China Vows Fiscal Support To Counteract Coronavirus

Okay, very good morning, Monday, 17th of February. So hope everyone had a good rainy weekend. And as per usual on a Monday morning, a look ahead for the, for the week. What have we got on the agenda? Certainly quite a few headlines to get through this morning as well. But one thing just to kick things off, to stress, is really two things. One, Monday today is a US holiday, so it is President's Day. In America, which means markets are closed, shortened hours of electronic trade. So something to just bear in mind when we get into the afternoon session. And then also it's half term. I'm not sure if you guys commuted in this morning, but I would say that the general traffic on my commute on the way in was, was less than half as normal. And that is quite a reflection for generally markets because, you know, in UK Anthony Cheung, for example, you do actually see a lot of people out of the, the workplace, and that can have also ramifications just generally, uh, on volumes. But mainly it's about the US afternoon, which is a holiday. So do bear that in mind with your strategies for today. It could be slow going, barring anything unexpected a bit later on. For this morning though, obviously we're going to update on the, the virus Quite a lot of news about China over the weekend to get you up to speed on. Also, Japanese GDP came out, uh, and that's caught a few headlines. A quick word on the UK economic data and then a review for the week as a whole. But getting things off to a start, let's have a look at the charts more broadly speaking. And equity index futures are on a positive footing. Subsequently, the US 10-year down just a touch, about 4 ticks on the bottom right and gold down about $3.50. So some moderate risk-on type of environment. This does come despite a very eyebrow-raising Japanese economy contraction of some 6.3%. And I want to kick off with that, actually, because when I generally— when I come into work, one of the things I do is I scroll through Twitter just to get a general sense of some of the main headlines and what people are saying, opinions and so on. And there was a lot of, uh, negative kind of interpretation from this print where Japanese GDP, uh, overnight the release showed the economy shrunk by 6.3% annual rate versus expectations of a fall of just 3.8% in the fourth quarter after last autumn's rising consumption tax impact weak global demand and typhoon disruption all weighing on their economy. So as I said, when I was coming in this morning, a lot of people kind of talking this up almost in a sensational way about how catastrophic it is. But, you know, con— context is king in this respect. And one of the things I wanted to just look at was this, which is the picture of the last what, 5, 6 years of Japanese growth. So this is Japan's real GDP annualized, and you can see the last time they did a, a previous tax hike on this left-hand side was going back into kind of Q2, the impacts of 2014. So you can see here, quite similar to what we've had. So, you know, if you came in this absolutely blind, you'd be thinking, wow, this is a spectacularly bad print for growth. However, there's 3 main reasons here, one in particular, the rise in the consumption tax impact, and it's to a similar degree of what we saw previously. Also, just generally the environment, the, the weak global demand, as I said, and also the disruptions from weather, of which they've had over the survey period, all contributing to this. Uh, the other thing as well is about, um, what does this mean then for Japan going forward? Well, Expectations obviously rife that the Prime Minister Shinzo Abe, after only about 2 months ago adding a large amount of fiscal stimulus to the system, is probably going to have to consider going for round 2 in order to support growth, because we haven't yet mentioned the virus, of course. And then the Bank of Japan, this is the Governor Kuroda, he said in local press overnight that would consider more easing if the virus impact becomes big. So that then leads us on to the Chinese situation. Now these numbers, just to give you an update, total confirmed cases north of 70,000, total deaths now just above or just under 1,800. Now one of the main things though that's been happening is this, and actually if you look at this chart, this is the CSI 300 index in China, so kind of the biggest companies in China, and what we've got here is is the entire index has now recouped all of its losses from when we originally closed, uh, for the Lunar New Year. So we closed the Lunar New Year basically where that green arrow is here, and after we had that big gap down in markets, you remember, in China, uh, on the back of the catch-up given the extended closure of their markets to contain that virus in Hubei Province, uh, we've now recouped all of those losses. And in fact, overnight Shanghai, or I'd say Shanghai Composite, local markets elsewhere in the region, Hong Kong Hang Seng, all up, up about 2% in fact overnight. So despite numbers, obviously the virus is getting worse in that respect, markets are more focused on, well, what is going to be the kind of reaction by the government and in what ways are they going to try to counteract this by propping up the government. Now China's government pumped cash into the financial system, they've trimmed money market rates, they've offered targeted tax cuts. So China said on Sunday they will enact more efficient stimulus measures despite widening fiscal gap, including lowering corporate taxes. The stock regulator in China on Friday said it would ease some rules for firms seeking to raise extra capital through share placements, including shortening lockup periods to benefit smaller-cap firms. And President Xi called for encouraging vehicle purchases as part of efforts to help the economy. Last night, local auto manufacturers rose more than 10% on the back of that comment from Xi. Also within the region, Singapore has promised strong package of budget measures Central banks from the Philippines to Thailand to Malaysia have all been cutting interest rates. So that kind of explains a lot of why markets are fairly calm at the moment, despite the kind of numbers that are accumulating at this present point in time and the kind of general mainstream media and how they are reporting this in a slightly more different, more sensational way. This was a graphic that I shared in my kind of week ahead piece that I've sent out by email to all you guys. But, you know, all of the things I've just mentioned were just the stuff that China was saying at the weekend. But if you go all the way back to basically the beginning of the month, you know, this isn't the first kind of fiscal tweak that China's looked to do, from injecting large amounts of liquidity into the system through open market operations to supporting key sectors via easing of monetary policy. You know, it's kind of that mantra of whatever it takes. And at the moment, that's why the markets remain fairly sanguine about this whole virus issue, despite obviously the underlying long-term economic impact. If this is what's happening, the way markets are perceiving this, at least for the moment, is almost this V-shaped recovery. A big hit to, to Chinese growth, obviously on the impact of what we've had through late Jan, February. However, given these measures, a substantial comeback on the period thereafter. Moving on then, few other headlines I wanted to share. Um, obviously a lot of talk about OPEC in recent week or so, given the, uh, low nature of which oil had been trading given the impact on consumption from China, and so the net demand on crude oil. And I just wanted to have a look at crude oil again. This is that familiar chart which I've looked at a number of times, which is marking up quite a few of the key price points. So if I just remove my camera for one second, you'll be able to see the whole thing. So as you can see here, oil prices have stabilized, and this goes hand in hand with what we've just been talking about, about the overall market's perception, at least for the moment, about the handling of the virus being a fairly contained one for the time being. So the recovery in the equity markets, the all-time highs in US stocks, the full reversal in the mainland in Chinese equities, the oil market reflects that same shared interpretation. Remember, we are threatening a around a key level of support from around the summer of 2019. We did get a little bit below there, but we've bounced now a decent amount, pretty much just over $2 back up towards north of the $52 handle for the moment. So what does this mean? Well, from an OPEC point of view, I would say there— remember what we were talking about with the, the strategy of OPEC, as I've got marked up here on the right-hand side. Remember about a week ago they were, they were verbalizing the necessity to cut the current supply agreement by additional 600,000, and that in tandem with the general, let's say, leveling off, or let's say more moderate rise in virus cases, has been enough to turn the market around. Again, for now, we shall see how long-lasting that becomes. So The fact that headlines would suggest then that there's fading hope for an emergency OPEC+ meeting, I think absolutely right. If I was OPEC, particularly if I was Russia, absolutely no need now to have an emergency meeting. Their OPEC official meeting is scheduled for the beginning of March. That's only about 3 weeks away from, from current date. So I would say if market prices continue to, to bounce as they are, absolutely no reason then, you can almost rearm your ammunition for talking up again potential action if we were to come back down again. So if I were them, I would keep schtum for now and save it for another day. This is just a graph to reflect that. This is looking at the price over the last couple of months of oil, and you can see oil has actually had its best run this year as the coronavirus hit nerves have somewhat calmed. So quite a substantial pullback from where we were, um, just through pretty much most of the period of January. Skipping forward then, let's talk about a little bit for the week. And just wanted to mention the UK. I do talk about this in my kind of macro overview, uh, in the week ahead piece that I've written at the weekend. Uh, that is— I'll share that now, that article in your chat that you can have a read when it's very quiet later on this afternoon. So the first things first, obviously the pound did see a bit of strength towards the back end of last week on the resignation of Sajid Javid. The idea being that Rishi Sunak will, will be more aligned with Number 10 and look to provide a kind of Trumpian-style stimulus perhaps to markets. Whether or not that is the case, I don't think you're going to get any immediate details on that. Remember, the budget isn't coming for another couple of weeks, and so I don't think you're gonna get much in the way of real concrete details on any type of fiscal changes in that respect this quickly. So I'd say this week then, attention turns back to this, which is the economic calendar of events. So you can see here, I'll make this a bit bigger, but this is what's coming out in the UK this week. Tuesday, you've got the unemployment rate, average earnings. Wednesday, UK CPI. Thursday, UK retail sales. And Friday manufacturing and service PMIs. So recently what we've had is a bit of a, a Boris bounce on the securing of that majority government and ability to kind of at least through move through the first parts of delivering of Brexit into this transition phase. And that has been warmly received in terms of economic data. I'm not sure if you saw, I think it was Rightmove house prices again, housing data has seen a very sharp snap back higher on the back of renewed confidence, uh, on inquiries into home purchases. But generally speaking, the way I perceive this economic data is that I don't really foresee that momentum behind the kind of election lift long-lasting. And so this data, I think, is going to be quite interesting because sterling currency, as we know, despite the rally last week, still remains relatively precarious in terms of to the downside. And in the world of generally dollar strength at the moment, where US economic data has been pretty decent, sterling or cable like EURUSD, I think, is quite interesting to continue to watch, both with generally quite downbeat fundamentals, both in the eurozone for the euro, for the pound, the UK. Because I think the data and also the impasse of generally Brexit negotiations will outweigh, until we get at least any more details, this whole kind of belief about Sunak coming out with some sort of fiscal bazooka anytime soon. On that point of Brexit, this is happening today. So the UK Brexit negotiator is going to be giving a headline speech a bit later on today. I'm not sure if you you recognize this chap or not, but that's David Frost. UK Brexit negotiator will set out Britain's goals for talks over its future relationship with the European Union in a speech from Brussels today. We know the current status here, the two sides are very far apart on a number of points, so be interested to see the current status on those talks later. This was something as well, I mean, I won't go into it too much, but I did want to mention it because you have the Nevada caucuses happening on the weekend. This comes after Bernie Sanders won New Hampshire and Pete Buttigieg won Iowa a few weeks ago. So this is the Democratic kind of race for nomination for the presidential pursuit, if you like, going into November of this year. And I just wanted to show what the current markets are predicting, and Bernie Sanders is outright favorite at the moment to win the Democratic nomination. Whether or not that's going to remain the case, yet to be seen. The Nevada caucus, I think, is, is a bit of a moot point. The biggest one is Super Tuesday. I talk about it a little bit in the week ahead piece, but Super Tuesday, for those not aware of it, is when 16 states or areas basically put forward their nominees. And so that's the big one. People like Michael Bloomberg the, the business billionaire, uh, he hasn't taken part at all in any of the caucuses so far. He's kind of saving it all for the big day on Super Tuesday, which is kind of the real flagship event, uh, and whoever comes out on that will be in a very strong place. But my overall assessment of this type of information is, for one, this really is not that important for markets, generally speaking, day to day for the moment. And then two, one thing that's quite interesting here is that the more center-ground Democratic people, so Buttigieg or Klobuchar or Biden, they are all basically fighting with one another, which means there's no real shared consensus within the party behind who to back in the center ground, which by default then is lifting more and more the chances of Bernie Sanders. Who is more of an outright socialist and has clarity at least in that political view. So yeah, something to be aware of. It's a lot of— it's getting a lot of US media attention, but I just wanted to cover that off. Okay, for the week, other things to look out for and the final parts. So yeah, today US holiday, President's Day, so no Treasury trade. NYSE as well closed and short electronic trade. on CME Globex. So very quiet this afternoon, I'm sure. And then going into the overnight, you get the RBA minutes. So if you're looking at the Aussie, then you get the commencement of the UK data on Tuesday on the jobs side. Um, two of the biggest earnings reports to look out for pre, pre-market respectively in the US. It's going to be in the brick and mortar retailer Walmart, or I should say brick and mortar more and more. They're trying to switch into a little bit more into the to track behavioral changes onto the online space. So see how they fare. Still very much a sizable company. And then UK earnings, FTSE giant HSBC reports pre-market tomorrow. On Wednesday, and this is really— there's 3 central banks' minutes coming out this week. The RBA tonight, you've got the Fed FOMC minutes on Wednesday night, and you've got the ECB minutes on Thursday. From the Fed and the ECB, I'm not really expecting much, to be honest. and I don't think they're going to be particularly market-moving events, but nonetheless, uh, probably warrants at least watching, um, just to, to see how the land lies, particularly with some of the decisions we've had of late with the Fed for the second consecutive month winding down the size of some of their repo operations. And then on Thursday from the UK, you've got retail sales. There's obviously the CPI on Wednesday, then Friday a little bit more interesting on the data side. You've got the manufacturing service PMI data. These are preliminary readings coming out from Eurozone, UK, and also from the US, as long as with a slew of Fed speakers as well. The final point is Saturday, the G20 conference in Saudi Arabia kicks off. So just giving all the, the gatherings of the heads of state, be interested to see what they have to say about the ongoing impact of the coronavirus, of course. Okay, that is it from me. Gonna hand you over to Sam, so I'm gonna switch over my screen and put my camera back on so you can see when he's talking. Should come on now. And I wish you guys a good day. Thanks very much.

Hi guys, good morning. Hope we all had, uh, good weekends. We'll have a quick look over a couple of the charts to start off the day. Might as well go for the currencies to begin with here. And you've got Euro, small range to begin. I mean, this is likely to be the story of the morning, I would suggest. I don't think there's going to be too much going on, let alone in the afternoon. It's going to be relatively quiet day. I mean, just quickly flick back to that calendar that Ant was on there. It's, it's going to be quiet. Um, obviously if we go to where we are now, UK Rightmove house price index not going to move things. Uh, very quiet on that front. So looking at that euro, just on the, the high that we sort of finished, or the height, the, the highest point we had around 8 o'clock on Friday, that's holding up price action for now. I mean, the low that we had in the early hours of Friday is actually only 14 ticks below that level. So small zone there in the euro to keep an eye on if we're looking for that continuation. Obviously that zone for that to break through, and we're looking for that to, to continue all the way down to some of those levels that of course you're going to want to have marked up from back in 2017 if we were to see, you know, a bigger push through. You've got initially that low that we're on now, and then Macron's gap around 1.0808. So not actually too far away now from, uh, that taking place. If we have a look at this on the longer time frame, the weekly, you can see those, uh, big couple finishes that we had near those lows as well. But right now trading on the futures anyway, if I just move this out of the camera so you guys can see, right on the low that we had at the week of the 24th of April. That has been tested right now. Uh, where we finish days and weeks, uh, on this point will be really interesting. Is it actually going to be that we're, um, you know, not gonna quite get down to that gap area yet? Obviously time will tell, but very key level being traded pretty much right now. Uh, for, for the bulls, if you're gonna get excited, it's probably not going to be on a Monday US bank holiday. But if we can get above some of these levels of resistance from Friday, you might just start to feel a bit more comfortable.

But I would suggest until we get really above the high of Friday, the low of 8.84, to get long for, uh, you know, a considerable amount of time. The pound, like the euro this morning, very quiet. I mean, just have a look at 8 o'clock, and it's, it's relatively quiet in comparison. I'm not expecting too much. We have had a couple of highs, uh, previous sessions to get lower, so we're getting on a potential trend line for that. You can see we're also getting squeezed in from the, uh, the bottom as well. So potential for a bit of a low liquidity spike higher or lower on that for the pound. Probably overall at the moment would prefer this to put to the upside, so break of the high of the day, uh, this trend line, potential trend line, and I should say to target the highs that we did have from last week, which you could call a bit of a double top really with the, uh, the higher the fifth in the mix there as well. Aussie dollar, you know, are people still excited about this as a medium-term long opportunity to have found support on those multi-year lows. We have to wait and see, of course. But looking at this trend line here from the low of the year, we hit that late on Friday. Got to have this on a break of that, then this market could well look to come back down and find a bit of support on where we, we found quite a lot of support. A lot of buying pressure came in around this area, around 6700, uh, and keeping on that trend line guiding price to the upside, getting on a bit of a trend from the recent highs as well. You can see perfectly getting squeezed here, starting on the 5th, then the 12th and 13th as well. But the Aussie, this is all I'm caring about just now. Um, a couple of months wrap this up. And then obviously what I'll do, I'll put it on YouTube, and I'm sure, uh, sound will figure itself out. But for the Aussie dollar, keeping a watch on both of those there, really waiting for the break to the upside or the downside, I think, for a more considerable, uh, movement there overnight. The yen, it, uh, it's like to touch or see the shockingly poor data bringing us under pressure. And it's actually, you know, this, this market again is not doing too much, but very key level of support, uh, right now. Just call that S1, Friday's double bottom, a bit of support there from Thursday as well. So keep a watch on that as well. But the market that I want to switch us over to is, uh, is the Nikkei, which you can see pushed drastically lower in early trade. That's already recovered, uh, that move. However, it is some way off those highs that we did have from last week. So maybe one to keep an eye on how that develops. I think if you're bullish stocks and you want to see Nikkei maybe recover, although I don't necessarily think that's going to happen today, really the pivot and these lows from the 5th, the 7th, and then Thursday, Friday will be levels to keep an eye on there. Moving over to US. Just printing a new fresh record high in the S&P. Of course, we're just coming through the European cash open, volume still low, so keep an eye perhaps what the, uh, the DAX is going to do, uh, on that, uh, whether we can actually get a decent enough move either way today. I'm not too sure. Um, obviously keep a mark up on that fresh record high, and then really we just make this a bit smaller. I'm going to put this on a 60-minute. You can see we have got a series of lows to keep an eye on. You can see they're very nicely respected, starting here. Let me just move that out of the way. Back on that low that we had on the 9th, marks up lovely with the 13th, and good enough for me on the 14th. That I want to— would want to have that on, and that could be a bit of a guide going into the week as well. Lowering the time frame down, areas of support around the pivot. You've got previous highs, call that a zone as well, from pivot to, to $33.80. That would be a level that I'd be wanting to focus on as an area where buyers could come in. And of course, that trend line there that I've just talked about. Oil and gold. Now, uh, oil, for me, the finish to last week was key. Getting above $52 and remaining there is going to be even harder. Uh, but if we do, then the bulls are going to be ultimately happy. You can see here just the importance of this level, this zone. Um, I think once you get excited to the upside, 52.50, I think a close above that and you can be— feel quite comfortable that, uh, this market could push relatively then fast on towards sort of the 44, uh, 41— 54.41, I should say. So Keep a watch on oil. I don't expect to get a big move today, low trade, low volume. But if we can, you know, clear out that high Friday, then I'm a bit more, a bit more excited about a move to the upside. A couple of trend lines in play potentially for, for oil, starting on those previous days, worth having on as well. To be honest, are you going to want to get too involved today? Probably not. US-related markets as Well, less so, but just wants to keep an eye on a couple of levels that will be key for the week ahead. Gold, after pushing down this morning, just coming back up to test its lows of the day. Let's have a quick look elsewhere just to see what's driving prices. You— European equities are just coming under a bit of pressure. Their pivot levels, which you'll see in a moment, could act as support, and this pivot level in gold could act as resistance. So just keep a watch on that and how we trade going into, uh, the morning. The bigger picture for gold, you can see relatively, uh, choppy again for the most part last week before a push higher on Friday, uh, getting back above $1,585, which was pretty key, uh, going back here to the beginning of the month. So again, let's have a watch to see how, how that plays through. But if we just take a look at 2020 in general, there's no real direction to this market yet. I'm not really convinced at all overall direction of the, the next few weeks. I think it's, uh, it's still a wait-and-see kind of approach. It's take each day as it comes. The coronavirus is what it is right now, and, and I would more than be happy not to take anything on longer than, you know, sort of intraday. Couple those intraday levels to look, look at. I do quite like the, the idea of S1 as a bit of support today if we could have drifted down to there for an opportunity to get long. You can see a couple of these trend lines would meet there, and of course the S1, and also, uh, the higher point before we push higher there on, on Friday as well. So around 1579, uh, is the, the level that I like. Of course, resistance-wise, literally the pivot now, and really I'd be paying more attention to 1584.2, uh, and from the high that we had on Friday, we are of course just drifting lower touch as well. So worth getting on a potential trend line on that. Quick look at the DAX just to wrap it up. You can see they're just coming down and touching its, uh, pivot level where you'd expect a little bounce on that next key level to the downside. I'd have marked up on around 13,731, the high of Friday evening, and then it would be S1. But the pivot, you'd expect prices to slow down there a bit worth keeping a watch on really how this plays. And then those safe havens as well, certainly gold and the Bund, which you'd imagine over the last 15 minutes has pushed higher, which it has. And that's just coming into a bit of resistance now. You can see here on the Bund quite a key level back on Friday afternoon. So you're watching here, Bund through there, DAX through the pivot, could be the, the cue for this market to to continue the last 15 minutes of trade. That low in the Bund, also the low of Friday and Thursday, so quite a key level there to keep a watch on. As usual, any questions, please do let us know. I hope you all have, uh, good days. Not expecting too much. I'll catch you all later on. I hope you all have a good trading week.