James Bond Vs Bond Yields - Who Wins?

Good morning, good morning. I hope everyone's well. It's the 29th of September, it's just gone 8 AM, and Bond is back, people. It's been a long wait. So Daniel Craig has come off furlough, furlough being the UK government's emergency support system for workers in businesses that got impacted by the coronavirus. So Bond was supposed to be released in 2020. We've had it got delayed and it got delayed and it got delayed, and it's here. So Daniel Craig, he's actually officially, he's come off furlough 2 days early because furlough in the UK doesn't end until tomorrow. But the worldwide premiere in Leicester Square last night, you had most of the royal family pitching out, come and watch it. This is the 27th movie. It's actually one of the world's biggest movie franchises. It's MGM's jewel in their crown and a franchise that they rely on a huge portion of their revenues for. So it's the 27th installment. Did you know there's been 12 actors? There's been 12 Bonds. Daniel Craig, this is his last movie, his fifth and final. There's only one actor that has starred in more James Bond films than Daniel Craig. Who do you think it is? Put it in the comments below. Let's see if you know. But yeah, the, the great irony about this movie, without any major spoiler alerts, it got delayed because of a worldwide pandemic, a virus that you know as coronavirus. It got— the movie got delayed because of the virus. The great irony is the storyline of the movie is that the baddie is threatening to release a man-made virus onto the planet. You— I was about to say you couldn't have written the script except They did. Anyway, so Bond last night, thank God. Go and see it. It's been a long time. So from one Bond to another. The links here at Amplify are seamless. Let's talk about the other Bond. That's the bond markets. Because what we had yesterday in yesterday's session, and you might have seen some of the headlines this morning, headlines such as, you know, stocks lowest. The downside of rising rates for tech stocks. And we had a sharp sell-off into the close last night, into the US close. So equity markets down, all 3 major indices heavily lower. NASDAQ leading it, NASDAQ down over 2%. And this chart is why. Why are stocks under pressure here, and certainly the NASDAQ more than others? Because bond yields are rising. Here you've got the UK, the US, the German 10-year bond yields. So the US bond yield up above 1.5% now. Interestingly, the UK one broke that 1% handle. Look, these are the highest for the year, as you can see. Not quite highest for the year for German bunds, and they're obviously languishing below zero. Let's forget that. Look, US and UK bonds on the up. Why are they on the up? They're on the up because of inflation. We've been worried about inflation remaining high, remaining higher for longer. That whole transitory argument that I was peddling, as well as a load of other people. It looks like inflation's not as transitory as we had thought. And what's exacerbating that is the current energy price crisis that I talked about in yesterday's briefing. If you're not up to speed on the energy price crisis, watch yesterday's briefing. Particularly in the UK, and you'd say that the UK is the one that's on the up more than others. That's the one that's making a 2021 high here. US yields were higher back in the spring, by the way. But this is because, you know, the fuel crisis here in the UK is exacerbating things even more. Right. So So inflation's on the up, which is driving yields higher. So why does that have an impact more on the NASDAQ than other stock markets? Let's go and have a look at this, because this is the daily chart, and the red candle here is yesterday's session where we had some steep downside into the close last night. You can see it's recovering. I'll talk about that in a bit. But that's the S&P, right? But check out the NASDAQ, which came off a lot more. If I just zoom in on this chart a little bit. It came off a lot more steeply, and the NASDAQ was easily the worst performing out of the big three, the S&P and the Dow. And the NASDAQ— NASDAQ was the big loser yesterday and actually broke and made a new low for the month. Yes, it's recovering now. It also— this line I've got in here, very key technically. 14— can I just put a number in your minds? 14,700 on the NASDAQ. Really important for a number of reasons. It was the August low, but if we zoom back on this chart, I've drawn a trend line. Let me go back even further. The coronavirus recovery trend line, let's call it, coming from the spring of 2020 low to now is being tested. Okay, and if we go back to the daily chart, not only that, this blue line is the 100-day moving average. If I scoot back then this 100-day moving average has been a really good— all right, it's been a little bit messy and choppy at times, but in the main it's been a really good support for this trend higher for more than 12 months now. We flirted with it on a few occasions: September 2020, November 2020, March '21. You've done it in May '21, and we're just sneaking down towards it again here. So you kind of got 3 technical scenarios. If I zoom back in at 14— around the 14,700 marker, It's the August low, it's the coronavirus upward trend line that's really been broken on this daily chart for now. And then you got the 100-day moving average. Okay. So tech stocks under pressure. Well, why are they under pressure more so than other stocks? Well, if we come and look at the, the heat map, which is looking at the different sectors in US stocks, and remember on this heat map, the size of the square represents the market cap of the company. So the bigger the square, the bigger the company. That's why you've got your big tech giants— Microsoft, Apple, Google, Facebook, Amazon— standing out here, because they're the biggest companies, and they all got hammered yesterday. So why are these tech stocks getting hammered? Well, it's all about a growth versus value play. So this whole growth investing strategy, which has worked very well since the coronavirus first hit back in the spring of 2020, And growth investing is all about, as the name suggests, investing in companies' future growth. All right, you're buying a company share now because you're expecting that company to deliver future revenue growth and then future profit. Okay, so that growth investing is about the future. But the problem with inflation rising— inflation rising erodes the value of money over time. So basically, higher inflation expectations is eroding the value of those future growth— the future growth revenue and any future earnings and future profits. Okay, so that's why the growth stocks tend to get hit when we're worried about inflation. What happens when we're worried about inflation? Bond yields go up. So you've got a very clear inverse correlation between bond yields and growth stocks, and this played out perfectly into the close last night. Sharp upside on yields, Remember, when bond yields are going up, bond prices are going down. So if we go and have a look at the, the chart here and look at the bottom left, and I'll go to a T-notes daily, you've had another steep— look, 4 days in a row of very steep moves to the downside here as yields climb sharply. Key technical breakout at that summer level. If we go to a weekly chart, I just want to point out the big level for T-notes on the downside is the low of the year, which is down at 130.26. UK gilts prices broke the low of the year yesterday. Okay. So you've got big moves. And when these yields start moving sharply, it has more of an impact on investor sentiment around those growth stocks. Okay. So if we go back to the heat map, actually what we saw in amongst here, I know most of it looks red because the big tech stocks are red and they got hammered. But you can find some— if you take some of the— if you take the opposite to growth, then, well, that's value investing. And so that's where you're investing in stocks that you're not necessarily expecting revenue growth from, but they got stable revenues that most likely won't go down if economic momentum drops. Like healthcare is a great example. Also, the beauty of value stocks is they generally pay dividends, right? So look at Johnson Johnson. So whilst you got Microsoft down 3.6%, Johnson Johnson basically flat. Okay, they did go down, but only by 0.22%. Look, in here you got Merck that actually were flat, okay. And in here you can find some pockets of actual green. Well, the energy sector was nice and positive given what's happening with the oil price at the moment. But if you come across, look at utilities, they were much better off than these, the tech sector. But look at telecommunications here, Google and Facebook fine. But if you look at telecom, which is more of a historical kind of defensive, you come down to that electronic area, you had some decent upside for Activision and for Electronic Arts. So you do get some greens in amongst here in terms of the defensives. Um, so yeah, interesting kind of sector rotation in yesterday's session, right? Other stuff I'm going to talk about in the briefing— I want to update you on oil, we're going to talk Evergrande, we're going to talk Tesla, and we're going to talk the Fed. Okay, so next up, let's talk oil. Um, so we had some data last night out of the, what we call the API, which is a private company that tries to measure the week— the change in weekly crude oil stockpiles. Okay. And what they said last night was, unsurprisingly, the level of stockpiles went up. So we call this a build in US crude oil inventories. Okay. So think about it from a supply point of view. Normally, if supply is rising, well, that's negative for price. Well, let's go and have a look at price on the chart here. So if we look at crude oil, and let me make this a little bigger, obviously crude has been on the up. Let's start with the daily chart just to remind you. I'm not going to go through this. $77. I spoke about this at length in yesterday's briefing. If you want to know why $77 is so important, other than the fact it's the summer high, it's way more important than that though. If you want to know why, go and have a look at yesterday's briefing. But look, we had some downside yesterday. This is quite a bearish candle from a kind of technical point of view if you're looking at it in isolation. But if we go to a 60-minute chart, Then we had some downside into the close yesterday anyway, and that's just because stocks were selling off, so we had a bit of negative sentiment. But then this candle right here, because this data was announced at 9:30 PM London time last night, more oil than expected. So this continued the downside trend, which has been going on throughout the, the Asian session. We've bounced a little bit now as Europe has woken up. What we're looking for today at 3:30 PM is an update from the Department of Energy. So that's the US government version of the same measure. Have oil inventories gone up or down in the last one week? The thing about the Department of Energy figure, supply has been dropping week on week for 8 weeks in a row. So this number last night is perhaps suggesting maybe that Department of Energy number delivered at 3:30 might show a build for the first time in 8 weeks. But let's say, let's see. But at the moment, things have stabilize. And I'd say this downside for oil, you know, is this the end of the rally? Personally, I don't think so. And that's because some of those demand and supply issues I talked about yesterday are very much still in play. Doesn't matter what the API said last night, um, those things are very much still in play and for me are still positive catalysts. But we'll see how that plays out. Okay, um, let's move back to our headlines. What's up next? I purposely didn't talk about Evergrande yesterday You guys who listen to our stuff on a daily or weekly basis, we've been talking a lot about Evergrande. I purposely kind of left it out, but look, I've got to update you. Evergrande have raised capital. They've raised $1.5 billion. Um, this is obviously as debt payments are looming, and they've raised $1.5 billion. I mean, how have they managed to do that? Well, they've sold a 20% stake in the state-owned, uh, Shengjing Bank. This is a bank that's based up in the northern city of Shenyang, and they've sold it to Well, the Shenyang Shenzhen Finance Investment Group— call it the government. So they've basically sold this stake back to the government, right? So they've raised $1.5 billion. Cue a rally in Evergrande shares. They're up 10% overnight. Except I think this is ridiculous. Is that rally going to continue? In my opinion, no. It's what I would call a dead cat bounce. That means it's a massive sell-off, small recovery, which may get some people excited, but then that recovery fades and we continue the sell-off. Um, why do I think this? Well, the headline looks great, and as a reminder, what's the story here in terms of their debt obligations? Well, last week on Tuesday, they had a domestic bond interest payment worth 35.9 million. Okay, they missed it, they didn't pay it, but they came to some form of agreement with domestic investors. We had zero information about that agreement, so who the hell knows what happened. Now with dollar-denominated debt, and Evergrande have got a lot of that, and that's with international investors, they can't get away with kind of sweeping it under the carpet and keeping it quiet. So on the dollar-denominated debt, they had an interest payment on Thursday worth $83.5 billion— sorry, billion, million, which they missed and they have not paid. Now they've got another dollar-denominated bond interest payment tomorrow worth $47.5 million. It looks like— now, so are they going to use this $1.5 billion to pay this debt or these interest payments? And the answer to that is no, they're going to use zero of it. Why? Well, this is where the Chinese government is coming in. And what the Chinese government have done, they've kind of pushed people into Evergrande. It looks like the government has, in a way, taken control, certainly of the finances. And remember what the government strategy is. The government wants to protect the Chinese people. You've got a lot of people hanging on this crisis because you've got Chinese people that have bought flats off-plan that haven't been built yet, so they put a lot of money in and they've got nothing for it. You've got a lot of suppliers— that's Chinese companies, um, property developer companies— that are owed a lot of money. You've also got a lot of Chinese customers who have invested in Evergrande's finance arm where they've got wealth management products which has been another way of funding their cash flow, by the way. But you got a lot of people on the, on the hook for a lot of wealth products. You got a huge amount of Chinese life savings invested in Evergrande wealth products, never mind people who bought flats, right? So the Chinese government strategy is to make sure they don't get hurt or to limit the damage. So what they want to do, in my opinion, um, they don't— what the Chinese government doesn't want to see any cash coming out of Evergrande to international bondholders. They want that cash first and foremost to be used to protect the Chinese consumer. So it might— so what's happening here is the government's now going, right, what do you own? What assets do you have, Evergrande, that we can absorb back? And certainly anything that Evergrande own, which is stakes in state-owned entities, well, you can think that they're going, right, they're going back to the government. And that money that could have been used to pay bondholders is going to go towards protecting the Chinese people. So if I was a bondholder, an international bondholder in Evergrande, this news overnight is not good. Even though on the headline it looks great, it's the opposite to great. And in my opinion, shows that the Chinese government is definitely getting— stepping up the pace to make sure that no money goes out of the country until Chinese people are protected. And I would say there's not enough money to protect Chinese people. So how much is going to go out to international investors? I think it's going to be a big fat zero. But let's see, that's the Evergrande update. Ironically, the share price is up 10% off the back of this, so you've had some positive vibes. And look, that's helped. If you look at— I mean, I'm not just saying it's an Evergrande thing here. I've got— I think you're getting a little bit of, um, you know, buying the dip, um, as Europe opens here. And so we've got to move to the upside for now on stocks as they try and recover some of that downside from yesterday's session. Other— in other news, Tesla, um, let's give you an update. You might have seen Tesla— if I go, uh, if I go to the, my heat map, then you might have seen over the last couple of days— so if my heat map's gonna— my heat map is gonna load for me here. Tesla over the last couple of days— I'll just go to the headline— Tesla over the last couple of days has had some strong upside. Not yesterday though. In the end yesterday, Tesla got hurt by that yields higher growth stocks lower thing, because Tesla's big time a growth stock. You know, it's all about the future profitability of Tesla's car sales. They don't make any profit at the moment, right? But some of the news this week that's been really interesting is that Tesla have launched an update to their self-drive software. And this is really interesting because they're going to now try and channel this into really a new revenue stream, and a revenue stream that Tesla are really well placed to take advantage of which other car manufacturers are not, and that is charging their customers with software updates. So check this out. If you own a Tesla and you want the software update in your vehicle, this self-drive software update, you've got two choices. You either pay $10,000 one-off payment, or you do a monthly subscription, and the monthly subscription is $199 per month. Now there's 360,000 Tesla customers that could qualify for this. Um, let's just say hypothetically all of them went for the monthly subscription. Clearly they won't, but let's just say for fun, then actually that would lead to $71.6 million per month in additional revenue. So this is now positioning Tesla into that whole, whole subscription play, the likes of Netflix and Disney and all the rest of them. You know, it's all about subscriptions and user numbers and subscriptions. Right. And so this is Tesla moving into that kind of space. Quite an interesting development. It'll be interesting to get some stats on the uptake of this software subscription in the months to come, if Tesla tell us, which I doubt they will, to be honest, unless the uptake's amazing, of course. And then, and then Musk will be tweeting about it left, right and center. I'm going to end on the Fed. I can't not talk about the Fed here because two Fed members have resigned, or they're retiring, or they're resigning because of what they call health issues. It's a quite a ridiculous, um, excuse. Um, Rosengren and Kaplan have been caught with their hand firmly in the cookie jar. They've been caught with their hand in the register. Rosengren and Kaplan have been buying financial assets. They've been investing in and throughout 2020, which is a massive no-no, and it's in the legal contract of employment, is a massive no-no if you're a government official, especially if you're a government official whose job is to control a policy that has a very powerful and direct impact on asset prices. Think about it. If you're on the FOMC chatting away with your colleagues and Jay Powell, oh guys, I think we're gonna have to go with a, let's say it's the spring, let's say it's March 2020, and we've got this coronavirus crisis, and you guys are discussing, right, let's go with a massive QE program way above anybody's expectations just to land a solid punch and put a floor in this stock market. Let's go for it. And then Rosengren and Kaplan trot off quickly and get on their phone and start buying stocks. They're actually also buying— they weren't just buying stocks either, they were buying mortgage-backed securities, they were buying treasuries, the exact assets that the Fed themselves are buying. So quickly get on your phone, I'll buy a little bit of that, buy a little bit of that. Great. Now Jay Powell announces it to the world and bang, everything goes up. So these, I mean, these guys should go to jail for this, and, and yet they're being retired because of health reasons. It's ridiculous in my opinion. But look, what does it mean for policy? Forget these guys as individuals. What does it mean for policy? Well, actually, these guys are both hawks. They're hawkish members of the FOMC, and they're both coming off that, that committee. Does this alter taper timing? I don't think so. I think the taper timing is set. I reckon the Fed have already set it, and they're going to announce it at their November meeting. So I think this isn't going to impact that. But you might go a bit further than the start of tapering and start to think further out. How quickly is tapering going to happen? When is tapering going to end? And remember, The slightly hawkish tilt to the Fed meeting from last week was that they— Powell suggested that as an edge case, uh, tapering might end by the middle of next year, which is a much faster taper than we were thinking. So that was a bit hawkish. So will that happen if these two guys come off the committee? Well, it depends who replaces them. So that's going to be key— who replaces these guys. Are they going to be two other hawks, in which case fine, we're on the same track? Do they get replaced by doves, in which case, ah, hang on, maybe tapering will take longer, then you've got to start thinking about rate hikes, when they start and how quick they're going to be, and how does that impact on the dot plot. So there may be some monetary policy kind of angles to this looking further out into the future, but near term, I don't think this will alter the fact that the Fed are going to announce tapering in November. But something to keep your eye on. We'll talk— finally, on the Fed, we'll talk about this in more depth in the weeks to come. But as we get into 2022, Jay Powell is hitting the end of his first term, his 4-year cycle. Now normally, well, normally Fed presidents have 2 terms. Obviously it depends though, they've got to be, that's got to be signed off by Congress. And at the moment there's a big argument going on in Congress and Jay Powell was in Congress yesterday getting another slating. But there's a lot of people in Congress that don't want Powell to have a second term. So there is a risk that we will have a new Fed president. At the start of 2022. So actually, there could be big change here. Both Rosengren and Kaplan off. Jay Powell also maybe coming off. We'll see, he might get reelected, but that's some— that's another uncertainty with regards to the Fed that we'll talk about in more depth, um, later on. Um, but look, I'll finish off by going back to the charts and then we'll look at the data. I haven't talked about currencies yet. Let me have a look at this because actually the pound is on the move. I'm going to start on a daily chart here. Let me just change this quickly. The pound was on the move yesterday. So finally you've actually had a little bit of evidence that this whole fuel crisis situation is having an impact on asset prices. So the pound was lower. If you're not in the UK, listen to my briefing from yesterday to get a full update on it. But yesterday we still had massive queues into petrol stations, and it's creating a massive disruption twofold. There's huge amounts of traffic because there's so many queues going into petrol stations, which is preventing people from getting places. And also there's a risk that people then can't fill up, and that means if you can't fill up and you're in a job where you need to drive somewhere, well, maybe that's going to impact your ability to do your job. We've got a real risk about emergency service vehicles not being able to drive. So this in the short term is still playing out, and it kind of had negative impact on the pound yesterday. Broke below the summer low. So a key technical break here. And if I go to a weekly chart, then you'll see that just below that— and we haven't— when we're testing it as I speak, the 1.35 handle, really important for cable. And that was the high coming into the end of 2019, the December 2019 high, retested in the summer of 2020. Yeah, okay, we then broke it over Christmas, but here we are testing it. Really big level on the 1.35 handle. Okay, so your key levels And there's 3 of them, big technical levels in my mind at least. 135 on cable, $77 on oil, 14,700 on the Nasdaq. These are your big 3 prices. And if any of these break, then you should expect continued accelerated moves. Okay, let me put that back in its place. We'll just quickly have a look at the euro-dollar just for completeness because, oh yeah, that's the other level, 116.85, sorry, 116.68, which is the low of the year for EURUSD, and we're sneaking down and we've just tested it this morning. Okay, so keep your eye on that one as well. And just below that you've got— and that's the 2021 low at the moment, by the way, that August level I just mentioned. And below that you've got Q4 low, which is down nearer to that 1.16 handle. Okay, I'm going to finish off with the data calendar here. There's not too much I have to say. We've had some flash kind of inflation figures out the likes of Germany and Spain earlier, but you got some sentiment figures out of the Eurozone. These tend to not really move the dial particularly much. We had some bad consumer confidence data in the US yesterday actually, which did help with that downside. I've spoken about the oil inventory data that's happening at 3:30. So the only thing— I mean, you've got the Japanese elections as well to keep your eye on, but the only other thing to mention is we've got day 2 of Sintra. That's the ECB's monetary policy conference. Plenty of speakers, as you can see here. Maybe the most interesting will be this panel discussion. It's kicking off at 4:45 London time. You've got Powell, you've got Lagarde, you've got Kuroda, you've got Bailey. You got the big four. They sat on a stage last year at this conference, and it didn't throw up much of interest in terms of their individual monetary policy stances and what what policy might look like. They gave no hints to future policy moves, so it wasn't a market-moving event. It was really interesting to listen to but didn't really move markets. I'd expect the same today. However, you've got to be watching this because you never know, and it might be that one of them says something about their future policy moves that does have an impact. So, um, let's just wait and see. Okay guys, that's it for the briefing for today. Uh, have a good session.