MAKE AMERICA GREAT AGAIN After "Spectacular" Jobs Report

Hi guys, Anthony here. Hope everyone is doing well and have had a great week so far. Following on from the forecast-beating US non-farm payrolls data last night, we've had Chinese official services PMI come in overnight, its highest reading since 2010. So general feeling and sentiment in the market is still relatively positive, at least if you're looking at the equity market. But because the big question is how long can this last and will it do so in fact as we go into this extended long holiday for the weekend for Independence Day in the US with the COVID cases, the nationwide numbers now above 50,000 again for the second day in a row. Um, remember to follow me on Twitter, my handle here, and you can see the account here. I'll be publishing my regular fundamental look ahead, my macro menu for the week ahead on Sunday. So if you want to read that and get prepared for the forthcoming week ahead, some of the key things that I'm looking at and my view on how the week might play out, then that will be available there. And don't forget to subscribe to the YouTube channel. We've got a fresh video coming from Eddie, and his video from last weekend on Wirecard has had nearly 40,000 views now. So absolutely, he's putting out some great content at the minute. And then Sam will be putting out his regular technical analysis report on Sunday as well. So don't forget to subscribe to the YouTube channel. But let's have a look at the charts this morning and just how things are playing out. And don't forget, of course, in North America, the Americans are out of the market today, so there is electronic trade. So if you're trading things like oil or US indices futures, then they're going to trade all the way up to around 6 PM, I think it is, London time. But there's no cash trade, so COMEX and NYSE, these sorts of floor trade is shut. So don't be looking for any type of pickup in volumes. And actually, when we look at the calendar for later on today, there's not a great deal coming out at all. So do take that under consideration when approaching a day like this. Therefore, I would be going through afresh, marking up your charts from a technical perspective. It might well be that the market responds to those technicals quite well in a day which is going to really lack volume and any fundamental fixed catalysts. That's not to say we still got to keep an eye out on the news if there's anything coming out, and certainly things like COVID updates, the trade war, things of this nature, we will still remain alert to. But having a look here, the DAX just knocking on the door on the center left chart here of where we were trading just shortly after the US equity opened yesterday. So the DAX future at session highs as we speak, and that's just being seen here across the board. Now you can see the green flashing on my charts, NASDAQ, S&P at their highs. So just keeping an eye on close proximity to those levels that were seen shortly after payrolls yesterday. I did see a little bit of, I guess, kind of profit taking, closing out those long positions going into the close yesterday. But here we are again, we're not too far from, from those levels. So gold just edging a little lower as equities just bumping up a bit as Europe has come in. So the yellow metal down about $6. T-notes fairly flat in the overnight session. Quite seesaw price activity actually yesterday, and we're up about 2 ticks there. Oil down 32 cents, just holding around a $40 handle. And in the FX markets, the Dixie's relatively flat, we're down about 1/10. So the major pairs just reflecting it's very moderate gains this morning at the open. So quick run through the headlines: China's services PMI came in at 58.4 in June. I mean, that's a, that's a significant leap from 55 seen in the prior month. It does in fact mean that this reading is now at its highest level since April, uh, of 2010. So if you remember, this came after as well, not quite as strong a number, but still in the expansionary territory. I think it was for the second month in a row we had for the manufacturing number just a few days ago. So some of these numbers in China continuing to, uh, suggest they are strong at this point. Economic recovery. And I was looking at a number of charts this morning, and it was looking at the— from a data point of view, you know, nearly every economy around the world has had this V-shaped recovery, of which obviously everyone was criticizing at the time given the depths of the economic situation that we were— we've been confronted with. But at the moment, it continues to play out in a very sharp recovery. The question, of course, is how long can it be sustained when you're coming from a a very low base, of course. But the sub-index for new business in this service activity reading in China rose to 57.3, new export business gained to 52. So yeah, some, some positive signs continue on that front. And this, of course, comes on the coattails of that forecast-beating payrolls figure. It's an interesting one with payrolls because at the moment the market seems to have the appetite to just run with it, and it's a positive situation. However, as we're, you know, underlying a lot of that positivity has been the fact that over that survey period, it's a reflection of the economy in the US reopening. So of course, many more people going back into jobs. But as we're seeing this week specifically is that a lot of those lockdowns are being reimplemented because of the outbreaks that we've seen in the likes of California, Florida, Texas, these very important economically because they're large populous areas of America. Winding back that reopening process. So going forward, obviously it's going to be quite key then, given this now second wave that we're seeing, as to what next month's payrolls will kind of look like. President Trump, as you can imagine, he was out immediately after payrolls. I think it was maybe Kudlow that was due to speak, and then he just got bumped basically because the president wanted to come out, and he was saying that You know, we've had spectacular news. It's the largest monthly jobs gain on record. The stock market's doing fantastic. The crisis is being handled. I just saw this overnight. He's basically done two tweets in caps, of course. One is "Law and Order" and the other one is "Make America Great Again." So he is absolutely banging his PR drum at the moment. He even said as well last night that there are three vaccines that are looking great. Uh, Inovio, Pfizer, Moderna, the three that people are kind of assuming that he's talking about. So at the moment, even though he's flagging quite severely in a lot of the polls at this present point in time, um, you know, it's kind of a perfect timing almost for Trump going into the Independence weekend when it's a lot about American pride, and he can come into that talking about the job situation, um, talking about the stock market reflecting the fact that actually it's fake news in the media talking about the virus, which he says is about increased testing. And actually, look at the stock market. Stock market is, is great at the minute. That's not then what the COVID situation would suggest. We know it's more complicated than that, but that's not the point. And that's how he wants to kind of frame the situation. And certainly for certain pockets of the, uh, the nation in America, they will be responding to that in the way I'm sure that he's intending. So yeah, Trump continues, and obviously we'll keep an eye out for him today if he comes out with anything else. And obviously we're still watching that Chinese situation. Um, yeah, the US COVID case nationwide increased by more than 50,000 for a second day in a row. What this has led to is overnight the Texas governor, Greg Abbott, has issued an order requiring face masks to be worn out in public across the state. Florida, Georgia, South Carolina saw record increases on Thursday. Um, this is just having a look at Florida in particular. Uh, Miami-Dade County, which I believe is the largest in Florida, is now going to impose a curfew starting today from 10 PM local time. Um, and this you can see here, as soon as really, they went into that June period of starting. So you can see here, June 5th, most of the state entered a Phase 2 reopening. It was really from that point onwards, and you remember seeing those photos at the time on, on various beaches in Florida where it was just absolutely packed. And ever since that point, you know, cases here have really accelerated. The interesting thing though that I have seen is that we're seeing these confirmed cases increase, and so naturally that's leading to more hospitalizations. So these two charts are moving higher, but actual deaths due to COVID in America is still pretty flat. Now there's multiple variables that you need to be aware there. People are more I guess educated and aware of now the symptoms so they can act quicker. The authorities have got better facilities now fixed and in place to respond to this type of thing. So perhaps there's a kind of a more functional part of this, but at the moment, yeah, you know, deaths are, deaths are quite flat irrespective of the fact that these cases are rising. So maybe something to watch. And in fact, the 7-day average of deaths nationwide in the US is actually at its lowest since the end of March. So we're looking right back here, irrespective of this development that we've seen over the last 4 weeks. I just thought it was, it was quite interesting. Does that mean though the inevitability that at some point, if the cases continue to, to accumulate, that the death count will start rising? We'll see. But over this weekend, of course, I was tweeting about this yesterday, I think this weekend is going to be really important because it's Independence Day in America, and typically that leads to a lot of celebration, whether it's led publicly by the state with firework displays and what typically would be mass gatherings, or whether it's just going out and hitting the town in a normal sense. Uh, you know, that's going to be unlikely to happen in a lot of areas because of some of the enforced rules and social distancing, but it's how much and how flagrantly will those rules be broken, which undoubtedly they probably will at some point. And what effect is that going to have. I mean, in the UK, of course, you probably read it, they're calling it Super Saturday, and in America they're calling it the super spreader event in terms of Independence Day and its potential. But yeah, in the UK, I mean, they're really— you can see why they have to do it. The hospitality sector, you know, has been by far the worst hit, and the reality is that a lot of these, because of social distancing, a lot of these pubs and restaurants are just not going to be able to maintain the same level of staff because of those rules. And so therefore a lot of people are going to lose their jobs. So the pubs are going to come out and they're going to be, you know, the marketing machine is going to be in full flow. And this Super Saturday in itself, it's going to be interesting to see just what— reading the press on Sunday, how that plays out this weekend, because obviously in the UK pubs reopening restaurants, hotels, cinemas, hairdressers. So Sam North, you can get your haircut for the first time in about 4 months. They'll be allowed to reopen their doors basically on Saturday. So as I've said before, going into the second half of this month is going to be particularly interesting to see how that plays out for the, for the UK COVID numbers for sure. On the Brexit side, talking of the UK, where are we at? And actually a couple of positive noises from reading some of the articles this morning from the end of their latest round of talks. The negotiators on both sides apparently have started to sketch out a broad outline of an agreement of their future relationship. They're going to regroup again in London next week. The bloc has signaled that it's prepared to back down from its demands to keep the same access to British fishing waters that it enjoys today, and for the European Court of Justice to have a role in policing any agreement. So Yeah, seems to be some political appetite, and I can understand why, just given the economic reality that both the Eurozone and the UK are facing right now. Neither are going to want to unnecessarily inflict further economics kind of pressure on what already is a depressed situation on the back of a health crisis. So some compromises and more positive noises have been made, but obviously tends to be this way in a negotiation. You kind of take a few steps forward and then a step back, and I think we're just in that forward phase at the moment. So yeah, the talks pick up back in London next week, and let's see how that plays out. We've obviously— we've gone through that deadline about the transition request, which obviously hasn't happened. So now the pressure really is on to start around the middle of this month to get some sort of tentative framework agreement at least. and then to start pushing this forward. And we're still working to the assumption and timelines as a base case of something more, um, concrete materializing around autumn of this year. So at the moment, I wouldn't take what I'm talking about here as a net positive for the pound just to dive in right now, albeit from a technical point of view, cable has now found a little bit of a footing in some of the near-term price action. Um, you can see from the top of the range of the Asia-Pacific session, and we've broken above that and came back for us close to retest to trade where we are at the moment. So if we continue to get risk general appetite, and let's say the dollar just starts to fade again, could well help a little bit of a push back up toward the pivot level. I'm just looking at the sterling future here at the moment, but also EURUSD trapped pretty much in its near-term kind of phase of consolidation. Quite a significant level there on the upside in the major pair from the overnight Asia high. You can see that was in a rough area of support as well through the prior sessions in Asia that we had kind of midweek. So any movement above there, that would be quite a key test. And around that 112.6— well, 112.65 kind of area. Let's have a look then at some other headlines. OPEC, what's going on here? And just a few things to be aware of. OPEC cut to their lowest since 1991 to shore up the oil market. This is just looking at these kind of cumulative OPEC crude oil production rates, million barrels per day, and you can see how dramatically they've dropped, and which was of course their intention given that big volatility that we saw in oil on the onset of the pandemic and complete kind of perception of demand destruction on the back of what it was going to do to just global demand for energy products. And, you know, just looking at oil on a, on a daily continuation, I mean, I guess the kind of tells a bit more of a story when you look at it in, in this kind of basis. Let me just see if I can move this up so you can see the annotations. So yeah, it's interesting now where we're at. I think we are finding a bit of a natural area of, I guess, fair value to a certain degree, because we're trying to balance ourselves between this, which is the adherence to compliance, which has always been suspect when it comes to OPEC, but they have been following through and committing at this point to that of then the balancing act of the perception of not just the performance of the global economy, particularly the US, under this, this situation of the global pandemic and the second wave and how significant that is going to be. So at the moment you can see we're just kind of getting squeezed closer in towards an coalescing around this $40 price point, which was of course that level that we had when OPEC failed to strike that deal back in the beginning of March, and we had that gap down when the price war kind of kicked off. So at the moment, um, you would feel that there is a point coming in the week or weeks ahead where we've got to kind of make our minds up here. Do we start to push back down? And if so, then kind of those lows that were seen in not that long ago, really about a week and a half or so ago. There's a pretty nice solid area of support down around the 34.48 kind of mark, which was those lows in mid-June and the high of resistance in mid to late May. Or do we kick on and we break above, we get above that high printed on the 23rd, and then we, we push up? And if that does happen, then the next big levels don't really start to kick in until the higher 40s, coming up to the $50 mark. And if we continue to see a lot of this economic data continue to just move in the way it has done, but then also this, this virus in America, the outbreak we're seeing, starts to come back under a little bit of control, and then yeah, I mean, I don't think that that could be discounted. But again, at this point, I'd rather just see how some of these major themes evolve before really committing too much, at least from my fundamental view at this point in time. Um, let's just have a look then, another story that I thought I'd point out. This was the, uh, this was talking about the Fed's balance sheet. And basically, as of July 1st, so 2 days ago, the Fed's total balance sheet size declined by $74 billion to $7.06 trillion from $7.13 trillion a week earlier. And that's been led by roughly $50 billion fall in outstanding currency swaps with foreign central banks. If you remember back in March when they were announcing, you know, new facilities every day, it was this global coordinated dollar swap facility that was helping then facilitate liquidity generally across the whole economic system. That was, was an important facility. But as I guess financial conditions have eased and credit has become more easily available there's been less necessity to tap that type of facility, and so it has reduced, and the balance sheet has reduced in kind because things like this Main Street Loan Program, which is now 2 weeks old, no one has used it yet. And this would, you know, this is very reminiscent so far, and this is not to say it might not change, but reminds me very much of when I'm trying to remember, there are so many facilities over the years. There was one that the ECB put into place, which was during the sovereign crisis. So this would have been around 2011, 2012. It was a similar type of thing. It was kind of like this, a very forceful program that the ECB had put forward in order to safeguard what was then a sovereign crisis. And basically just by creating and putting that program there, in place was enough then to pivot the general market confidence to think that, well, the facility's there and so how bad can it get? And the market just pushed on and recovered, meaning that that particular— was it the OMT? I can't remember. But the facility was never actually needed to be used at all. So it's almost similar to this. It's like the market's so panicked when we go through these periods like we did a few weeks ago As soon as the Fed come out and just, you know, overdeliver massively, it's like, wow, this is, this is phenomenal, this is unprecedented. And then actually it gets to the point where confidence just starts to surge again, and then these facilities never actually need to be used. So that's why I think for now I'm fairly comfortable with where we are in equities despite them this pretty phenomenal recovery. I don't really see it breaking down anytime soon because even if it did and, and things get worse in whatever shape that might take, whether COVID or whether trade war risk, at the end of the day these, these facilities from the Fed have hardly been touched at all. So there's definitely scope there for the Fed to, to be the buyer of last resort in that respect, which has always been the kind of you know, the mantra of don't fight the Fed, and it kind of remains true to a certain extent at this point. So final thing, the calendar for today— there really is nothing happening. We have some service PMI numbers, but these are final readings. So I mean, that is it really. So I would try to remain patient, I would try to remain disciplined and not get too ahead of yourselves on a day like today. Play the market, I'd say. Probably more from a technical point of view with the lack of distinct fundamental catalysts. Usual themes are in play. Actually, just one last chart I wanted to just bring in that I forgot to mention earlier, but I just wanted to, to show you. This, this was looking at the, the yellow line is the S&P 500 and the purple line is the Citi Surprise Index. And you remember I was saying that, that, that Citigroup Surprise Index, how much US data is outperforming the actual median expectation, has been at record highs. And obviously we saw this again with payrolls last night or yesterday. But what was quite interesting is when we were going through April, May, as that surprise index started to outperform, the equity market also started to move up. But you can see here, as we've gone through mid-June, the Citi Surprise Index has continued to surprise but the equity market has become increasingly unresponsive. And I thought that was quite interesting. It's almost like now it's almost expected that data is going to outperform, and so it's rendering that surprise index quite redundant in that respect. And I thought it was just an interesting observation that, you know, you shouldn't be— I don't think it's quite as clear now to just say, yeah, good data, market goes up anymore, because The market's now reflecting a lot of that, hence the phenomenal recovery that we've had over the last couple of months. All right, that is it. So again, have a wonderful weekend. If you're in America, happy Independence Day for tomorrow. If you're in the UK, enjoy sensibly Super Saturday, and I'll see you back here same time as usual on Monday morning. Thanks very much, guys. Take care.