DAILY MACRO BRIEFING | Powell & $JNJ Update | Houthis Attack On Aramco | US Retail Sales Preview

Okay, very good morning to you. It's Thursday the 15th of April. Hope everything is going well. And gonna do the usual kind of routine. I'm gonna get you up to speed what happened, uh, just kind of summary from yesterday, closing Wall Street overnight in Asia-Pac, and then a quick review of the headlines and then the view for the day ahead. I'll leave the kind of technical view of the charts to the guys in Amplify Live in the community to go over, so I'm going to predominantly focus on the, the news aspects of this morning. But just having a quick check across asset classes to look at the overall sentiment this morning at the European Open, and relatively calm, not too much movement seen in the major FX pairs and EURUSD cable, which are broadly flat at the moment. Elsewhere, T-notes are unchanged and US equity index futures very marginally higher after the generally lower close that we had yesterday. So as a consequence, the DAX is, is basically flat. Interesting level short term for the DAX of potential resistance, that previous area of support this week turned now resistance during the Asia-Pac trading hours. You got the pivot sat just above, we're just keeping an eye on there in the DAX. But the close on Wall Street, actually we finished down 0.4% in the S&P The Dow was a slight outperformer, up just shy of 2/10. The Nasdaq underperformed and was down 1.31%. I believe Coinbase as well, after initial pop on the open, actually declined, uh, as well, fairly substantially. That comes as well with Bitcoin just coming off a little bit from those initial highs. Bitcoin futures have traded in excess of $65,000 in the last 24 hours, trading back down around $63,500 at the moment. But I I don't really see too much really of, but of negativity behind that. I think it's just a little bit of buy the rumor, sell the fact going ahead of the bullish nature in front of Coinbase. And just looking at the Bitcoin future here, quite an area of potential support to be eyed at around the $62,000 level, that being the peak that we had back on the 14th of March, the test on the 12th of April before the breakthrough that came through earlier this week on the 13th. That's acted as support in yesterday afternoon's trade. Excuse me. The other chart just briefly to mention was oil. It really did continue the breakout trend from yesterday. And yesterday, of course, we did have the oil inventory numbers, and we saw domestic inventories fall for the third week to the lowest since February, a much more deeper draw than what was seen in the prior day's API oil inventories. You've generally got this perception of economic growth going forward. OPEC still in play supporting prices as well. So, uh, that was some technical breaches on some key levels, really saw, um, the, the oil move open up yesterday, uh, and we jumped almost 5%. It's the biggest move we have since late March, um, in regards to, to WTI crude. And it holds that move this morning. We're We're trading flat at 63.16, and there is some news I can update you on in regards to Saudi Arabia and Iran as well, which could also be something to keep an eye on with the threat of potential for more bullish price action there. But let's get into it and talk a little bit further about oil then. And gonna transition to— well, actually, before I do, let's have a quick wrap about Asia. So the US close, as I said, was mixed. Underperformance generally though in the NASDAQ. And actually, if you look at the percentage changes, interestingly, it's pretty much— it's pretty much the exact mirror image of the prior day's price activity that we had on Tuesday. So where the NASDAQ was up about 1.25%, it was down 1.3% yesterday. Where the Dow was down a third, the prior day it was closed up about 2/10. So all in all, actually, when you X out some of the initial equity appreciation that we had on the back of the more controlled inflation, US CPI increase that we saw, and then to yesterday when markets rolled over a little bit, net-net we're actually pretty flat. So take yourself out of the intraday kind of noise for the moment, and in actuality we've really gone nowhere so far. So we're still consolidating to a certain degree up and around these record high levels. We of course as well did have those big banks reporting, the first 3 big ones, and reported much higher than expected profits, fueled by just breakneck growth in investment banking fees, buoyant capital markets, lower credit costs due to the improving economy. But the traditional banking business of taking deposits and making loans continue to grow less profitably. And, and executives did actually warn that the boost to earnings from those activities would likely fade going forward. And JP Morgan was an underperformer of that. Um, the more kind of clean investment banking kind of makeup of Goldman's did see them slightly outperform. But later on today, don't forget you've got Bank of America and Citi coming out. The latter, of course, much more exposed on that loan commercial banking side. To be interested to see how they perform as well later. Um, in terms of Asia, um, generally a slightly negative tone, but albeit very moderate. Um, China was a slight underperformer. There's a couple of things going on in China at the moment. In fact, tensions between US and China lingering amid the US delegation visit to Taiwan and China's military to conduct live-fire drills off Taiwan. So that's kind of one thing at the moment. It sounds pretty sensational. It's not unusual, kind of flexing the military muscle ahead of a top-tier meeting with US officials. But that's one thing. Secondly, China's top officials in Hong Kong have warned that foreign powers which attempt to use Hong Kong as a pawn will face countermeasures. So continued friction there about the kind of the situation of the increasing control that the state's trying to have on Hong Kong. But also Taiwan, and those two issues do link together in this forming this One China policy view coming out of Beijing as they continue to pursue that kind of objective. And then the third thing is overnight Chinese Central Bank liquidity operations generally saw what is being deemed as a withdrawal of liquidity in a short-term basis in medium-term lending facilities. And so those combination of things just leading to a little bit of a weaker tone for, for China specifically. But I don't really think there's much read across into how European, US markets are going to react on the back of that. More of a domestic move, I'd say. Uh, we did have some Aussie employment data overnight, and actually it came in at 70,700, which was basically double expectations. But if you're looking at the Aussie chart this morning, you're probably thinking, well, why on earth is the Aussie fallen? At the point of when the data came out. So you had a momentary blip higher and we basically sold off. And, you know, as with any piece of economic data, it's always prudent to kind of be aware of the details of why that number— you know, one golden rule I used to always tell the analysts that I used to manage in my previous job was that if you ever see a significant standard deviation away and it's like a piece of data comes out triple, quadruple consensus, The first thing I always used to ask myself was I wouldn't just take it as gospel that that number is just very strong. I'd be questioning it, going, why is it very strong? There must be a reason, whether it's a methodology change, whether it's a one-time factor that's lifted it. And in this case, actually, when you get under the bonnet of that very strong employment data in Australia, it was solely fueled by part-time workers. So in a sense, they're not seen as such a positive in terms of any consistency in what the workforce will look like going forward. So it's almost like a misfire, if you like, and easy to get caught the wrong side of that trade overnight. Um, but going back to some of the news then, let's talk about oil. Talked about the price breakout yesterday, technicals at play, obviously speculative momentum traders at play intraday. You've had the oil inventory numbers overnight as well. The other thing that's kind of just simmering in the background is ongoing tensions at the moment between the, the kind of ongoing friction of Saudi and Iran. Now, why could there be ongoing friction between Saudi and Iran? Well, guess what? The US is still trying to find its feet about how it's going to deal with Iran. And instead of an outright confrontation, uh, of conflict between Saudi and Iran, it gets played out by Yemen in the south and the Houthi militants based in the west of that country. And they start to play out this proxy war by trying to disrupt potentially the Saudi Aramco infrastructure in Saudi Arabia. And that's exactly what's happening at the moment. So on two fronts, One, on the top level, the US and Iran will reconvene indirect talks aimed at reviving their 2015 nuclear deal. That's said to be taking place on Thursday, so today, in Vienna, um, according to the White House. So obviously, maximum negotiating stance, you want to put on as much pressure as possible so that the other party feels like they're going to come and cut you a deal. So you can see that the timing around the increase of frequency of Houthi militant action on Saudi comes at a point in time when US and Iranian officials are actually meeting. These things do not happen by coincidence. The other thing here is that the UN nuclear watchdog has stated Iran has nearly finished preparations to begin enriching uranium to up to a 60% purity at one of its plants as well. Again, all of this happening at the same time. Now what's been happening here, um, overnight is that Saudi Arabia's oil facilities were targeted with drones and missiles for the second time in a week. Yemen's Houthi rebels claiming the attack on the southwestern refinery town of Jazan, and Houthis claimed similar attacks on Sunday night in the eastern oil terminal of Jubail and the western city of Jeddah. And just to give you an idea of the lay of the land in Saudi Arabia, because This is an important map, I think, if you're, if you're a crude oil trader and if you are going to really understand what a supply shock might look like to be reactive if there were a piece of breaking news. And here then, the two areas that have been targeted here both on Sunday and last night is Jeddah here and Jisr here on the Red Sea. And you can see how close it is to the actual border here with, with Yemen. So as a bit of a reference and context, Jeddah is the second most populous city in Saudi Arabia after the capital Riyadh. I think population-wise, circa 4.8 million size. And Jazan has some significant refining capacity when it comes to Aramco and obviously is situated in kind of the hotbed of the activity of a lot of the the militant friction that's been happening at the moment. So oil prices at the moment, I mean, they're not spiking on the back of what's happened last night. However, it's probably an underlying reason what might help support, keep these prices kind of elevated after yesterday's move, because quite typical that after you see an exaggerated progressive move in an asset price that breaks out and, and again deviates away quite substantially from its average day kind of price fluctuation it's not that surprising to see some profit taking, but we're not seeing that this morning, and the price of oil actually is holding quite nicely above $63 for the time being. Um, so yeah, hopefully that all makes a bit of sense. And as I said, later on today the US and Iran will be talking about that nuclear agreement. Otherwise, the other thing to, to mention was Jerome Powell spoke yesterday. What did he have to say? Well, he said the Fed will likely taper off its bond purchases before considering raising interest rates. Um, they haven't voted on the order, but that is the sense of guidance, is what he said. So as a bit of a reference point, um, the kind of policy sequencing that he's referring to is of absolutely no surprise at all. Historical precedence and general markets' understanding of monetary policy is that there's certain levers that get pulled in a certain order So in this sense, then the QE needs to decelerate, tapering needs to occur. You probably then need a period of then flatlining with no QE actively happening before then rates eventually rise. And so he's just kind of reaffirming that, that point. Separately, you did have the latest Beige Book last night, which is that kind of 12 regional district report on isolation of smaller localized areas. And the general takeaway there, there's on a national level activity is accelerated to a moderate pace from late February to early April, and consumer spending is improving. But again, probably fits in lockstep with the vaccination improvements and the general reopening of different states. The other thing then is a quick update on J&J. Uh, still warrants monitoring at this point in time. The US CDC advisory panel decided not to vote on recommendations Regarding the pause on J&J's vaccine stated that they needed more data. Um, so as per these headlines and what they're suggesting here, the pause that has been seen as lasting days may actually persist for weeks. And obviously the longer that takes, the more broad the implications would be, not just for the US but any other country that is awaiting supply of that particular vaccine. So definitely want to to keep an eye on. As far as the calendar is concerned for today, it's pretty quiet in UK European morning. These latest CPI numbers coming out of Germany and France are final figures, so not looking for any market reaction. So then really the focal point from a schedule is going to be the US retail sales report and the continued or initial jobless claims, both coming out at 1:30 London time. Focusing on the retail sales report Obviously February was a particularly bad number, -3%, um, whereas we're expecting an aggressive rebound up to 5.9%. And the range is wide. The most optimistic is looking for a 12% print, um, today in the month-to-month US retail sales number. A couple of important things to be aware of here. For one, um, January numbers in retail sales were quite pumped, if you remember, chiefly buoyed by the stimulus checks that hit late in the end of 2020. So the fading of that kind of hit in February in combination with very bad weather, the kind of great freeze that took hold in North America. So going into March, we've kind of got 3 things: the vaccination improvements, the reopening, which is helping, the improvement in the weather conditions, um, kind of normalizing after the cold snap that we saw in the prior month, and then we've got the $1,400 stimulus checks also hitting in that period as well for certain income threshold individuals and families as well. So that number has a potential high side, potential shock. I don't think that in itself though is particularly meaningful for the Fed. So there's two ways to look at this. It could act as a catalyst if we're sat in a particular product at a certain key technical level. It could act as like the kind of match that just gets us through then to initiate that price through that level. However, will it really influence the Fed? I don't think so. Even if we get a 12% number, um, I'm not sure how much after the intraday that the Fed are going to sit there and can they realistically say that 12% is sustainable. It's probably not because of the aforementioned reasons. So the Fed would want to see underlying consistency in that data, X-ing out a lot of these anomalies. So From a policy perspective, I don't think it's, it's going to be too influential. From a market-moving point of view today, it could be quite key, um, and for short-term sentiment into the US session. Comes alongside jobless claims expected to drop to 700 from 744, uh, previous. Other than that, we get the US industrial production capitalization at 2:15, and then a couple of Fed speakers, Bostic and Daly, probably the main ones, both voting members. The latter at 7 PM, uh, Mary Daly is speaking on financial stability and monetary policy. However, both of these two individuals have spoken multiple times in recent days and weeks, and so not expecting anything really new from them, to be quite honest. And then as I mentioned earlier, Bank of America, Citi coming out pre-market. Other notable names, UnitedHealth, PepsiCo, uh, as well. But that is it. Gonna leave you to it and wish you a good day ahead. And I'll catch you in the Discord room and Amplify Live. Have a good day, guys.