FAANG's weigh on global equities

Hi guys, good morning. Hope you're well. 20th of November, um, let's get cracking with the briefing here from the Amplify Trading Floor. Uh, this morning we're going to kind of talk about, well, I'd say two key factors. One is the big sell-off we had in a tech-driven sell-off in the US during yesterday's session, which in part is certainly due to Apple and concerns around the strength and the ability for iPhone sales to continue to grow. But secondly, definitely that's a function of US-China trade war risk, plus add on top of the fact that investors are starting to gather around this story and belief that 2019 will see a decline in global, in global growth rates. So this is kind of a story that's all come together and driven US stocks, led by tech, sharply lower yesterday. So we'll talk about that. And then of course, we can't do a market briefing without a full update on Brexit. So we'll talk about the hard Brexiteers bottling it. We'll talk about the French and the Spanish stepping in and wanting concessions in the the talks around the kind of trade side of things. So we'll talk about that. But also, weirdly, maybe Theresa May's kind of hand is being strengthened here, really more so by the, the failure of the hard Brexiteers to, to rally round and actually properly put together a set of letters that can lead to pushing Theresa May out. So we'll talk about all these things and we'll look ahead at what's on the slate for today in terms of economic data and so on. So let's start with this exhibit number 1, NASDAQ daily chart. And you can see— well, can you see? Let me show you by highlighting via a red rectangle this massive red candle we had yesterday. NASDAQ dropped 3% and I'll show you on a shorter time period in a second. It was just a relentless sustained sell-off. Not— well, it was, it was fairly pacey and, and it had some speed to it at times, but it was more the kind of relentless nature of it. It just kept on going. So we'll look at that in a minute. But one key thing to note is that we did not reach yet the low point that you can see here 29th of October. So this is the low since the, the kind of turmoil in global stock markets began at the start of October. That low on the 29th remains the low of that kind of move. But as you can see, after yesterday's near collapse, today we're eyeing up with intent, I would say, a test of this. I would be fantastically surprised if we do not see a test of the 29th of October low. So So what happens if we do test it? And we'll come back and look at the technicals a bit more detail later. But just for now, the key level below the October low is the one that we saw back in April. And then the key level beyond that is this one, which is the February low, which is the low of the year. OK, so that's down 6,300, 6,160. Obviously some distance to travel to get down to that point. But certainly the speed and the momentum of that move yesterday was fairly intense. Let's have a look on a shorter time period, zooming in on a, on a 1-hour chart here. And you can see what I mean. We did have one period of speed and the size of the move was at its greatest off the cash open in the US at 2:30 yesterday. But you can see the number of red— this is a 1-hour candle— I mean, the number of red candles in a row after a little bit of a false dawn at the European Open, where actually we moved up to test the high that we'd seen back on Wednesday last week. So it was like, oh, hang on, slight positive vibe to the start of this European session. Seems that US stocks are shrugging off the disastrous APEC summit where the Asia— the Pacific Rim nations failed to issue a joint communiqué on kind of economic collaboration, indicating that the China-US trade war situation is still at its worst. So it was a bit weird that stocks were pushing higher, and, and that strangeness didn't last. And then we had 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 10 red candles in a row, one of them massive. As we came smashing down, we broke Friday's low, which was here. We then broke below Thursday's low and made new lows or broke below last week's lows. And then we did a little bit of consolidation into the US close. But as you can see overnight, we've been drifting lower and new lows again this morning. So if I switch up my screenshot, just hang on, just give me one second. Let's just bring in a couple of other items because obviously when you're kind of preparing for the session, you're reading the media and so on. And, and what we have here— actually, let me, let me make myself a little smaller there so you can see the chart better. This is the kind of stuff you're looking at if you're reading things like Bloomberg. So this is quite, you know, notable, obviously, 13% dip from that August peak, peak to trough drop. That's the biggest peak to trough drop um, since 2015. Okay, so certainly this is now surpassing the sell-off that we had in February in terms of percentage moves to the downside. And this definitely was led by tech. Here's a look at Apple, which dropped almost 4% yesterday, so down to 185.86. Now you might have remembered me mentioning that, that price point in, if you were tuned in yesterday for the session, and that's because that was the low point that we'd had in June. Okay, so Apple's back to test the June low at this point, right? We've got some key resistance for Apple around about the 180 handle. So it'll be interesting today if we do get more downside for Apple share price, then technically 180 is a key target. That was a really strong resistance level in in quarter 1 of this year before that got broken and we launched up through $200. So $185 is the June low. Break of that and we should get a quick fast test of the $180 handle, which is important. So why is Apple selling off? And it's not just Apple, the tech sector at large. Sharp downside yesterday. If you just clock in on, I don't know, let's have a look at the likes of Facebook, for example. Facebook down 5.72%. Yesterday, I mean, Facebook's having an absolute disaster of a 2018 at this point. I mean, this began back in the summer where we had concerns start about slowing user growth, and then obviously there's a lot of regulatory risk around social media as well as the kind of Cambridge sagas around data and so on. And look at— so the Facebook share price, you which topped out at $209 back in July, down at $131 here. And that's the lowest we've been for— it's pretty much a 2-year low here for Facebook shares. So Facebook down 5-6% yesterday. But I would say, I would say it was, it was the big guns. I mean, Amazon was down sharply, 5%. You got moves right across the tech sector, but it was Apple that kind of drove that, that fear. And I guess it comes off 2 things. Firstly, um, well, firstly, Apple reporting that, you know, rumors that they're cancel or reducing production, um, in the face of weaker iPhone demand. You've seen that filter through with some of the suppliers to Apple have been cutting staff and cutting production. So Apple looking a little bit concerning as we head into what is their most important quarter, and that is Q4. That's the holiday season. It's the moment where they've released their new handset and it's typically always their absolute bumper quarter. So this is the problem for Apple. If they're, if they're showing signs of demand weakness in their best quarter, well, then that's, that's the absolute worst case scenario. But we'll see. But there's the other factor, which is US recession chances edge up. So this is a headline on Reuters this morning. And this isn't a new story. Now, the problem is that though, that you're seeing growth expectations drop. But actually, at the same time, if you take the last 4 weeks, growth expectations have dropped, but Fed rate hike expectations have gone up. And there you're kind of— that's your double whammy. That's your worst case scenario. Slowing growth, rising inflation. Which the Fed are going to have to deal with, with hiking rates. That's your kind of double whammy. And so this is what's helping to contribute to nervousness around growth, but also nervousness then around, you know, things like iPhone demand. And it's nervousness around more broadly. And if I go back to that chart of the Nasdaq, it's nervousness around the idea that have we overvalued tech? You know, this bumper 2017 and 2018 that saw the FANG trade, the Facebooks and the Amazons and the Googles and the Netflix of this world, you know, lifting sharply higher. I mean, Netflix doubled in— their share price doubled in the first 6 months of 2018. And it's like, well, you know, lots of people enjoying that ride to the upside and making large amounts of profit. But as it gets higher and higher and higher, of course, ever more skeptical investors saying, well, hang on, this is, this is getting a bit silly in terms of overvaluation. So I think whilst you're looking at major sharp downside for tech stocks, you do have to understand the rally that has already happened and put this in perspective and look back, yes, with a bit of hindsight and say, well, we were probably too high on tech. So actually a lot of this correction was just overvaluation OK, then you add into that the fact that perhaps we're peaking in the economic cycle and we're expecting demand to perhaps start to— or demand growth, I should say, start to slide. So this is a story that's definitely drove markets across— well, no, drove stock markets yesterday. I'll talk about other markets in a second. The other thing that's kind of key to all of this, to add into a further negative, and really the thing, perhaps the catalyst that kicked it off yesterday, was, was indeed the APEC summit over the weekend where we had Pence, who's Trump's vice president, representing the White House over at this summit. Definitely it was a very fractious meeting and no agreements made, no joint communiqué. The first time in 29 years of this summit that no communiqué was issued. And here it is. So this is the kind of broader risk around the US trade war. And you've got your— let's talk a bit about this because this is going to become a hot topic as we move in towards the end of November, where we've got this G20 summit in Buenos Aires. And people are looking at this as hope— the optimists are looking at that event as the key moment for Trump and Xi Jinping to come together face to face and actually try and unlock the deadlock that we currently have between the US and China about trade. We're approaching the end of the year, you know, we're 6 weeks out from the 31st of December, and what happens on the 1st of January? Well, Trump has threatened to double tariffs, actually more than that, so he's going to take the tariffs on the $200 billion dollars worth of goods. He added a 10% tariff back in September to $200 billion worth of goods, and at the time he threatened, if you don't make progress on a trade deal, then I will move those tariffs from 10% to 25%. So Trump has a threat on the table, and Trump's not the kind of— it's not his style once having threatened something, it's not his style to kind of back down, although he did do that with Iran crude, I have to say. So he did threaten to force Iranian supply completely offline, but just as it came to it, of course, he decided against that, and he gave concessions to certain countries to carry on buying Iranian crude, which is why we'll talk about oil in a minute. But my point is I guess he's in the— he's that type of individual that threatens the worst and then will not back down from those threats unless it carries a direct negative to himself firstly, or a direct negative to the United States. And you could say when the stock market's plummeting, um, this is something he watches Daily, and he likes to tweet when stock markets are going up. Plenty of tweets around stocks at all-time highs and aren't I amazing, it's all due to me. Uh, very suspiciously quiet on the Twittersphere yesterday from Trump as the NASDAQ's plummeting 3% plus. So it'll be interesting by the time we get to the end of November, in a way, how low have stock markets gone could well be one of the most important things that shapes the potential progress of making some kind of deal, or at least progress to a deal between the US and China. But look, they're going to meet at the end of November, and at the moment, because of what happened in the APEC summit over the weekend, the fears are— the realists amongst us are saying, ah, doubtful there's going to be any progress. And so the US trade war ratchets up. And the thing is, Trump's kind of circled himself with a lot of China hawks in the White House. Here are names you might want to note down and remember in the weeks to come. Peter Navarro, that's Trump's trade advisor. Robert Lighthizer, he's the US Trade Representative. You've got John Bolton, National Security Advisor. Mike Pence, Vice President. These guys are uber-China hawks. That means they want— they don't want to do a deal with China. They want this trade war to escalate. They want tariffs on all of China's imports. They want to really shift this into more of a full-on cold war. On the flip side, he's got a couple of doves in his team. That's China doves who are a little bit more sympathetic and want to get a trade deal done ASAP. And these are Steven Mnuchin, who's the trade secretary, and then you've got Larry Kudlow, who's the chief economic adviser. But certainly he's got more hawks in his camp than doves. So we'll see. Definitely in the next 10 days, this US-China trade war story will definitely come back to dominate headlines, especially next week once we're past the Thanksgiving holidays. Next week it'll be full-on US-China trade war risk. Okay. All right, let's shift back to the charts because it wasn't just the Nasdaq, of course, that kind of got got taken down yesterday. If we have a look at the S&P 500, if I can type in the right code. I typed in ERG there, I think. Hang on, that's something different. We'll come on to that. Brexit. With the S&P, look, we definitely had a big sell-off yesterday, but it was less than— just shy of 2% sell-off for the S&P. You can see the same kind of story. The biggest part of that fallout coming just after the US cash open. So in the US morning, that's where the damage was done. You can see right now we're just breaking below the low that we had from yesterday. So US stocks now adding to the downside. You can see the clear target, which was last week's low. So this was on Thursday of last week. Okay. But if we have a look on a daily chart, as the Nasdaq is approaching its October low, the S&P's got quite a bit of work to do to get down there. Still. So it's definitely tech leading this tech underperformance, but certainly dragging the main, more broader index with it. Now, what's interesting, though, if we go across and have a look at T-notes. So this is US bonds and this is a great uptrend. So on the first hand, you're thinking, okay, yeah, that makes sense. You know, you've got a bit of a risk-off kind of vibe going on here and we've got a nice sort of trend line to kind of shape this thing higher. So bonds up, stocks down, risk off. But this bond market move isn't that big. It's nothing like the size of the moves we're seeing in stocks. I mean, if I just draw a— if I just draw a rectangle around yesterday's session for US bonds and it's actually— in fact, we closed flat. So US bonds closed flat on the day. Yes, we're on an uptrend, but closed flat on the day. When we had the Nasdaq down more than 3%. So what's going on here? Well, of course, as bond prices rise, you've got yields dropping. But the, the key barrier to bond prices properly rising in the US is ultimately the Fed are going to hike rates in 3 weeks. So you got this quite interesting problem as stocks dump and you got some safe haven buying coming into bonds. That safe haven buying is curtailed by the hawkish Fed. And as the Fed are expected to hike, the problem is you're getting a flatter yield curve here because the 2-year is definitely not— yields are definitely not dropping, but T-notes are climbing in price, which means yield is drifting lower. You're getting a flattening of the yield curve, which is always a risk when we're concerned about global growth anyway. But look, T-notes testing yesterday's high right now as I speak, as the S&P breaks to new lows. But do understand upside here is limited because of the hawkish Fed. Other stuff in the news, I'm just seeing a headline on the Fast FT: Bitcoin drops towards $4,000 level in broad crypto sell-off. Here's the Bitcoin chart. We have to talk about this because what a, what a move. We have seen over the last week. And it happened like this. Firstly, well, let me, let me take this out. Such a good example of technical analysis. Well, let me go to a weekly chart first. You know, this— well, actually, I'm not going to go to a weekly chart. This is all about technicals. You know, you saw the low we put in place back in Feb. Okay. 5970. Key test of that. In July, key test of it in August, key test kind of throughout September and then into October. But you can see each time we're testing it, you can very much see that there's, there's a downward trending shape to this. So you've got this descending wedge, of course. And as this thing is pretty much dominated by technicals, um, certainly incredibly bearish pattern that's finally completed Let me zoom in as we smashed down and broke through that February low. This is back last week on Wednesday. Huge downside. Couple of days of consolidation. Another break lower yesterday as we broke below— not yesterday, Friday. New lows for the week. Now the big— sorry, that was yesterday. Apologies. Breaking last week's low, breaking the 5,000 handle, which is key. Now we've stepped another massive distance lower this morning. And we're almost down to 4,000 here. You know, in percentage terms, what even is that? 30-plus percent sell-off in less than a week. And you want this to be a credible currency? Please. So Bitcoin massively to the downside here. Big, big technical breach, big fallout. And the downside still ongoing. I spoke about this yesterday, so I won't go on, not in the briefing, but I spoke about it during the session. Stablecoins, an interesting alternative. But anyway, certainly cryptos across the board are getting savaged as we go through this week and last. So that's the slight side. So let's talk about Brexit. You guys love a bit of Brexit during the morning briefing. It has taken me 20 minutes to get to Brexit though, um, as a story. So you'll be pleased, that's got to be some kind of record. Brexit then, um, here are your kind of hardliners on the Brexit front, uh, your Rees-Mogg's, your Andrea Leadsom's, your Michael Gove's, uh, the two on the right, uh, failing to resign from the cabinet, wanting to stay within the cabinet to try and make changes and make a difference from within. Um, Gove, your kind of serial backstabber, um, squirreling and weaseling his way through, um, the cabinet meetings. We're not quite sure what his agenda is, to be honest. But, um, and Andrea Leadsom also staying in the cabinet. Rees-Mogg outside, not a cabinet minister obviously, but heading up the ERG. These lot, as the headlines suggest, they basically messed it up. And they had a great opportunity last week. I would have said if they really wanted to get rid of Theresa May, the opportunity was last week. They should have all resigned en masse and driven a momentum towards a leadership fight. They spectacularly failed, thanks to the two on the right, more than most, in that they didn't have the bottle to resign. So really this whole campaign to try and oust Theresa May, driven by Rees-Mogg on the left, is dying out into a pathetic little whimper at this point. And actually Theresa May, weirdly, thanks to their inability to get together and drive forwards, Theresa May's hand is being strengthened here. What we saw yesterday when we're looking at, let's say, the value of the pound. And let's switch back to my chart. If I just start with a long-term chart on the daily to begin with. Daily chart of the pound here. A big sell-off last week, of course, as this draft agreement was announced. Let me draw the rectangle over Thursday's session. The draft agreement was announced, everyone came out in opposition against it. It was like, what is this? No one's gonna like this deal. The hard Brexiters, the soft Brexiters, no one likes it. So big sell-off as we worried that Theresa May would lose her job. We worried that, well, where do we go then? A general election, or do we have a hard Brexit, or— but then it was like, hang on, do we have no Brexit? So it's all back up in the air really. And actually sterling yesterday, despite some headlines from Europe that I'll talk about in a minute, sterling had a very quiet session. Very quiet session. I mean, check out the red box. That was yesterday's session for cable. Basically hardly moved in the grand scheme of things, but when you're in the action, well then, it doesn't feel like it hardly moved. We did have some pretty big swings. So, you know, particularly, uh, the sell-off that we had around just before midday, um, you know, a cool 100-pip slide to the downside. This is a 5-minute chart, so that just took 15 minutes, 100 pips south. So when I say yesterday this thing hardly moved, well, it did. But when you sit it alongside some of the volatility we've seen in recent days, weeks, months, then actually relatively this is pretty small fry. What happened yesterday to trigger that kind of sell-off and the kind of headlines that we saw were coming out from Europe's side, really, in that Firstly, we had Barnier saying that he wants to have a fixed one-off extension to the transition period. So the transition period, as you'll know, currently goes from March 2019, Article 50 deadline day, through to December 2020. That's the 21-month period where the EU and the UK need to finalize and negotiate a trade agreement. And in December 2020, the UK leaves with this new trade agreement, except that everyone's worried it's going to take longer than that, quite rightly. And so the idea is, well, if we don't quite get a deal done by December 2020, well, let's just have an extension. And Theresa May's been saying, yeah, at most just a few months. And the hard Brexiters are like, well, if we extend the transition period, it'll just be extended forever. We'll just be permanently extending it because we can't agree a deal, and trade agreements can take decades to organize. And so we're going to be left in this no-man's land where we're in the EU still, paying into the EU's budget, but we actually have no say at the table in that we've got no control, no vote, no say over, um, reforms and laws. So we're kind of stuck in this limbo, and this is what the hard Brexiters don't want. And so Theresa May kind of played it down a few months back by saying, well, if we do extend the transition period, it'll only be by a few months. Then Barnier drops the, the bomb yesterday that, well, why don't we extend it by 2 years? We'll extend the Transition Period Act to December 2022. And even then, the hard Brexiters in the UK couldn't rally round and actually do anything about it. So that's one thing. The other thing Part of this— so the 585-page treaty, withdrawal treaty, has been agreed. What has not yet been finalized is the much shorter 8-page, or it's talking maybe 20 pages now, which won't be legally binding. But this is what Theresa May is going to be negotiating this week. It's the final detail around the economic commitments that they're going to set down on paper, which is going to shape the beginnings of the trade negotiations after we leave. So in April 2019, they'll start the trade negotiations, and the starting point will be this kind of draft commitment document that they're putting together now, okay? And it's not legally binding, but what happened yesterday was that the French have put their foot down and they've said that, look, we're not interested in a trade deal unless the UK allow the French fishermen to fish in UK waters as they do at the moment. So the French are playing hardball on the fishing side of things. And then the Spanish are not happy about the Gibraltar situation. For example, the Spanish said, look, we want a separate agreement with the UK outside of this deal, and we want to make sure that if there is any extension to any transition period, then Gibraltar's not included. So we've got a couple of new fronts to fight, or Theresa May has, when she goes over to Brussels. She's expected to go over to Brussels tomorrow to finalize this joint commitment on an economic future. The idea is to then sign off this withdrawal treaty with the joint economic commitment, which is not legally binding, sign this off this weekend on Sunday, And then the idea is Theresa May will come back, they'll put together a little bit more analysis and evidence, and the idea is then Parliament will start debating on this on the 3rd of December, with the idea that they'll get this voted through Parliament. And that's the big hurdle for Theresa May, of course, because the DUP party over in Ireland just again this morning issued the threat that they are not voting for for this deal. So Theresa May's big challenge is getting this through Parliament. So that's the big risk before year-end. Okay, but in terms of Brexit risk markets-wise, pretty dull day yesterday other than that one sell-off. And as you can see this morning, if I zoom forwards to today, and let's go to a 60-minute chart actually, then actually we're just kind of right in the middle of yesterday's range at the moment, and people are just sitting and waiting. The hard Brexiters seem to have failed So everybody's now thinking this thing's going to get signed off at the weekend. And now it just comes down to the parliament vote risk, which we won't see until December. So just a bit of a breather here. Um, let's finish with oil. I'm going to go to the oil chart. Um, oil had a pretty dramatic day yesterday. Let's start 60 minutes. Big sell-off, um, and, uh, for the first half of the day— day of two halves for sure. We didn't quite make it down to last week's low, before then rebounding sharply. And quite remarkably, we actually went and set a new high for the session, um, just as we topped out. Quite unbelievable, to be quite honest. That was a $2.50 rebound into the close last night. Um, I do have to, um, just mention— I, I'll get told off if I don't— I need to mention Charlie's tweet He's pretty pumped, buzzing about his tweet yesterday. Charlie tweeted this in the midst of that sell-off: Saudi Russia production cut not a done deal. So this was the reason for the move to the downside. Of course, we've been seeing speculation over the last few days, speculation around whether Saudi are going to do anything about this massive sell-off that we've been seeing in the last couple of months. And rumors last week they're going to cut production. We're going to cut production by 500,000 barrels, a million barrels, 1.4 million barrels. But we kind of need Russia to kind of be on board with this. And we've got an OPEC meeting in December. We'd kind of like OPEC to kind of get on board with this idea. Let's do something about this price that's dropped so sharply. So Charlie, um, put this tweet forward. Charlie got 20 retweets and 26 likes and is buzzing. We still haven't been able to peel him off the ceiling. So Charlie has arrived, guys. Charlie Hyatt on Twitter. If you want to be on the cutting edge of the news curve, then that's who you need to be following. Have I boosted you enough there, Charlie? Um, right, on that note, let's look at the calendar for today. Um, as I was saying yesterday, this week broadly from a data point of view is not huge, and that definitely includes today. Building permits and housing starts from the US later. We have some really weak NAHB House Market Index figures from the US yesterday. Real concern, 2-year low, actually. So feeds into that concern about the idea that we're going to get a loss in growth momentum in the US when we hit 2019. So actually, whilst building permits and housing starts this afternoon aren't tier 1 data, because of that number yesterday, I think you're going to get a bit more attention on this. And this housing market data perhaps is going to start to become a bit of a barometer for general sentiment. So I think actually needs watching this 1:30 release this afternoon. Other than that, you've got plenty of Bank of England speakers at 10 AM, okay, Carney included, discussing the, the quarterly inflation report they issued back a few weeks back. So that's probably the two key moments of the day. 10 AM, check out, watch your cable moves off Bank of England news. 1:30, housing data from the US in the aftermath of those bad figures from yesterday. And of course the very negative sentiment. Other than that, API, all data tonight before the Department of Energy tomorrow. So I'll just finish by looking back on the S&P— oh no, let's look back at the NASDAQ actually. Certainly you want to be watching the tech space, and as we've seen this morning, we are getting further downside. So 6579 is the low that we had back in on the 29th of October, 6579. And I would speculate we're going to be testing that within the next 15 minutes. So on that note, enjoy the session, guys. We'll be speaking through the day. Thanks a lot.