Goldman Sachs & JPMorgan Expect Bank of England To Hike Rates In November

Okay, so very good morning. It's Tuesday the 19th of October. Hope you are doing well. And in terms of the briefing this morning, going to talk a little bit about the heat map, about how tech stocks outperformed, which led to the Nasdaq finishing up 0.8% compared to the Dow, which actually was slightly negative by 0.1%. The S&P up about a third of 1%. So we'll explain a little bit of that. We'll have a look at Facebook shares. As you can see here, really firm green spot on the heat map from yesterday's session, up around 3.25%. We'll also talk about Apple, who had a new product announcement with two new laptops announced and the new third-generation AirPods. And we're also going to have a look at the calls from US institutions about UK rates. We've had now Goldman's, JP Morgan, Credit Suisse all bumping forward their expectation of the Bank of England hiking rates as soon as November next month. and we'll look at some of the rationale behind that. We're also talking about Brexit, some comments from PM Boris Johnson for the first time since these negotiations have recommenced on the Irish border. And then we'll talk about North Korea, RBA minutes, and have a look at the day ahead, as well as obviously looking at the charts as well from a technical perspective. Before I begin though, just wanted to give a quick shout out to the team that obviously help manage our social media. Instagram, we have an account that's up and running. We post lots of different things from single stock stuff to crypto to memes to all things interesting really related to markets. So if you're on Instagram, just search for AmplifyMe, one word, as a handle, and then feel free to follow us. And, you know, we'd love to engage with you on that platform as well. There's lots of polls and questions and true and false quizzes and things like that. So great to get you guys involved, so check that out. Otherwise, let's get straight to a quick flavor then of the overall market sentiment at the European Open this morning. And we've got a weaker dollar. The DXY is down a fairly substantial amount actually. It started declining in the dollar index from really, uh, the beginning of the overnight Asia PAC session, and it's just continued that decline. So we're down about a third of a percent, in fact, for the Dixie. And so that's kept both major pairs elevated. And you can see in the top left, both EURUSD and Cable up a uniform 41 pips each respectively. So very much a dollar-denominated move rather than anything too specific for either one of those currencies individually. Now, from a technical perspective, just keeping an eye on Cable, just having a test up at the closing high that we saw, the weekly high on Friday. Just struggling a little bit given the acceleration that was seen overnight and just seeing whether or not we can, we can push on from this point. But EURUSD equally just finding a bit of resistance on that most recent move. Softer dollar means then that generally yields have just been declining. So the US 10-year is up about 6 ticks and gold is also up about $14 this morning, trading at $1780 in the futures market. As far as the equity index futures are concerned, I'm going to use the NASDAQ as a reference point. As I said, it did outperform yesterday. So here's the move that occurred really from the open on Wall Street yesterday and a really sharp acceleration back to the upside. And on the daily chart, I've just put here a colored rectangle of the next area of key kind of resistance that we're keeping an eye on. So just as we were looking at before, we with that horizontal level around 15,170, which was also not just an area of previous resistance at all-time highs, but also the 50 DMA. We've obviously pushed well beyond that point, closed firmly above that yesterday. And so now 15,347, which is— we're just seeing a bit of short-term resistance at around this, this level this morning, given that move that was seen both yesterday and overnight. And so that would be a key area to watch for today. Whether or not we then can close above or below might dictate then some of the general sentiment going for the sessions thereafter. Otherwise, elsewhere, oil markets remain pretty robust. We did have a bit of a pullback during yesterday's session, during US trading hours, which I found, um, not that surprising at all because when you look at this chart, as we have been doing in recent briefings on that weekly candlestick, you can see up in toward that $84 handle, which is where the price has been rejected Makes technical sense in two reasons, really, from where we were trading back in 2012 and '14, but also just given this, the, the scope of the, the size of the rally that we've seen materialize over the last few weeks. I think reasonable to expect on any of these pushes higher through technical breaches then to see profit taking at the next clearest levels. And I think that's just what happened yesterday, and as such, there's not really been any new news, but oil prices moving back on the upside again, and we're trading up 50 cents. So I think that was just some short-term profit taking, more than anything sinister, so to speak. I'm looking at the heat map then from yesterday. You can see big mega-cap tech doing well, Tesla as well bouncing back. A quick look at Facebook shares, I just wanted to quickly bring them into shot, and the reason why is because obviously they were a real weighted factor on the Nasdaq over the course of the last few weeks. You can see here that this move actually through September as a month was very much uniform across big-cap tech stocks, given the yield environment and the increased inflation expectations. But as that has dissipated a little bit, now that the markets have kind of reacclimatized to that higher kind of rate environment, then actually we've seen a decent 6% bounce off the lows in Facebook shares that we were trading just back on the 12th to where we're at at the moment. So We continue to pare back on that initial beginning of October social media outage and the kind of Facebook Files that came out, which are very damaging of the company's reputation on various different levels. So the shares continue to bounce back, but their relative underperformance obviously just leading to a degree of now outperformance on this, this bounce back that we're seeing. Apple, they were up about 1.18% yesterday. Yesterday. So just a quick look at what happened. They kind of, kind of two things. It was a kind of product hardware announcement and that combined then something to do with chips, but also the laptops and the AirPods and also music pricing was shifted slightly. So Apple has cemented its move away from Intel. So be interested to see how they will perform going forward and now unveiling two new high-end laptops using their Apple Silicon chips. So a new 14, 16-inch MacBook Pros have come out, both featuring the M1 Pro chip, an iteration of the first Apple-designed M1 processors that were introduced a year ago. Third-generation AirPods also announced, but this was anticipated. And Apple introduced a cheaper Apple Music plan costing £4.99 a month that can be controlled via Siri, Apple devices, and so on. So as they continue to heat up in that streaming space as as well, getting more competitive on their pricing. So worth keeping our eyes on Spotify and, and other music streaming services. But elsewhere then, just jumping straight into some headline news and talking about this idea of more aggressive rate calls coming out. So Goldman's, JP Morgan, Credit Suisse have all brought forward their forecasts of rate hike to November and said actually they see more tightening next year. To give you an idea of by how much, JP Morgan sees rates up to 0.25% in November, so that would be a 15 basis point increase from the current level, obviously at 0.1%, and then they see it hitting 0.75%, so another 2 subsequent 25 basis point increments by August, so next summer. Goldman are even more hawkish. They see 3 rate hikes at alternative meetings from next month, taking the Bank of England's benchmark rate to 0.75%, not in August, but by May, but before a move to 1% by the end of next year. So they're very hawkish. How much of this do I buy into? I disagree with Goldman's. I don't think that the Bank of England will be able to lift rates that aggressively. I can see the rationale behind why these banks are changing their calls because If you actually look at market pricing, and this is looking out, this is looking at the Bank of England's outlook for rate hikes, and the black bars is the market pricing going into the day before the September meeting, which don't forget was only a month ago or so, and then the, the pink bars are how the market is priced 4 weeks later as of today. Now you can see just how aggressively more the market is priced. But this, of course, is responding to what Bank of England officials have been saying, and especially Bailey, who spoke at the weekend, who did very little to push her back— push back against this market pricing, which would suggest then that he is being serious in his attempt to tame inflation. Now, the rationale why I think that generally this might not materialize is because of the fact of the consequence of what hiking rates would mean into a period of where for the consumer at this point in time, Philip, feeling the pain of many price pressures on their personal finances, not to mention the energy crisis that we've had. The other thing is about the central bank's ability to actually control more supply-side-based inflation, which is really something that which they have very little ability to influence through policy. So I don't really think that just one direction focusing on controlling harbouring inflation via trying to react to short-term energy price spikes is the right rationale. And then I was doing some, some research yesterday, and if anyone who follows my daily newsletter, of which I will put a link to come up here if you want to sign up for that free newsletter I put out daily, but I was talking about the COVID rates in the UK and particularly between the age demographic of, of children, so 12 to 17-year-olds, who are seeing big outbreaks at the moment across the country in COVID-19 cases. And that's as the government only in the last month has started rolling out one-time first vaccinations for schools, but at the moment there's only roughly around 14% of students who have been vaccinated, and there's various different logistical challenges that they're facing at the moment to get these kids vaccinated. And this comes, of course, at a time where seasonally we're going into the winter. We're seeing efficacy rates just continuing to fade. And although we've got a booster program being rolled out at the moment targeting generally the older and the more vulnerable members of society, obviously that then will need to start filtering down. And there's a bit of a race against time here because as the kids continue to be at school and the COVID transmission continues to remain fairly high and is making up the large proportion of why case rates in the UK are now their highest since July. Are they passing that on to their parents? And if so, not just problematic from the parents from a health perspective, but also that the childcare aspect, meaning that they're not able to go to work, and the impact then that can have on, um, just generally the economic cycle at that point and the return to the workforce and economic activity. So I think there's a number of reasons why I feel like at the moment these banks are just kind of chasing a move that's been developing rather than the actuality of what might materialize. So I still feel like there's a bit of an opportunity to fade some of this pricing in due course when that opportunity arises. Otherwise, sticking with the UK, quick word on Brexit. What's the latest? Well, I just wanted to mention it because Boris Johnson has kind of talked on the issue for the first time since talks recommenced last week, and he's promised to find a solution to Brexit's Northern Ireland Protocol. And that's quite conciliatory given the friction that emerged from last week. And to just to get you up to speed of what exactly is happening, so this is what obviously the contention has been since the beginning of Brexit. This, this thing hasn't changed. Northern Ireland's always been the, the sticking point. And the bloc has offered to reduce customs checks, as you can see here, on goods arriving in Northern Ireland by half and inspections on many food products by 80%. So a quite a meaningful move there on, on the side of Europe. But a major sticking point in the talks remains, and that is the role of the ECJ, the European Court of Justice. The UK has said it should have no influence over Northern Ireland, while the EU has said access to the single market requires supervision by the ECJ. And this seems to be at the moment an immovable red line that neither side is willing to cross, irrespective of the EU being a little bit more friendly on the actual severity of the custom checks that they'll be happy for them to be taken. So at this point, timeline, um, UK is a little bit more aggressive on when they want to get a deal of some sort concluded. Europe talking more about the end of the year. So as much as Brexit rumbles on, I don't see any real movement on this for the foreseeable future, not for a number of weeks. So I expect this dialogue to go back and forth, to sound fairly, um, uncommitted and immovable in terms of their negotiating stance at this point in time. And I wouldn't really expect this to start shifting in for another few months, at least until we get towards the end of the year. I would expect. Talking about the RBA, just quickly overnight, um, the Aussie is firmer overnight but comes in step with commodity prices bouncing back. Obviously gold, silver considerably higher this morning, chiefly led by the weakness in the dollar, and that's lifted the Aussie, which has been trending higher throughout the overnight session. Aussie dollars are trading up around 60 pips this morning in the futures market. We also had the RBA minutes The central bank acknowledged that high interest rates would remove some of the heat from the nation's property market, though it would come at the cost of fewer jobs and weaker wage growth. And so at the moment, uh, not really anything too surprising there, more just the Aussie rallying in broader context of the dollar weakness this morning. The other thing, just to get you up to speed on, um, and just make clear, so the headline is North Korea fired a submarine-launched ballistic missile from off its east coast on Tuesday, according to the South Korean military. So overnight now, I mean, that sounds pretty sensational, but in context, the launch reported by officials in South Korea and Japan has come after U.S. and South Korea envoys met in Washington to discuss the nuclear standoff with North Korea yesterday. So this is very tactical. This nearly always happens. So whilst talks are happening in Washington about their nuclear program, what they do is then fire a test ballistic missile back home domestically, just as a little bit of a flexing of muscle, um, away from the kind of negotiating table to, to show what their capabilities are. Again, it sounds pretty sensational. In fact, it's pretty routine behavior as far as these talks normally go. So the market doesn't really care about this sort of thing, albeit you always need to keep just a tiny eye on these things just in case there's a miscalculation of that missile test, which then counters— responds then from Japan in contested waters, and things can escalate very quickly. But not at this point. All right, quick look at the calendar for the day ahead. Incredibly quiet, in fact, for the UK European morning. Not really anything of great interest happening. We go into the US session, we get US housing starts, building permits, um, and you've got the oil API inventory numbers coming out later on tonight. The FOMC discount rate minutes are not going to be of great deal of interest. So in fact, it's pretty quiet on the data slate for today. Speakers though, there's quite a few more. Um, you've got ECB's Elderson speaking just after midday, ECB's Panetta at 1, Bank of England's Bailey, who otherwise would be an interesting one to watch, is speaking today but talking more on climate change, so not expecting him to say anything on this whole rate scenario at the moment. And then from a Fed perspective, quite a busy afternoon on the docket. As you can see here, you've got Fed's Harker, you've got Fed's Daly, Bostic twice, and then Waller. All barring Harker are voting members of the FOMC, and those comments will be kicking off at 1:50, so just before 2 PM London time, running us all the way through to the Wall Street close. Um, and then earnings-wise, a couple of companies to look out for, uh, today. You got Johnson Johnson, Philip Morris, P&G pre-market. Netflix will be the one to watch, that's coming out after market, so I'll get you up to speed exactly how they came out when I deliver this briefing same time tomorrow. All right, that is it. So just a reminder, Don't forget to check out the Amplify Instagram account. It's now fully up and running, posting every day. Love to have you as part of that community online. Otherwise, have a good session ahead and see you tomorrow. Take care.