Heavy Selling As Trump Bans Travel From Europe

OK, very good morning. It's Thursday, 12th of March, and getting straight into the briefing. And as you can see to the side of me, this headline from Donald Trump, who gave a nationwide speech last night in order to reassure the public, has somewhat backfired in terms of how markets have received it. You probably saw it last night, the close on Wall Street was down heavy once again. Um, losses in the Dow kind of south of the 1400-point mark, and the S&P has broken through some significant areas of potential support now. If I just have a quick look on the daily chart, I'm going to refer back to this again in a moment, but you can see we were down around that 2730 level, and that was a number that would be eyed by a number of those banks which we've talked about quite a few times in the briefing. But we managed to punch through there, and you can almost see the, the importance of that level because when we did break through it, it dropped again substantially, another 100 points or so to where we are roughly at the moment, where the actual candlestick low we have printed just around 7 points above the 2600 handle. It's bounced a little since then, But obviously still down 110 already on the session, having Asia Pacific region followed suit from the sharply lower close on Wall Street. I'm not going to go into the downside targets just yet because I'm going to get Sam alongside me and a little bit different here. We're going to have a chat side by side about what we think of downside targets, because I think we need to start being prudent now and thinking about longer-term levels. Elsewhere then, gold a little bit unreceptive actually to a lot of this move. It's almost like people have just had enough of that now after that big ramp up we had about a week and a half ago or so since that kind of bubble popped on that, that big run above north of $1,700. A little less appetite at the moment, but still seemingly, as we've talked to or talked about, is this idea that it's still probably going to remain an asset that will be supported in the period ahead. The kind of general feeling is markets are in a particularly fragile state at the moment, and further downside at this point I think definitely cannot be discounted. So even if gold does come back down a little bit more from here, I still think it remains largely elevated in the grand scheme of things. In terms of US T-notes, Uh, it's almost like a small day now, up 23 ticks at this time this morning. I mean, in a normal situation beyond this last period of 3 or 4 weeks, I would say at the European Open a 9-tick move would be a big deal coming into the European morning. Now in today's world, 22 ticks up in the 10-year is pretty small compared to what we have seen on a couple of occasions more recently, but Yeah, T-notes up sharply. You can see the bulk of the gain coming in the overnight Asia-Pacific session, so post-Trump speech about the travel ban and the kind of sharply lower close translating into a negative performance in the Asia-Pacific region. And we remain up and around close to the R1 at the moment on the daily pivots there. And then WTI crude, of course, getting hit badly again on the back of what Trump has said. Obviously travel bans gonna impede the airline sector dramatically once again. You're talking about, you know, a huge population when you think about Europe as a whole in terms of travel. And so oil taking another hit, and this comes in the context of course with the likes of Saudi looking to flood the market at the moment. So again, listening to Sam, I think prudent if we start thinking about where could this market go to on further downside movement? Well, let me get you up to speed on the headlines first, and then we'll go into that conversation on the technical front. And so if you did miss it yesterday, um, there's a couple things to be aware of. Well, let's go in the sequence of events. So first of all, um, you had the World Health Organization Director-General, this chap here, who yesterday labeled coronavirus now a pandemic. Now, I don't think that's the catalyst for why the markets, uh, have moved like they have so far this morning. I think this was all but inevitable, and so the actual definition, if you like, from epidemic to pandemic, I think is of little consequence. But certainly now, this meaning that the virus is on a global scale outbreak and is expected to be worldwide is what this effectively means. However, this does then, if you think about it from a political point of view, governments, if they had in any case been hesitating, they really don't have a choice now because the major body, the WHO, have said this is a pandemic. And so governments would not be doing their job if they didn't really take now definitive action. And so that then, if we follow this through, we go to Trump. Trump then was going to give a national address in order to kind of, um, ease any concerns that the broader public may have had in terms of the administration being able to control this apparent outbreak, uh, and, and further developments that were expected in the United States, uh, he came out with a surprise, uh, and that surprise being that he suspended all travel from Europe for 30 days. Now, I'm not sure if he actually saw when he delivered that specific line, but he basically said, "We're gonna suspend all travel from Europe." Now think about what that means. That means trade as well, right? Well, that's how the markets took it, and that's why the move initially was quite, quite strong, was because actually it was a bit of a misinterpretation. I don't think he was particularly clear, and actually what he did was, as soon as he came off air, he probably got his advisors going, look at the market, look what's happened. So he quickly hit the— hit his Twitter account and came back out and said basically, just so we're clear, trade will in no way be affected by the 30-day restriction on travel from Europe. So, you know, that would have been a pretty horrific outcome for markets if it was going to be a travel ban. You would have— you would have seen a move way far greater than what we've had so far. But nonetheless, the move, unprecedented in itself, has had a big impact. A couple of other things on the Trump point before we move elsewhere and how other governments around the world are dealing with this. First of all, if you think about, about 2 weeks ago, Trump said that the $8.5 billion Democratic proposal to tackle the virus was too high. He was only asking for $2.5 billion. But you remember then, a week later, that $8.3 billion got signed off. So he was originally kind of saying, actually, you know what, this virus is a Democratic creation, it's nothing, it's not going to be anything. That was only 3 weeks ago he said that exact comment. He then said we only need a small amount, $2.5 billion, but then he settled on a number around north of $8 billion. He's then called for a 3-month suspension of payroll tax which is going to cost at least 300 billion. So he's gone from 2.5 to 300 billion in about 2 weeks. And so not only that being 100 times larger than his initial gambit, if you like, he now doesn't really have— so far, and I was, you know, what I was quite interested to see yesterday was actually in the UK budget a degree of fairly detailed measures in order to help, say, small businesses, which are obviously going to suffer the most if they cannot facilitate trade. And if people are put in these quarantine measures where they can't freely go about their business, they're the ones that are going to suffer. And so that's going to impact the economy. But with Trump so far, look, it's continuing to be quite light on the ground in that respect, and markets are becoming increasingly frustrated and disappointed by this. The most glaring omission from his plans so far has been any type of increase in America's capacity to test infections. Now, I did see quite an interesting statistic this morning. In the US, they've tested fewer than 6,000 people from a population obviously north of 320 million. To put it into context, the Netherlands, with 17 million people, is testing that many people every day. So let me just, let me just reiterate that. So the Netherlands are testing 6,000 people per day and they've got a population of 17 million. America's tested 6,000 people so far and they've got a population of 327 million. So yeah, there's a lot of, I guess, apprehension then about how quickly, how rapid those numbers in America could quickly go to 1,000 to 10,000 to 25,000 to 50,000 and beyond. And this is what's being reflected somewhat in markets at the moment. So yeah, lack of detail from Trump. It's kind of, again, as we said before, a lot of bark, little on the bite on the detail. And that's what's got to be forthcoming in order to alleviate these current market concerns. What has this led to? Well, elsewhere Italy now have taken the next step. They're kind of much more further down the line in terms of this quarantine measures. They've shut down shops, restaurants now. So all stores other than groceries and pharmacies will be closed. Just imagine the economic implications of that. So anything other than groceries and pharma— pharmacies are now closed in Italy for the foreseeable future. And yeah, I've got a couple of other notes here. On Wednesday, the Prime Minister Conte announced he's increased the emergency stimulus package worth up to €25 billion now to help struggling businesses and families. So again, these, these, these fiscal interventions now are a necessity, not a choice. It's just a matter of how big and how quickly they can deliver them. In the UK, same thing. Boris Johnson, he is holding one of his emergency COBRA meetings later on today. So we're likely to get a press statement from Number 10 Downing Street at some point where Boris Johnson is expected to say that we've gone from the containment to the delay phase of this outbreak. Now, what's going to be the interesting point here is do we now start again following the Italian lead, of which we saw there the first step being that school closures and restrictions on gathering among options. So what is it, the Cheltenham races that are going on at the moment? School closures, but then obviously knock-on effects that could have on parents' ability to go to work. And this generally then is the, the first in a step of sequences which ultimately leads to more people working from home. Colleges and universities also shut down as well as schools, but then does that then start to hit them, the main kind of high street as well, like we're seeing at the moment in other European nations? So yeah, everything is escalating at the moment, and hence the reason why the market is moving like it is. It's almost like a trigger point though, for sure, was the travel ban coming out of Trump, which puts a lot of pressure on a number of key industries. When you look at the specific stock sectors that have been getting hit in this current environment, particularly those airline firms. As I said then, oil and gas, and particularly oil on the travel ban, getting hit hard. And of course, this does come in the backdrop of the OPEC blowout that we had at the end of last week. I mean, I'm just gonna have a look at oil. Let's put it on a daily to have a look in a slightly slightly more longer context. And while I do that, I'll ask Sam to come over as well so we can talk about some of these equity charts. But, um, let me just remove my camera so you can see some of my screens a little bit more clearly. See if that works. There you go. So you'll still be able to hear me. So this is oil, and you know, it's been a phenomenal move that we've had, um, obviously since last Friday. I mean, just having a quick look on a percentage basis from where we were roughly trading around a 45 to where we are at the moment, which we're still down about 40% on that low to where we are at the moment. Obviously we bounced a little bit up to the kind of 30, uh, 31 level, so we're still down about 32, 33% at current price. But for sure, that lower bound level of 26 would be the big target. That's that 26— 2016 FEB low when we had the big crash initiated really from November 2014. When was the last time— well, let me just put in the lips here so I can give you the narrative. So here was when OPEC took the unprecedented decision to oversupply the market in order to put pressure on the US shale industry and to squeeze them out to maintain their monopoly, obviously, in control of the price of oil. But then that, in addition to The supply glut with the slowdown in China and fears of a hard landing saw that ultimate low down at the $26 handle, which we saw a double kind of test in Jan/Febr 16 before the eventual more aggressive OPEC action to drastically cut supply kicked in. But here we're right there again, and, and yeah, I'm pretty confident at some point we're going to see a test at that level, and that then gets really interesting And then I think if we start to go down towards $20, these, these countries are going to have to get together because as much as they can play this kind of this game at the moment of trying to challenge them, and this is what some believe the Saudi strategy is, is to force prices down to those levels. So it brings the likes of the US and, and Russia back to the table. And really, there's no way that they can sustain prices that low. They've all got to take coordinated action. All right, well, look, let me get Sam over, and while he's here with me, um, I'm gonna make this chart on the S&P big, and I just wanted to have a quick chat with him while I'm here about this chart. This is the S&P, and perhaps we can look at the Dow. I understand the Dow's, um, in bear market territory, but start with the S&P because obviously Sam can add a bit of a technical talk. And I come to this with— when he first came in the office earlier, first question is, right, Sam, if you had to pick some levels of where you would want to get long— and this doesn't necessarily mean to be permanently long, but areas of opportunity that could come on further moves to the downside— what would those areas be?

Yeah, well, you can see— let's get the 200-day moving average— just how far away we are from that now. I think that the trend line uh, that you got on here with your technical analysis skills. I think it's, it's bang on. He's got to have that. So that's 25, 26. It's the low that we had in 2018. And I mean, you'd be a brave person to think we smashed straight through that. I think there's definitely a case for a bounce, um, technical profit-taking, longer-term buyers coming in around there. Do I think that's going to going to be the bottom? No, but I think there'll be a good case for, for price to, to bounce quite drastically higher from there. But also, you know, if we have a look at that, when I said 2018 low, I meant the, uh, the one from the beginning of Jan. Uh, the December one I think is then that next sort of obvious place where price could, you know, longer term be sort of some sort of bottom for, for us to go higher. I, I think those are the two 2 key levels. I think both of them are inevitable, um, but I think we bounce from 25, 26 first.

So let me ask you this then. So if anyone who's, let's say, new to trading and they were looking at this, so how do you approach this? Do you, do you look to get along at those points? And if so, how do you manage that trade? What's your target kind of strategy? Or do you look to trade the break then of 25, 26 onto the moves lower? Or both. I mean, yeah, yeah.

I mean, the, the way— I mean, this market's headline-driven at the moment. People were talking about before Trump was talking at midnight, you know, it's going to be an opportunity for equities to go up. And if you're positioned for that, you're, you're licking your wounds this morning. So it could well be that we come down to 25, 26 and there's, you know, some massive new development which means actually there is no bounce and it goes straight through. So I think it's a wait and see on these levels. I think if, you know, I always like reminding us back to, to the 120 level in pound last year. It's, you know, yes, you're likely to get some sort of initial reaction around there, but also, you know, wait to see what happens. Let the market tell you what's going on. The daily close is also, you know, not a bad indication, um, or, you know, the way these markets are moving, the hourly close, because of course it could well be that we hit that, we bounce, and next thing you know, we're 50, 100 points higher. So it'll be a wait and see. Price action will be, will be king around these levels, I would imagine. Um, but yeah, we're, you know, it's what we now— 2626. So another 100 points lower. Uh, obviously, I mean, that's unlikely to happen today, uh, as you know, we've got limit down not far below here, and that will pause price action till 1:30, and, and who knows what happens after that.

But what about the Dow?

Well, the Dow is, you know, stupidly I said to you and Alex, if it gets to 21,000, I'll work the rest of the year for free.

Oh yeah, I remember that. Yeah, yeah, let's put a little hang about. Hang about.

I had my fingers crossed, which I didn't. I should have said at the time.

You told me that that's it, that's the marker right there. I'm gonna leave this on.

I'm gonna have to hedge this.

Right there, little bullseye right there. So Sam North can do all my laundry, he can make my sandwiches every day, he can fetch me my donut and coffee every day. This is the Sam, this is the level right here that I'm concerned about right there.

Yeah, but I'm gonna hedge this with a short one way or another. But unfortunately, just above that, 450 points, which the Dow can do in 3 days, 5 minutes on a Friday afternoon, uh, is probably the key one, the one that we're going to be drawn towards. And you can see, uh, obviously got limit down again not too far away from where we're trading. That can pause things today. But yeah, the, the December lows, the Boxing Day lows, I think will come into play. We almost need to take them out, I would say. And actually, I think a good way to trade this, if you're looking for that longer-term opportunity, is for us to break through, to then come back above to then find support on there to then go higher. That's the only way really I'm gonna look for some concrete opportunities to get long, like we had with those trend channels when we came back above, we then found support and went. So that's how I'd be looking for that. I think 21,500 is going to come. But, you know, much more than that, 2016 levels, I don't think so. But, you know, it's, uh, it's not a pretty picture this morning, you know, in, you know, this side of the pond or, or the other.

Okay, well, look, while I've got you here, because I still need to talk about the ECB, but before we do that, because perhaps let's just look at the oil chart and then perhaps I can talk about the ECB and you could talk about the euro from a technical basis.

So oil, yeah, I mean, euros just had a bit of a push lower there, but, uh, ECB day, oil, um You know what, I, it was, it's a tricky one because when I look at oil from what it did on the initial bounce from almost that 26 level from 2016, you think how can it get that close and not test it? Um, what do I think would come first? I know a couple people messaged me this, so I think the gap fill or 26. I think 26. We obviously got that push lower yesterday on the, the Europe ban from from the US. So technically, again, it's, let's, you know, if I'm looking at that 26 level that we've got on, see, on that weekly chart, let's just bring that into picture. Again, it's, it's, I mean, is that the buying opportunity of, you know, the next few years? And so the way— there's a couple ways to play it. And again, thinking of the sort of the 120 level, I think we probably get a little bit pop below there and then we can come back up. We probably then get another test of that area. Daily close is key, and, and that could actually then lead to, to price going. And that's kind of how I would look to play it. Do you think we— I mean, can we go—

well, because one of the problems is, I mean, if we did go below and we sustain that price for more than, I don't know, a week or two, there's so many small, like, independent US oil firms which are going to go out of business. And so I think at that point then, action does need to happen in regard to America and Russia as well. Don't forget the Russian breakeven is more like the low 40s, so we're talking about a $20 price. That's half what they need. So not only are the Saudis— I think the Saudis, you know, perhaps as crazy as it seems, the Saudis and what they suggested at the weekend, which caused oil to drop dropped spectacularly at the open this week. Perhaps that is a solid plan. You just literally, you want it to break 26.

Yeah.

As self-inflicting as that might seem, because the problem is here is all the other oil OPEC nations are following suit as well, and they're ramping up because that's how OPEC works. Other than, say, Iran, when Saudi says jump, everyone else says, well, how high? And then they follow. And so it's not just about Saudi going from 9 to 10 to 11. Everyone else is going up. So you are literally flooding the market. But yeah, prices get to 20. I mean, Trump—

what's Trump gonna do then when, you know, he might not have a job by then?

Well, I mean, in the immediate term, you know, these oil firms start popping because the fact that they're loaded with debt and they just can't pay it anymore, and that's going to be problematic. So yeah, I think you're right. I think We could get a break, but if we do, I think it's going to be fairly short-lived. And I think down at $20, I think even if you're looking at a less risky kind of trade, you're not looking to trade in like a derivative, then you've got to be thinking that some of these more matured, solid oil companies of a greater size with bigger available cash flow, for example, are going to survive this storm and You know, you kind of— your Exxons, your Chevrons, your Totals, and so on. So yeah, I mean, that if oil trades down at $20, these companies are going to be here, you know, for, for the future. So even though the small ones won't make it, the big ones will. And then, you know, do you just load up with some cash stocks for the long term? And then, you know, let's say oil goes back, as it inevitably will, up into the $50, $60 type area. Well, you got in down at 20 when oil was trading at that level. So, you know, that could be another way of playing it. But, um, well, let's have a quick look at the euro. Yeah, well, before I look at the euro, let me just quickly talk about the ECB momentarily. So I'll talk about it from a fundamental perspective. I'm not going to spend too much time on this though at all. Why? Because Sam and I are going to cover this live on YouTube. We'll go live at about half past 12, just before for the event. We'll cover that and the press conference in full. But long story short, we're in for quite an exciting one because obviously we've had the Bank of England emergency cut yesterday, follows the, the first to go really, the Fed, with that 50 basis point move. The RBA, the BoC, they've all fired so far. And now really the pressure's on Christine Lagarde because she's not really had too much to do yet. But this is going to be really telling and And yeah, interesting conversation with Alex this morning, and it was in regard to just does Christine unleash the Draghi? And Draghi was notorious for over-delivering. You remember there's so many occasions where you thought, okay, the ECB are gonna do a cut and so on, and then he literally whips out his bazooka and fires a missile, not his gun, and in a whole variety of measures over and above what markets were expecting. Now, could that be one of the, the downfalls of today? Because if that's what markets are used to, albeit Christine is someone else and we should look at her with fresh eyes, markets are used to the ECB acting in quite a strong way to these types of episodes of market volatility. So key things to look out for, and as I said, I'm going to go into this in way more detail later, so do tune in for for that. Um, a cut to the deposit rate, that is very much expected and priced in by the market. So I think that's going to happen. So a 10 basis point cut in deposit rate to take it to -0.6. The other things that you can expect though, the variety of other more targeted liquidity types of measures— remember what we've said here, when it comes to monetary policy, it's pretty much exhausted and limited in what type of impact it can have in this situation. The people that are going to suffer right now in this type of coronavirus lockdown are companies, consumer confidence, and small companies. And so that's what's going to damage an economy. So really, it's the fiscal measures which are really key. So expect Christine Lagarde and ECB to really be pushing governments to supplement any monetary measures with real fiscal action in in a more targeted way. Expansion of targeted long-term refinancing operations, or TLTROs, that's probably a good way in order to keep the market liquid in this sense. Would they expand their quantitative easing program? So obviously they could. I mean, they currently buy $20 billion. I think Citi were calling for actually 3 times more than that, but Citi are an outlier. Most people are looking at the rules around their quantitative easing quantitative easing buying parameters. So could they buy more corporate bonds? Now think about it, if I just said that what's going to damage the economy is pressure for small, medium-sized businesses, well, why not act directly by buying more corporate, corporate bonds? Could that be a way to prop things up? And also, they have this thing called issuer limits, which restricts the ECB buying a certain percentage of a certain country's bonds. Could they temporarily kind of put that aside in order to just deal with the, the current situation. So there's a variety of different things here, but really it's more about fiscal and credit measures, not just monetary, I think, in terms of away from this event and what's really going to help this market to stabilize and perhaps recover. So yeah, this is why we need to keep an eye— it's not just about today in the ECB, which of course is very important, it's about how did Germany act? How does Spain and France and these other countries act in a coordinated fashion, and to what size and scope, which is going to be ultimately quite important. But look, let's have a look at the euro, and then I'll hand you over to Sam now for the rest of the session. Don't forget to like and subscribe to the channel. We're gonna be live half past 12. Thanks, guys.

Yeah, cheers. And well, just being on the euro, to have have a quick look at. Um, it's actually just testing some of the lows down of yesterday, and this is a big level, um, to, to have a look at here. I know the dollar index is— keep an eye on that because it's a pretty key point as well. But let's just have a look here, longer term daily chart. That's the Fib 382 up at the top there, and we're now back below some of these resist— well, previous resistance levels from August last year in the beginning of 2020. So it's getting pretty heavy. I mean, if you look at the last few days' price action, that 60-minute now drifting lower, we're expecting a dovish ECB. That's, you know, it's kind of to be expected. The whole carry trade idea is perhaps over 115, the top, maybe. Levels to be aware of just below where we're trading, obviously here's a great, great floor Uh, if we can get below there, I'd be sort of looking at— let's just mark that up there— 1.1221. I don't see much stopping it to get through there if we break this level now. And then really back down to the 1.1150 and 1.11 handles. I think that would probably cap the, the price action, uh, to the downside. If we were to hold these levels and for whatever reason, uh, we did do push higher— what a trendline, what a trendline from, from yesterday morning, so well respected there. So a break of that and, you know, next thing you know we're looking at the high around 114, and then above that then it's the fib 0.382 and, and this level around here as well. So euro at some critical levels. That's really how I would go into today, is just having it marked up and, you know, trade what you see, not really going in with a bias or not, um, and then going from there. But the trend line for me is a key, um, key point to have on. As long as we're below there, you know, the short I think will, will rule. Quick look elsewhere, um, on other markets. The pound's been battered, hasn't it? Absolutely bad. Poor thing. It's, it's come down from 132 to 127. Um, however just put this— the pivots on here as well. You can see just the dollar's getting a bit of strength back, you know, across the board. But this is a big level here. This is, you know, down at the, the lows of the 28th. And if you put this on the, the daily chart as well, you can see we're now back down to that range we thought we got away from, uh, here as well. I guess, you know, the, the question is Does, you know, does the dollar now have to become this big safe haven over the next sort of few weeks, and these markets are only going one direction?

I mean, yeah, I guess to one extent. I mean, it's now fully priced in the Fed are going to go to zero.

Yeah.

So the dollar has now done its thing. It's priced that in. And so I think then with the pound, our economy is already under pressure even before this entire episode because of Brexit and the material impact that that had already put our economy in a weakened state on course for a potential recession. Now you throw in the potential now for a complete shutdown of the United Kingdom in time, perhaps in the coming weeks, then yeah, I think, I think we go lower. I think we break that level. I think we go down.

Yeah, and that means— look how big this level is. Support, support, okay, bit messy, then resistance on the way up. And I mean, below 127, you've got what, 126, that high in what, September? Yeah, around here. And then it could get, you know, more ugly. So certainly interesting looking at that. And the same across the board for the dollar pairs, obviously, other than, other than the yen. Quick look at gold because I know a lot of people are interested in this market. It's starting to get maybe a bit of bid, but it's, uh, it's got that margin call, safer safe haven feel again here. $1,700 was the, was the top, which is obviously a place where people would take profit as well. It's, it's been a magnet. We hit it, fine, let's take profit. We drift down. I think for opportunity-wise, clearer opportunity-wise, there's better markets out there. But if we were to see another gold dump, that's your level below here, $1,631. And then I would say you get down to $16.12 pretty quick. I know it's only $20 for gold, but I think that would happen there. And then, you know, we sort of have marked up a couple resistance levels previously, uh, you know, $86, $72. Maybe intraday you're looking at $55 again, but I think cleaner moves will, will happen, uh, elsewhere here going forward. Um, any questions? As usual, guys, get us in the let us know. We're live 12:30 on YouTube, so I hope to see you all there.

Cool, thanks guys.