Has The Tide Turned For US Stocks?

Okay, very good morning. It is Anthony Cheung here, Head of Market Analysis at AmplifyTrading. Don't forget to like and subscribe to the channel. Got some great video content from the rest of Amplify team coming up in the next few days. My colleague Eddie is going to do a special video on Saturday which we'll release, which goes into What are negative interest rates? What do they mean? Why do central banks do it? And all these other kind of associated questions, given that it's a real hot topic right now. So that's going to go out on Saturday. Then on Sunday, Sam North is going to be back and he's going to be looking at the charts technically for the week ahead. So remember to subscribe, you'll have access to all of that free content. But just having a look then at the markets this morning, and then we'll get into some of the news headlines and things I'm looking at for the day ahead. Starting with then the general risk-off tone to proceedings this morning. You can see here equity index futures lower. The DAX is down about 136 this morning, comes after a lower close on Wall Street. Bit of a combination of the post-Powell sell-off, still tensions growing between the renewed escalation of the trade rhetoric between the US and China, and then also we're on COVID-19 watch still. With the emphasis on countries like South Korea and Germany with some of the renewed kind of flare-ups that they've seen in confirmed cases after they had looked to loosen some of the stringency of the measures that they had had in place for a number of weeks. So 3 major themes there, and that's what's creating a little bit of the risk-off atmosphere. The dollar index, you know, really nice strong move as we were calling during that release for some of our internal traders. At the time, given the fact that he kind of pushed back against this idea of deploying negative rates right now at least. And that then we saw as a firm dollar buy signal. And the major currency pairs still under some firm pressure for the moment. Cable down 30, EURUSD also slightly negative, maybe a little bit more pronounced in, in the sterling currency. Fixed income futures and gold then just generally fitting that narrative. Gold just looking to get above or at least test the overnight Asia Pacific high. And interestingly, with gold, you can see in the top right here, we've basically over the last 2 days gone from a sub-$1,700 handle all the way up to now getting up to $1,730. So, you know, really strong move, $30-plus type movement, up 11 already on the session. And the US 10-year is currently just shy of its R2 in its daily pivots in the futures. Trading up about 6 ticks. The only one asset perhaps then we're looking at here across the different products isn't really seeing too much movement is oil at the moment. I would say attention probably focused elsewhere for the time being now that that kind of negative oil price kind of saga has, has quietened down considerably in terms of the volatility in that asset. So yeah, some things to talk about then, and let's kick off with the main man Jerome Powell yesterday. It was a highly anticipated speech, of course, and the reason why is because the end of last week, as we had discussed before, the federal funds rate futures had moved in a way as to indicate then that toward the end of this year we could be seeing negative interest rates in the US. And now, this has not happened before, but it's not a completely unusual thing to see in terms of it being a discussion point as a policy tool. It is already and has been deployed in the likes of Japan and in the eurozone, but there's a little bit— the jury's out on how effective it has been. And so what a lot of people are looking for is what is— what's Powell gonna say? So there's a few things he did say. Powell warned economic risks from the virus are significant. He said that tensions with China are flaring up again, and he also pushed back against the notion of deploying negative interest rates. He continues to put the pressure on governments to do their part on the fiscal side, saying that the threat of a lasting downturn could deepen without additional government spending. And that does look somewhat forthcoming. Obviously, we had that renewed bill of nearly $3 trillion that the Democrats want to put forward, but as yet to be seen what the Republicans are going to do in response. But we've already seen multiple packages offered, and given the economic situation, is going to get materially worse, I'm afraid, from where we are at the moment, particularly in the US, then yeah, more stimulus definitely is in the offing going forward. Um, yeah, interesting. Then if we look at the S&P chart, let's just bring that up for a second and we can discuss a few different things. So let me just quickly transition a few different screens. Uh, let me switch over to the chart. Now I'm just going to remove my my camera, and that will allow you to see the full kind of annotated chart I've got here of the S&P 500. Now, a few different things here. I, you know, I've been keeping a rolling log of some of the fundamental catalysts that accompany some of the price movement that we've had. And as you can see then, we're, we're basically right back around the areas of when Trump was really criticizing China, right back at the beginning of the month when we had that gap down at the reopening of trade. We then had a really big push-up This was really most of last week when we were, you know, talking about negative rates. US-China actually sounded a little bit more positive towards the end of the week, and then we had that post-payroll rally, of course, where those numbers, although economically significant, weren't as bad as perhaps markets were fearing. Since then though, it's been a, it's been a totally different picture this week thus far, and, and we had that late sell-off on Tuesday night. No real distinct clear one catalyst But you can see here, technically significant. We broke through the bottom end of a range that we had been playing out for a couple of sessions, and you can see that's had previous importance over the earlier part of May as well. And that caused a little bit of a spillover in prices going through into the close on Wall Street and then into the aftermarket session, where we basically bottomed out there at around the lows that were seen on the 6th. This time yesterday, we obviously bounced and recovered a little bit. Got up until waiting then for Powell to speak, and then we, we just started to sell off quite aggressively. Now remember, in a more simplistic sense, equities tend to like policy stimulus, and from a monetary policy side, you know, the negative interest rate would be the next kind of evolution of that beyond what they've already done at the moment on the unconventional side, at least. And the fact that he He hasn't completely ruled it out, of course, saying he's never going to do it, but he isn't going to do it right now. And for markets then, against those expectations, it's a little bit of a disappointment. And so we started to sell off. We found a floor then in the Asia-Pacific or late US session, and then we bounced back up. And then in Asia, we've been seeing a little bit of heaviness again on these renewed US-China tensions, which I can talk about in a moment. But here then, for me technically, there's a couple of key areas now, I'd say, from where we're at at the moment. Obviously the early European floor was seen just below the 2800 level, but there's kind of a band of price movement here. On the upside, I'd be keeping an eye intraday on 2823, so this rectangle at the top, which is the overnight high, but also those low points you can see on the 6th and the 13th. And on the downside, if we retest again using the Asia, which late US session as the, the kind of framework there. 2783.75, that also is around those lows on the 4th. And then if we push down below there, then you've got in the interim the S1 on daily pivots in the S&P future. But then you've got that low seen here on the 4th at 71s, and then down at 2755.25 would be those lows going back into, uh, kind of late April. If we actually look at the S&P though on a, on a higher time frame. So now we're looking at daily continuation chart. There's a few things I wanted to just quickly show you. One was this trend line. This was looking back from the kind of April low point. You had a double bottom in the 21st, 22nd of April. You've had a retest on the 4th of May. Then you had a failed break below it. You know, we said that big push down, but then we recovered on the 13th, which was yesterday. We then opened below that point, and now you can see that trend line is acting as a little bit of resistance now to that move. So just given the context of a lot of developments in the news at the moment, I guess fundamentally you'd have a bit more of a bearish bias to today's session at least. So looking at some levels, and we've already talked about those levels on the downside here on the intraday, what I wanted to do was just bring in a little bit of more of a medium-term outlook, perhaps then what could happen over the coming days, weeks type horizon. And so here then, if we did get below that, the May 4th low. The next area I think is quite key is around here, which is 27, 17 to 28. That is that April double bottom, but you can see here it has had significance on a few other occasions. If we go back to then what would be 2019 March, and then also retest in late May, early June, that's that rectangle there. So I think, um, a Good area of support would be seen there, and then any break below there, if that were to happen in the future, then 2623.5 I'd be keeping a close eye on. You can see here now the market, after we had this monumental sell-off from all-time highs to the March 23rd bottom on the back of really the pandemic pricing at the time, we've had this almighty rally. But here you can see on that journey we got up to a— which really was just above 2600 handle we had a couple of days of failing to get above there. And actually, I think that was a fib level as well. Let's just double-check from the all-time highs, that March 23rd low. Yeah, you can see that's that, that fib, uh, 382 level was around the close proximity as well in that kind of zone of price activity on those late March highs. When it got rejected, we actually pushed down a good 200 points or so, but when it came back through, eventually got above it, you can see it acted as a bit of a floor for price then to push up another 100 points to 2,700. So for me, this is a really key area here, this kind of, uh, 23 to 30 type area down as an area of support. And if we go further back, again, this rectangle here, that starts to bring in some of the late Jan '19 support points and also the October and November bounces that we had back going all the way 2018. So yeah, a lot of banks obviously split opinions at the moment about, you know, Are we— have we, have we risen too fast too soon in the equity market? You know, are we just going back to all-time highs now? Are we going to see, like GS was calling for markets basically to come all the way back down to this kind of more like a 2200 type level, which is back towards those March lows? Um, you know, the jury's out. And how can we ascertain then whether or not this is going to happen? Well, there's a few things that I'd be watching. And if we go back to the headlines now, if I switch back over, so Powell obviously is, is one. Um, the Fed chair outlook uncertain, downside risks are significant. Um, and this idea then that if a negative rate is not going to be forthcoming soon, but the, uh, let's say secondary waves of the pandemic become worse on the reopening of certain states in America, which if you were to believe the top coronavirus expert in the US, Anthony Fauci, his recent warnings that potentially dire consequences, of course, of reopening states. Now, this is the, the, the big risk that Trump now runs. Of course, they need to reopen these economies, but with it comes grave danger of then a new episode of a large and significant outbreak. And if the Fed aren't in a position yet, and I think it's the right strategic move for them they don't want to deploy all their weapons or bullets at once, then the market's got to come down a little bit to reprice for this new, this new expectation. The other thing then is China. Now, China, I'm going to show you a couple of a few different things and just leave the soybeans aside for a moment. There's a few things that have happened, obviously helping to sour some of the sentiment yesterday was Federal Savings Plan has been delayed in terms of moving funds into an index that contained Chinese stocks. You know, whilst this trade war is going on, they obviously don't want to be putting federal funds into what's going to be helping Chinese companies. So that being delayed has stoked tensions. And then overnight, um, we've had a source report that China will soon impose countermeasures on those seeking COVID-19 damages from China after President Trump extended an executive order basically protecting the US supply chain from Huawei and ZTE for an additional year. Not only that, in the overnight session, so separate from the trade war, the PBOC, so the Chinese central bank, they also disappointed expectations. Some people were looking for a medium loan facility, an MLF announcement that wasn't forthcoming. Neither was an associated 20 basis point rate cut. And so that, again, a lack of policy action could be seen as a negative, at least in the intraday environment. So yeah, a few things there. So that's covering off Powell and what's been happening and the negative connotations, uh, coming from that situation. Then the escalation in the trade war. And with that, one thing I wanted to mention was an article in the FT. And, and, and I guess this is more for a little bit of a lesson about how to track and monitor these things. Um, this is talking about China's record Brazil soybean imports. Impeding US trade target. Now, if you remember, Phase 1 of the trade deal which they struck at the beginning of this year— I know it seems like a hell of a lot has happened since then— but part of that was contingent on China upfront purchasing an additional $200 billion worth of goods over a short, relatively short, 2-year period. Big amount of that would be the purchasing or importing of American agricultural goods, which is particularly key let's say politically for Trump, because products like soybeans, of which China's the biggest consumer, US is the biggest producer, are typically grown in Republican states. Um, and so those are ones of which Trump really wants to, to help, uh, in that sense, in order that they're quite pivotal and key to get him over the line for this presidential campaign. So here then are a few interesting graphics to show you. And there's a few other resources I want to share. For one, Brazil soybean shipments to China have hit a monthly record. Now, this was quite an interesting observation seen back in 2017, 2018 when the trade war was really kicking off, or I should say 2018, 2019. And what you had was as tensions started to flare, we started to see quite a distinct pickup and shifting from the US product given the tariffs and so on over to Brazil, which is one of the largest producers other than the US of soybeans. And here you're seeing a similar thing. So in 2020, which is the blue line, you can see how purchases then from China of Brazilian soybean shipments have picked up against 2019, the pink line, and the shadow, which is the previous 4-year average. So again, it's almost like a Chinese hedge against the deterioration of trade relations with America, that they can stockpile and get their key ingredient for the main staple of their, their cuisine, which is then soybeans for pig farming and pork and so on. Now, why is that so important? Well, I guess context is quite important for understanding this type of information, and soybeans account for almost two-thirds of all U.S. agricultural exports to China. Now, you can see it quite clearly here. They There are other things— cotton, hides and skin, things like that— but it's predominantly soybeans, hence the reason why that soft agricultural good or commodity is so important in this trade relationship at this present point in time. Why go to Brazil? Well, I mean, look at the price. It's like walking into a shop and seeing two products, but one is literally 25% cheaper than the other. I mean, it's a no-brainer in some senses. But I guess the, the thing that's impeding China from shifting entirely to the Brazilian product, even though it's considerably cheaper— as you can see, the disconnect here that has happened since the trade war has taken place— is that, look, they don't want to see US retaliation in other forms. So they do still need to be purchasing even at a higher price in order to keep these, these more positive relations alive. A good thing then, and what this is leading on to, and I wanted to show you, was this. This website is the Economic Observatory, and it's a really good website where you can do lots of different kind of visual statistical analysis. And what I'm looking at here is then an example that I was tweeting the other day. And when you think about the Chinese and the US trade war, my mind starts to think about, well, what are the other associated risks here? And Australia is a key one. We saw this yesterday We had some news about the, um, the beef imports from China. China saying, well, look, if you're going to open an independent inquiry over the origination of COVID-19, well, you can forget us buying your beef. And so we're going to ban any imports from several Australian abattoirs. We had a similar situation with coal as well, which is quite a key product of which Australia shipped to China. So whenever Australia want to do anything politically. It's very sensitive because they're so dependent as a trade partner with China. And the other thing is an increase in tensions between the US and China that creates more negativity in the domestic situation in China is going to reverberate down into the Australian economy as well in terms of the appetite of demand to purchase their goods. So what's quite good then preparation to do if you're going to be a really effective macro trader, particularly in the short term where you do want to be quite responsive to news developments, for example, is just knowing the makeup of these relationships. So here, quite a cool thing that you can do is you can look up different countries and you can basically look at any country to any other country. You can shift the variables here on the left-hand side and you can look at— so here, what does Australia export to China? So what actually are these goods? So when you hear a headline, you can immediately have conviction that, yes, I know this is important, or no, it's not. And that can factor in then to potentially a management of a trade or the implementation of a trade. So here then, mineral products, by far then the, the biggest kind of export to China from Australia. But the cool thing here is that you have different depths, market depths that you can look at on this heat map. If I go to the most extreme, You know, it's all well and good saying, well, mineral products, fine, but what is a mineral product? Because there's lots of different— this breaks down into multiple different things. And as you can see here, then it starts to go into every unique product: aluminium concentrates, magnesium, precious metals, silver, zinc. But you can see iron ore makes up then 46%. So that, you know, what I like to do is work out then when there are these other countries who potentially could be at risk, or there could be a potential trade opportunity, let's say, as a proxy in the FX market. And the Aussie is, well, where are Australia most sensitive to a potential development? And, and basically I just have these mental notes in my head, um, and I'm able then to be more responsive to as when things happen. So hopefully that's a useful lesson going forward. All right, moving on. The other thing I wanted to mention then was COVID-19. This obviously is— it's almost like we, you know, we've been talking about Powell, we talk about trade war. There seems to be a little bit of a mounting accumulation of some risks coming up. And this was obviously the kind of base one that's always been a clear and present danger we knew on the horizon. And that was that the eventual loosening of the lockdown measures could globally, it was going to lead to potential then an ability for governments to manage what is an inevitable second wave. The key is about kind of flattening and prolonging that so it doesn't put excess pressure on the authorities or health services so that it can be managed and you don't get into this exponential growth that you had back in the early development of phase 1 of this virus. So here, obviously, there's a few things. The last couple of days, obviously, that, that US health expert putting out the warnings over the US handling of opening too early could have dire consequences. Germany recorded its highest number of new coronavirus cases in 5 days yesterday, just short of 1,000 new cases. And this comes after, of course, that their— you know, the interesting thing here, it's almost like a litmus test for how governments are going to handle and how the virus response is that South Korea has had issues. They've gone from— these numbers are small, but they've gone from around 30 to 133 cases in 24 hours, you know. And this is, this is where the difficulties lie at this point, you know. One guy in South Korea literally went to 3 nightclubs, but within each nightclub are hundreds and hundreds of people. If they are infected, they will infect then potentially another 2, 3, however many people, the R rate as it's now known. And then obviously that's when you get that massive acceleration phase at that point. So yeah, definitely still risks. And you know, the UK is going through these very tentative early steps elsewhere in France and Spain and Italy. But if we start to see similar elsewhere, and it is significant, and obviously that's a massive risk as well. And that obviously coming at a point where at the moment you've got trade war, you've got the Fed not really willing to do much more right now, you've got a little bit of confrontation on Capitol Hill. It's like, well, look, the Democrats, we don't like your program because it's excessively helping New York and California, for example. You know, any tit for tat and an inability to really move forward in a coordinated effort on the fiscal side like what we're seeing in the eurozone, it's another negative. I'm afraid at that point. So yeah, still watching that, of course. And then the other thing that I thought I'd talk about this morning was there's a lot of Wall Street heavyweights, big hedge fund managers now coming out and getting increasingly downbeat. Now, I don't, I don't follow one particular hedge fund manager and kind of pin my, my flag on him and say, well, look, if he says that, that's what I'm thinking. You know, the, the best thing I can say as advice when you're trying to analyze markets is that, look, my view doesn't matter, your view doesn't matter. What does matter is our understanding about what does the market en masse feel, where is the headspace of the general herd at this point in time. And for me then, what's key for trading is ascertaining when there is a shift in the wind, if you like, and we move from phases to being positive to neutral to negative. And what has been happening— and it's a little bit sensationalist, this article— but there definitely is a bit of a sea change ongoing, I feel. Um, and let me just run you through a couple of the, the key names because a lot of them you probably would have heard of before. So Stanley Druckenmiller said that equities are too high. David Tepper called this then the most overvalued stock market ever outside of the 1999 bubble. Leon Cooperman predicted the government's actions to combat the pandemic will lead to higher taxes and regulation. Again, that point specifically I think is one that's being massively underplayed in the markets. Um, you know, in the UK, I think we were initially looking at, um, I can't remember, it's the budget, the fiscal deficit of, say, situation of, say, tens of billions in normally managing the economy, but now that's going to be nearly 400 billion given the massive government spending that needs to happen. And obviously the Chancellor in the UK extending the furlough government cover for another several months is going to add more and more debt. That does mean austerity. You know, there is no such thing as a free lunch. And I don't think, you know, obviously needs must in times of extremes, which definitely is a pandemic and people's lives at risk. But again, I think that's one of the things that is going to really restrain that kind of recovery shape over the coming years because, you know, the, the depths of which they are spending at the moment is just mind-blowing and it isn't going to be paid back anytime soon. So I definitely agree with Leon Cooperman on that front for sure. Tudor Jones told clients in early May he was investing in gold and even putting a small percentage of his funds into Bitcoin as he was looking for some safe haven exposure. Carl Icahn said that in late April he wasn't buying stocks. Obviously Warren Buffett was talked about at length in the last couple of weeks having got a call wrong in the market, particularly on the airline sector, and he was saying at the time there's nothing he'd want to buy. So, you know, a lot of these heavy hitters definitely are coming out on that side of the fence at the moment. Now, as I said, That doesn't mean, right, I come in today, sell. But what I do do is I keep an eye on, you know, I read what the banks are saying, I read what their hedge fund client surveys are saying, I read what these hedge fund managers are saying. You know, that's how you get that feel for that bigger, more medium-term outlook, if you like. And that's quite key because there is a point coming, I feel, particularly in the US equity market, um, soon. All right, a few other things to run you through. Goldman Sachs, they see US jobless rate peaking at 25%, not 15%. I wanted to point this out because it leads me on nicely to a quick summary of the jobless claims we've got coming out the US, of course, later today. I don't find this headline shocking at all. I don't think it's a real market mover at all. If you think about it, the unemployment rate came in around that figure that they had previously estimated already in the previous month. But if you think about the elevation of jobless claims being around a 3 million on average marker the last couple of weeks post then the survey period of that payroll report, it's a no-brainer that unemployment rate is going up, and 25% doesn't sound unrealistic at this point. On that front then, you know, this is what the initial jobless claims look like And we've been seeing for 5 consecutive releases, or 5 consecutive weeks, a declining trend of the severity of initial jobless claims. Don't get me wrong, they are still huge figures, which does mean then that the next payroll report will all equally be, um, a fairly spectacular number. Perhaps not so much as the last one, but still, um, really hitting home the economic reality of what this this, this pandemic has created. But what we're looking at here, the expectation is for 2.5 million. That would be a continuation of this downward trend, and you would expect that to probably continue. Only if then a second wave kicks off and these reopening plans need to be put on hold, we go back to more stringent measures, that could potentially then lead to an increase or re-increase of these numbers. The top end of the range today is 3.1 million, and I think if we get north of that and we start getting like 3.2, 3.5, 4 million, I think that could potentially be interesting. Obviously equities and markets generally a little bit fragile this morning. If we start to see a re-elevation in this figure when it's anticipated to continue this downward decline, perhaps that could be a bit of a catalyst for the afternoon session. We shall see. Some other things from overnight, just so you're aware, you had Australian employment slump to a a record, basically. This is what it looked like. I mean, it looks pretty scary as a figure, but again, you know, markets can digest this type of information given the fact that we've already seen the developments in America and elsewhere. So yes, it's not a pretty picture. The monthly change in employment in Australia has dipped hugely, but, um, the Aussie dipped overnight, it's already recovered more than half of that move already. I guess from a risk point of view, directionally the bias could be negative for Aussie if it comes up to a strategic point to get short again. I think fundamentally perhaps it makes sense. Monitoring the trade war is key, as well as these domestic developments happening on the ground in Australia. For the actual calendar for today, there are a, a few things to look at, predominantly based in the US session. You got the IEA monthly oil report coming out at 9 o'clock London time, so not too far away. Just given the context then of the, the potential monitoring of demand, you know, are we starting to see a bit of a pickup in a sense of, you know, China, although retesting in Wuhan given that recent outbreak earlier this week, generally has been looking to get back active again. And obviously that's quite key on the global demand side. But then equally on this, on the production side, you know, the OPEC+ and the G20 oil producers, how well or how quickly are they moving to this new quota level? So definitely worth keeping an eye on in the energy market. Then in the US, the jobless claims, import-export prices. Speaker-wise, you've got Angela Merkel has been speaking this morning. Haven't really heard anything as yet, but keep an eye out just given the situation there with the coronavirus. You've got the Bank of Japan governor speaking later this morning. You've got the German finance minister also talking, the EU Commission, but that's on the European green recovery. That's not going to be a market mover. Bank of Canada's Poloz, uh, de Guindos from the ECB at 4 o'clock London, Kashkari later on in the evening, so midday Chicago or 6 PM London depending on where you're based. All right, that is it. So any questions, of course, just feel free to drop a comment. Absolutely happy to engage with, with anyone and everyone. Again, as I always say, don't have to agree with everything I say, but I do hope in terms of aggregating and making sense of the news day to day that my, my sessions are useful. Subscribe to the channel. That other content from Eddie on, on an explanation, more deep understanding of negative interest rates is gonna come out on Saturday, and then Sam's gonna have his weekly technical piece that we're gonna start doing that will be released every Sunday. Alright guys, have a good session ahead. Thanks very much.