Is London Heading For A New Lockdown?

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to you, it is Thursday the 15th of October, hope everything is going well. I thought I'd kick things off with a super interesting article in the Financial Times Times this morning that you might want to take a read of because it features Amplify Trading. And for those who are not familiar with what we were doing over recent months, is that just obviously given the really horrible situation that's happening across different sectors for, for people in, in various different types of employments, obviously pilots have been some of those hit the hardest given the lockdowns and their massive impact that the pandemic has had on travel, of course, and tourism. But what we did is we did an open application system and we had hundreds, literally, of applications from pilots for them to take part of a sponsored training program, to undertake our full training program. And the FT did an article about it. They followed the journey of some of those guys. And actually, Kate, who features in this article, is currently still with us at the moment. Kate, I know you're watching this, so good morning. I look forward to catching up with you shortly. But yeah, just have a read. I'll put the link into the description of the video, and I'll PDF it and send it around to all the guys. So do take a read. The actual study that we tried to see here was, was there a connection of transferable skills that pilots could take in terms of kind of structured thinking, discipline, these types of um, skill sets that one would think could be transferable to then the trading environment. So I'll let you read the article to see whether or not that is true or not in terms of how they performed. But yeah, check that out. Otherwise, look, let's get straight into it and talk about what's happening in markets this morning. And we had a lower close on Wall Street again. The losses though were fairly contained, but obviously now becoming slightly more consistent given the down day that was seen yesterday. The S&P down about 0.7%. Similar losses in the Dow. The Nasdaq underperforming just a touch, down 0.8%. One of the main catalysts from yesterday still remains this idea of the hopes pertaining to a US fiscal stimulus and the kind of diminishing idea that that's going to materialize before the election. Definitely, for one thing here, Nancy Pelosi is not going to want to give Trump a victory this close in towards the election. And that being said, then, as a definitive point, I think will mean that it's highly unlikely that we're going to get an actual agreement before that date in early November. So Mnuchin, the Treasury Secretary, had conversations with Nancy Pelosi yesterday. He said that stimulus talks are still far apart and he foresees it as very difficult to get anything done before the election. As I said, that's coming from the kind of Trump team. Pelosi, I don't think, has any political interest either to really cut a deal, but can't walk away from the deal, of course, because this is intrinsic to public perception of them looking to assist what is the general public, which are facing incredible difficulties in a pandemic environment. So actually, what this means then is that equities continue to just kind of drift south without that forthcoming injection for markets, and A couple of the bank stocks again underperforming. Remember, US earnings season kicks off with these major banking names before then we get some of the smaller banks next week and then the pickup of the, the rest of the volume of the S&P reporting. But Wells Fargo was a big decliner yesterday. They were down about 6%. They posted a profit slump and warning that net interest income could get a little bit soft in 2021. So they're looking again kind of similar to what we had to some of the banks in the prior session, that although they might have beaten in terms of the quarter and EPS and revenues, their outlook is much more for a more, um, protracted, long, more shallow recovery than this awesome V-shaped movement that we had materialized during the, the late summer months, of course, on the recovery from the initial dip in March. Uh, Bank of America, they were also down over 5%. Increase in trading revenue, there was just a fraction of its competitors' gains. So not— look, didn't make anywhere near as good a headway as, say, Goldman Sachs, who actually bucked the trend yesterday. And despite Wells Fargo and BAML being down about 5% and 6%, Goldman were actually in positive territory at the close. They saw a surge in fixed income revenue, resulting in record earnings per share. Revenue rose in all 4 divisions, and their loan loss provisions were lower as well. So Goldman's being a bit of a star performer out of that particular sector so far. But overall, then, that, that did feed through into the Asia-Pacific session. There was one market which outperformed, and that was Australia. The Australian equity market was higher. Bond yields, though, and the local dollar dropped. Aussie dollar in the dollar-based currency pairs is underperforming. We're down about 45 pips there. And the reason for that is this, which is the Australian Central Bank have come out. The RBA governor said the central bank is considering whether buying longer-dated bonds would spur hiring. Plus, Lowe also said that it's possible to cut rates to 10 basis points. And so the Aussie dollar, as stated here, falling about half a percent after those specific comments, talking about the potential for basically considering whether buying longer-dated bonds. Otherwise though, the Asia region was lower following on from the lower close on Wall Street. So if we go back then, the equity index futures are, are lower at the present point. S&P down 17, NASDAQ down 100 already. DAX following suit then. And as Europe has come in, just a bit of further added weight here, and that S1 providing a bit of a near-term play for a short position from that initial test that we saw in the late Asia-Pacific session, and then a bit of a downturn when Europe have come into market. And now that S1 providing resistance turned from support from the overnight session. Otherwise, elsewhere, the, the dollar is up marginally, and that has been moving in a relative kind of risk-on, risk-off sense in regard to risk-off equaling dollar strength. Uh, so the Dixie's up about 1/10. Major pairs, um, EURUSD down marginally but hugging the pivot. Cable though, a little bit more heavy. It has just broken down through a near-term technical area, but also just giving back some of that really steep gains that we saw yesterday, where there does seem to be a real coordinated effort on both sides despite how far apart they seemingly still are on certain key issues. With Brexit. The point is, is that this isn't a hard deadline, it's a soft one, and the fact that they continue to commit to those talks— so a decent rally yesterday, but we're just giving back a little bit this morning. It's obviously the EU summit kicks off, uh, and there's definitely some other COVID-related potential lockdowns for London that we need to consider as well for the economic impact that that's going to have on the UK economy. Otherwise, elsewhere, I'm going to run through some articles I can wrap into other asset classes, but oil Um, not too much change, just sub the 41 handle at the moment. Uh, Tino's up about 2 ticks. But let's delve into some of the headlines and talk about a few different things. Starting off with, um, overnight I mentioned the RBA. The other notable piece of news to be aware of is that of China. Uh, and so China's CPI, uh, driven by a moderation in food price gains, uh, did slow. It came in at 1.7% against the expected 1.9%. And one of the, the focal points here is pork prices, which were massively surging to the upside in recent months because of the African swine flu. But as that starts to now dissipate from the previous month, pork prices were up in excess of 50%, then they were only up around 25%. So it's been cut in half. And as such, CPI has just come off about 0.2 percentage points. The PPI number -2.1% against expected -1.8%. So we are still seeing a bit of a lack of demand still needed to be monitored with that divergence, with just general activity still reducing Producer Price Index at the moment. Uh, moving on, this is one of the main things I wanted to talk about. I mean, the pound has softened a little bit this morning. Um, it is coinciding with the technical break. We've come back to the 130 handle. In case of cable. And although there is much to talk about with Brexit, there's also this situation of the COVID-19, whether it be cases or deaths, continues to worsen in, in the UK. And one of the latest things we've seen overnight is one of the most economic important areas, of course, of the country is London. And apparently, according to the Times newspaper last night, London is on the brink of a local lockdown, with an announcement coming as soon as this Friday. So that's something definitely to look out for, both with any rumors and tweets and things today, but also tomorrow. A definitive confirmation of that probably could provide a bit of a headwind in the intraday environment for sterling. So what the Times was saying was that mixing with households indoors in the capital will be banned. Commuters will be urged to keep off public transport if we move into Tier 2 COVID alert is confirmed. So definitely keep an eye out for that. On the broader context, obviously the whole coronavirus situation is another reason why I guess market sentiment is fairly fragile at the moment, is because not only is there a lack of forthcoming stimulus in America, not only is there still this election to tackle, but COVID-19 generally, although it's much more steeper in its trajectory in UK and mainland Europe, it's still very much clear and present danger, and particularly with a lot of those big pharmaceutical companies coming out this week and also delaying their late-stage trialing of the, of the vaccine. The latest in mainland Europe was France. You probably would have read that they've declared now a state of emergency. Macron, the president, announced a curfew between 9 PM and 6 AM for areas worst affected by coronavirus, and that's going to last for a period of 4 or up to 4 weeks. So certainly there's a lot of pressure, as we said before, from the scientists, from other European nations and how they're dealing with it, and France obviously going into a much more stringent lockdown. So pressure is mounting on Boris Johnson at this present point in time. So definitely need to keep an eye out for that. The other thing, of course, is Brexit. Today is that kind of symbolic— I call it now— soft deadline of which Boris Johnson was committed to getting a Brexit deal kind of done in order for it then to be ratified in Europe for the end of transition at the end of the year. That's not going to happen. I don't think that's a shock. I don't think it should come in any way as a real signal to then just sell the sterling currency on the back of that. This has very much been a well-known thing over the course of the last couple of days, particularly yesterday, where they've already come to an agreement for the fact that they can continue the dialogue and the discussions going forward. So let me get up to speed with a couple of different things. What this Reuters article was suggesting is that sources with knowledge of Frost's view— so Frost being the negotiator on the side of the UK— said that talks so far have clarified potential agreements on aviation and road, road haulage, energy ties, future coordination of social benefits. The gaps though have narrowed on trade in goods and services, though these still lack precise arrangements on technical detail, including the designations of origin on products, according to a source close to the discussions. Now, in terms of the timing, what we're looking at here was a good graphic that I saw, and this is looking at the known events in the calendar going up to the end of the, end of the year. So it's 31st of December being when the UK is formally ruled out of an extension. Now here then, you've got the, the soft deadline, which is today. You've got the EU summit happening today and tomorrow. You've then got another soft deadline target for the end of October, when in fact that's actually even moved now. So this is how fluid the situation is. So I can update you now, the UK is pushing for an agreement by the end of October, but sources say the EU could negotiate until mid-November to avoid being blamed for any failure. So already the goalposts keep moving further to the right towards that inevitable kind of deadline. Comment out of Goldman Sachs this morning I heard on the squawk, and I absolutely agree that any kind of sentiment towards getting a deal done, the soft, soft deadlines are just not hard enough, I don't think, in order to sharpen the mind to get this this deal over the line. So there is still a tangible prospect, although I think Goldman Sachs was saying that they anticipate that a deal will be struck in around mid-November, which I guess then gives time for it to be ratified with various different parliamentary EU sessions and EU summits. But it could, you know, the ultimate deadline here of course is the 31st of December, and that one is then what could be more classified as as the cliff-edge no deal at that point. And so a new relationship coming into force on the 1st of January— the UK has already refused an extension, and so a new relationship must be ratified by at least the UK and EU institutions, but perhaps also national parliaments, which was the case for the EU-Canada free trade agreement. So yeah, definitely the risk of a no-deal Brexit if no permanent free trade agreement is agreed by this point. Point. But look, strange things have happened, and I'm growing increasingly more of the opinion that we're just going to get a lot of noise around these fixed dates of when there's, um, kind of set political set pieces happening. But then I still can't see a deal happening anytime soon at this point in time. If you are interested, today though there is the EU summit happening. I will share in the, the Amplify Live chat the full agenda for the timings and associated live streaming feeds. If you want to monitor those roundtable discussions, press conferences, and everything like that, here's all the timings, generally this afternoon today and kicking off early tomorrow morning. And also there's a good infographic about EU-UK negotiations from Europe, and basically it gives you a bit of an idea if you want to have a scroll in your own time about what exactly needs to happen in terms of a process here in order to get the formal adoption of a deal being done. Because hence the reason why it's problematic if you're leaving it to the last moment, because there's a lot of other legal formalities that need to be concluded, given that Europe is not just one nation in that respect. But again, I don't see that as too much of a risk, because ultimately, as long as they can get the, a tentative agreement and a deal done, then all of the semantics, if you like, I think can take place in Q1. I wouldn't anticipate that being a massive issue personally. All right, elsewhere, I'm talking about oil. I saw this source report coming out of Reuters overnight. They talked about the fact that OPEC+ compliance with a pact to cut oil supply in September was seen at 102% Bearing in mind that the OPEC+ technical committee does meet today, so you could well get some more commentary on this overnight. Last night you had the API oil inventories. It was a slightly deeper draw than anticipated of 5.4221 million. That was almost double the consensus. Gasoline draw 1.5 million, distillates 3.9 million. Cushing was a build though of 2.2 million, just to be aware of ahead of DOE's later. Quick look at the calendar then. What have we got? The Aussie stuff's kind of out of the way. By the way, the unemployment rate was a little bit better than expected, but of course the Aussie weakening because of the RBA commentary superseding that, given the dovish nature of those comments from Governor Lowe. Otherwise, looking into the European session, it's very quiet. So it's very calendar-based from the US point of view, and you've got New York Fed Manufacturing, you've got the import-export prices out of the US, you've got initial jobless claims and Philly Fed, all of that coming out at 1:30. So do bear that in mind. And then later on in the afternoon, you get the oil inventory numbers. Remember, it was a public holiday for Columbus Day on Monday in the US, so this is a little bit later timing than normal. It'll be at 4 PM, not 3:30 today. And then you've got that OPEC, uh, JTC meeting happening as well alongside the European Council Summit and the de facto Brexit deadline. It's quite a few things to be aware of. On the speaker slate, you got this afternoon is the main focus, Bank of England's Cunliffe. And again, ECB President Lagarde is on the, on the tape partaking a CNBC debate. Be quite interesting to hear. I think she's now done a year in her position almost, if you can believe it. So we should see her latest insight and take on the current situation. And then you've got Fed speakers in Kashkari and Quarles as well. So yeah, quite, quite a busy calendar in the afternoon session. That's where all the speakers are happening. That's when all the US data is happening. At 1:30 is going to be quite important supply side if you are trading fixed income futures coming out of France and Spain. And you've got a 20-year bond and 5-year TIPS coming out of the US. And then in terms of earnings You've got Morgan Stanley coming out today, but that will be no doubt a market mover for the individual stock, definitely not for the actual index future. It's going to be dominated by more of those, those top-level macro themes we've just discussed. So yeah, that, that is it. Any questions at all, just let me know. Feel free to leave a comment. Happy to help as per usual. Otherwise, I'll catch you guys tomorrow. Thanks very much.