Easing Of Lockdown Measures Comes Into Focus

Okay, very good morning to everyone. It is Monday, 27th of April. I hope you are doing well and had a good weekend. Um, just going to start off with, as I do on a Monday, introduction to the macro menu for those who are new to the channel and have not are not aware of this, never mind read it before, but what this is is basically my interpretation of what's going on at the moment and a short kind of concise overview of what I'm looking at for the week ahead. I tweet this out from my account, so my handle's there if you want to get access to the full report. But generally I issue this on a Sunday afternoon, so ready for you guys to kind of have a view for the, for the week ahead, ready for the open of electronic trade. And then just broader trading on Monday morning. So here I talk about obviously the, the main kind of issue about the unwinding of lockdown restrictions across, across the globe in various different nations. I also talk about the central bank decision week. We've got obviously the Bank of Japan, the Federal Reserve, and the ECB this week, so I give a few thoughts on that. Kim Jong-un and whether or not he, he's dead or in a vegetative state at the moment, lots of rumors at the weekend. Uh, that was the trending hashtag. So a couple of views on that as well as US earnings as well, of course, being very busy this week. So do check that out if you get a moment. Again, it's on my Twitter account. And remember, if you're new to watching these briefings, hit that subscribe button. There's plenty more content we've got coming throughout the week as well. But starting off, a quick overview of the, the charts this morning, and relatively risk-on morning. Um, stock futures are higher. S&P up about 23 points at the moment. The DAX up about 230. It has been higher, it's just come off its R2 in the futures a little bit, but underpinned— but generally a positive Asia-Pacific session. And we'll get around to the BOJ in a moment and the announcement they've made. But currency markets, uh, the dollar index has definitely been moving in a way, uh, it's almost like quite a clear kind of flight-to-quality currency at the moment. Yesterday, or last week, when we were seeing some moderate downside in global indices on the back of the kind of fallout from the negative oil movement, the actual dollar was strengthening. And now we have a bit of risk-on, we're getting quite the opposite. The DXY is down about half a percent, so that's supporting both major currency pairs. You can see here EURUSD and CADJPY up on the front foot. Uh, the latter cable above its R2 already and up about 90 pips, uh, 124.44 in the futures. Despite some of that movement, generally from a risk perspective, gold is up marginally, about $7, uh, just sub its pivot level, which has been restricting some of the price action during the bulk of the Asia-Pacific session. So worth just keeping an eye on that pretty tight range overnight, probably asking for a bit of a breakout at some point. And then in fixed income, T-notes down about 7.5, bunds down 13, albeit just coming off their lows as Europe's come into the marketplace. So that's the general vibe of things. A lot of this is being based upon kind of updates on the coronavirus situation. So here's the dashboard. We've not really looked at this in quite a while. Total confirmed cases now globally closing in on 3 million. Uh, US still the highest death rate, over 50,000, followed by Italy and Spain, France and the UK. But generally speaking, the coronavirus deaths have slowed most in more than a month in Spain over the weekend, Italy and France, while fatalities reports in the UK and New York were their lowest since the end of March. So this has led then to what I'm going to update across the different headlines on this subject, which is the expectation now about what steps governments are going to take in order to reopen their respective economies, which of course is critical at the moment given the fact that the very stringent lockdowns have had massive economic implications, of course. So here, starting off with the UK, first things first, Boris Johnson, obviously having had coronavirus, being out of hospital now, recovered, he's due to come back to Number 10 to kind of take back control, to use the lack of a better phrase, from Dominic Raab, who's been his kind of deputy, who's been replacing him for the last few weeks. And obviously pressure is on the Conservative Party at the moment to relax social distancing measures. Dominic Raab though was in the press over the weekend, he rejected any calls for an early easing of the lockdown, but it is believed according to some of the national press this morning that Johnson is going to give some potential more details on this as soon as this week. Interesting reports I was reading in the Financial Times at the weekend was that small medium enterprises apparently, according to a survey from— I've got a note here— the Association of Practising Accountants, they were saying basically SMEs are going to run out of cash in 12 weeks' time, the majority of them. And that again is the reality of a lengthy lockdown period, which of course needs to be implemented in the case of a health pandemic. But as we're getting into that kind of post-peak period and we start going through this phased loosening of the restrictions and lockdown, the pressure is really on because a lot of these small businesses, which of course in most countries backstop the major part of employment in most countries, it's going to be ultimately key that that happens sooner rather than later from an economic point of view. Uh, the UK British Retail Consortium, they're kind of the body in the UK that oversee lots of retail, uh, related news. They've tabled a proposal to reopen shops with security guards on the door. Now, although that sounds pretty heavy-handed in terms of a measure, it's pretty much similar though to what we've been seeing in Britain in the likes of Tesco or Sainsbury's. If you've been to the supermarket, that kind of implementing and making rules aware of the social distancing and the number of people within a shop at any one point in time is what they want put out for the broader retail sector. So a couple things there to look out for. Um, Boris Johnson obviously coming back, I'm sure will want to reassert himself on the situation, so I'm sure there'll be some comments at some point today. But elsewhere, you've had Italy sets reopening plan with harsh caveat on second virus wave. So PM Conte said that his country will start easing lockdown restrictions on the 4th of May, focusing first of all on construction and manufacturing wholesalers. They'll be the first sectors allowed to reopen, retailers and museums to follow 2 weeks later, and then bars, restaurants, and barbers potentially on the June 1st period. So again, that's generally the kind of format I think that will be adopted across most areas, and particularly, as we're going to see, important for the manufacturing, manufacturing sector for the likes of Germany, of course, to get underway, given their high, uh, kind of leaning in towards that in terms of the composition of their economy. Elsewhere in the States, quite interesting, New York Governor Cuomo sketched out a phased-in reopening. It begins with construction and manufacturing as well. That could start as soon as the 15th of May and probably start in the New York State area before the city in itself. President Trump— not sure if you read at the weekend, but he has his daily press briefings at the moment, and obviously they're very much dominated by the coronavirus. But at the weekend, he said he's no longer going to do those. Quite unusual. You would think, generally speaking, politicians want to be as transparent to reassure the public as what we're doing in the UK with these daily coronavirus briefings. However, Trump has said he's being victimized and being held hostage by journalists, inaccurate reporting. This obviously comes after that comment that he made last week, um, and so he's basically stopped it. Uh, so quite unusual, but I would say that's unusual in a broader context, definitely not unusual from a Trump perspective. So yeah, probably this is all part of his strategy as he's always done to try and, you know, distance the validity of what gets said about him in the press. So that it kind of protects him in some way. So it's the usual kind of strategic move from Trump. I wouldn't really read too much into it, to be honest. Um, it's— Italy is one, and then this kind of leads on to some of these other areas. Um, France, for one, will unveil their, their latest plans according to their PM on Tuesday. They're looking at a multi-phase process as well. And, and what this is leading to then is, as we've said, in all these different areas, construction and manufacturing is quite key. This is something from a, from a kind of European perspective that I saw this morning. Factories fire up in Europe to pull economy back from the abyss. And so what you have here are Volkswagen, basically they're the world's largest automotive maker, of course. They're resuming production on its ID.3 electric car. If I just flip over to this graphic, you'll be able to see Fiat Chrysler will restart production at its Savelle light van plant in southern Italy. Renault began a gradual ramp-up in France last week. So to give you an idea, the European car industry more broadly accounts for around 14 million jobs across the region. So it's really quite key that this starts to gradually open. Obviously implementing social distancing and hygiene measures will be of the utmost importance. Same thing as well in the UK, builders to resume work starting this week. So again, a little bit of slight optimism in the markets this morning on the first glimmers of optimism about the, um, the slight loosening of some of these restrictions. And that does mean then, you know, that this is step one on the back of then this gradual reopening of economies. Airbus is another one as well as these UK home builders, which are going to look to resume as soon as possible. This was quite an interesting thing I saw, and I just wanted to bring to your attention. Obviously, the equity market has been— despite the oil rout that we had at the beginning of last week, you know, all of that, that loss has been taken back, in fact. And, you know, let's just have a look at that here. So last week, just going to show you the S&P 500 This was the big sell-off that we had. And if you actually look where we, we're broadly trading this morning, which— let me just put in a ellipse. So this is where we started last week, and this is where we are right now. And of course, we had that, that move in oil, first time ever that we've traded in, in negative territory. And if I just get one of my tools out here, so we went from around, you know, 5% loss in the S&P 500. If you look to where we are right now, we've completely reversed that. So like we were kind of talking about in the briefings last week, although oil prices might still remain somewhat pressured to a certain degree, probably the reality is that we've moved on now from that, that kind of shock event repeating in a similar fashion to how severe it was with a kind of -40 print that we saw in that May futures contract. That being because, you know, people like the USO, which obviously purchase and hold a lot of these futures contracts, have spread that out now down the timeline for the average duration to be slightly longer. And the market has become more accustomed to this type of information now. And so the shock factor, which can exacerbate price movement, has kind of dissipated in a certain way. So interestingly, S&P exactly back to where we were, and obviously from a much longer time frame puts us back at quite a key area. That was that low from the kind of October bounce that we had. And you can see also in February, quite a wicked bounce off the same similar level in the futures at 2855. And we're just finding a little bit of resistance there at the moment, despite the kind of fail break above that we had, uh, back about 10 days ago. Uh, but definitely worth keeping an eye on. Uh, but the thing Goldman's are saying, so as resurgent as the, the S&P has been, they have noted quite an interesting observation and they're talking about the narrowness of the breadth of the gains in the S&P 500. As we know, big tech firms like Apple, Amazon, Facebook, Microsoft— they've become such giant companies that they actually take up a big proportion of the actual percentage in terms of index weighting of the S&P 500. And what Goldman Sachs is saying is that basically a narrowing group of winners doesn't bode well for future performance of US stocks. And if I switch over to here, you can see it graphically. The US benchmark, the S&P, is about 17% below its February record, but the median stock trades about 28% from its peak. Sharp declines in market breadth in the past have often signaled large market drawdowns. As you can see, less than half the members of the S&P 500 were trading above their 50-day moving average at the moment. So you can see here, um, the with minus 1 standard deviation away. And actually then that meaning that we haven't really seen this type of movement away since the dot-com bubble. I know that's a little bit exaggerated because there have been previous points of— in kind of 2008, the financial crisis, and also when economically we were worrying about the global economy back in 2015-16 with the overall slowdown fears. But the market breadth has reached narrowest level since the tech bubble at the moment. And that would be one thing or variable that people would look to suggest that perhaps then it's a little bit fatigued, this rally, and how far can it really go. But again, but you know, put it in context, Goldman's have been fairly, fairly bearish overall with their opinion, albeit they bumped up their, their kind of year-end forecast more recently elsewhere. Oil, of course, just a quick word, a few things to be aware of. Most of this is a continuation, so rather than anything particularly new— Sub-Zero Oil Slams US Drilling in Worst Decline on Record. So explorers idled 14% of onshore drilling fleet according to Baker Hughes. In the last 6 weeks, almost half of American exploration has been halted. That number is around 45%. Since mid-March at the moment. And you can see here that shale drilling is nearing the depths of the 2016 crash, and this somewhat inevitable when prices trade at such low levels. And again, this has been one of the things obviously that people are looking at, this in combination with the likes of Saudi and various other OPEC nations, OPEC+ included, bringing forward their, their production cuts as per their agreement that they they, uh, they made on the 9th of April at the beginning of the month. Uh, so as that kicks in with then the natural reduction of the rig count, obviously should start to impact the supply side a little bit. Um, and what we're looking at, of course, is as well the issue that we, we had at the beginning of last week was this kind of capacity one in Cushing, Oklahoma. Uh, Goldman saying that they see that testing, uh, storage capacity in 3 to 4 weeks. Again, nothing too new, but what that is leading to, of course, is stockpiles in US oil storage that we've been having in terms of the Cushing weekly oil inventory numbers has been large. And you can see here, pretty much every week going back to February, it's been getting higher and higher, including some really big pops over the last 3 consecutive weeks. And that's probably likely to be— continue to be the case. So again, perhaps oil— still not everything quite in place yet for that kind of big push-up back towards north of $20, $25, $30, albeit I do think that will come in time. Potential then still for a little bit of potential downside and probably prices more consolidating in the mid- teens to low teens, uh, for this week perhaps could be on the cards. But again, on the demand side, you know, for oil traders, as much as all of this is about a storage issue to monitor, the rate of decline of US rigs, the rate of which production cuts come into to fold as we go into May— of course, on Friday is the first— but also as well watching on demand side. Obviously, a degree of demand destruction has taken place amid COVID-19 But the sooner that this construction manufacturing sectors around the world get back on their feet or show some signs of doing that, that's also going to help things out in the oil market as well, to a certain respect. Okay, a couple of other things just to quickly cover. Bank of Japan, they basically scrapped limitation on their buying of government bonds and wrapped— ramped up purchases of corporate debt. So again, they've said now that it's It's basically unlimited bond buying. The previous guidance was for ¥80 trillion, or about $750 billion worth. The central bank also increased its scope for buying corporate and commercial paper by more than doubling its ceiling on holdings to ¥20 trillion. Just wanted to quickly show you how the market has really taken that, and this is a good exercise of kind of market expectations and the kind of counter-logic move that you can often see in markets, because we're looking at USD/JPY here and the yen is actually strengthening. And traditionally, of course, if a central bank was to make such an easing move of the measures of which the Bank of Japan done overnight, you would expect the opposite to happen from a theoretical point of view. And so why has this happened? Well, if you remember, the Nikkei Press came out last week and we saw that big shoot higher in, um, USDJPY. You can see the price action jumping up on the back of those reports circulating. So to a large extent, this is very much as expected. It's nothing new, it's just the next step which inevitably they were going to take. So if anything, perhaps a little bit of disappointment that they haven't really done anything else to accompany what was expected. And so therefore, in fact, we are actually moving lower at the moment. This does come, of course, and I just quickly wanted to show you this, which is a nice graphic here from Citi talking about the extraordinary central bank stimulus have eased financial stresses. And they have, they, they've definitely gone with the bazooka and they've gone fast and hard. And that is a key component behind the, the kind of market rally that we've seen, particularly in the equity space of late. Given that March fallout that we had just a month ago. And you can see here the kind of the size and scope of the actions that have been taken. I mean, it's quite incredible when you look at a graphic like this, because here's the financial crisis and here's where we are at the moment. I mean, it really does dwarf any actions that were taken some kind of 12 years ago. And if you look at that blue line in particular, you know, we got to the part of the— of course, the Federal Reserve finishing their active quantitative easing from the third phase back at the end of 2014, then having a period of basically leaving that unaltered before then performing quantitative tightening through 2017, '18, part of 2019, and then bang, it's right back on the cards again. And these other central banks have now followed suit. And so this does come with the anticipation that the ECB at some point are going to add to their QE program to top it up to around $1.5 trillion. Um, a Bloomberg survey last week of economists who were interviewed put around a 27% probability that they would go as soon as this Thursday when they meet. I, I personally don't think that's gonna happen. Uh, I think actually for the likes of the Federal Reserve meeting this week and also for the ECB, I think they're just a bit of a staging platform for them to just communicate their latest thoughts and about their intention to do whatever it takes as they monitor and react to the situation ongoing, because they've already, they've already shown their, their cards basically at this point. I don't think it's necessary for them to do too much more. And for the ECB, whether they will do more QE, I think that they will in future. I just don't think that they can right now, as in this week on Thursday, because at this point they still haven't seen what EU governments can do from the fiscal side. And we're talking about an extra potential €500 billion-odd from European governments being contributed to a kind of recovery fund, and that's obviously going to have, um, direct implications for the economy, the economy of Europe. So therefore, very hard for the ECB to come in and make that judgment now without seeing their MAC first. So hence the reason why I think they're not going to do anything shocking this week, but important to monitor of course, and we'll be here covering it as it happens. Other than that, final points: Kim Jong-un mystery grows. Lots of speculation over the weekend about has he died, is he in a state of vegetation after he had heart surgery. To be honest, I think it's better not to speculate too much about these types of things things. There's lots of hearsay. It's so cloak and dagger when you read about reports of North Korea. I guess the most important things here are, you know, what's likely to be a market reaction if that is to be the case. And let's say he has passed away. And so Kim Yo-jong is his sister, and from what I've read at the weekend, she's been flagged as the likely interim leader, um, but having formally served as a vice director of the ruling Workers' Party Central Committee. She's also kind of acted as the de facto kind of chief of staff unofficially for her brother. So whether or not North Korea would have the appetite for a female leader at this point, we don't know. Whether or not that would then be a more— rather than a singular person, a more collective in a committee sense. But she would probably fill that seat at least for the interim period. And what does that mean? I think this goes back to when North Korea were firing multiple missile tests back in, you remember, the summer of 2017, and that was kind of spooking the markets. And in 2018, at the time, there was lots of conversations about what could the Americans do in order to counteract this activity from North Korea. But ultimately, the, the route of, let's say, Kim Jong-un being removed in whatever way you want to see that, um, that line. It doesn't really make a great deal of difference in my mind. I think the regime is so entrenched that it doesn't really matter whether it's his sister or someone else. There'll probably be a degree of slight apprehension in markets which might play out negative in the short term because of relationships, let's say, with China on the geopolitical stage, with their nuclear ambitions and so on. But ultimately, I think it's just just the same, um, repeat of what Kim Jong-un has instilled. So I don't think it changes a great deal. And as much as you might get a little bit of nervousness in the market, I think that's quickly recovered and we move on. So I don't think it's actually too much of an issue for markets at this point, to be fair. And then the final thing is US earnings. We've had approximately 24% of the S&P 500 report thus far. Uh, we have 172 S&P 500 companies reporting this week, and here is a selection of the most anticipated earnings. There are 12 of the Dow 30 components also reporting. Um, this week is going to be important for earnings because there are a lot of big companies coming out. Um, so to just run through them in chronological order, Monday generally a little bit quiet, as is normally the case with the economic calendar as well. But we get into Tuesday, you get the likes of 3M, UPS, Pfizer, PepsiCo, Caterpillar, Merck, all pre-market. Uh, US Airlines as well will of course be interesting, Southwest Airlines. Aftermarket, you've got Alphabet, so the first of the big kind of FAANG names, all those technology giants. Wednesday pre-market, get one of the big Dow components, Boeing, get General Electric. Aftermarket, Microsoft, Facebook, Tesla, Thursday McDonald's, Comcast aftermarket, Apple and Amazon, and then on Friday you get the oil majors Exxon and Chevron. So really busy week for corporate earnings, so definitely keep an eye on that calendar. They might get a bit of a look in specifically given the fact that there's so many large companies of quite a variety of different sectors reporting as well. It's going to be an important one. Alright, that is it. As I say, I haven't really looked at the charts too much, but to be honest, I'm sure most of you follow my ramblings for the fundamentals, not the technical. So I'll leave you to it. You can always message Sam via his Twitter account if you do have any technical questions about the charts. Please do. Otherwise, feel free to leave any comments. I'll put the link to the macro menu in the video as well so that have it to hand and you can have a read in your own time. But with that, I wish you a good week ahead and I'll see you tomorrow for the next briefing. All right, thanks guys.