Lockdown Measures Increase As Virus Numbers Rise

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 Monday the 26th of October. Hope you had an excellent weekend. Just a quick word before I begin to remember to remind you guys to sign up for our US election preview webinar. We're going to be hosting that at 6 PM London time this Friday. Only 8 days to go now to the US election, which we'll be covering live throughout the night via Trading Live, that platform. You can find the link as well in the description, but check that out. It's not only going to be me, I'm going to be joined by all the team. I've also got some special guests Um, we're also going to be going through scenario analysis, the charts, both from an intraday trading the night perspective but also from medium and long-term implications if you're managing a portfolio. So definitely something not to be missed, hopefully, and thorough preparation ahead of the main event itself. But let's get straight into things and look at what is going on in markets to get the week underway and Yeah, it's a little bit of a risk-off tone overall. That has meant that US and European stock futures are moving lower. The DAX is already down about 180. That's somewhat being compounded by the fact that you had a negative earnings update as well, or comment I should say, from one of the biggest Dow components— DAX components— SAP. Overall though, it's the main theme of continued increases in COVID COVID-19 across the world, mainly being then the focal points of mainland Europe, which consequently is resulting in more stringent lockdowns in the likes of Italy and Spain, as well as other nations, and also increased cases as well being observed in the US at the moment. That meant then that the dollar was a little bit firmer, kind of more of a traditional flight to quality bid into the reserve currency. We've come back up to around the highs that we were printing back in towards the, the recovery high into the European afternoon on Friday. So the Dixie is up about 0.2%. Consequently, then both major pairs are negative here in the top left in EURUSD and Cable. Cable just finding a bit of a near-term support area here, as you can see from what was the low point of Friday's session. That also being an area, as you can see, these charts unaltered from what we were looking at from last week. So quite a key technical point there. Any further breach then opens up a move in the futures back down towards 130, which roughly is around the S1 today on the daily pivots. Elsewhere, oil as well, negative, as you really would imagine when it's driven by increased COVID concerns. Typically that tends to translate into diminishing demand expectations in at least the short term, the way that oil oil price tends to react. And further, more stringent lockdown certainly does impede economic activity. And as such, oil's down about $1 here at $38.87. But there's also some supply news coming out of Libya as they continue to resume production in various different spots across the country. T-notes then are up where we're seeing a gain of about 5 ticks. So all the asset classes would mimic then a general risk-off type morning, albeit fairly moderate, I would say, at this point at least. Certainly will be interesting when the US starts to come in. But gold bucking that trend, and this continues to remain the theme for gold prices at the moment, much more responsive not so much to the risk perspective, which classically would normally be the defining factor that would dictate price movement, but gold much more responsive to now dollar and the inverse relationship. And with the dollar grinding up overnight and up around 2/10 in the dollar index, gold is down subsequently just below the $1,900 level, trading down about $6 as we speak. So I'm going to get straight into the news and let's, let's get you up to speed of things. Again, I'm just going to talk about the market kind of fundamentals from the overnight summary of the news from the weekend. If you want the more technical-oriented setups for the intraday and the week ahead, you need to check out Trading Live, uh, on the Amplify website. The link I'll put in the video description. But first off then, kicking off with mainland Europe, this is looking at Italy. Now Italy introduced its strongest virus restrictions since the end of the national lockdown in May at the weekend, limiting opening hours for bars, restaurants. They've shut entertainment, gambling venues, and gyms. Italians will be urged not to travel at all. The measures will come into effect today and remain in effect till pretty much this time next month, so November 24th. Spain will impose new measures including a curfew for the virus from 11 PM to 6 AM. France, they saw a surge pushing their infections to another record, just over 52,000. So I continue continuation really of much of what we were seeing last week. Those cases continue to get worse, and as a consequence then hospital admissions are going up and death rates are gradually ticking higher as well. Away from that though, one of the other things that's come out in the overnight session, so in focus this morning, has been from the Financial Times. They've been reporting about an update for a vaccine by Oxford University University in collaboration with AstraZeneca, the pharmaceutical company, and they've produced robust immune response in elderly people. And obviously these are the key demographic at risk with this particular virus. According to two people familiar with the matter, the Oxford COVID vaccine trials offering some help then for the elderly. Reading the article though, I decided to be aware of positive immunogenicity tests do not guarantee that the vaccine will ultimately prove safe and effective in older people, though that will not be known until full trial data for the age group has been analyzed. So it's another one of those where I think that generally speaking, not just the Financial Times but media in general knows that this is the hot topic. Markets as well are very sensitive to this type of information. And so media agencies like to get out the first little glimmer of headline because they know it's going to grab a lot of attention. That's what sells newspapers, or digitally at least these days. The devil is always in the detail with this, as I just mentioned. Actually, when you read through the article, as optimistic as this initial assessment might appear, it's still a long way from actually getting to the point of ultimately proving safe and effective in older people through much more full-scale trial data. So something to be aware of. I don't think it's particularly like the headline though of the morning by any means. Separately, Anthony Fauci, who's that US medical expert, he said on Sunday it will be clear whether a COVID-19 vaccine was safe and effective by early December this year, but that more widespread vaccinations would not be likely until later into 2021. So again, quite interesting comments there coming out of the US over the weekend. Talking of the US, obviously the stimulus talks continue to dominate things to a, to a large degree. One thing I would say up front though is that I think most people in markets now have come to the consensus that there's a lot of political posturing going on here. As I said, just 8 days now to the election. And therefore, the sensitivity in markets, the volatility that we were seeing just 2 weeks ago on every headline coming out from Pelosi and Mnuchin, I think that has— that ship has sailed slightly. That's not to say that the markets might not react if talks completely break down or for some reason they find some compromise and a deal gets done, neither of which I foresee this week. I'm just saying that I think there's a little bit of fatigue around this now and that the market's kind of sharp response that we're seeing to headlines is probably going to diminish, as I think most people are looking now post-election for this type of thing. Nonetheless, though, the latest was that House Speaker Pelosi said the chamber could pass a pandemic relief plan this week, though a deal with the White House remains elusive and Republican-led Senate might not act anyway before the election November 3rd. Still to keep an eye on though, as headlines are probably forthcoming throughout every session this week, I'm sure. A quick look at the polls. This is looking at the RCP national average poll, and Biden's still in the lead by 8 points. Points. So there has been some fluctuation over the prior week, uh, on the top battleground areas. Uh, the lead has not continued to narrow ever so slightly, so it's now at 3.8. You can see here Biden not really moving, it's Trump which has been narrowing the lead. I did see a really interesting, um, research note actually coming out of a European bank, and they were talking about if you applied the same, um, actual outcome for some of the top battleground states from this time in 2016 when it was Clinton-Trump, um, the polls obviously we know a lot of them were wrong. And if you were to just translate then the amount that they were wrong to currently then the difference between Trump and Biden in 2020, Biden, um, Trump would pretty much win every single swing state. Using the same amounts of swing, if that makes sense. Again, a lot's changed since then. A lot of the pollsters have changed methodologies and so on, but overall it's just— it's definitely not a foregone conclusion yet in my mind that Biden's going to win the election. Far from it. On that note, one thing to be aware of is that from from a, well, a couple of things. For one, from a commentary point of view, what can you expect from Trump this week? Well, you can see here listed those key states that will really define perhaps then the balance of power on who's gonna win this election. And Trump is heading to Pennsylvania today. He's then set for multiple trips to Michigan, Pennsylvania again, Wisconsin this week. He also visits Nebraska, Arizona and Nevada. So he's really got a busy week ahead trying to really zone in on some of these key states going forward. So the other thing as well that I can absolutely assure you that you're going to hear from Donald Trump at the end of the week— and quickly jump over to the weekly calendar just to highlight one specific piece of data, which is this. This is the advanced third quarter GDP number coming out of the US, and that comes out on Thursday, and that is gonna be broadcasted by Trump from the high heavens. And that's because after seeing a contraction of over 31% in US GDP in Q2, the consensus estimate on the street is for a bounce back of 32% in the first reading for Q3. So Nothing like vindication that you've done all of the right moves than an economy bouncing back so aggressively. Now we know that that's not strictly binary in terms of that he is the, the component behind what's really created such a powerful response. It's much more complicated than that, but this simple narrative to the electorate will be, will be clean, and I expect Trump to really be banging the drum later on this afternoon. And it couldn't be better timing, really, just going— just a few days that will be then into the US election. Trump's going to have delivered a spectacular rebound in the economy in a very short period of time. And whether or not that's enough to sway voters' minds, perhaps it could be, because he really is going to be pressing home that point in regards to his administration and their kind of overall perception of being pro-growth and so on. Okay, elsewhere, Brexit definitely is ongoing. This is a picture of the Northern Irish secretary, Brandon Lewis. He appeared on Andrew Marr's show in the UK at the weekend. But the overall summary here is the EU chief negotiator, Michel Barnier, Anthony Cheung was planning to extend his stay in London till Wednesday. He was due to leave town at the end of last week. He's committed to stay now for another 3 days of talks here in London, and EU sources have said that those talks will then resume and pick up from Thursday in Europe. So both sides then willing to get back at it and try and break the deadlock over what are the same sticking points, which is state aid and fishing rights. To give you a bit of context, what my thoughts are here, the next soft deadline is the end of the month. Remember, that's what Boris was kind of insinuating, that, you know, if we're not gonna get a deal by mid-October, then we'll get a deal by the end of October. I think that's absolute nonsense and once again political posturing. And I'm not blaming Boris, I think he's following the right strategic approach at the moment, which is that of any negotiation which is trying to just keep as much pressure on the conversation as possible. I don't see anything really tangible happening this week, and perhaps I don't see anything really— the deadlock being broke for another 4 weeks at least. That's when you've got the EU parliamentary meetings happening on the 23rd, 26th of November. So as such, I think sterling could get a little less responsive to these headlines now, because I think most people share that view. If there's any deal force coming, it's not going to be so much this week. It's probably going to be more like mid to late November. As such, then, it's probably unlikely, politicians knowing these other more fixed deadlines of significance, that they're going to cut a deal this early. I think that's very low probability. So something to just keep in mind. As far as sterling is concerned, same goes for euro EURUSD, more kind of just looking at the dollar as far as the morning is concerned, given the fact that, you know, a lack of stimulus, but more importantly increasing COVID concerns resulting in actual further restrictions that happening in major economic areas in the world, that could create a flight-to-quality bid in the dollar. And if that does, it might overshadow anything else, and those major pairs might, might trade quite heavy. Talking of the lockdowns that are happening in mainland Europe, that's, that's probably likely to dictate a lot of what we're going to hear from one of the main central banks this week. You've got the ECB, the BOJ, and the BoC all coming out this week. None of them are actually expecting any policy changes, but as far as the ECB is concerned, it's all about listening to Christine Lagarde and understanding, is she going to to kind of shoo in further extension to the pandemic emergency purchase program in December. Bloomberg economists surveyed last week are anticipating that to be increased by $500 billion. That's gone up from the $350 billion when they were previously surveyed about a month ago. I don't think there's much doubt that that's going to happen at the end of the year. The way that the virus is now impacting what was a brief economic recovery in some of these nations is likely to result in this kind of, quote, double dip type recession as the second kind of wave hits. And so more commitment, let's say, of emergency stimulus on offer from the ECB, I think, is forthcoming. How might this be given as a hint from Lagarde? She's not going to come out, of course, in the way that central banks communicate. She's not going to be explicit, but what she probably will say is that downside risks have increased. She might draw attention to the fact that these new lockdowns are materializing, that the virus continues to perform in a very uncertain way. All of these would be kind of soft nods towards the fact that the ECB are preparing for more to come in the future. As far as the other central banks, the Bank of Japan is likely to downgrade its GDP and inflation forecasts for similar type of reasons, but, but there's no expectation really of it changing any of its actual policy on QQE or yield curve control. As far as the Bank of Canada is concerned, no expectations unchanged for their interest rates while maintaining generally a cautious tone is probably the most likely order of the day. Their projections in their monetary policy report might well be more potentially market-moving than the actual policy announcement in itself. That makes sense. Moving on, I did mention briefly SAP, and the DAX was trading quite heavy. The DAX in Germany is already down about 200 points in the futures, trading at its S2 at the moment. But SAP is one of the biggest cap names in the DAX. I think it's still around 10% or so of the index. They cut their guidance for 2020 on Sunday. For the medium term, they said that the reimposition of coronavirus lockdowns had hit its business while hard-hit industries will now take longer than expected to recover. So worth keeping an eye on them at the open. And in fact, if I can quickly bring up Lang Schwarz, I can get a pre-market indication Let's have a look. Wow, SAP are called down 12.2% ahead of the open. So be mindful of that, that's a severe headwind given their large market capitalization for the index overall in Germany. So going into already headwinds on the back of negative stock pricing on the COVID developments that we continue to be seeing. Oil as well, as I'm talking, has just broken through Friday's low, just so you're aware. Talking of oil, not just the, the kind of demand being impeded or the perception of it with COVID at the forefront of investors' attention, Libya lifted the force majeure on Ras Lanuf and Es Saida ports while it expects then production to reach 800,000 barrels per day within 2 weeks and surpass 1 million barrels per day in 4 weeks. This is according to the NOC, the state-run company. So, um, I mean, Libyan oil production has gone from kind of low 100, 150s up to potentially 1 million now that the civil war is kind of at a ceasefire at the moment, at least for the time being. That is an incredible increase at a rapid pace for the country in its production. It really does jeopardize then the validity of the ongoing OPEC+ deal, which in total isn't that much larger in terms of total output taken off the market overall. So something to be, to be mindful of here. Further deterioration in the COVID situation. I think it's super difficult for the US to go into any degree of type of lockdown at the moment. And that's irrespective of the fact that In America, the weekend, they reached a record number of coronavirus infections for a second day in a row, over 85,000 cases. Florida reported several recent days of elevated infections. Texas is working to contain a hotspot in El Paso, and hospitalizations in the US Midwest, the focus of recent weeks, is already exceeding what we saw in the initial kind of waves that we had. I think that's a little bit the latter one. I wouldn't call it waves in that case. It's more tri-state, southwestern states and Midwest all hitting and experiencing their first waves. But the point being is that they've never been higher at this point in those areas. And so, yeah, oil might find a tough time ahead if these things continue to deteriorate in combination with Libya continuing to really fire up the, facilities at the moment. Talking about earnings then, this week is super busy actually. US earnings-wise, we've got 183 S&P 500 companies reporting, 10 of the 30 Dow components. Alphabet, Amazon, Apple, Facebook, you know, your big mega-cap tech names are all reporting on Thursday after the close. That's definitely one to put in the calendar there to watch for sure. Other highlights, as you can see here, before the market open tomorrow, you've got Pfizer, 3M, Caterpillar, Eli Lilly, got Boeing, GE pre-market, UPS on Wednesday, Exxon Chevron pre-market on Friday. So yeah, big earnings week ahead in store, particularly Thursday night for those big tech names. Then just summarizing the overall calendar for this week. This morning you've got the German IFO numbers for October, always worth just keeping an eye on, but it might well just be overshadowed by the, the COVID developments that we continue to be seeing, particularly manifesting in those, those increased restrictions in Europe at the weekend. New home sales coming out of the US, Chicago Fed National Activity Index this afternoon. Don't forget as well that clocks in the UK change this weekend. They do not change in the US until this weekend. So this week alone, then US data, if you're based in London, is going to be coming out an hour earlier than normal. So your 1:30s at 12:30s, your 3 PMs coming out at 2 o'clock, of course, and your open on Wall Street will be at 1:30 for this week. So do not get caught in a tricky spot just forgetting that, that specific point. Um, Tuesday, uh, US durable goods, probably one of the highlights. You get Richmond Fed National Activity Index and the Conference Board's consumer confidence reading as well. Wednesday you get Bank of Canada rate decision, but overall pretty quiet. The advanced goods trade balance number out of the US going into then overnight and Thursday morning, got the BOJ. You then also get that US GDP advanced Q3 reading with the ECB rate decision. That's all coming on Thursday, so quite a busy day there in combination with all those earnings that I mentioned, as well as US pending home sales. And then Friday, and you get German GDP Q3 preliminary reading. You also get then the advanced Q3 reading for the eurozone with growth and core CPI. And then from the US, you get your PCE your core PCE deflator numbers. And that's pretty much the whole week. So lots in store. As I've said a number of times though, the main things people looking at here is really the deterioration that's happening in what the markets are very sensitive to, which is the Western developed world and COVID cases, increased restrictions which will impede economic activity, and reshaping people's perspective perception about the future. That is this morning causing a bid into the US dollar. It's creating then weakness in equities, which in turn is fueling fixed income, and then oil decreasing on the back of the more gloomy perception about the economic future going forward. So that's the kind of how things are shaping up at this present point in time. All right guys, that is it. I'm gonna let you get on with things, but don't forget to check out the registration link for the US election preview, one not to be missed. Again, I'm going to go through my full kind of breakdown of what everything you need to know for trading that event, and then the rest of the team will be joining me as well. So hopefully I'll see you then. All right, have a good day, have a good week, and I'll see you same time tomorrow.