify Trading, and this is your morning briefing. Before I begin though, just having a quick look at the Amplify Now e-learning portal. Again, not sure if everyone who follows us on YouTube is aware of this, but just to give you a quick overview, on the Amplify Trading website, if you click on the professional trading section up here on the top left, Essentially on here you'll find located our on-demand e-learning platform. And what this is, I'll quickly show you. If you just hit Start Now, register your details, it will take you through to the portal. There's some information that will be sent to you, but if you enroll, you essentially get access to 3 sessions from the Head of Trading, Piers, myself, and William DeLucy, our Managing Director who specializes in trading psychology. So really great way to get a good hour and a half's worth of free content if that's what you're after. But ultimately it will give you a good insight into the type of education that we deliver to help develop our traders internally on this platform. If you like it, you basically go through, you pay for an upgrade, and you get access then to a full suite of videos. I think there's about 80 videos in total. There's also assessments because you get professional qualification. There's There's also an app that, that ties this together as well, where you can retrade historical market events. There's also private weekly webinars that happen. And for us, being a macro firm, it covers everything from economics to individual asset classes, all the way through to technical analysis, of course, but trading the news— so what I specialize in— trading strategies, risk management, psychology, and everything that you would need to to really get a firm foundation to all of the key concepts that are involved in trading. So I'll leave that to you to check out. Again, just pop on the website. I'll put a link in the video description on YouTube and you can check it out this weekend if you get time. But otherwise, look, let's have a look at the charts for this morning. What exactly is going on? As I said, sentiment a little bit dampened from the overnight Asia-Pacific session where Chinese shares were down about 1%. I'll talk about the story in a moment in a bit more detail, but that's led to some general selling in the equity index futures here. Let me just turn my Zoom chat channel off, otherwise we'll be hearing some buzzing sounds. But here you can see what was so interesting yesterday. We had quite an aggressive sell-off shortly after the open on Wall Street, but what's quite clearly evident here looking at the NASDAQ in the center chart, for one, is just the power of the recovery when it came back. And actually, you know, would have been a far cry to say to someone when we were selling off, breaking through what, what was largely a technical-led move rather than anything new in fundamentals. When we broke through those previous, uh, highs and lows that we had from midweek, we just saw some continuation. It kind of exacerbated the downside pressure. And at that point, you would have been a hard call to say that, yeah, we're going to finish at all-time highs. Again in the NASDAQ, which is what we did. But overnight Asia, it did pop up at the beginning of the session, but as some of that Chinese news started to come out, the market started to just fade ever so slightly. So we're almost back to again that same area of interest that was defining some of yesterday's significant price action. So worth keeping an eye on there. So the S&P is kind of following suit, again the downside area to keep a close eye on, a little bit different to the setup in the NASDAQ. Just given the general tech outperformance we've been seeing. There's a, there's a strong area of support around the S1 today, which is around the 3107, and 3105.25 being the low point of that initial selling that we saw on the open on Wall Street. Otherwise then, elsewhere, the 10-year is up a touch, about 1.5 ticks, just some near-term resistance at its R1. Gold really not playing ball with the general equity weakness or dollar strength, which would be more reflective of some moderate risk-off at the open. Uh, the Dixie is up about 0.2%, so perhaps that in itself just imparting a bit of downside weight on gold, uh, to counteract then any notion of it holding its typical flight to quality status. Uh, gold then back to $1,800 essentially, having got all the way up this week to $1,830. It's kind of back down to where we were and worth keeping an eye on again when that equity move was moving lower yesterday. We've got close proximity to that. Pretty much the $1,800 handle is, is a key level for today to watch for sure. With the dollar strength, both major currency pairs a little lower. I just wanted to quickly have a look at the euro currency because on a weekly it's just so interesting as we continue to respect, you know, literally week after week that key upside level in the euro. Just can't get through it at the moment, but I guess if anything, the pullbacks are getting a little bit more shallow here, as we've seen over the course of the last month or so. So that longer-term trend line from middle of 2018 that was respected in the beginning of the year before the pandemic really kicked in, uh, and was tested around the initial period of the beginning of June, continues to remain in play with the respective kind of horizontal resistance there. So yeah, still remains a key level for this week. Or, and weeks going forward, I should say. The other one to have a quick look at was oil. Been an interesting week for oil, quite a significant breakdown in prices yesterday. And if you look at the longer-term chart here, I'm looking on a daily continuation. You can see that there was a very significant upside level here that had been containing the price. And as we've gone through the last several weeks And price activity really has been getting squeezed, centered in around that gap down that we had at the beginning of March of this year. And interestingly, we are just trading through that trend line now this morning. So something to keep an eye on. And if, as what seemingly appears to be the case, there's a little bit of the optimism that we've seen generally dominate market sentiment this week is starting to fade a little bit as we potentially see some de-risking going into the weekend. It's been more, I'd say, normal behavior. This— the weekend just gone was quite unusual because the, the overnight activity was fairly benign and there wasn't really much, um, rather than just a flat open. But previous weekends to that, we've nearly always seen a relative gap down. In US equities, uh, with the tune of around 0.6 to 0.8%. And again, this idea of de-risking— people are still a little bit COVID-sensitive, I would say. And definitely developments in America would say that we're still far beyond, um, the worst case at the moment. And so yeah, if that continues and that really starts to get into the mindset short term, then certainly that will have implications for for oil in the near-term price movement. And with oil, we're just looking at some of that nearer-term price activity. I mean, we've got to go back to late June when we were trading around $37.50, so still about $1.50 to go till we got to that point. So yeah, be interested to see how oil performs as we go through this session, particularly if equities start to flag and people do de-risk. You might well see oil following suit and just trending lower throughout the rest of the day. Okay, quick look at some of the headlines then. China state funds start selling in a warning sign for stock rally. So Chinese shares were down around 1% overnight as two state-backed funds said they plan to trim holdings in a sign basically that the government foresees this, this phenomenal rally we've had this week as slightly overdone and would be something they'd want to just harness and control to a certain degree. Because obviously they don't want it to be too inflated because then the inevitable might happen and it pops and you see quite a violent breakdown in price. So what's happened overnight, there were basically two, uh, state-backed funds. One's called the People's Insurance Company of China, um, the PICC, and the other one is China's National Council for Social Security Fund, which is basically the country's national pension fund and the PICC's second largest shareholder. They said, of course, that the, the kind of sale was part of their regular divesting activities, but of course we know that's not really the case. And it comes after the Chinese stock market has added around $1 trillion in value this week. So yeah, this is, it's quite common, you know, this is where China does differ, although its pursuit to become this global trading partner and to kind of liberalize its practices and to want to encourage foreign investment. And, you know, we know what their long-term objectives are. They still are very much, um, involved, let's say, when it comes to the free forces that move markets in a developed market world sense. Doesn't quite exist to the same degree in China. Similarly, when the markets were breaking down in 2015 over fears of a hard Chinese landing, when GDP was dramatically decreasing. It's almost the reverse. These state-backed funds come in and prop up the market, and now we're getting almost a reversal. So again, it's kind of that state intervention to try and control this. Um, other than that though, I mean, I wouldn't look at this as, uh, I guess a main factor that's going to really dictate things, but it might just be the kind of one catalyst that just takes that, that positivity that generally markets have had for most of the week out of the picture. Because if you think about what's been happening is every day, particularly midweek when China— when the first news came out about the Chinese media looking to just kind of call to arms for the retail traders to prop the market up, European markets and the US markets followed in kind. As we kind of went through that 24-48 hour period. But now that's come to an end, obviously it just removes one of those factors. And as I said, going to the weekend, it wouldn't be unusual to see perhaps some chips taken off the table. Elsewhere then, the coronavirus situation is still to be monitored. Obviously the country that's seen quite a rapid increase of late has been further developments in Australia overnight, this time in the state of Victoria. So They continue to try to tackle this latest outbreak, um, so their, um, kind of line, if you like, of new confirmed cases of COVID-19 has shot up quite dramatically. UK and Europe still relatively flat. The US continues to climb at a slow but progressive rate. On that point then, cases in the US now in excess of 3 million, of course, and looking on a state level Florida, Texas, California, those three kind of most in-focused areas. So to here, to add a bit of context, um, still increasing. Um, the death toll is what's captured a few headlines in the overnight session. Record deaths in Florida and California. Texas Governor Abbott predicts that next week will actually be the worst regarding the coronavirus situation. And pleaded that wearing masks is the only strategy remaining in order to avoid another shutdown of their local economy. Elsewhere, New York, the mayor has cancelled all public events. And one interesting thing then I was looking at was this, which was a, a graphic looking at the state of the localised economies and whether or not they are reopened, reopening paused or reversing. And obviously it's the Sun Belt which has drawn the most focus of late in the recent week or two. But interestingly, although this map would suggest then that the reopening process has only been reversed in a handful of the US states, one of the things to be aware of here— and I was reading some analysis from Goldman Sachs this morning, and they said that 40% of US population lives in states where reopening has been rolled back or delayed. Now obviously here when you look at this, you can see the big three, of course: California, Texas, Florida. My understanding percentage-wise, just thinking of the figures, is that they equate to around 28 to 30%. I guess the 10% top-up comes out of these areas like Arizona, Colorado, Michigan. And so yeah, I mean, this, this is significant from a case of economic data had been wildly outperforming to the upside, particularly in these soft sentiment-based forward-looking measures. But will that— the actual definitive economic picture— keep pace with that? And that's why I've always kind of been a little bit of the view that that's probably unlikely to be the case. And at some point then, that optimism over that recovery picture is going to slowly dissipate. And underlying that is the practicality of when we looked at those Google mobility movement scores. Yes, to a certain degree, behavioral changes might well happen for both consumers in terms of their purchasing behavior and also employees from a company working from home behavior. But I don't think that's going to be rapid enough to offset the idea then that the economy at the moment in the places that matter still is not anywhere near back to a degree of normality. When it comes to these areas like Texas, like Florida, like California, I mean, you've only got to look at these trajectories. They're, they're not even plateauing at this point. So that would suggest then that there's still a lot more pain to come on this front, both from a health point of view in those areas and from an economic point of view. So it's going to be interesting over the coming weeks to see how that plays out. The only other thing I wanted to mention was about the EU. Again, I don't really see this as a definitive force to base any sterling position on. I would say you're probably better off looking at the dollar in general, using that as a guide, a barometer of sentiment to trade the pound. The pound naturally is fading. I think a lot of the midweek pump was due to the expectation and then the delivery, and it was almost a buy the rumor, sell the fact with Rishi Sunak and his kind of summer stimulus. Um, so the EU, basically back to Brexit, have said that their stance, or the UK's Brexit stance, will add to virus damage for firms. So what they're saying here is, quote, inevitable disruptions are going to occur on the 1st of January 2021, so when the transition period, and that risks compounding the pressure that businesses are already under due to the COVID-19 outbreak. Michel Barnier using Twitter, this week's discussions confirmed that significant divergences remain between the EU and Britain. And as I've said at the beginning of the week, now that we know that these kind of relative timelines for Brexit, some of these key meetings, Eurozone summits, the kind of anticipation around the importance around the autumn, this is exactly where I thought that we would be. So that's why I think markets are fairly comfortable with this kind of idea that basically there's still significant divergences. There still is hard to make any movement forward on a collective basis yet. I see that as completely as expected because there is a lack of pressure. We're too far away from these, these deadlines yet for either side to really buckle too much and make these significant concessions to get a deal over the line. That point, I think, still will come in time. We're just not there yet. And for the moment, I think focus remains elsewhere in the short term for the broader global market. Okay, calendar-wise then, very, very quiet, um, as per the week. So I'll do my best to issue the macro menu this weekend, and hopefully next week will hold a little bit more action for us. But for the morning, talking of the here and now, the only thing of semi-interest is the IEA monthly oil market report. That'll be at 9 AM London time. Then we've got the US PPI data, yeah, Canadian jobs data, unemployment rate, employment change. You've got the Baker Hughes rig count as well for any, uh, US traders. And that's pretty much it. So with that being said then, could well be that focus tends to lie more toward perhaps COVID updates, those regular updates that we see. Uh, the initial idea, and I think does have potential for some legs just given the fact that the NASDAQ has been up at record highs You know, we've seen quite an interesting technical break here in oil and equities. I'll keep an eye on that S&P around that 3,100 level, which was close proximity to around yesterday's low, for any further de-risking going into the weekend. And if that does happen, then again, it's not so much of a news catalyst but a sentiment play, and just picking your spots from a technical perspective to execute around those trades and manage your risk will be the, uh, the appropriate course of action, I would say. All right, that is it. So remember to subscribe to the channel. More videos, of course, coming from my, my colleagues this weekend. I wish you a fantastic weekend ahead, and I will see you next week. Thanks very much, guys.