Chinese Factory Inflation At The Highest Level Since 2008

Okay, very good morning to you. Hope you're doing well. It's Wednesday the 9th of June, and I'm going to just give you a quick update of where we closed on Wall Street, which was absolutely flat. So it's not going to take me long to explain what happened yesterday or Monday, which is not a great deal. And I don't think that really comes as too much of a surprise given the fact that we know that on Thursday really is the real highlight of the week. And that is the US CPI reading. We also get something— things like the ECB monetary policy meeting as well. Today it's a little bit more interesting on the calendar. We've already had some Chinese inflation data, which you can see here, which we'll talk about in a moment, which came out overnight. Also got the Bank of Canada rate decision this afternoon and oil inventory numbers coming as well, following the APIs last night, as well as an auction coming out of the US. But again, Today's calendar, a little bit more going on, but still not a great deal, and still a day before the kind of main event still to come. So keep that in mind, I think, when you're just thinking of intraday day trading strategies and the way the market's been reacting of late, which is— talking to some of the traders yesterday, just having this kind of degree of, of patience and not getting too caught up expensing your, your kind of ammunition, if you like, too early in the game, keeping some back. For what's arguably going to be probably much greater market movement and overall then direction, um, rather than this kind of flip-flop price action that we were seeing yesterday. And certainly, you know, if you were looking at the likes of gold yesterday, um, just have it up here. I mean, we saw some pretty extreme price movement on really not a great deal of information, if any at all. And we came up to, I guess, a fairly nice sweet spot around 1905-06 where the price actually turned on that initial change of direction and around the COMEX pit open yesterday, which was kind of where these two trend lines met and close proximity to the prior day's high in the overnight session. And then it kind of rocketed down, came back, and not a great deal of rationale there. Certainly no real headlines to really explain a lot of that price movement. At the time. Elsewhere, if we're looking at the S&P 500, just respecting a general range for the time being. Um, it was this trend line going back to the high that we had back on the 1st being respected a couple occasions. We actually broke through that as we were just heading into the Wall Street open, of which then we saw some selling pressure. And again, we dipped and then recovered, not too much really to explain the rationale behind that. And I think just coming out of the microcosm of short-term price tick data. Actually, the market's not really going anywhere. This is, as we know, on the daily continuation. You can see we've got right up there, tested that all-time high, and now we're just kind of sitting there waiting for that CPI report to hit. And, you know, and if it is a lowball number, one would imagine then we'll get the breach and break and push on to the upside. If it is a fantastically strong number, well and above the market consensus, then potentially then room to play back down to the 4200 and the range low that's been quite a key level here on the daily chart at 4180.5 in the S&P 500. Otherwise, uh, in other markets, the dollar's very quiet, so major pairs are basically unchanged in the currency space. The 10-year is unchanged. Uh, the one thing that has seen a bit of movement through yesterday's session, which was quite interesting, was oil. Really firm recovery really going into North American trading hours. And we had before, as you know, been tracking that trend channel higher in crude, which we— which broke down 2 days ago. And we saw a bit of a dip down to $68.50. But as you can see there, after finding a bit of a foundation around that level and holding, price really just started to speed up yesterday. And again, not too much in the way of individual headlines that were driving that move. But we have now firmly broken above $70. And you can see here this $70 handle as marked by this rectangle. That was the previous high, the kind of short-term objective. Then with some short-term price, price or profit taking, and then we come back up to that point, we broke, come back down, and that's acted as a nice platform for the push higher we've seen in the overnight Asia-Pac session. And we remain higher at the moment, up around 36 cents at $70.41. The intraday high is in at $70.62. So on the daily chart now, still needs to be watched, and obviously where we close on the day will be quite key. But as you can see on the daily, we're starting to really push up to levels not really seen since the summer of 2018. Longer-term objectives here would probably be around $72 $70.50, which would be the highs that we saw mid-October of that year in 2018, and then up to the next area around $75 handle psychologically, and also those highs from October '18 and the peak of price activity in the summer in July of 2018. I'll run through the APIs that we had last night, but overall summary, they had close to no impact on price overnight. So let's, let's jump into this Chinese inflation situation. What exactly is going on? And overnight you had Chinese PPI, which you can see here denoted by the white line, came in at 9%. This is for the month of May on the year-on-year figure. That was above expectations of 8.5% and an acceleration at the highest kind of pace, if you like, since 2008. and that was from 9% from 6.8%. Uh, the Chinese CPI year on year was actually weaker than expected, came in at 1.3% against expected 1.6% and previous 0.9%. So you can see here the divergence that we're getting, which is quite clearly price pressures on the producer side, but remaining much more benign as far as consumers are expecting. And here's a couple of interesting points to obviously be aware of. So the rally that we've been seeing in commodity prices has been fueled obviously by a few different things. We're going through a phase of economic recovery. Pandemic-induced supply shortages are apparent at the moment. Remember, we've had commodity prices, everything from copper to iron to lumber, although a lot of those prices have pulled from those initial spike highs, they've they are still very elevated. And then we've had record amounts of stimulus from governments from all over the world as well. And so far, the impact of metal prices has showed up mainly in what we call upstream industries. So that being things that were involved with the actual mining of those aforementioned metals, for example, processing those raw materials. Price increases downstream industries like furniture and textiles have been fairly minimal at this point. There's a couple of interesting points then that, that leads to, which is if you're looking domestically in China, the pass-through from PPI to consumer prices has been fairly limited. In fact, China's inflation gap between factories and consumers is now as wide as since the early '90s. In 1993, as you can see here, we saw a bit of a peak in recent years. This would be going back to 2016, but again, we're now over that and back to those levels in 1993. Now, one of the points here being is that intense competition among smaller businesses, spurred by the rise in e-commerce, weak domestic demand, means China's factories are absorbing input costs, um, rather than passing it on to consumers at home. And obviously that's a really important point How long that can be maintained, though, is something that's going to be quite, quite a thing to keep an eye on going forward about this idea of how transitory or not these inflationary pressures are going to be. The other thing that is about food prices, anyone who's been tracking China and inflation, remember around a year ago or so, this is when the pandemic really took hold over that Lunar New Year period of 2020. But pork prices were going parabolic at the time. Um, there was lots of different reasons, but one of the main ones was the African, um, swine flu, and that was leading to a large culling of pig farms. And so it's squeezing on the price of pork, of which obviously is a staple of Chinese cuisine. Uh, and what we're seeing now is the complete opposite of that. Uh, and actually the inflation numbers overnight If you start looking at CPI inclusive of things like energy and food prices, almost 24% fall was seen in pork prices, undercut stronger price rises for most other foods. So you're getting a bit of a rebalancing of that pork situation. And given it was such an outlier last time, then it's having quite an impact on decreasing the overall figure. And separately to that data, the government apparently has pledged to increase the supply of key food products to stabilize prices. Prices and add to the national pork reserve. So yeah, a couple things there to be aware of. First of all, from a trading point of view, none of this really, I feel, is, is meaningful for the different charts and products that we just looked at. So if you're trading US indices, uh, the FX markets, dollar-based commodities, things like that, I wouldn't be looking at this Chinese data thinking, right, I need to strategically formulate some sort of trade idea intraday on the back of that. That's not what I'm saying. I don't think it really carries that type of immediacy in terms of its, its impact, but it definitely is interesting. Again, though, it's not surprising, I wouldn't say, because this divergence that we've been seeing from PPI and CPI in China is not new. It's been ongoing. It's just that it's getting even further apart at this point in time, as mentioned here in this widening gap between factory and consumer inflation gap. So just something to be aware of. Other things then to talk about, uh, Rishi Sunak here, the UK Chancellor. Um, yesterday we were talking a little bit about potential on the Times headline at the weekend, talking of a 2-week delay to the final step of the roadmap to reopening the UK on June 21st. Well, the Guardian has an exclusive, and basically they've said that Rishi, the Chancellors willing to accept a delay of up to 4 weeks for the final reopening in the UK. The government's considering those extensions. A final decision though is to come from the PM on Monday when we get the latest update from Boris Johnson. Now the rationale here has logic, and it being— if I scroll down to give you a bit of an idea of where we're at at the moment, here's what the COVID situation is and No, it's not that we're seeing rapid number increases, but COVID daily cases are rising, and that likelihood will— will lead on to an increase in the death rate going forward, is the likely probability of events unfolding. And this predominantly down to the Delta variant, or the Indian virus, or Indian variant. The vaccination rollout continues, and, and touch wood, that should start to continue to pick up pace. 61% or so have now received a first dose. I get mine later on today, so I'll keep you posted on how I feel and what, what drug I get given in tomorrow's briefing. And then people who've received a second dose is around 42% at the moment. Now, a delay of up to 4 weeks— the, the logic here would allow second vaccine doses for all over 50s to have been administered and take effect before reopening under the government's plan. So, so a couple things here. The Delta variant does have a degree of how— or it does impact different variants of COVID how robust, let's say, the efficacy rate of these vaccines is. Two other kind of points here is whether you've had one or two jabs affects then the type of level of protection that you could expect as an individual. And then also the timeframe after your jab, because generally then protection rates tend to increase over time. And so one of the things here then is obviously over 50s typically is in the more kind of vulnerable half of the, the age category. And so allowing them to have their second jabs, all people over 50 in the UK, plus give them time for that. The vaccine to really kick in and start hitting that kind of 80-90% effectiveness rate, rather than— I've read some reports that even after one dose, the AstraZeneca could be as low as, you know, sub-40%. Because of the fact that, remember, this reopening would be complete eradication of any social distancing, no requirement to wear face masks, no capping on weddings, no capping on numbers at sports and all these sorts of things. And so the government, given the transmissibility of the Delta virus, are very keen to get those vulnerable ones under control first. So that's where that's coming from. The second kind of, um, arrow, if you like, to the plan is that it would also coincide with the end of school summer term. Reducing the extent of which outbreaks can be fueled by children passing the virus onto one another, onto one another in the classroom. I mean, you'll probably recognize from me doing the briefing, I've normally got a sniff, I've got a runny nose right now, or a cough, because I've got a young toddler and she just goes to nursery and whatever any of the other kids have got, I get, because she's just a carrier in that sense. And so part of the other strategy here of the government is that it's the end of the summer school term. So obviously then kids are off school for a number of weeks, and that stops them— the ability for them to not show symptoms but carry and transmit the disease then and pass it on to their parents, for example. So one government source pointed out that many cases of the Delta variant have been among children, and of course not many of those are vaccinated as yet as well. So I think, uh, it's pretty clear to me that the, the 21st of June is going to be delayed. I guess the question is by how much, 2 or 4 weeks? Um, if Rishi Sunak, who's the Chancellor, whose main priority of work is then the state of the economy, and he's happy with 4 weeks, I can't really see too much then resistance to, to delaying by that much. It's more to do then with management of the internal Conservative Party. At this point. YouGov polls I was looking at yesterday show that public opinion— I think this was back in April, was it April? Must have been when the initial roadmap was outlined— the idea, the public perception of us reopening on June 21st was around 65, I think it was, percent. Whereas the latest YouGov survey, I think must have been conducted last week, now sees that the general public's perception of reopening on June 21st as only around 28%. So I think the public's pretty much geared up for this. It's, it's the Steve Baker type conservative member that Boris is going to have to manage with this delay. From a market impact point of view, I don't think it makes a difference either way for the sterling currency, to be honest, whether they delay 2 or 4 weeks. I think a lot of that's been— it is going to be as expected. Okay, a few other things. Let me just blow my nose, one second. There you go. You know this, you know this recording's live when you need to watch me blowing my nose rather than YouTubers doing the cut and the edit. So just wanted to have a look at Bitcoin. Strategists seeing possible drop towards $20,000. Now I'm gonna bring Bitcoin into shot just for one second to give you a bit of context of recent price movement. And here it is. So let's put it on the daily chart. And I got a few markups here, of course, that we've been watching of late, um, since we really peaked going back to— it was only April, it wasn't even really that long ago. So from the April high, which we printed, which was north of $65,000, we're now down roughly 50%. Um, even from Friday's, we're down about 14%. Um, what was quite interesting yesterday, and Bitcoin was looking a bit susceptible to potential downside, and it certainly ignited the, uh, the bears to come out of the woodworks to really call that lower price of $20K in Bitcoin, was we had this trend line going from October of last year and also the 200 DMA, which we broke through, but importantly closed above yesterday. We have gone down to retest that overnight, but then bounced again off the 200 DMA. But the point being is what these, these different firms who have these more bearish calls are suggesting is that if we break $30,000, which was basically the bottom of that route that we had in crypto generally on the 19th of May, then that would open up the trapdoor to have slipped down to $20K. Now looking at this technically, I'm looking at Bitcoin futures here. There's a couple of stopgaps before $20K, I'd say, as marked by these, these boxes. You've got $27K, which was that previous double bottom that we saw back in late January of this year. A slip down there goes back down to $22,500, which was the peak at the end of last year. Before the kind of ramp up that we saw into the new year. And then, then going down to that $20K, sub-$20K region, which would put us back down to where we were before we got the $20K more definitive break. Yesterday, obviously, we've had the IRS ask Congress for authority to regulate crypto. Some people were also talking about on Bloomberg, analysts pointing recovery of the Colonial Pipeline company's ransom as evidence crypto isn't beyond government control is another reason for the rationale of yesterday's decline. I'd say that's probably a bit of a tenuous link personally. I think with, with these sorts of things, there certainly is, um, can be fundamental catalysts, and certainly China and a lot of their rulings over crypto and, and just general government authority intervention to regulate that type of thing to impede activity in the space certainly is going to weigh in as being really the main factor, aside from the likes of Elon Musk, you know, dropping these little hand grenades every now and again. And so at the moment, I think Bitcoin does look a little bit susceptible. Um, yeah, I, I can't recall all of the numbers, but I was talking to one of the guys yesterday, and I was listening to a good podcast the other day, and it was talking about the idea that actually the majority of money invested in Bitcoin, if you're looking at the entire kind of ecosystem of what comprises of investments within Bitcoin, that the large majority are those people who really truly believe in the underlying potential of the technology, the philosophy of what Bitcoin is in terms of decentralized and blockchain and so on and so forth. And that the idea is that these guys are just buying on every dip, uh, and that actually that comprises of something like— I'm sure the stat was 87% of all holders. And so I don't think necessarily, uh, again, it's, it's kind of a twofold approach, I guess, with Bitcoin. I think if you're going to trade it, um, I mean, I personally would wouldn't go near it with a barge pole to trade it, but to invest in it, sure. Um, you know, there's enough people with enough clout and size, it would seem, with enough position accumulation, and that this market will inevitably go higher over the long term. And it's better to be invested in it to catch those, those general moves higher and surviving these dips. But Yeah, trading it right now as of today I think would be difficult because I think the market could well be susceptible. And if we do break $30K, a drop to $20K I don't think would be in any way a surprise if that materialized. And a drop of $20K, just to remind you, would be akin to about a 35% drop on the already 50% move lower that we've had. And you start talking about an 80% move on a correction from the high, and you think, my God, that's massive. Well, it's not massive for Bitcoin. So, um, you know, it's just something we'll keep an eye on as we go through the rest of the day. Okay, uh, final few things. If we look at, um, US politics, this isn't again really moving markets, but an update. A group of Republican Democratic US House members are trying to keep alive the hopes of a bipartisan infrastructure package. They've agreed $761.8 billion in new spending over an 8-year period. Together with the already agreed numbers, that would total now $1.2 trillion, which is obviously short of the Biden $1.7 trillion. But as per any negotiation, the goalposts are kind of converging in on one another. So some progression there being made. In the oil market, we did have the APIs last night. Not going to dwell on these because in actuality they had close to no impact at all in terms of the price of oil. And, and really I'd just be looking at them as a reference point as to determine the type of reaction we'll get later on with the DOE. But crude nonetheless was a drawdown of 2.1 million, slightly smaller and shallower draw than the 3.5 million expected. Cushing draw 420, gasoline build $2.4 million. All right, quick look at the calendar for today. Inflation data out the way. As I said, the calendar is pretty quiet today, so same rules apply. Just be mindful of your technicals, um, and, and perhaps ranges being respected, perhaps breakouts if those stronger levels are, are broken. But otherwise, you know, be ready for potentially another slow day, barring anything unexpected. Got the Bank of Canada coming out at 3 PM, um, could be quite interesting. There are no changes expected in actual policy in itself in terms of rates or their QE program. However, you remember the bank reduced its bond buying, um, from $5 billion to $4 billion last October and then lowered that rate to $3 billion in April. So they're going through already tapering. So they're kind of way ahead of where the Fed are and even just having that discussion. No one's really expecting that taper to happen again today, but a lot of people are looking for further tapering could be seen by the July meeting, where essentially at the moment the vaccination rollout in Canada has been fantastic. They've got a really steep curve in, in that sense, way better than the UK, the US, and other areas. And so I think they're around 60% or so in terms of people receiving a first vaccination. Now, the point being is that they've had some tricky COVID situations which has required some restrictions and lockdowns in isolated regions within the country. However, going forward, by July we should have greater visibility on reopening trends, greater conviction on then to be had on whether or not it's the right decision to further roll back those bond purchases. So something to look out for. Certainly would be a surprise if it came today and would certainly see a firm injection of price into the CAD if they did it now. Probably not likely so, and probably more likely to come in July. Then you got the DOE at 3:30. Speaker-wise, no one really major. And then from an auction point of view, German supply index linker out of the UK and $38 billion 10-year note from the US. All right, going to leave it there. Let you guys get on. And have a good day, and I will see you in the AmplifyLive.com chat room. Take care.