Johnson Forced To Close Britain To Halt Rapid Virus Spread

Okay, very good morning. It is Tuesday, 24th of March. I hope everyone is doing well and I hope everyone is safe and sound. Um, definitely a few things for me to get you up to speed on, uh, from the overnight close on Wall Street being positive overnight, a positive Asia-Pacific session leading on to a fairly positive start to proceedings, at least from an equity point of view this morning. So if I just quickly flick over my screens and give you an overview, uh, DAX up about 500 points at the moment, just short of its R1 here in the center left, as you can see in the futures market. The Dow up about 800, the S&P up just shy of 100. So consequently, T-notes down about 15 ticks, but gold remains elevated. We'll come back to that in a second. Is trading close now to the $1,600 level, and gold futures hugging that R1 for the time being. And the currency markets, the dollar remains suppressed following the Fed announcement from yesterday, so DXY still down about 1%, and that's helping both major pairs breathe a bit of a sigh of relief in terms of the euro on the top left and sterling-dollar cable in the center, up about 130 this morning, and helping see quite a significant bounce from obviously those super depressed levels we were trading at just a short while ago. I remember this last week when Sam and I were sat in the office and we couldn't quite believe it when we started to break through 1.16 and we saw that eventual low here just short or just below the 1.15 handle. But you can see we had that retest yesterday, we bounced quite firmly off there at the moment. And interestingly, and I'll give you my points or my view on this in a, in a second, But the pound really quite unresponsive to the lockdown now put into place by the UK government. I'm sure you saw the Prime Minister's national address last night. But as I said, we'll talk about that in a second. Otherwise, elsewhere, with some of the slight risk kind of optimism, if you like, from that perspective, equities higher, oil also higher. The two tend to trade a little bit in tandem at the moment from a correlation point of view, just given the natural tie to economic prospects, uh, with the virus being at the forefront of investors' attention. So here, crude as well, likewise coming off a strong bounce from these, these kind of key levels which we've already been looking at for a while, um, that breach which took us down toward nearly the lows of 9/11, going back into the late part of 2001, but we've managed to see a pretty decent recovery At this point, yeah, oil trading higher. I still, I still feel directionally more bearish than I do bullish from this perspective, because this isn't just about a demand issue, which I think central banks and governments can do to, to almost try to counteract the downturn by doing stimulus and by cutting rates and doing other monetary policies that we've seen from the Fed, for example. But there's supply as well, and that's the issue here. Russia and Saudi, still really not a lot forthcoming in regards to details about any type of deal being made. And for the moment then, I still feel quite, quite bearish on prices. So I, I'm still reluctant to really short— oh, sorry, go long at this point despite the bounce. So here, just looking at WTI crude, it's finding a little bit of resistance at around the initial Asia-Pacific range high that we had had a little bit of a test of that in European morning. Perhaps that provides a, maybe a decent entry point because you've got the, the placement of the R1 sitting just above it. You know, do— could you be able to get in short at this point and then it was a stop just above and looking to ride the move back down? And then I guess just scaling out of some of the move as we come down to these various different levels. That were defining because some of yesterday's range perhaps could be a trade opportunity today. Um, let's just have a quick recap though of what the Fed said, because one of the things was, um, I think a lot had a couple of questions: what exactly has the Fed done? And I've tried to make this— I've written down a couple of notes here on my screen to make it as simple as possible. And let me just flip over my screens. Talking about Fed then, one of the things was the Fed said they're going to buy unlimited amount of Treasury bonds and mortgage-backed securities to keep borrowing costs low, to alleviate any kind of funding stress. They basically did 3 different things when you look at it on a more granular type level. So they're going to help large companies stay in operation by providing a credit facility. They're going to keep loans available for households and businesses. And remember, this is what we said was really quite key. This isn't just for the United States, but this is for every economy. It's all well and good trying to give kind of blank paycheck of, say, $1,000 to a US individual consumer, but end of the day, that's not going to last them very long if they lose their job. And then if companies go under, we're talking about unemployment levels that could rocket higher like some of the numbers we've been seeing. Morgan Stanley, for example, looking at an average unemployment rate in the coming months of just shy of 13%. And we obviously got those jobless claims coming out, and Goldman's calling for that 2.25 million number that we could see, uh, on Thursday. So trying to address that, they've done this thing called a Term Asset-Backed Securities Loan Facility, bit of a mouthful, but it's called a TALF. And that was something I remember covering back in 2008 during the initial financial crisis, because again, just trying to take care of those smaller firms so they can still operate and function and employ people, essentially. And then Main Street Lending Program. So this is more loans to small, medium-sized businesses. So if you think about it, you've got help for large corporations in the form of credit facilities, you've got Main Street Lending Program loans for smaller, mid-sized businesses, and then you've got these keeping loans available for households and businesses. So you've got the kind of the pyramid of levels there to try and keep the system functioning and keep people employed which is really the key here. So this is what the Fed have done. And one thing is, if we look at the, the chart yesterday, I'm not sure if you guys managed to join us, but me and the guys did a, like, a live online webinar. And what happened yesterday when the Fed made this announcement, this was the initial reaction, was this, this point here. We, we rocketed higher, but at the time, that was when we, we started the webinar, wanted to jump on a little bit early. You know, if you did ever want to take part in any of those sessions, just make sure you subscribe to this channel and you'll be alerted as to when these things are happening, when links will go out and so on. So make sure you do subscribe. But here what we had was the market initially spiked higher, but we were saying, well, you know, at the end of the day, we kind of knew that this was forthcoming. It's something I've been saying on the briefings a number of times. Is, you know, I do expect stimulus packages to go up. I do expect more coordinated action amongst European nations to increase. I do expect lockdowns to happen. And I do expect this whatever it takes literally means that. And so here I just thought, well, after initial blip, so it's a little bit overdone to be quite honest. And then the market did fade. And as we got through the open on traditional kind of New York Stock Exchange trade. We kind of came lower. We did eventually grind it out during the Asia-Pacific session, and net-net, we are more positive this morning. But I think that was a little bit of an over-initial reaction. This kind of— I guess the headline that was snapped on Bloomberg was unlimited QE, and people jumped all over that. But I think rationale returned, and it was more really, you know, this was fairly in fitting, I think, with expectations of them, you know, fulfilling that commitment of which they've said. So We came back down. You can see there's a really solid floor of near-term support now that we've etched out on this chart in the S&P future, uh, along this point of 2173.25 for the moment. So that's going to be a big level if we do come back down at any point in the near future. Um, let me get you up to speed then with a few other things. This was another comment that I thought was particularly interesting, and this is really what's going to carry a little bit of the potential weight or the catalyst of whether or not we can go higher again, or do we get a reversal in equities. And, you know, the central banks are really doing, I think, a pretty decent job, but Congress now needs to do its job also. Remember, the monetary policy toolbox is relatively bare now. They've kind of played a lot of their, their cards at this point, and now it's over to Congress. And for Congress now, This is the type of headline that you're seeing at the moment, and this is Senate Democrats have blocked a $2 trillion stimulus bill for the second time. And so what's happening here is the Democrats, they blocked it for a second time, insisting that legislation should include more stringent lines. So this is one thing. I did see a comment from Donald Trump yesterday. He said, quote, the US was not built to to shut down. Now, I kind of admire his bravado, but I think he's kind of fighting the inevitable here, and he will pivot on that, and he will have to shut down large areas. And what we're already starting to see in kind of densely populated areas like New York, where the number of confirmed corona cases is about 15 times higher there than it is in anywhere else in America, as you would imagine. But here Congress does need to act. You know, it's really important. One thing that you could say, and it's received a lot of positive, I would say, response in both markets and publicly, has been from Rishi Sunak, the Chancellor in the UK, because of, you know, going above and beyond. And as a proportion of GDP, these massive packages that are coming forward. But now it's really down to the politicians on Capitol Hill. They've got to get this over the line now. And I think that's going to be quite a key catalyst on the kind of more medium-term direction that we get in in markets. So that's something to definitely keep an eye on. But let's just have a quick run-through and look at the coronavirus update. So total confirmed cases, you can see on the left now, just coming up to close to 400,000. The death toll at about 16,500. These numbers here, I mean, Italy cases keep rising, but look how quickly America is now coming up here, third on the roster at 46,000. You know, quickly. And I do expect that number to go into the hundreds of thousands. Let's not, um, you know, let's not pretend this isn't going to be the case. Unfortunately, it will. And that then leads us on to a couple of interesting things or observations here. The thing I like about this FT chart is the way that they've done it is they're looking at the cumulative number of deaths by the number of days since the 10th death. And what they're looking at here then is you can see these, these dotted lines on various different trajectories, if you like. Now the first one, which is here, is the most sharpest, where exponential growth, meaning that basically deaths are doubling every day. Now the closest to that actually is New York, of all places, so in the United States of America, followed then by places like Madrid, for example. But then there's a slightly more shallow line, if you like, and then that's a death deaths double every 2 days, and then we go here every 3 days, and then here every week. Now one of the interesting things here is if you look at Lombardia, so if you look at in Italy where the key region in the northern part of the country where was the kind of epicenter of the non-Chinese outbreak in mainland Europe, actually Italian deaths have gone, have slowed for the second day. So this could be quite an interesting sign as well. I remember I've talked about this before that monitoring these key geographic regions like Germany, France, Italy, the UK, and the US predominantly. I do think that one thing that could be interesting to watch, particularly because of the, the potential size of cases that could become apparent, is India. It's only very early stages there, but I would expect that to come quite quickly up, just given the nature of the structure and infrastructure of the country and how densely populated it is. So here I would say there's a, there's a couple of things to be aware of, and that's particularly Italy. If the deaths do start to slow, we start to see similar things in Spain, which does look a little bit more troubling in how quickly their cases are arising at the moment. But then the UK is going to be a key one because I think from a UK perspective, as we've seen here, we're now at 6,700, still relatively low, but again, I'd expect that to be probably in the tens of thousands by the time more people get tested going forward. A few other things. We of course saw this chap speak last night, and you know, look, I'm no fan of— big fan of Boris Johnson, but I actually thought he did a relatively good job. I think he sounded quite assertive, quite authoritative. He actually sounded quite serious but quite genuine. And I think that's, you know, it's amazing when you think about it. We were sat in a press conference about a week ago and he was talking about squashing the sombrero, referring to this kind of peak, if you like, where the NHS wouldn't have been able to cope if they did this herd immunity approach by letting everyone get infected and squashing that down to have a lower distribution of cases. That's— that joking Boris has gone out the window now, and absolutely that's necessary. Necessary given the gravity of this situation. So the thing that he said obviously was all non-essential shops are shut and the police to enforce a stay-at-home order. So, you know, we did make that call yesterday. I don't think this is unexpected. The pound, nothing has reacted to this because if anything, we're a couple steps behind putting in these more strict measures than what we have seen from our European partners. Deaths in the UK claimed 335 lives as of Monday, a jump of about 15%, to give you a bit of context. Now, this move from Boris has come because of basically a disregard of the government's request to self-isolate. I'm not sure if you have been out, but if you've seen the shots, I mean, London, for its sins, has pretty much just been going about its business as per usual. And so now police are going to be deployed they're gonna have the ability to break up kind of gatherings. So one thing I'd like to make clear though, because I see a lot of misinformation on the internet and social media, the government, if you listen to the speech, they're not saying you're not allowed to go out. You're not contained in your house and they're waiting for you the moment you step out. You are allowed to go out for things like to go to the shop, but they're recommending just do it once a day. You are allowed to go out for a run or for some exercise once a day, but to be responsible, and that's the main thing. I just want to reiterate that it is a shared effort that the country's got to, got to do from this point on. This is going to be in place for the next 3 weeks, is what they were saying. The other thing that's quite a thing to monitor here is about Europe getting serious. Obviously, we've talked about this Italian slowdown in, in deaths, but here The euro officials talk rescue plans to counter economic pain. Now, one thing we're going to see, uh, in a short while— and I'm going to try and wrap this briefing up before it comes out— is the eurozone PMI data. These are the flash readings for March. So this is where we get manufacturing and service PMI numbers coming out of France, Germany, the eurozone, the UK later as well, uh, and also for the US this afternoon. And this is going to be particularly telling to see how the land lies now with how these, these purchasing managers are feeling. To give you a bit of a sense of what this is looking like, this is the German manufacturing PMI, and you can see the previous reading we had was surprisingly strong. However, the expectation for this reading is to go down to 39.6. So you can see here, you know, remember, a number below 50 in the PMI is a contraction. So you can see pretty much for the entirety of 2019 and all of 2020, 2020, even though the numbers been moving back higher, Germany has been in a heavy contraction in its manufacturing sector. Now we know that it's been kind of triple threat between either uncertainties around Brexit, the protectionist policy out of the US and tariffs on things like the automotive sector in Germany. Then you've got this kind of domestic ongoing struggles of the Angela Merkel kind of legacy government Now you throw in the virus, and this is going to be, you know, particularly catastrophic for an economy which exports goods like Germany. And so the number they're expecting today is for 39.6. Now I'm gonna have to put that on a 25-year chart to bring in the financial crisis so that we can see the last time we were down that low. You can see a number sub-40, you've got to go back down to when we were printing in the kind of low 30s in the depths of the financial crisis. So yeah, it's gonna— these numbers are going to be pretty bad this morning. I just wonder how much impact that's going to have on markets given that that is broadly expected to be bad. But definitely keep an eye on the euro, keep an eye on the DAX, keep an eye on the Bund this morning when this data comes out. Again, we have France first, then Germany, then Eurozone, then the UK in that order, starting the first release coming up in around 8:15, going through to the UK data at 9:30. The other thing, just bouncing back here, that I wanted to mention from the news perspective, that, that comment I've got highlighted at the bottom of the screen. And I've just got some more notes here. German officials said yesterday that they're ready to help and are prepared to support an emergency loan from the euro area's bailout fund. Now, this has been a thing that people have been pushing for a number of weeks ago when this first started to unravel. As a narrative moving markets was about Germany really stumping up the fiscal measures. Now we've seen that announced domestically, but now they're talking about more unified European action. And I think this is quite key for this to be successful, to counteract this economically in the eurozone. Now things that they've said here is Berlin would see Italy granted an enhanced credit line by what's called the ESM, the European —mechanism, and it with minimal conditionality. That's the key part, according to German officials close to the government's thinking. Now, Italy, with the support of France and Spain, is pushing the bloc to take a further step toward fiscal union by jointly issuing bonds for the first time in order to finance the virus stimulus program as well. So this idea of eurobonds, that's something that Germany has been highly resistant to, but again, does necessity rule and needs must, and we see these things, these are things that you could be looking out for as other measures to come forward from a government's point of view to counteract this downturn. So yeah, quite a few different things. One thing for your calendar to be aware of: leaders of the G20 major economies, they're going to convene for a video conference call on Thursday to discuss the coronavirus situation. According to sources at the moment. So more comments, I'm sure, to come on, on that front throughout the week. Another thing to be aware of is China to lift the lockdown over the virus epicenter in Wuhan on the 8th of April. I do think this is quite important from a milestone point of view. Transportation to resume in the city. Remember, this is a city that basically is bigger than London. And so, you know, a real, you know, this is the apparent origination, the hot spot in the Hubei province. And if they reopen this, we're going to get the first time where really it becomes a degree of normality. And does it then lead to a second phase of outbreak or not? Big question we're going to— or China is going to face at this point. And that's going to be very interesting for markets. If in the worst case scenario, they kind of unlock the key, everything goes back to normal, people go to work, and we're talking about a large city here in Wuhan, and then virus numbers, that flatlining in the Chinese curve, starts to lift again, that's going to be so bad for market sentiment at that point because it's going to show then people will get highly apprehensive about the lockdowns that we're doing now in UK and Europe. Are they even going to be enough? Boris said 12 weeks. Does that then become more like 6 months, 8 months, 9 months? 12 months. And if that does, all the more problematic it's going to be for the economic prosperity of these nations. Going here, just going to have a look at gold quickly. I thought I'd point this out because again, during the webinar yesterday, we were talking about gold because the Fed had just made their announcement. We were making some observations about it. I was giving a bit of running commentary at the time. And this was when the Fed announcement came out, was around here, and we started moving higher in gold because obviously the dollar collapsed. And actually we were looking at this kind of zone, this area here, $47 to $50 in the gold future, which was around the highs on the 17th, 18th, on that kind of double top. And it, you know, worked a treat. And at the time we were kind of looking at a couple things. We were suggesting, well, at this point, uh, you know, the Fed have have unleashed literally a bazooka in terms of how it's being referred to in the press, which means like, you know, a massive another injection for the, uh, for their policies in terms of what the market reaction can be and its ability to assist these companies, definitely in consumers, in and how they operate. And so we thought the dollar's going to get hit, gold's going to go bid, equities at the time, this, they'd already peaked and were fading, so So you had multiple reasons, you know, and we were saying there's probably lesser risk of these margin now, big shakeouts in markets. Typically they tend to come at the end of the week, which makes some sense. Uh, but also as well, I think the, um, those margin calls now are probably going to become fewer at this point. More volatility generally in equities has started to dissipate a little bit compared to those wicked swings that we were seeing just a few weeks ago, or days ago in fact. So we felt quite bullish, and gold has continued that push higher, and we've now soldiered all the way back up to $1,600. And as per the, the story I was just showing you, Goldman Sachs have come out and they see quite an inflection point after the sell-off. They're actually remaining quite, quite bullish at this point going forward. I'll leave Sam and Sam can't obviously join me on these briefings for the moment, but he's going to share some charts in Trading Live and on Twitter as well. So do, do check that out. Okay, final couple of words and then I'll wrap things up. One is, if you haven't ever before heard of Amplify, obviously if you're watching this on YouTube and you don't subscribe to the channel, again, please do subscribe. 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And then for the other, what would be traditionally in-house training, we're now taking that fully online for the foreseeable future, just given the situation that's ongoing. So again, do, do check out the website. All right, quick look at the calendar. What else have we got? So yeah, the PMIs are coming out shortly. Do keep an eye on these. I'm going to come off the mic now. These are going to be quite important. So you've got France coming up, and all of these numbers— France is at 8:15, Germany 8:30, Eurozone 9:00, UK at 9:30— and they're all expected, as you can see here, to move into deep contractory territory as far as the PMIs concerned. Going into the US afternoon, you get the same figures coming out from the States. You also get the API crude oil inventories as per normal coming out as well a bit later on this evening. From the speaker's perspective, Fed's Bullard, non-voter, but you remember he was the guy looking at some crazy numbers for GDP to fall by a spectacular amount. I think he was talking about 50% unemployment at the 30%. He's a non-voter, uh, he, he does tend to be very opinionated as far as Fed members go, but he is speaking a bit later on early afternoon, just so you're aware. And then for any US bond traders, you've got the 2-year note auction kicking off the week, supplying $40 billion worth this evening. And you've got a Schatz auction as well if you're looking at the, uh, German rates as well. All right, that is it from me. I'm gonna wish you a good day ahead. Stay safe, stay positive, and I will see you tomorrow. Leave any comments on the video and I'll reply throughout the day. All right, thanks very much, guys.