China Stokes Stock Market Mania

Okay, very good morning guys. It is Monday, 6th of July. Hope you all had a fantastic weekend. Before I begin my kind of look ahead for the, for the week, just wanted to mention on Wednesday evening, as you can see here to the side of me, we're holding a webinar between 5 to 6 PM London time, and it's going to be on the importance of risk management. So obviously one of the main cornerstones of any successful successful and consistent trading strategy. So I'll be joined by the head of trading, Piers. Some of our other guys, Alex and Sam, will also be on the call, but it's an open invitation. The registration link is in the description of this video. There's going to be an association with Aria Trading, who have a pretty neat software solution as well regarding specifically risk management, which I think you guys would find particularly interesting. So hopefully you can join us. That'll be on Wednesday, the feel free. It'll be capped at 500 people online via Zoom, so hopefully I'll see you then. But let's talk about markets and what's going on and what's driving things this morning. And as you can see, a definite case of risk-on atmosphere. Equity markets overnight in China were up in excess of 4%. Actually, it was the biggest one-day move higher in Chinese equities in a year amid positive commentary on the market from state media. And this comes after last week as well, the market there domestically was up 7%. Um, the front page editorial in the Securities Times basically today said that they're fostering a healthy bull market after the pandemic is now more important to the economy than ever. Um, the number of mainland commentaries and retweets containing the term bull market, um, over the weekend was more than 10 times the average of the past 90 days according to the Baidu Index. So the article in itself underpinning the accelerated gains in stock market reforms and excess global liquidity was the main things that they were kind of talking about. So as such, you can see this feeding right through into the, the kind of index futures. I mean, the DAX already up, although it's off its highs, it's still up 262 points. US stock futures obviously reopening after the extended weekend, and despite some of the Coronavirus situation impeding somewhat some of the Independence Day, Fourth of July celebrations, that very much being brushed aside, which in itself I'll talk about in more detail. I think is a very important thing, the way the market is now perceiving the still somewhat accelerated numbers in North America and basically disregarding them for the time being. So the NASDAQ's up about 125, the S&P up 36, um, in step with that then, although it's bumped up a little bit as Europe has come in, gold is still down about $6.50 and the US 10-year down 4 ticks at the moment. So yeah, it's a very much a reflection of that, uh, just generally, um, confidence in the short term, I guess, over the situation and led by Asia. So how long this just general risk appetite can be maintained today will be interesting to see, um, because this is very much a China narrative that seemingly has given the markets a bit of a boost. So I think when the US starts to come in returning from their holiday, and the situation, as they said, on the coronavirus nationally there isn't good still. The market's managed to look over that for now. Be interested to see how it performs later on this afternoon, whether we get a little bit of profit-taking on some of the moves that have been seen overnight. Will be interesting. In the currency markets, the Dixie's actually come off considerably, so it continues to be somewhat tied to general risk sentiment as a barometer almost The DXY is actually down almost half a percent, so it's a really quite an aggressive downward move seen in the overnight session. So in the currency pairs in the top left, EURUSD and Cable both on the front foot. The euro in fact is up about 60 pips, close proximity to the high that we've seen towards the back end of last week. And you know, on the weekly, we'll be continuing to keep an eye on some key upside levels coming in. Um, the, the weekly highs that we've seen last two weeks both are pretty much around the same level. And then that longer-term trend line going back to 2018 will be interesting for sure to watch throughout, throughout the week. But let's have a look at overall some of the headline stories. There is a full technical analysis video done by Sam that he issued on the Amplify Trading YouTube channel. If you just scroll down to his playlist, you'll be able to see that, and he'll go over the charts in way more detail from a technical perspective. Uh, but for me, just having a look at them through the headlines, this is as I just described, um, people were looking at the CSI 300, the kind of biggest companies in China, and reporting it's most overheated since 2014 after gains continuing to accelerate. Brokerages reported to be talking about this kind of daily turnover topping ¥1 trillion, which is very rarely seen. So, you know, It's kind of the most amount of activity that we've had in a long time. And this is what the chart looks like. It probably helps with a bit of context, actually. This is looking at the onset of the pandemic, and you'll remember it was around the timings of right at the beginning of the year, because this was very much happening, the spread of the virus in mainland China. Before then, we've kind of went into that second and third phase of the outbreak that moved to South Korea, Iran, Italy, and then beyond. Um, so it was happening quite early in this year, and that was that first dip that we had, um, when the market plummeted due to coronavirus. It was then relatively contained before we saw the global spread and then the consequent pandemic situation develop. And that was when we hit that overall low at around that time going into March. But the recovery has been awesome, just like it has been in all the other global indices, but probably even more stretched in the case of China. And as I said, the kind of state media kind of pumping it up a little bit, and definitely the state just naturally control over these types of things, probably a lot more direct than, say, other Western developed nations. And then continuing to pin it on stock market reforms and excess global liquidity. And we've just had this real sharp acceleration here in the last few weeks, as you can see. Um, on the point actually of the, of what they've pinned it on, and that latter suggestion of excess global liquidity, here was an interesting report that came out overnight or over the weekend from JP Morgan, the US bank. They were basically saying that extremely loose monetary policy will be required for a long time to support growing debt levels worldwide, buoying liquidity along with global equity and bond prices. So JP Morgan essentially saying this is going to further inflate the market essentially as we continue to get back on our feet economically. So it kind of fits lockstep with what the Chinese state media was saying. And then some of the other things that people have been looking at is Goldman's have come out with a, with a research note as well over the weekend, and they were talking about the fact that Essentially, there's still decent risk-reward for Chinese stocks, not unless US-China relations substantially deteriorate from here. But what they're saying then is they're, they're supporting their call for being overweight China in a regional context. The stocks that appear most exposed to US-China relations are technology companies and ADRs, while domestic demand-focused consumption and healthcare names should be relatively immune. So that makes pretty much makes sense. Anything tied to any exposure that could be subject to, say, tariffs or the kind of demand for, for import-export orders from China, sure, or anything with American-related listing. But when it comes to a more domestic-focused narrative and companies that are dependent on that domestic story in China, then they should continue to outperform. And for those interested, if you were wanting to have a look, there is actually in this article that you can find on Bloomberg a full name of the actual companies that tend to underperform and also outperform, the actual Chinese companies' names. Could be quite interesting to monitor. But yeah, Goldman's also, they, they have what they call a kind of meter or a barometer of just generally US-China relations. I know this is a bit small to look at on my screen here, but I have retweeted it, um, or tweeted it this morning if you want to click on it and have a closer look. But it's an annotated graphic going back to January 2018 when we saw the initial kind of intensification of tensions between the two nations. And that was when we were going through that kind of tit-for-tat process in 2018-19 of the ever-increasing tariff rates. But if you look where we are at the moment, I mean, obviously it's been incredibly volatile relations between the two nations through much of 2019. But here, after peaking in recent weeks amid China planning, and also as we've seen now implementing the new security laws for Hong Kong, things have dropped off quite substantially, in fact. And so in that regard, that they would see it from their specific measurement as being far from the peak of where the most intense tensions have, have been in the past, and more recently from that Hong Kong situation. Um, so yeah, I mean, that pretty much sums up really the overnight moves. So as I said, definitely a risk-on feeling to the open, but in my mind, this is somewhat a continuation, and perhaps I'll be proved wrong, but The, the driving force of what's helped futures pop up and fairly aggressively in the overnight session has been that Chinese story. And I just wonder how, how long that can last for, because typically the markets at the moment are very much driven much more from a US— because it's more US-centric. And also with the updates on the COVID situation being, I think, more of a focal point for Western markets than it would be for the Far East. So definitely, um, from an underlying economic situation, I mean, I don't think that China is out of the woods yet either. And as much as some of the recent PMI data that we saw last week has continued to suggest general expansion is returning, um, I just think with a lot of this, it's kind of a bit of state intervention, almost talking it up, looking to squeeze every drop out of this kind of bull market kind of ideology and, and just squeezing it up to what is, uh, by some measurements quite an overbought market when you're looking at the, uh, the CSI 300 in China at the moment. Um, update then on the COVID situation. Um, let's have a look at things and what are we looking at. And so I thought this was quite interesting actually, as it tells quite a distinct story of what's happening globally at this present point in time. Uh, in the UK, we continue to see a decrease in the 7-day rolling average of new cases per million in COVID. And that is a positive kind of signal because of course we've gone through the next kind of phase of reopening. So if you were out and about in the UK this weekend, one of the first times you can go and sit in a coffee shop, have a pint of beer in the pub, and, and so on. So this is the, a real key milestone now for getting the economy back up and running. But obviously, as I've said many times before, the next 2 weeks, the second half of this month, will be particularly interesting to see whether or not we start to see a pickup again of the next kind of second wave of viruses in, in the UK. So the UK for the moment is heading in the right direction, suggestion of control containing the virus. In Europe, pretty similar, it's kind of static, kind of plateauing. So there hasn't been an elevated second wave despite some blips that we've seen in the likes of Germany. Their country still remains in that reproductive rate, just slightly below that 1 level, importantly. But the two areas that have been growing quite rapidly— America is obviously the one that gets the most attention just given just their demographic, the, the size of their population. The number of cases is now particularly large. And a lot of these states have started to, to reverse, if you like, the reopening process, particularly on the Sun Belt. So those southern states in particular. The other country down here at the bottom, which actual case numbers are much lower, it's coming from a much lower base, but it is Australia. And you can see the trajectory of the curve for Australia is incredibly steep here at the moment. And what's happened here, and this was actually an underperforming market in the overnight trade, was actually the Australian market The number of COVID-19 cases in Melbourne, Victoria's capital, has surged in recent days. The state reported 127 new COVID-19 infections overnight, and that is the biggest one-day spike since the pandemic has begun. And it has led— for the first time, the border between Victoria and New South Wales has been shut in 100 years. So they're taking these, you know, pretty unprecedented historical steps to try and contain now the movement of people in these highly infectious areas. And that is going to have, of course, implications on the economic recovery of Australia, given these are quite key areas in that regard. So yeah, Australia continues to face quite challenging time at the moment. UK and Europe is still relatively positive, and the US continues to track in a, in a negative fashion But at this point, at a rate of which it would appear markets still are relatively comfortable with, at least for the time being. From a numbers point of view, total cases now in the US nearing on 3 million. You can see here on the 7-day average, we continue to remain on a fairly steep incline. So I guess over the next week or two, we're looking for where does that plateau. And then on a state-by-state level, you can see here the areas like California, Texas, Florida, which have been those key ones and do comprise of the 3 largest, most populous states in the entire United States of America. Case numbers generally are still rising at this point in time. And, and obviously from a beyond the intraday and perhaps right here right now, this of course is going to have implications then for the political favorability of the president And this is going to be a real talking point, obviously, that he'll have to defend. And on that note, you've had Donald Trump tweet overnight, of course, um, new China virus cases up because of massive testing, deaths are down, low and steady, the fake news media should report this. And also that new job numbers are setting records. Says, you know, he's, he's hitting a lot of things here in this one tweet. He's blaming the virus, you know, he calls the virus, it's the Chinese virus. It's not a virus, it's the Chinese virus. Again, looking to disassociate that anything that he's done is his fault. Deaths are down and then trying to link that to the fact that it's testing that then is making that number look higher. And then also talking about that people, that the media is biased in the fact that it's not reporting about the good things like the jobs number that we had last Thursday. So it's kind of classic 101 political gamesmanship going on. But of course, we'll continue to be monitoring this because as far as the bookies are concerned, as far as the average poll of polls nationally in America, Biden still is the favorite by quite a clear distance at the moment. So he really does need to get a handle on this and soon. And when it comes to Donald Trump, that probably means that, you know, he's not a passive guy. He's going to be out there being a assertive and the aggressor. So much more from him to come this week, I'm sure. Looking at the actual calendar for this week, it is, it is pretty quiet. There's not a great deal going on here. As far as today is concerned, you have had some German numbers come out this morning. German industrial orders month-to-month 10.4%, which was slightly weaker than expected, but no real impact for markets here. You have got this afternoon the ISM Non-Manufacturing. So this was the quite unusual quirk given the holiday-shortened week last week, was that normally we would look at something like this ISM figure for the employment component to gauge then better the employment situation ahead of the labor report on payrolls. But we're actually seeing this after. So how important this is, yeah, I mean, it's worth monitoring. I don't think it's going to be a massive game changer, to be quite honest. But the ISM manufacturing number is expected to move back into expansionary territory um, above 50 from its previous 45.4, which in itself should be quite meaningful. But again, how long that this can be sustained, given perhaps confidence will start to be dented given the re-pickup that we've seen, or re-acceleration, in a number of these key states in America in the COVID-19 situation. So how, how much you can buy into just one month's reading, given that we know in the here and now things are changing quite fluently. I'm not so sure. Other than that, it's pretty quiet. Tuesday equally so. Overnight though, by this time tomorrow, we'll have the latest RBA interest rate announcement. Rates are expected to remain as they are. Going into Wednesday and Thursday, again very quiet. Trade balance data coming out of Germany on the latter. And then Friday, um, we get again pretty quiet Nothing really major coming out of the US and some Japanese inflation-linked data and Italian sovereign debt update coming out from Fitch. And then also the other thing to look out for this week is the recommencement, of course. I believe it's in London this week is the trade negotiations or the trade pact or Brexit between that of the UK and Europe. But no really massive headlines, I'd say, on that regard so far seen over the weekend. UK national press. So that is it. I'm gonna leave you with that. Hopefully then you can join me on Wednesday. The link to register for this free webinar will be in the description of the video if you're watching this on YouTube. So just go ahead and register, you'll get an alert then when we do go live and a reminder at the time. But any questions, just feel free to leave a comment, and I'll wish you a fantastic week ahead. All right, thanks very much, guys.