Coronavirus Risks To Watch & OPEC+ Strategy

Okay, very good morning to you. It is Thursday, 6th of February, and just having an update then for what's going on in markets at the moment. And if you were looking at the positions from yesterday and equity markets in particular, then yeah, definitely a continuation from where we left off on the close on Wall Street. In Asia, adding to that The S&P and NASDAQ 100 closing at a record high. So I have seen Sam, he's been parading around the office with his 30,000 Dow hat. We're only about 560 points away from that at the moment, so there does seem a sense of inevitability about hitting that point in time. As you can see to me, here's the, the graphic of the, the S&P 500. So that initial coronavirus outbreak fear that they kind of— the market had to grapple with for the last week and a half or so, completely taken back. As we have been discussing throughout a lot of our briefings, although the situation numbers, as we'll look at in a second, are, are still going up at the moment, still seemingly seen as a contained situation. I did actually see some of the mortality rates outside of Wuhan or the area of Hubei, and the mortality rate is about 0.16%. And as long as those numbers like that remain at those lower levels, I think the market will continue to kind of brush it aside to some degree. And then you've had good economic data coming out the US. Trump is loving life again because he's now— the impeachment trial has finished. And so Yeah, markets on the front foot again this morning. So the DAX playing a little bit catch-up. They reopened up about 107 points this morning. US index futures have just added on to the gains. And there's a few other positive signs from China looking to, looking to kind of issue an olive branch by reciprocating US tariff decreases on Valentine's Day of all days. And that's seen then as another potential positive catalyst for markets. So at the moment though, let's not forget that, you know, yesterday we're at now record territory. So, you know, you kind of— you want to be kind of late to the party and just thinking, right, blindly this market's now one-dimensional. Um, you know, it's lifted for those reasons I've mentioned. You know, we're looking now for any further catalysts, and certainly there could be some to come. There's not so much in the way of major US data today, but obviously non-farm payrolls just around the corner now, that's coming out in tomorrow's session. So let's just have a quick look at the other charts. WTI crude also following suit with some of the renewed risk appetite. The MSCI index of world stocks, so a combination of all geographic regions, has now been up for 4 straight days. Asian indices including Japan, Hong Kong, and South Korea up more than 2% overnight. And so again, this kind of bounce back from particularly when we reopened on Chinese mainland markets on Monday just continues to be, to be clawed back in that region. So elsewhere, the US 10-year, as you would imagine, a little lower, down about 5.5 ticks. Gold bucking the trend slightly. It's had a slight uptick over the last couple of hours, but basically flat on the session. And in the currency space, we've just had a little bit of volatility in the euro. It's very fleeting momentarily. I think perhaps people getting a little bit excited by some of the initial comments here from Christine Lagarde. The first comment that came out that actually bumped it up higher just a couple of minutes ago, as she said, low rates and low inflation environment has reduced the scope for policy easing. And that is a quite clear hawkish comment. However, now the other comments come out. The eurozone economy continues to require support from monetary policy, um, and, and some other more level kind of comments to just nip that little hawkish initial comment in the bud. So a little bit of a blip higher, but then has reversed course just now. Um, but she's continuing to speak, so I'll monitor the comments as I'm delivering this, uh, briefing. Otherwise, let's get it stuck into some other headlines. And this was the, the Chinese headlines that I was looking at. China to halve tariffs on $75 billion worth of US goods from February 14th. The reduction timed with— to coincide with Phase 1 moves by the US. So again, the idea that these are reciprocal in that sense. To satisfy part of the interim trade deal. So this is seen by markets as a bit of an added reasoning for why we, we saw the lift going through the Asian session from overnight. In terms of those numbers, where do we reside at the moment? Is total confirmed cases now just over 28,000, total deaths 565, total recovered now just over 1,200. I just got a question here actually on the chat. So how bad do the virus numbers need to get before it causes serious negative reaction in US and European stocks? Okay, I would say it's more about the— well, there's two ways of looking at this. One, I would say one, at the moment the market is kind of looking at coronavirus and, and kind of almost dismissing it. Hence the reason why we're seeing the type of asset class movement we have at the moment. But there's kind of two things that I've, I'd be monitoring quite closely. For one, and this is something that JPMorgan said in a research note yesterday, they said any reacceleration in coronavirus cases— and the thing that they're looking at here as a result of factories reopening. Don't forget, in Wuhan, that's a major manufacturing city in mainland China. Lot of car auto manufacturing, for example. It's a large populous area. It's on complete lockdown. You've probably seen the images. There's just no one. The streets are deserted. But at some point then, that city has to reopen. If it doesn't, think of the, the risk then. Well, that's a major manufacturing center of China for its exports, and so there's going to be a consequence on the Chinese economy. And if that happens to a more severe degree than what markets are expecting expecting in terms of a growth slowdown, that can reverberate across the global economy. So there's, there's dual risks here for China. They reopen the factory too soon, and then you see recontamination from the human-to-human transmission as people get to move around again by reopening facilities. Or you wait too long, and that has an increased compounding effect on the economic slowdown from being on a complete lockdown. As a, as a quite a large geographic area. So that's the tail risk, if you like. At the moment, market's not looking at that, but that could quickly come into sharper focus should the lockdown go into an extended, protracted phase, or once they return to work, do we start to see it and a reacceleration into almost exponential growth again of the total confirmed cases and subsequently the number of deaths at that point. The other second point then is about monitoring of these numbers outside of mainland China. At the moment, they're incredibly small. You know, I think if you look at the numbers, I mean, it's pretty much, uh, 99% of all cases are in China, and of that, nearly all of them are in Hubei as the area. Of the deaths, almost 549 of the 565 come from that one single area where the apparent origination in the city of Wuhan. So unless those outside areas also start to move higher, of which, to be honest, have been very slow, then again, I don't see that as a risk as far as markets are concerned. So yeah, that— Ian, I hope that answers your question. I couple of things for sure. You know, I'm not looking at this as in, uh, the coronavirus is now a non-issue, leave it behind. I think, yeah, you've got to look at— you can look at that in terms of the intraday shorter-term environment, but there still are risks and there's still things to look out for. Another key thing that moved the markets obviously yesterday was this talk about a vaccine. I've done a little bit more reading around that And my overall interpretation is that, you know, markets got awfully excited about a snap headline on Chinese TV talking about a research team in a Chinese university had kind of cracked a similar drug that can be used as a vaccine. But from what I've read earlier this morning, any type of vaccine to come to market to be used in reality would be months away. Generally speaking, then, experimental drugs take much longer, and I think the average timeframe in China for that type of situation, even in a fast-track process, is about 640 days. So you're looking at 2 years to bring a vaccine to market in the best case. That's, that's almost half halved in terms of in the US, and it's about 400, low 400-day time frame, uh, for Europe. And so the, the idea or notion that they've just cracked the code, so to speak, and they can roll it out, I think is wishful thinking. So the key thing here, I think, from an intraday trading point of view, you saw how sensitive markets were to that news in circulation yesterday. And two things I want you to take away from that. One is where the news comes from. So you can see, if you're a new trader, the clear difference in the way markets react to a Bloomberg headline comparative to a headline from an alternate source that takes a bit of time to gain traction, and then markets start to kind of build up into a move rather than a major financial newswire snapping a headline and that initial knee-jerk reaction you get. So there's a difference in the way of which the dissemination of news plays out into the actual market price. And then secondly, looking out for then confirmation of the major authorities and what do they have to say. Remember, the World Health Organization came out pretty much shortly after and said, look, this isn't, this isn't the case. There is no vaccine as far as they're concerned from an official basis. So whenever you do get that kind of rumor mongering almost, and it does move markets, Always think one step ahead. Then if you're in that trade, then great if you, if you are quite aggressive and you followed that momentum order flow going through the market. But I would suggest being quite proactive in management of that trade because inevitably you get a response, official rebuttal, which often then can reverse the move. So there's ways and means to manage that kind of headline trading environment. Michael Thank you. So it's a statistic just to finish off this discussion here on the virus. The SARS vaccine took about 20 months. Two-zero, 20. So again, in fitting with the rough kind of time frames that we were just discussing. So the idea, I think, of a magic silver bullet to come and save the world from coronavirus, I think, is a little bit far off in terms of the practicality of that. All right, move on. Other headlines, because I want Sam to come on and do his, his technical wrap. The Senate acquits Trump. I don't think I need to talk about this very much. This is completely as expected. This hasn't had any ramification. Don't, don't be fooled by the fact that the markets are seeing this as a, as a net positive. He was never not going to be acquitted, and we've discussed this many times over the last few months. Rather than this, looking at it that way, I prefer to look at it more as what does this mean for his popularity. It's almost vindication, you know, for Donald Trump. I don't know if you've looked at his tweets, but I'm sure you're going to hear a lot more of his tweets coming up. He's obviously absolutely laying into Mitt Romney, who was the one Republican who stood against the president and convicted him of one of the charges of the two 2 that were on the table. But overall, I think, you know, this was a disaster from the Democrats. I just don't know why they even bothered. For me, it's almost that kind of, uh, that mantra of, you know, if you strike me down, you only make me stronger. Any Star Wars fans will get the reference. The idea being here that this just makes him more appealing, I think. It makes it even more believable that he can spin the witch hunt narrative and get away with it. And so now he's almost bulletproof. You've tried, you failed miserably. I think it's just pretty tragic on behalf of the opposing party. And that's not me being— talking up Trump. I just think that they've shot themselves in the foot there because it was never going to happen in the first place. Place. So yeah, completely as expected. I'm not going to talk about it anymore. The story that I do think is a little bit more interesting is this one, uh, that's talking about OPEC+. Now they've gone into an unprecedented third day of their technical meetings. Now these are technical meetings. This is supposed to be basically catch-up, you know, all these oil ministers catch up, they talk about their adherence to the quotas as part of the, the supply cut agreement. But look, I mean, this is the oil chart that we've looked at. I've just kept it the way it was yesterday, but oil prices have now bounced from roughly a 40— low $49 mark, and we're up to this morning $51.73. So we continue to bounce a decent amount in crude oil. Now we've talked about the, um, how key this area is as a pivotal point. And the reason why then is a trigger. OPEC are feeling that they need to start ramping up the verbal intervention. But, you know, one of my takes from this, and, you know, perhaps I'm just thinking about it too much, but I think part of the strategy here from OPEC is I don't think they're serious in reducing output. This is, this is, this seems quite clear. If you actually read the source reports, there's a lot of disagreement between the two major powers that be, which is Saudi Arabia and Russia. Saudi quite willing to step in and deepen the supply cuts, Russia not yet. And without those two agreeing, nothing's going to happen because Russia obviously is a bigger oil producer than Saudi Arabia. If one doesn't agree, well then any cuts are for nothing. Now here I actually think by extending this into a third day, what they're trying to do is, if you step out of the oil market, have a rethink about what's happening right now. You know, the market is responding in a very positive fashion. It's continuing to price out risks in the short term of the coronavirus. US economic data has been phenomenal, from ISM manufacturing, non-manufacturing, factory orders, GDP was really strong. You know, all of those things are good for demand. So if demand was knocked by a loss of consumption from China being the biggest importer, prices have come back down. I think the strategy here for OPEC+ is, well, look, let's just extend this meeting. Let's appear to the market like we're thinking of doing something all the time. All of these external factors are playing positive for price. And if we continue to say we're talking, people will be very reticent to be sat in a short position just in case the tail risk we pull the trigger and cut supply. And so prices naturally are going to bounce. And, you know, with all those things coming together, I think it's a pretty prudent play if they do this. Oil prices have stabilized, and if they can see off this week and coronavirus continues to kind of de-escalate almost as an issue. I think they've got away with it, and they've got away with it without firing any bullets. That— what I mean by that is using actual physical reduction of supply of crude oil, which is a kind of a last resort, if you see what I mean. You do not want to give the market every time it challenges you by bumping the price down, you cut, because what will happen is the price will keep coming down unless you cut, cut, cut, cut, cut and then you're going to be back in a corner, nowhere else to go then but deliver every single time. And you do not want to be at the beck and call of the market. You know, it's exactly the same kind of strategies that central banks would do, the way that they communicate, is what these oil ministers will be thinking. I'm absolutely sure of it. So yeah, that's my kind of take with the oil side of things. So perhaps then those key levels are going to hold out to see off the week, particularly if that payroll data comes out strong and the market holds up here in the equity space, I don't see any reason why for the moment then, uh, we should push back down lower in the crude market, at least for the moment. Final headlines, um, we did have German factory orders this morning. It actually came in at -2.1%, and actually that was considerably weaker than expected. And you can see here, German factory orders are down the most in a decade. In the month of December. Now, you know, euro, if you looked at it this morning when this data came out, um, I mean, the data came out 7 AM this morning, it didn't really blink. I think a lot of that is, well, if you look on 2018-2019 performance, yes, statistically speaking, this is the worst German factory orders in a long time. However, it doesn't really detract from the general contraction of that area of their economy, so it's not massively surprising. But we had that little bump up from Christine Lagarde just a short while ago. You know, this, this certainly might put a cap on any of that acceleration in the euro. And at the moment, I still remain fairly bearish on the euro-dollar pair, just given how the positive fundamentals are stacking up at the moment for the dollar. And so, you know, if you're looking at the divergence of fundamentals here, not to say the market has seen an immediate reaction to German factory orders, but they are weak. You know, and it does ratify the current stance that the biggest economy in Europe is, is in a state of weakness right now. And on the flip side, America apparently is on fire right now as far as the latest data is concerned. Now that divergence gives a nice fundamental directional bias for, for the euro, and trend-wise that has been heading lower as well for some time. Final things. Earnings. There's a couple of major French companies reporting, some of the biggest in fact of their, um, of the index in the CAC 40, and some other earnings to be aware of. So Total, their opening price, they were up about 2.4%. Sanofi were up about 2.2%. So Total beating estimates and rising oil and gas output. Sanofi sees profit rising in 2020. So positive earnings as well in Europe to boot, and these aren't small small firms. Sanofi and Total are two of the biggest companies in Europe. You've also had ArcelorMittal, Dutch listed, up about 10%. UniCredit in Italy up 5%. So there's a couple of other things to be aware of here as well. Okay, quick final look, and if I give Sam the nod to come over now, uh, because I'll be done in about 60 seconds. Uh, you've got this morning in terms of data, it's pretty quiet in the US though. Um, nothing really major coming out from a data perspective. Again, Non-Farm is tomorrow, so perhaps the market starts to fade into the latter part of the US session and the typical kind of Friday morning quiet period ahead of the job data. But speakers-wise, there's a few things. Lagarde has been speaking You've got de Guindos, her kind of second-in-command, also speaking a bit later, I believe. Separate events. The EU Trade Commissioner Paul Hogan speaking at 10. That's obviously mild interest just given now that negotiations are underway between obviously Britain and Europe. I'm not expecting really anything concrete to come out here, but nonetheless He is an important person to monitor going forward over the coming months. And then Fed's cap plan later on this afternoon. Any fixed income traders, you have supply coming out from the Tresor and Tesoro, so Spanish and French supply, quite a lot coming to market this morning for any Bund traders. All right, that is it from me. Hand you over to Sam. Wish you a good day ahead. Thanks very much, guys.

Yeah, hi guys, happy Thursday. I hope we're all doing well. Have good evenings. Let's have a quick look over— well, I guess there's only one place to, to start. Uh, let me just find the mouse, which I seem to have lost. Now I've got it. Uh, S&P, Dow Jones, NASDAQ, all finishing higher, higher, higher. Let's have a quick look at the old daily chart to just put things into perspective. Why are you selling this market? It just does not want to come down. Trading 3350 at the moment. Unbelievable really when we look at it. So if we're going on with this is going to continue, well, you want to be looking to buy some dips. Yes, we had a decent push higher, we came back into, uh, near those lows that you'll be seeing me wearing this very, very soon. You can get these from all online retailers. Um, the Dow 30,000 hat. You know what, that's coming on soon.

Do you want to put it on now or you want to wait?

Well, maybe, maybe by next week. Okay, maybe. Well, if we have a couple days like we did recently. But let's have a look at potential opportunities to get in again. You know, yesterday the, the NASDAQ came down quite aggressively, which I was going to bring into picture, and gave that opportunity on those lows of the day. Incredible. Really, and it was that low that ignited the others to all go as well. So keep an eye because, you know, the way these, you know, markets can, can act is they, they just need that further push to, to go on and it can drift in the European session. So the NASDAQ on that high, you can see we just touched that again. You've also started to develop a bit of a trend line from the lows of yesterday. If that is to, to break through, then it could be that we just come down a bit before that final push. But I like the idea of around the, the pivot for the NASDAQ. I don't even think, you know, it's, it's against the realms that we can get there before a push higher. The Dow Jones, I would like it a bit lower as well, looking at those previous highs for opportunities to get in. It's just whether we can have that, that, uh, to that retracement to go from it. It might be that into the, uh, the US session we just have what we had yesterday, and that once those highs break— you can see here, lovely trade in the Dow, whether you wanted to get in aggressively on the break of it or you wanted the classic. It's pretty one-directional since then. Uh, the S&P, very similar, breaking the high, coming back. Yes, you're offside for a touch, but in reality, this whole move started once— or let me get to get the trend— once we broke through those highs. And where was the low of the evening? You guessed it, right back on that trendline. So some lovely opportunities yesterday when it's broken through. So yes, there could be of course a down day, and there could be further developments for this coronavirus, but we're on all-time highs. And I think it's just one of those ones where people have almost forgotten about it, and we are looking to, to look for, for longs. More people are going into it, so just be careful when, when going short. Be vigilant to take profits as and when. The euro, it's interesting, you know, we were just talking before we started the briefing this morning about that pivot. It's a good place to get short. It didn't quite get there, but I think it, you know, a tick or two, and we're now back down to down to the lows. And of course you've got quite a lot of support here. Um, if we were to break through though, it could get relatively ugly. And I know there's the different levels that people are talking about, lows of September, October, i.e., 2019 here as well. So the daily closes are going to be key. Uh, if you're a euro bull, do you like it enough? I think you probably want to see some bullish price action around these lows before looking to get in. A break of that trend, just be aware of, certainly on the futures anyway, the low than November and then, uh, down to these August lows, uh, as well. It's, uh, could get ugly if that goes. And the pound yesterday, fair play to the bulls, they're defending that trend line like, uh, and that area of support like their life depends on it. Just doesn't want to close below. Incredible level of support here. Uh, but same thing, if you're going to get some dollar strength, and of course we're at highs at the moment, or near enough, this market has to push lower as well. And then you could see the opportunity to 128, uh, could, could come through. Let's have a quick look intraday, uh, just at the pound, which is just, uh, just, well, it's choppy around those lows. Decision time, I think, for, for the pound will come if, uh, later, later today perhaps. We are getting squeezed from the bottom, so just keep an eye on that trend line. If that goes, if that area goes, then fine, look for that short. Uh, from a maybe a line in the sand bullish perspective, above the pivot is key. Yesterday's lows, you've got some decent price action there from Tuesday, then yesterday evening the pivot, one above 130.22. A little relief rally towards 130.50 is not out the question. So those zones that I'll be keeping an eye, obviously long longer term for the pound there as well. But this trend line near the— near enough the low of the day, uh, the pivot, and then up at 1.3056 would be my levels to focus on there. Gold, uh, is coming back a bit. Um, you know, fair play to the gold bulls. We broke a key trend line, and I wonder if the bears are just waiting for that to come back into play here. You can see— I'll just move out my camera just now. I've got it on, but you can seized going back here to the low of the 14th, the 21st, and then a couple of days ago. That break led to a nice move lower, but do we just need to come back to a better area for this overall short to come back into play? And especially if stocks continue to push on, maybe this is the, you know, nice little opportunity. You've got that retest of the trend line, you've got yesterday's highs as potential place, and then the low around here. Other key levels that if you do like the short, I think, uh, patience for, for that isn't, uh, the worst idea in the world. So a quick look at maybe some Fibs, let's go from that higher, that move. You got the 38.2 around 1561. Yeah, I think a short around there is not a bad little trade to, to have. Interestingly though, just, uh, on a more shorter-term view than that, we have broken through this nice trend which was respected all through yesterday, and then hence that decent push that you've had here. Speaking of trendline breaks, over the last few days, of course, oil has been continuing its, its drift lower. Um, we had, uh, the trend channel that broke. It got quite ugly there. But just having a look, um, at Where is it? From here you can see that push through late last night in, in oil. Uh, you're just coming back to an area where it could retest, and the gold— oil bulls, I should say, will be looking to defend that trend line because we do get back underneath it, you know, it could be, uh, the cue to get short again back to those lows, which I know some people do believe are still going to come into play. Uh, also just get this trend line on, I would say, from yesterday's low for, for oil. And, uh, if you're looking for a safer opportunity, maybe the short on the break of that, uh, could be the one, uh, to be looking for. European stocks this morning, and stocks in general, pushing to their highs, just finding a bit of resistance, um, which from an opportunity to go long later on in the day, you're not too worried about. It's just trying to pick those, those points. But yesterday what we saw, I know it's late into the session when all these highs broke. And even here in the DAX, breaks through, comes back, and you're not offside at all. So patience for sure is, is a virtue in these markets. And even if it does keep pushing, just believe that there will be that opportunity to get back in again. As usual, any questions, please do let us know. Euro currently on that low of the day, testing it for the— well, on the hourly chart, 30-minute chart, third, fourth time. Really key level. The pound, decision time's going to happen soon. Oil as well, the bulls will want to defend literally where we're trading now. Gold, potential good shorts higher up. Stocks, if we can get a drift lower to buy the dip, or the classic on that as well, uh, please do let me know. Hope you'll have a good trading day, and I'll catch you all later on.