Coronavirus Outside China Starts To Pick Up

Okay, very good morning. It is Friday, 21st of February, so I hope everyone is well. And I've got good news for you, Sam is back and gonna be back on the microphone. So I will stick to myself just going over the news headlines in general, fundamental view for the session ahead, and then I will have Sam come on and he can look at some of the the charts more technically for this morning. But as per usual, let's just take a look at the general vibe at the European UK open. Sentiment a little bit dented from overnight. Obviously we had a bit of a downtick in US equities yesterday at around the European cash close kind of time. Some people have just been talking to the analyst desk about that and they were talking about some suggestion of rotation plays A few different reasons going around, obviously the virus, a bit of retracement consolidation given the push-up we've had this week in, in equities. So not one specific kind of headline bumping things down, but as I'm going to discuss, I do think it's going to be quite an interesting end to the week, um, for, for kind of two reasons, and I'll get into that in more detail. But as you can see there, gold remains elevated given the kind of gradual, uh, grind lower in equity index futures seen overnight. So the DAX is already at session lows, down over 100 this morning, and gold continues that acceleration. And so we're trading up at around the R2 already this morning, up at around 1638. I know people thought I was going slightly bonkers yesterday looking on the monthly charts back, looking at 1650, 1700, but you know, this is what I mean. It doesn't— gold is an asset that's very unique in a way, and once there starts to become this kind of flight-to-quality bid. There's kind of no stopping it, particularly when, you know, it's multi-year highs in which we'd be trading. So the US 10-year is already up 11.5 ticks, and that's a pretty impressive move for this time in the morning. So the, the T-note following suit and probably now going to find, if anything, a little bit of a floor of support around that R1. That did act very early in the European entrance as a bit of resistance, but we've managed to just break above there as a little bit more weight has come in through the cash equity open here in mainland Europe. FX markets not quite as busy as some of those other assets, but dollar index currently flat. Obviously the euro is still hovering around that key 108 level, and cable, there's some key data coming out and the S1 does coincide here exactly to the tick with that, the bottom end of that downward move that we had yesterday afternoon. Well, let me— that's the S&P, excuse me. Let me just quickly shift over this chart just so I'm talking about the right product. So with cable, yeah, we're just going to keep an eye on the low, that kind of double bottom from yesterday, late morning, early afternoon low that we had. If we were to push through down through pivot, obviously data points coming out thick and fast throughout the morning will be quite key to whether that that materializes. So quick look then at the headlines because there is economic data of importance coming out throughout this morning, and that is the flash February service and manufacturing PMIs. The French numbers coming out in about 10 minutes, Germany at 8:30. These will be potentially market moving, so we'll try and wrap that into this briefing. But this is the kind of headline you're seeing this morning. And I would say this is a little bit of a shift towards the point of it becoming a little bit more of a rethink for markets, particularly as we've said at these elevated levels in equities. This is because now people are looking at the rate of how the epidemic is spreading and multiplying outside of mainland China. Now, if we just have a look here at the kind of the live monitor by the John Johns Hopkins Institute. You can see then that at the moment numbers outside of China remain relatively small. You can see the total number of cases here on the left-hand side. Out of the 2,247 deaths, only 11 so far have occurred outside of mainland China. So that number is very small. The World Health Organization still says the situation is manageable, but warns that if countries don't take the situation more seriously, the spread will become a wider global threat and hence then a pandemic in terms of the classification. So the thing that you've seen here is the first step towards that, which is more confirmed cases happening in other geographic regions, particularly South Korea and Japan within that region. And so this is the kind of next evolution of which I think markets could be a little bit dented from sentiment, and certainly I think that's what's a part of this risk-off move we're seeing this morning. But actually, for me, I think this was a really interesting headline. This came out late yesterday, and it was the US government expects China to honor its commitments to buy more US goods under a trade deal signed by the two countries, despite the fast-growing coronavirus outbreak, according to a senior US official. Now, one of the things that I've been saying quite a lot over the last two weeks is that Actually, one of the reasons I think behind the calmness, if you like, in reaction to the virus has been almost a de-escalation of potential confrontation of what has and is still one of the biggest risks to markets, which is the ongoing US-China trade war. The thought being that because of the significant impact economically, the US might give China a little bit of breathing room about the exercising of the agreement for buying of large purchasing of agricultural goods as part of their upfront commitment in that trade deal. Now here, I think this is a little bit more aggressive from the Americans. They're basically saying, we don't care, even though you're having this problem with the virus, you need to now, you know, back it up and fulfill your commitments as part of the agreement that you signed. And for me, that reignites perhaps then a little bit more pressure on the confrontation side. And for me, given where equities have been And I think we are ripe for a bit of a pullback. And earlier this morning, I'm not so sure if you follow me on Twitter, it's my handle there, but you know, my view for today is it could get quite interesting and it's already kind of shaping up in that way. Certainly the US will really be, when they come in, whether or not it does materialize. But could this be the straw that breaks the camel's back in a way that not just a little bit more change now towards the multiplication of other cases outside of mainland China, but with the US remaining pretty assertive, which I think is also a little bit of a shift in that different direction, are we ripe for a bit of a pullback in equities? And already we can see, we've seen some of that in Asia. The one thing then that this continues to represent is, you know, it's just such a, you know, in a medium-term positioning, it's such a good asset to be exposed to. I mean, this again is what's really fueling this gold move is that, you know, the only way is kind of to become negative, if you like, with these news stories. Earnings season has kind of passed, but, you know, whether it's all those things we talked about yesterday, from geopolitical tensions to the trade war to the virus, it's just a lot of risks. And particularly when an equity market is at all-time highs, in those conditions it is ripe for a bit of a pullback. And that— all of those metrics are just supportive of for further bid tone in that flight to quality move for gold. So, you know, could we see $1,650 today? Sure we could. You know, probability of that happening, I think I'm going to say it's quite likely. I wouldn't want to just sit here now and just want to hit the high here right on the R2 because the move's already been fairly prevalent. But I'd want to see really going into the US session when volumes pick up, we go through the COMEX open. How the equity markets behave today on, on the NYSE. I think it's going to be quite key on whether or not that materializes or not. But yeah, going into the end of the week, just going to be interesting. And obviously the data coming out over the course of the session is going to be quite key. And that being then, I mean, this is gold. The last time we had such a big blip in gold, you've got to go back to the Middle East and the Iran situation beginning of year. Otherwise we're heading for the biggest weekly gains in August of last year. But the PMI data is going to be really key this morning, and I'll quickly shift over to that because, you know, manufacturing activity, particularly German in Europe, is going to be very important.

Why?

Well, obviously it's a real key component not only for the German economy but for the eurozone's general performance overall. And how much has that, you know, supply chain been impeded by the nature of the virus. And we've seen this in obviously Chinese manufacturing activity, but how much is that reverberating across all these other countries globally, particularly those that are very much based on manufacturing, exportation of their goods? So the French numbers coming up shortly, I'll probably cover that and hand over to Sam in the next minute or so. So that's definitely going to keep an eye on. The service number is expected at 51.3, the French manufacturing at 50.7. So keep an eye on the euro, bund, and the DAX. The German number at half past now, the German figure, this is what it looked like last time. We actually were fairly robust, albeit still in heavy contraction, as we have been for the last 11 months essentially. The reading actually pointed to the 13th straight month of contraction in the manufacturing sector, um, for Germany last time out. But if you actually look at the numbers for the German figure Manufacturing is expected to remain fairly suppressed, 44.8, a range of 43.8 to 46. The service numbers still in expansion for the time being. That then leads us on into the, the UK figures. We have had a really quite stellar performance and a lot of UK data on the back of the kind of election bounce, if you like. Manufacturing last time out came right on basically flatlining at 50. It was the strongest reading, reading though since last April. And if you look at the service number, I mean, that was so impressive. The last reading in UK Services PMI was the strongest pace of expansion since September of 2018. And obviously a lot of these were kind of relief and the Boris bump on the majority Conservative election we had at the end of last year. The question is, how sustainable is that really huge pop that we had last time. That was at 53.9. The expectation for today is that that does tail off a little bit. But look at the range on the UK service PMI. It's huge. If you're used to looking at these PMI data sets, that breadth of range is pretty big—51.9 at the low to 56 on the high. Very rare that you see that type of, uh, kind of distribution, if you like, in the, the surveyed estimates. We get the same from the US. And that's going to be key. Philly Fed obviously smashed it out the park yesterday, but we're going to get the market manufacturing flash PMI of the US at 2:45. French number just coming out, so let me just keep an ear on that, see how this comes out. So let me just cover it with you guys now. Well, I'll put the scorecard—

services at 52.6, that's above the expected 51.3, and composite at 51.9, that's above the expected 51. So the kicker here is that manufacturing has slipped into contractionary territory at 49.7, quite below the expected 50.7.

Yeah, so you can see the, the nature of the euro, quite jumpy there on that data. But the German number could be— well, could well be the deal maker for some of the early morning direction. So on those numbers that have come out, you know, the manufacturing, as they said, contraction and a miss on expectations, 49.7. The service number, though, did beat expectations at 52.6. And remember, the French composition of their economy is not the German mold, if you like. So hence the reason why you've had this blip of volatility in the euro, but no committed move, because one offsets the other, where it's a little bit more uniform in Germany. There's much more emphasis on manufacturing. So that figure coming out in about 14 minutes. All right, Sam, give you the nod now to come over. The final part from me on the calendar that I just wanted to cover off was there's quite a few speakers today, all very much centered around the Federal Reserve and all happening this afternoon. So here you can see Fed's cap plan, and it's really kicking off after the open on the NYSE. Fed's Brainard, Fed's Clarida, Fed's Bostic all speaking. So do make sure you have your calendars in front of you and you're aware of those, those speeches as well. And then finally, one thing to look out for— well, two things to look out for on the weekend. And the Group of 20 finance ministers and central bank chiefs are meeting in Riyadh, Saudi Arabia, starting tomorrow. And key on the agenda, of course, is what do they say about their thoughts on the impact of the coronavirus at this point in time, and what are their efforts, both fiscally and monetarily, to support the global economy. And then second, keep an eye out for my macro menu. I will tweet that from my Twitter account on my handle below, as per usual, on Sunday. Alright, back by popular demand, I'll hand you back to Mr. North and I wish you a good session ahead. Thanks very much.

Just following from this data with Dixie End. Hello and good morning, happy Friday. We'll have a quick look over the markets. We're just seeing, I was just checking equities globally at the moment and they're all coming to a level of support. How big that's going to be I think time will tell. It's got a, got a feeling that this could be a decent day. Opportunities around, bring up the Dow, which you can just see just coming down to 29,000 on the futures. Just bring the pivots on as well. Uh, you've got the, the DAX as well, just found support. You can see right on one of those lows here. It's going to be relatively choppy, but the low that we had back on the 13th just fail tested that and you're getting a decent push already. Uh, I think to, to the upside, where could the, the next area of selling come in, or where would the bears want to defend? Really, the low that we broke through this morning, just above the S1, you can see basically yesterday's low. We found a bit of support initially, then came back through. I mean, yes, if I put this on the 5-minute, you can see we're just coming into an area now where there was some lows. We've got the data coming out, um, all through the next, well, 11 minutes, and then 41 minutes away for the European ones. Whether you want to get too involved right here or not, I'm not too sure. I think probably better waiting for yesterday's lows. Uh, the S&P, you can see, not the biggest move this morning, but, uh, from the open, still down 20 points or so, not far away from its low from yesterday as well. So stocks moving lower in Asian trade, but that's, uh, really their first areas of support now where you'd expect a bit of a bounce. And if the selling is to continue, that's probably going to happen a bit later on, maybe let this data to come out as well. Euro stocks similar to the DAX, keep an eye on yesterday's low. If we put this on the 15-minute, you can see just above that S1 would be the area where if I want to get short, that's where I'd, uh where I'd look to, to get in from, from there. Uh, elsewhere, let's have a quick look over at gold. You can see just finding a bit of resistance around that, uh, that R2. Probably worth putting this on the weekly chart now, uh, on the futures. Just drag that to the right-hand side and you can start to see some of these levels there. We of course haven't been at for, for quite some time now. $1,619 traded on the futures on the weekly. It's a very key level. I've just mark up just a bit above here. You've got the lows from 2012, December 1625. I know obviously on the, the futures you can see where we're through that, uh, but just on the weekly, uh, on the 60 minutes, so we're through, but on the weekly you can see there's quite a lot of resistance around here. So just be a bit careful. Maybe if I put it onto the daily chart, move it along. Yeah, it's going to be hard to really pick out these longer-term levels. But on the weekly, um, you know, I'm just gonna pop this into the chat just to say we're not too far away from reaching up to, to these points. 1,700, of course, is, is what's been talked about, you know, a lot this week. Can we reach it? And it seems like it's on the way there. I think it's gonna be an interesting Friday to see where, uh, you know, do people want to obviously carry any of this risk over onto the, to the weekend? And it might help gold get that boost to $1,650 and beyond today. But like Ant was saying, it's not a case of just getting ready to, to click on buy right now because of course it's on the R2. It's price, you know, could easily just drift a bit lower. Just be identifying different areas of support and different strategies to get in. Um, and you can see if you mark up the low— I mean the high of the day and then previous high at $1,634 therefore now got a $5 range where you've got no interest in really getting into that trade whatsoever. Moving over to the currencies, euro, it's getting a bit of a spike on, on that data, of course, been, uh, okay. The German numbers coming out in 8 minutes, so let's wait and see what happens there. The resistance level, Friday, uh, Thursday evening's high just being tested around 108.80. Some nice opportunities to have got short yesterday stay on that R1. You can see drifted down basically then all the way to that low of the day. What an area of support this point is around 108. Today, yesterday, um, Wednesday and Tuesday, it just can't get that daily close below. If we do, obviously just be aware of the completion of Macron's gap. If you're bullish, I think you're really going to want to see price get above the high we had from yesterday because at the moment it's, it's pretty range-bound. It's bang in the middle of that range at the moment. I know yesterday we had a decent, uh, spike higher in early trade once we broke out the, the trend here. Uh, you can just see just roughly that trend there. Little pop through, came back into an area of resistance, and then it's drifted down again. Probably would remove that trend channel now. It's just got a bit too choppy. So opportunity-wise, I'd be looking for obviously this data to come out, do its thing, and then reevaluate from there. But I do like the idea of if we can come back up towards 108.31s for an area of short, or really the continuation lower. I know it's been a choppy area on those lows, so I wouldn't have too many goes at it if it doesn't work. But at the moment, you would just say it's range-bound over the last 2 complete trading days, and then today as well. So can we get that short higher up, potentially looking for something like that? But the data could obviously change things there. The pound, uh, reaching— let's put this on the daily, uh, another one of those lows. It's been a topsy-turvy, uh, month or year, should we say, for, for the pound. You can see it's just been pushing higher then coming lower, then it's finally broken out this mini range, and then we come down to test almost to the lows that we had back in November. Unbelievably, uh, so a couple, well, 3 days in a row to, to the downside. I mean, that is the, the area of support where I think if we just mark this up as a bit of a zone, you're going to have a lot of potential buyers to come in on, on the, the idea that we're, you know, quite a way off then the, the high that we had from last year. Brexit talks obviously March may start to just weigh on things before then, uh, but that could be a good value area to look for those longs, uh, up to towards, you know, the 1.33, 1.34 areas. Again, that's sort of certainly what an area where I would be looking at. And if it does go below 1.28 and stays there, well, that idea is certainly wrong, and we can look to drift down relatively quickly, you would say, to around 1.26, the next sort of key level. So the pound, not saying anything like that is going to happen today. I think just the, the little bounce we're having here. I think you've got the R1, which looks quite nice with all of yesterday's, uh, highs as well. I think that's a good area to, to look for a potential short, uh, and above that I don't necessarily think we can get there, but I'd like the look of a 1.2960. To the downside, the lows that we had not too long ago from the morning around sort of 1.2890 was also the initial low at a similar time yesterday. Quite an important level, line in the sand, that if we were to get below there, you may be a bit more comfortable about these, uh, shorts coming in. So just below the pivot, I think you'd want to, to see cleared. If we get on trend line as well, you can see that's more of an area now just from yesterday evening's lows. So below 1.2890, I like the idea, uh, of a short. And the R1, I'll be looking for that as well. Of course, if these euro numbers are Fantastic. It's going to drag the, uh, this pair higher as money comes out of the dollar, probably albeit briefly. Oil yesterday, let's put this on the 240 because, uh, it's, it's hit the target that the bulls would have, would have wanted yesterday, um, certainly medium term-wise anyway. You've got those highs that we had back from the 26th and 29th, uh, helped. Let me just put those pivots on. Helped by, you know, a break above 52.50. Also 51 held as a good area of support, but that's that push to that level now. And if we have these, these virus fears really starting to pick up, well, oil, you would say, has got to come down. So I'm not completely confident. I mean, I was this time yesterday that we're going to go and go and 58 could come in, and then suddenly the market got a bit spooked yesterday. So If I'm looking to get long oil again, you know, I was, I took, took some off, uh, just, and well, probably about by the time I got out around $54.14 would have been the equivalent on the futures. I'll be looking to see what happens around $52.63 as an area, but would I be buying today holding over the weekend? Probably not. I think the, the sentiment at the moment does seem a bit to the downside for, for riskier markets. Keep an eye on this trend line. I don't necessarily think that goes today, but the bears would get excited and be looking for shorts towards the low of the year if that was to go. Any questions, as usual, please do let us know. I think it could have the potential to be a relatively interesting day, but if this week has shown people anything, it's have your ideas and wait for them regardless if the market is moving in an aggressive manner. Hope you'll have a good trading day and an even better weekend ahead.