How Did The BoE Announcement Impact GBP

Okay, very good morning to you. Hope you're doing well. It is Thursday, the 7th of May. Before I begin, just a quick introduction to myself and Amplify for anyone new joining the, the channel. My name is Anthony Cheung. As you can see here, my role is Head of Market Analysis. So why are you watching this session? Well, my job Basically, as I'm— my specialism is in analyzing intraday fundamentals. So typically then, my working background has been over the course of the last 14 years or so monitoring intraday information. So economic data releases like we've just had the Bank of England rate decision. So I'd be responsible for prepping up traders for what can they expect, how are markets positioned, what are the scenarios of which how the market might react under different pieces of information, uh, and then that coupled with just generally, uh, planning for the day ahead, um, what could be the next thing that Trump could say about China, what would need to happen in order to move the S&P, or what could be the outlook for the oil market given the recent move into negative prices that we've had. So all of that type of information is what I would be covering Much lesser extent on the technical analysis side, so we have different guys that look at that. And the reason why people come to me is because fundamentals generally is an area quite underserved and misunderstood because a lot of retail traders obviously look at this and they're a little bit stuck on where to even begin, uh, just given the wealth of information that there is. So definitely my job is to help break that down and hopefully become a little bit of your routine. So prior to joining Amplify, I used to run a desk where I was servicing basically tens of thousands of clients, doing this as a full-time job, whereas now my job's pivoted where I do a little bit more on the teaching side about how to, how to learn the fundamentals and how to formulate then that into a key component of your trading strategies, because that then leads us on to Amplify Trading. So Amplified Trading is originated as a proprietary trading firm, started back in 2009. We have since though developed as a business. We now have a technology arm, and we also then have a financial education arm, which includes using that technology for simulation training, has been adopted by banks all over the world like Citi, BNP, Credit Suisse. They all use our software, but that also then feeds through into the trader division as well, where we have intensive training programs where people get to trade our capital. So if you want to have a look, just jump onto AmplifyTrading.com. There's just the 3 main sections there I just mentioned, our kind of trading arm. If you're a student interested in basically getting some hands-on practical learning over the summer summer period. Even this summer, the same, we're doing it fully online, but we do things like sales, trading, more corporate finance advisory stuff like IPO, M&A training. So everything to get you ready for your potential future job. So yeah, check that out when you get a moment, and don't forget to subscribe to the channel because I've got a special video that I've asked my colleague Eddie to shoot in regard to a few questions about what does Warren Buffett and his exiting of north of $6 billion worth of positions, uh, that was in the headlines this week. What does that mean? How should we interpret that from as well as a trading but investment point of view? And he's done an excellent kind of short video on that which I'm going to release later on this afternoon. So if you subscribe, hit that notification bell, you'll get an alert when that goes, when that goes live. But a quick look at the charts this morning and what is going on, um, not a great deal, bit of fluctuation in the pound. I'm going to get into that in a bit more detail shortly. Uh, the pound chart against the dollar is that top center one here. You can see cable has just jumped a fairly decent amount, I guess, amount of 45-pip move or so, springing up to pivot before finding a bit of resistance. That currency move, um, definitely sterling-led, and that just meant a little dip in the dollar. So Aussie/Euro just taking a slight lift on the back of that given the, the catalyst being the Bank of England. Otherwise, elsewhere, equity index futures, US slightly positive, the DAX pretty much flat. We did have a lower close on Wall Street and slightly negative overnight in Asia. And on that note, let's just have a review of some things on that front. This is the heat map for the S&P 500 looking at the close from yesterday, and quite an interesting disconnect At the moment, obviously, a lot of people looking at the details around the relaxation of these, the loosening of the lockdown measures globally, and in particular in the US. And what we saw yesterday was quite a, as I said, a disconnect between the S&P and the Dow finishing lower, but the NASDAQ actually finishing positive. And some of these bigger tech names like Microsoft, Apple, but also consumer cyclical and in the internet retail space, people like Amazon are actually outperforming. And obviously that's, uh, meaningful in a sense of, for one, these obviously very large companies and a positive move in their share price has an overall bigger proportionate index weighting. But it does go to show some way, um, the general status of at the moment. People working from home, of course, has meant that there's more demands on some of these relatable services, particularly things like Microsoft, for example. They have that Microsoft Teams product using their more onus on the cloud computing availability and things like that. And Amazon, of course, as we know, pick up in general consumer demand just given the situation with the lockdown. So yeah, quite an interesting reflection of just generally what's going on at this point in time. And the other interesting observation has been how quickly generally the volatility in market has died down. This isn't looking at the VIX index, this is just looking at the daily high-low spread. And you can see where we were, just the seesaw price action we were seeing in March when, you know, we were right in the, the period of the least visibility about knowing what the future held for this virus. Now, as we know with all of the global trajectories, we've either plateaued or decreasing You know, hopefully that continues. But at that point was when we're in the acceleration phase. And of course, when we're in that type of phase, as we were, you know, about 6, 7 weeks ago, that was the most uncertainty. And hence the reason why you had the most volatility. Also in between then, of course, you've had, you know, unprecedented— unprecedentedly large fiscal and monetary action that's taken place. And obviously that's helped kind of steady the ship, at least for the time being. All things remaining equal. So yeah, those days of this kind of mass shakeouts in the market that were quite clearly evident in March definitely have dissipated quite sharply. So again, it's kind of, you know, adapting to the conditions as you see it, not trying to think that, you know, what was happening is just going to repeat on every single occasion, because that's definitely not the case at the moment. Overnight, you did have some Chinese data. Interestingly, as you can see here, we're looking at— black line is exports and the red line is imports— and exports in China unexpectedly rose in April, aided by stronger shipments to Southeast China. However, one of the things here is that although that black line is quite positive, of course it was before it was a negative 17.2%, and it sprung back up to a positive 3.5%. Expectations were on the street for -11%, so very strong on the exports. However, as this table or graphic would suggest, Chinese exports usually start slow due to Lunar New Year and then rise from April, but the jump this year may only be temporary. And the reason why people are saying that is Well, that's all well and good. Exports have jumped in April. But if you actually break it down, as I said, some strong shipment orders in Southeast Asia. But because of the global pandemic situation and given the fact that the rest of, let's say, the Western world is lagging of that of the outbreak in mainland China, there definitely is not expected to be a demand increase anytime soon. And so this export bounce being very large that we've seen in China is probably somewhat temporary in nature. The other thing as well, there was some other Chinese data that came out overnight, uh, that was the Casein Market Services, which underscored weakness in the economy in its service sector, which contracted for the third month in a row in April. It also showed the second largest fall in export orders and the fastest rate of job shedding on record for the Chinese services industry. So, you know, although you've got this kind of empirical hard data coming out in the form of what we've had from the trade balance numbers and the export figures, the forward-looking, uh, more softer PMI numbers are definitely more pessimistic going forward, which again solidifies this fact that the global economy isn't quite there yet as to where perhaps the domestic situation over the last months have been in China. But then also even in these purchasing managers are increasingly quite pessimistic about the longevity of any rebound of that nature. So I wouldn't really read too much into the Chinese data. As good as it, it sounds on the surface, I think it's going to be largely brushed aside, and I don't think it's really much of a contemplation for if you're thinking of trading strategies for US European assets. Let's get down then to the, the main event of the morning. Quite unusual, the Bank of England releasing their information at 7 o'clock. They wanted to do this so that they could release it and Alongside the Financial Stability Report, you also get the Monetary Policy Report. And so there's a few different things that they released this morning, and they wanted to release it early. Um, the new governor Andrew Bailey is talking with journalists, I understand, the press pack now, and his comments are going to be made public at 10 o'clock this morning London time. But what have they said? Well, as you can see here in this box, this is the current announcement that's just happened. So they kept rates on hold. Absolutely no surprise there. Unanimous decision, 9-nil. Rates already— they've taken that emergency inter-meeting step to bring them down to the lowest they've ever been in history. That wasn't really what the market was looking for. The potential was, could they have stepped up and increased their QE program? Now, the QE program, as you can see it here, currently resides at £645 billion, and again, that's seen an increase as well of some £200 billion or so in this emergency response to the COVID-19 pandemic. Now, the vote split there was not unanimous. The vote split was 7-2, so Saunders and Haskell— so if you think about that hawkish and dovish spectrum of policymakers, those two on the most dovish end— they actually wanted a £100 billion increase immediately as of this month. Now, Why did they not get their way? Uh, remember that's not happened. They were dissenters. The rest of the group heavily outweighed them. 7 to 2 wanted no change in QE. Well, if you think about the extension of their QE program that they've done in the last few weeks by an extra £200 billion, if you actually break that down to the Bank of England's gilt purchases, they're running about £13.5 billion per week. So if you extrapolate that out, week after week, you know, until you hit that cumulative $200 billion. They can effectively go until early July until they complete that initial announcement that they've already made. So most analysts were of the belief, as has been the action taken this morning, that there was no need for them really to move this early to increase that program yet again. Uh, so what else have they said? Well, they came out to basically ratify that point. They said that their existing stance for monetary policy is appropriate, and I think that's absolutely the expected and right course of action for them to take at the moment. The pandemic at this point has been fairly stable, but of course as the relaxation of the lockdown happens, that's when, coinciding with this probably early June time, they can make a better decision then of whether or not if there's a secondary wave, does it require more support, of which the Bank of England has said then it is ready to take action to support the economy. At this point. Now, some of the other things that you get alongside this is, um, it used to be called the Quarterly Inflation Report. It's now been renamed as of 2020, the Monetary Policy Report. So this typically comes out then in February, May, August, and November. So not quite the calendar quarters, but 4 times a year. This is the Bank of England giving you its forecasts. So if you're an American and you're more familiar with the Federal Reserve, This is our version in the UK of the Summary of Economic Projections. So other than just being 8 times a year interest rate meeting and statement, uh, this is when we get generally more insight as to what the Bank of England's thinking is over what we call the 2-year horizon. So the economic future, so that market participants, companies in reality, can plan for the economic future about what the Bank of England know now about economic conditions and what their projections are for things like growth, unemployment, inflation. That allows then companies to have some degree of foresight over what type of actions they can take now because they've got visibility of what the forward guidance or future might look like. So here, a couple of charts I thought quite interesting. Um, they basically ran a lot of illustrative models to graphically represent what they foresee as the economic conditions over the course of the next 2 years. And I think this is really important, not so much for the intraday environment, but to understand perhaps a little more about, you know, everyone talks about the GDP contraction that's going to be huge that we're going to see all around the world, in the UK and the US included. The unemployment rate, we know, is going to be much higher than what we saw in the financial crisis. Back in 2008, 2009. And the rate of layoffs, as we've seen in America, non-farm tomorrow, is going to be historical in a sense. The expectations are for a loss of 21 million jobs in just a single month. The idea then is about, well, how quickly do we recover? We have seen fiscal support from governments all around the world that absolutely dwarfs the response of what we had in the GFC. and rates now and unconventional monetary policies have also gone further than what they've ever done before. So here then, it's about, you know, this V-shape, W-shape, Nike swoosh shape. How quickly do we recover is quite key then for our predictions about the economic future. And so here I think graphically it's quite nice to see this. So they said that GDP peak picks up relatively rapidly in the second half of this year in the scenario, although it takes some time to recover towards its previous path. Now, I must stress that these are what we would basically term as scenarios. Um, this would be based on current evidence, but obviously, uh, the nature of a virus means that things can change quite rapidly. And so if there was a significant second wave meaning that there's a delay in then the relaxation of the phased unwinding of lockdown. Well, that's obviously going to have implications on how quickly or rapidly the second half of the year springs back into action. The ultimate idea here though is that we do get back on track, but we're not probably going to reach that point until we start getting into 2021, 2022, onto the trend line of where we would have been, um, exing out the entire pandemic in itself. So that's growth. If you start looking at the other areas, unemployment— well, as I said, unemployment is going to be higher than what we saw in the financial crisis. The illustrative scenario though, looking that this is quite a, um, a quick pop but a very rapid recovery over the course of the next 2 years. Comparative really to what we had in the global financial crisis, which was also quickly followed by a eurozone sovereign crisis in the early kind of 2010s. And that saw then unemployment remain really at those levels for a good couple of years, and then a graduated fall, you know, much more rapid movement here. We're looking for the return post the pandemic. From an inflation perspective, obviously looking at quite significant hit in the short term. However, the Bank of England, obviously they have, like most Western central banks, a 2% inflation target, and they're looking to get that back on track by basically the second half of '21 going into 2022. Um, so anything like interest rates and things like that, obviously not likely to see any changes on that front anytime soon. Um, probably the one that will in future perhaps is the quantitative easing program, but again, that's going to be subject to to how successful or not the controlling, the testing of the virus, and the ability to get people back into work. Okay, so that's, that's pretty much the Bank of England. But from a trading point of view, you have seen that the pound has moved higher. So in an intraday perspective, what I think a lot of this is, is that, well, for one, the Bank of England has decided not to add any more immediate QE. I don't think that was expected, but again, there might have been some outside bets for that. So a little bit of a bump up, somewhat more of a relief if you like, in the pound. And then two, when we've looked at these illustrative charts on these major economic metrics, they're all very indicative of quite a rapid recovery is what the Bank of England is foreseeing at the moment. And so, yeah, perhaps then warrants a bit of a pickup off these— the, the fact that the pound was already decreasing fairly rapidly yesterday. So overall, I don't know, I wouldn't read too much into it. I, you know, on the balance of what I've seen thus far, and generally from now I, I like to talk to people, read what other banks are saying to get a bit more of a rounded view on what everyone's interpretation is of this. But in the short term, you know, can cable continue to track higher today? Well, yeah, in the short term probably can. And the level I'd probably look at is up and around, um, I guess this, this type of level where we've got the high that we had in yesterday's session and that low back on the 29th of April. I think that's a pretty pretty decent target. Any push above that point then would bring in these highs then coming to the 4th of May low. And as you can see, some previous points here where the market has responded. So you got the 23.96 in the— I'm looking at the Sterling cable futures here— then the 24 handle, 24.07 just above. But you know, if we're going to get back up and start punching up to these types of levels up towards the 125 handle I don't think so on the back of that, but we shall see. Obviously we've got some US data, jobless, things like that coming out later on. If that was to come out way worse than expected, perhaps that could accelerate the cable upward movement on the back of a combination of some of the sterling movement more positive here and dollar weakness would have to be a way it would play out to get that type of movement. All right, final few things just want to go over. Trump active again, obviously talking on Wednesday. He said he would be able to report in about a week or two whether China is fulfilling its obligations under Phase 1 of the trade deal. Now, if you, if you can remember, seems like a lifetime ago, but it was at the beginning of the year that US and China actually struck that famous Phase 1 part of the deal, and it was all looking quite positive before the, the virus hit. What did that deal, Phase 1, mean? Well, it was an agreement where China would increase its purchases of US goods from a 2017 baseline by an additional $200 billion over a 2-year period. Now we know basically the US have really ramped up their rhetoric against China, and we've talked about this at length before about politically why Trump would want to go down that route. Again, reading most bank research, the majority say the actual true risk of things like new tariffs and things like that are relatively low, and this is more of a political play than anything. But in terms of a milestone in time to look out for, for potential then further flares in this confrontation, I think that's going to be quite key. So Trump's put out there it's going to be Basically, in the next 2 weeks or so, he's going to know a bit more details about whether or not they're fulfilling that criteria. From the ECB as well, there's a big move this week, obviously in the downside in the euro, on the back of the German Constitutional Court kind of bringing up questions on the legitimacy of the ECB's bond buying program. And what have the ECB said? Well, they've actually come out in the FT last night and they were effectively talking about this idea that they're, they're arguing that such a movement impinged the central bank's independence, um, and it would expose them to pressure from other national courts. Of course, Germany, just one of several eurozone or many eurozone nations, the last thing they want is getting into legal contests with every single one of those under similar things. So obviously when you're dealing in law You know, one specific case can set the precedence then for everyone else, and you're opening up Pandora's box slightly. So, um, does this— is this important? Is it really going to move things now? No. I think it's what warrants an update though, given the way that it did move the market earlier in the week. I think a lot of this type of news flow will come back to the forefront probably in about 6-7 weeks from now as we get closer to that. What the German court had was 3 months for the ECB to prove its its kind of why and the authority and ability that it has in order to make these bond purchases. There was one more Trump actually article. I'm just going to go on my Twitter account. I did tweet it last night because I saw it break on the FT just before I went to bed last night. And this was one of the other ones I guess to be aware of with Trump. He's weighing up more aggressive economic measures against China. White House and Capitol Hill are looking to match the anti-Beijing rhetoric with steps to curb supply chains and investment flows. So again, still keeping the foot firmly down at the moment on the, on the gas, trying to put the pressure on China at this point in time with the general virus numbers in the US obviously continuing to go north at the moment. Okay, calendar-wise, what else have we got today? I've already had the Chinese data. The Bank of England's already come out. Look out for those comments out of Andrew Bailey. Um, just having a look. Yeah, 10 o'clock is when his contents of his briefings to reporters is going to be released. So we'll get a little bit more detail around their decision-making process. And then you've got the, um, afternoon. The main thing that people obviously will look at is the initial jobless claims, expected at 3 million, range 1.5 to 9 million. Uh, 9 million certainly would be the highest we've had so would be somewhat worrying that we're getting renewed pickups because generally we had that big pop-up to, I think it was 6.6 million as being the peak, and then it's gradually eased back down. So we're kind of over the most highest volume week that we've had, but that doesn't detract from the point that we're likely to get a 21 million print in on farms for last month and then obviously the month of May when we get into June is obviously going to be another particularly high number as well. Um, other than that, speakers-wise, yeah, we've got Bailey Harker speaking much later in the evening. He's a voter on the FOMC, talking on the Fed's response to COVID-19. So it could be quite interesting, but more for, for US traders. If you're tuning in, it's around the closing bell on Wall Street. And then from an earnings point of view, uh, Bristol-Myers Squibb, Raytheon, Not really too much in the way of major market cap names coming out of the US, but still quite a lot of mid-cap names. And then quite a lot of supply coming out of the French and Spanish Treasury as well today, just to be aware of. All right, that is it. I'm going to wish you a good day. Uh, obviously any questions at all, feel free to leave, um, your comments on the video. Love to see the engagement on the videos. That Uh, I always try to respond, um, again, even if it's a technical question, whether it's to do with Amplify or, uh, just general markets, then just leave a comment. Uh, I'm absolutely happy to help. But otherwise, have a good day, have a good weekend. Um, not gonna do a briefing tomorrow, but I will be releasing, um, a brand new video shot by my colleague Eddie, specifically looking at Warren Buffett and the move that he's made this week to exit some very large positions, particularly in the airline sector. So really good video, watched it last night. I think you'll find it really interesting. So gonna release that later on today, and then the aim will be that tomorrow Will and I are gonna cover ourselves just having a look at the, the Non-Farm Payrolls release, and hopefully we can record Will trading that event and we'll share the video with you as well on Friday. Alright guys, enjoy your long weekend if you're in the UK. If you're elsewhere, take care, stay safe, and I'll see you next week. Alright, thanks very much.