Market Disappointed With Fed Move As Sleepy Joe Awakens

Okay, very good morning, Wednesday the 4th of March. Hope everything is going well for you. I'm gonna do the normal routine. I'll talk about the news that's come out overnight, some interpretation of what I think about the Fed, and also Super Tuesday results. Sleepy Joe finally awakening. To see what that's done for markets and what does it mean. Is it important? What to look out for going forward? Then I'll hand you over to Sam for a look across the charts from a technical perspective as well. Before I begin, if you are watching this and you do not subscribe to our YouTube channel, then hit the subscribe button, turn on the— click the bell for notifications. Like with yesterday, if there is unexpected big news like an emergency rate cut, of course, that's the sort of thing which I'll jump on the mic and be sharing. So make sure you subscribe. Subscribe to the channel. Back to business then. Let's have a look at, um, this is kind of the main headlines of this morning, but before I get on to that, let's just have a quick look and review of the markets across asset class. And as you can see, things a lot more kind of calm than where we were kind of last, last week. I say that the S&P 500 did finish down 2.8% last night, and the Dow finished down 785 points despite an emergency 50 basis point rate cut from the Fed. So quite counterintuitive, and we'll talk about that in a moment. But for this morning, the European get-go, things are, I would say, relatively neutral. If anything, there's been a little bit of a shallow recovery— moderate, I could say— in US index futures after some of the Super Tuesday results have come out, but still generally lower than where we were post the action from the Fed yesterday. Elsewhere in the currency markets, the, the dollar is pretty flat, and I think that's largely reflected in the major pairs. Slight discrepancy in the, the majors though. Euro-dollar just above its pivot in the futures cable, just below that point at the moment. Some important UK data of course coming later this morning in the form of services PMI. Elsewhere, the US 10-year is up about 15 ticks. So after that initial volatility that we saw, you did see a complete reversal of the initial move. Let me just put an ellipse around it here. We spiked obviously when the Fed made that move, came all the way back, but we have grinded back and gone into a kind of a holding consolidation pattern for the moment. They're still holding on to a gain of about 14 ticks in the 10-year. So people still having very depressed expectations in regards to the future of where US yields will be, given the fact that the kind of question marks now— where did the Fed go from here and so on. And then with gold, a little bit choppy when Europe came in this morning, a little bit of a downtick, but still trading above its pivot, which lines up quite nice then with that low print and that eventual push up higher that we had shortly after the Fed move, which was yesterday on the R2. We kind of responded to around a similar level to that break higher that we had at around the— I guess it was around 1627-28 level where it's responded to late yesterday Wall Street session. So worth keeping an eye there on the pivot if we push through those, that test of the early European low in gold. All right, well, let's get straight into some news. And first things first, let's talk about Fed and a lot of the headlines kind of following a similar suit to what we were saying in the immediate aftermath of the action. You know, my first interpretation definitely was one of kind of shock in a way, a shock that I just found it really quite surprising that the Fed wanted to axe so early, I kind of thought, well, they're kind of putting themselves into a bit of a corner here, and I don't think the markets are going to like this type of preemptive action. And obviously that, that did end up turning out to be the case by the close. But one of the things here, and a couple things to look at, Powell was asked, because there was a short press conference after the decision itself, what changed, you know, what's changed between the last week. If you remember there was a whole slew of Fed speakers about a week ago, and none of them indicated that there was a need for an imminent cut. Fast forward a couple of days, and now Powell said the broader spread of the virus, including in the US, puts a risk to the outlook for the economy. And, you know, for me, the problem that you have here is about— well, let's just have a look at the coronavirus update. We've not looked at this live tracking board in a while. And the US is currently at 127 cases. Now that number is going up and it's likely to go up, I would say, probably into the thousands over the coming weeks. And so the fact that they've fired their bullet and it's a heavy-handed blow, 50 basis points, doubles up on the 25 increment cuts that we saw in 2019. And if you think about where interest rates are now, the lower bound is at 100 basis points. So now that you've done 50, you can't do anything less than 50. You know, this is the difficulty that central bankers have is managing market expectations. Now, if you did 25 as a kind of to add, and you might think, well, that's a cumulative 75, markets are going to be disappointed with that. So in my mind now, they've got one more bullet left in the chamber of the monetary gun for interest rates, which is another 50, 75 perhaps cut. And then they've got to turn to QE. So it's this notion of have they gone too soon? They've got limited ammo at the moment anyway. And so when this number does, which is almost inevitable in the US, the confirmed cases and death rate go up, you know, then what is the question? I think that's why the markets perceived that in quite a negative way yesterday. It's about the future and how are they going to manage thereafter the current situation. This was the other thing then: the Fed rate cut strains central bank peers with less room to follow. Now you'll remember there was a G7 conference call, major countries' finance ministers and heads of central banks were meeting yesterday And the other very telling point for me was yesterday the Fed have gone it alone. Now, that does make sense on one side, which is this. This is a look at the Fed, the Bank of Canada, the ECB, the BOJ, and the Bank of England, and where interest rates have been since the sharp drop that we saw in reaction to the global financial crisis and the, the move in rates at the end of 2008. However, the problem you have is really the blue and the light blue line, particularly here, and also the gray line, this being the zero or negative territory of the ECB and BOJ rates, and then also the Bank of England being only at 0.75%. Now, unlike the Fed, these other central banks have nowhere to go with rates. Essentially. The Bank of England, you could argue, could, albeit they're just two kind of rotations off being back at that historical low level if they were to go in a normal 25 increment. Then it leads down the route of QE and so on. So this is where this idea comes from, the strains now. And what I thought was so telling yesterday is that they would have had this call and these discussions. The Fed would have at that point have said, we're gonna go this afternoon and these other central banks would have been resistant, and rightly so, because for them, you know, it's even fewer options on the table. But this is what's very different from the global coordinated cut we had back in March of 2011, what we had back in 2008 when all of these banks went in a synchronized fashion. And I think that takes some of the firepower out of what the Fed did yesterday. And so people, you know, that have been around in the market long enough were disappointed effectively from what we've seen. So yeah, it's going to be interesting. Obviously the RBA have cut, the Fed have cut, the ECB is priced per market expectations for a cut of 10 basis points next week, and so yeah, these other central banks might well follow in step, but I think for the immediate payoff in yesterday's intraday activity It was the fact that they didn't go in a coordinated time fashion that perhaps disappointed some. Back on the coronavirus for a second, I think it's been quite interesting from a behavioral point of view. And I heard Sam talking about this yesterday. You know, last week was so all about the virus, tracking the virus numbers specifically. This week, it's all about the central banks. It's kind of like we've gone into this next phase. Phase from a trading point of view. It's about, okay, we've reassessed that the future is going to be heavily impacted by the increase of the virus globally outside of China. Now it's about the next question: what are central banks going to do about it? And I absolutely agree with that idea, and that's why probably there's a lesser focus on graphics like this that you've seen in this kind of the broader news sphere this week than last. In terms of Italy, Things obviously still— they're the third largest country with cases, just over 2,500 at this point in time, and you would expect that still, that number to go up. Okay, moving on, let's talk about Super Tuesday. I'm going to talk about the results first, then I'll talk about what I think it means for markets. Joe Biden, surprise comeback in the race for the Democratic nomination. As you can see here, these are all the different major states. Super Tuesday, because it's a whole collection then of some of the super states like California, Texas. But rather than just going caucus at a time— Iowa, New Hampshire— this is when we get a whole load of results in one specific evening. And as you can see here, the results are in, and it's a resounding victory really for Joe Biden, apart from the super state California where Sanders has edged it. Sanders also picking up a few other areas in Utah, Colorado, and Vermont. Otherwise, Biden storming it, really. And, and people are making a lot of, um, a big deal out of this because the fact that Joe Biden was basically written off only a couple of weeks ago. But as I was talking about before, this kind of stepping down of some of his most credible threats like, uh, Klobuchar or Buttigieg have helped then put support into this more, um, I guess, recognized and center Democratic candidate. So Bernie Sanders obviously did win California, so it's not all done and dusted just yet. Michael Bloomberg, after spending, what, the best part of a billion dollars, all for nothing seemingly. He won one contest in America Smurf and that was it. Elizabeth Warren, who you can see the third candidate on this list, seen as one of the real contenders, finished third place in her own home state in Massachusetts. She failed to be victorious in any of the contests, essentially. So you can pretty much write her off from now forward. Overall, you know, Bloomberg kind of hyping this up a little bit. They're talking about the idea that, you know, somehow this is a— stock futures have spiked overnight on the back of this. I I would say they're just trying to make a bit of a mountain out of a molehill. I really don't think this is important, quite frankly, because whether it's Sanders or Biden, they're gonna lose to Trump. And that's not me being some kind of Trump fanatic, that's just the way it's gonna go at the moment, at this matter of time. So I guess what you're seeing overnight, if there is any positive relief recovery in equities, is the fact that you're not getting a socialist candidate, which obviously tends to be quite negative for the stock market, much in a similar vein to Labour under Jeremy Corbyn in a UK-type sense, similar-ish to then how financial instruments would react to Bernie Sanders if he was to be victorious. So a little bit of relief, I guess, that he's now, the leadership in that contest has taken quite a distinct sea change. All right, enough of that. Let's move on. For oil prices, I thought this was quite an interesting headline. Uh, Goldman Sachs basically has come out and they're the first major bank to anticipate that global demand basically for oil will contract in 2020 for only the fourth time in nearly 40 years. This is what that looks like. Global oil demand has only contracted in the last 3 years since 1985. You can see here, going back to what would have been this era in the early '90s, and then around the financial crisis in itself, as you would imagine, massive hit to consumption through the depths of the, the global financial crisis at the time, as the world economy shrunk considerably into a global recession. The spread of coronavirus from China across the world is threatening economic growth, is their reasoning, and fuel demand in particular as companies ban travel and supply chains are disrupted, are the reasons why they're making that call at the moment. So yeah, quite, quite an unprecedented one and one not seen going back for really the last 10, 11 years from that point of view. Sticking with China and oil, you did have the Caixin China's General Services Business Activity Index overnight. I'm not going to spend too much time on this because we had the the manufacturing and service PMI data, the kind of state-run numbers over the weekend, and they're pretty horrific. So this number in step with that, so it's not really new information, but I just thought I'd make you aware of it. Record low territory as well for that private reading. And then for oil, we did have the API crude oil inventories last night. These are the numbers: a headline build of 1.69 million, slightly shy of estimates of 3 million gasoline, quite a deep draw, just shy of 4 million, more than double consensus. But quite frankly, I think these numbers are irrelevant. They're irrelevant for two reasons. One, there's a much bigger narrative driving oil at the moment, which is about this idea of consumption, as I just mentioned, of what Goldman Sachs was saying on that demand side. You know, fuel demand, companies banning travel, supply chain disruptions, the expansion and growth globally of the coronavirus. That's what's driving oil prices, um, right now. So this number I don't really think is particularly important. And then you've got to layer in the context that you've got a looming OPEC meeting commencing tomorrow, of which anticipation is that they're going to further deepen supply cuts. So really, this is just a bit of noise, and I anticipate that that will be the case when that data points come out later on today. All right, so Talking of the calendar though, there is a busy docket today of lots of different things that are coming out. So let me just run you through a couple things to look out for. Um, you got the various services PMIs coming out of the Eurozone this morning. You've had the Spanish service PMI already this morning coming in slightly weaker but still expansionary. Uh, you've got the other figures coming up leading us into 9:00. The UK service PMI though is particularly interesting. Even though it's a final reading, it does typically have an influence over the British pound. And let me just jump to here. This is the service PMI last 12 readings that we've had. So despite the fall that we had last month from Jan to Feb, actually the reading was the second highest we've had since September of 2018. So we've definitely had what I'm kind of classifying as a Boris bump on on the Tory majority looking to break the Brexit impasse that we had under Theresa May, obviously to move into this transition phase. But as we've kind of talked about with UK economic data, the idea here is that we're expecting this to materially weaken going forward as deal-making between Britain and Europe will be slow in the making, and therefore the kind of pressure will ratchet up once again on the UK economy under that political uncertainty. Um, in terms of expectations for that UK number, it is expected to remain relatively steady, uh, at the same number in fact as the previous print in February at 53.3. Got a range 52.8 to 55.8. Going further forward then into the afternoon, obviously we start to see all the different employment data out the States. You got the non-farm payrolls number on Friday, of course, and that means we get ADP national employment. Now You'll remember ADP from last time. That was a spectacular number. Think about where we were about a week and a half ago or 2 weeks ago. Remember, economic data out of the US was amazing. And if you take ADP, do you remember that came in at 291,000? Street expectations at the time were for 156,000. It was almost double consensus, knocking nearly 300,000, the best private payroll number since May of 2015. So that was when markets were ultra bullish. You remember the dollar? Alex and I were talking about the Dixie closing in on 100. Fast forward to now, the Fed have just cut 50 basis points. So, you know, it's amazing how, how quickly markets have changed. And, and definitely last week was a, was a real key turning point, of course, with the a big correction in markets more broadly. So with ADP, one thing I'm going to say about ADP, and I'm going to say now about Nonfarm Payrolls on Friday, quite frankly, I think it's not that important. Um, yes, it's going to create some short-term intraday volatility. I do not think it's important though. Think about what's driving these central banks' decision-making, uh, on their various governing councils or committees. It's all about quantifying the impact of the coronavirus. And so yes, there is a knock-on domino effect that that might have then on the slowdown of the US economy and therefore the employment situation. But the backward-looking employment data, I think, is, it's not really that relevant, to be quite frank. And given that we printed nearly 300,000 last time, expectations are we kind of come back to reality 191. We've got a range of 140 to 250. If we come either side of that, I don't really think it's a big deal, to be, to be quite frank. So keep an eye out for it. I wouldn't suggest having an open position over it because it probably will create some short-term movement and the potential for a short-term spike in prices, but I wouldn't be looking for it to be a defining factor really to probably dictate proceedings for the rest of the session, even though traditionally it's quite an important number. You've then got ISM Non-Manufacturing. A quick look at what that looks like here. We had the strongest expansion in the service sector since August due to an improvement in production. But just think about it, you know, if you're talking about purchasing managers now going forward, not just this reading but beyond, the coronavirus is likely going to impact this type of reading going forward. The question, of course, is how severe is that impact will determine then whether or not we eventually move back in towards that 50 key kind of level and the depths of where we were in Q4 of 2019. So quite a busy calendar in the afternoon. And then you've also got the Bank of Canada. Now go back to that graphic that I showed you here. The BOC is the orange line. If you actually look, the Bank of Canada rates are above that of the US. So the Bank of Canada is a little bit different from the BOE, the BOJ, and the ECB because they do have a little bit of room for maneuver. So it's going to be interesting to see whether or not they come through and deliver a similar in-sync move to the Fed or not. Rates currently in Canada at 1.75%. So the loonie, always very volatile and sensitive in the FX market, likely to be even more so today. So keep an eye out as well for the, the statement that they issue about their future intentions. And then you've got the oil inventories. We've already talked about that. Again, I don't think that's really— there's so much bigger, broader macro themes in play at the moment. Something to be aware of, but again, it could be a trigger point if we're at a technically sensitive area. But other than that, I wouldn't really pay too much attention for, for longer lasting direction. Speaker-wise, Bank of England's Broadbent speaking at the London Business School later this evening, 6 o'clock. Fed's Bullard, now a non-voter, speaking after Wall Street closed this evening. All right, that is it from me. So let's get Sam on, see what he's got to say about the technicals and setups for today. And I wish you a good day ahead. Thanks very much, guys.

Hi guys, good morning. I think I better start by, by saying props when it's due to Anthony Cheung for that call last night and to come on YouTube and and say that live, I think, uh, deserves a round of applause. So, you know, great shout. And just having a look over, over stocks now, because you've got, uh, you know, it begs the question really, where do we go from here? You know, I tried to get another piece of advice from this morning. I said, am I selling this Biden bounce? Um, he's just not really buying the, the Bloomberg story of it. But what a key level actually, where we were just trading 3046.50. It's all about really, I guess, just sort of developing these, these lines in the sand. And, and, uh, you know, on, on days or weeks like this where you've had, you know, the 5 days before where it's just extreme volatility, and, you know, Monday's range in the Dow Jones was, you know, high to low was, I think, like 1,400 points. And then, you know, yesterday in the S&P, just look here, that high to that low, 3,137 to $29.71. It's, you know, it is insane at the moment. Um, you know, it's, it's incredible. I would say the most incredible thing this week is that it's only Wednesday today. Um, and it's, you know, you do need patience. And I saw some good tweets last night where obviously people got caught out by, um, you know, the rate cut. You've got a lot of people that haven't, you know, traded 2008, 2009, 11, and it's, you know, it's hard to, you know, to, I guess, deal with this volatility. And there's nothing wrong with that. There's nothing wrong with sizing down in these markets because the moves are so much bigger. I mean, this is— have a switch back to what was going on in, you know, even January. You can see the size of these moves, this on these days, so much smaller to where we are, you you know, what we're trading now. There's nothing wrong with sizing down, or if you don't want to trade these conditions, it doesn't suit you, nothing wrong with that at all. But in terms of looking at levels today, I think, you know, they're— well, if we go back to yesterday and just how, you know, these highs and lows were respected, when they broke through, you've got those fast moves. There's no way you could have got in on, on the push above that unless you had, you know, buy stops to, to get in on, on there. And even when we broke we came back. It was, you know, very choppy on that way down as well. The level we're trading now, 30.45, or, you know, 10 points above, is pretty key. I would say if we can get above there, then the market might, you know, just continue this early morning push that we had overnight. To the downside, I'm just gonna put this 15-minute. You can see we have just been drifting, and we really got a kick on once we broke through 30.10. So So that for me is, is another level, and it's just sort of developing now, these little ranges. Obviously quite a key zone as well where we couldn't break through at all, 2986 for the S&P. So those would be the nearest levels, one to the upside, two to the downside, that I'd be focusing on. Can we get a bit of a trend line in play from those lows? Not quite yet, I would say. You can see how choppy that was, but I would get one on you know, around here just to see how we potentially come into play along with 3010 and this trend. I overall, I would say I favor the downside, but I would rather, you know, see something like a trend line develop and a break of support momentum coming in. You can see plenty of times last week we actually did drift higher in the morning sessions, and it wasn't until the afternoon where we actually started to push to the downside. I think there's going to be plenty more headlines that come out, and as I said on Monday, it's going to be a headline-driven market. And, uh, you know, trust these levels for sure. But just be aware that before every trade, accept when you're wrong and accept where if the conditions don't suit your edge, don't trade it. Having a look over gold as well, uh, we really did push on there. I guess on moves like this, it's worth just bringing in the, uh, the Fibs on these pushes higher. The key level which we were talking about this time yesterday, we're saying around that sort of 1620, 16 1,627, those lows that we had before that breakthrough on Friday, that's acted as a bit of support in late trade yesterday. That also coincides with the pivot for gold there, so keep a watch on that. We didn't quite make the top end of that range from last week, or Tuesday to Thursday last week, 1,660, so keep a close eye on that. It'd be interesting, interesting to see which one comes first, um, as well levels if the pivot was to, to break through $1,620, uh, and then as well horizontally looking at $1,612. But the pivot for me will be the key point. Just recently we have broken a bit of support, and you can see it's nice that gold is, you know, reacting quite technically here. Was an area where the buyers are taking over, comes back, sellers come in, and, uh, you know, early trade perhaps when the headlines are going to be less driving price, or when the, the technicals are going to be respected a bit more. Oil spiked higher initially, then came back lower. This market is, you know, it's getting quite choppy as well. An early trade this morning pushed higher. However, we are coming down to that $47. It's— let me just draw up that $49. We didn't quite reach there yesterday. For me, you know, medium-term opportunity above $49, I do quite like the look of it, and especially that 50/50. If we can get above there for some more medium-term longs. But the way equities responded yesterday to, uh, you know, the fake rate cut, and this makes me a bit more nervous about this market going forward. Again, same with equities. Can we get any trends on those lows? You can see a potential one coming up here for, uh, for oil, you know, depending if I get that drawn properly. You can see there it's actually not too bad, you know, potential break of that could see further downside as well. But just above yesterday's highs, $49, uh, and the low that we had from the 26th morning, for me is a really key resistance level. If this trend was to go, I'd say the bears would want to defend this zone here really, really well, or it could again get ugly. And that's sort of looking here 46.65 down to 38. So, you know, obviously these zones are a lot bigger than what they were just a few weeks ago. So for oil, those would be the key points that I sort of look at, uh, for a bit of a guide going forward. And same with equities, it's, you know, don't necessarily have to make a decision now, but there are some key levels certainly coming up. Euro yesterday, it pushed higher, didn't it? Decent move to the upside and If we just remove the pivots just to make it a bit clearer, just to see how high we are now. Not far away, um, well, from testing that high again, but we also hit this 16th of Jan high. But keeping a watch if we were to get anywhere near that 113, the 31st of December high that we had as a very strong resistance level. Um, for me, I was, you know, talking to the new traders that we, we had or have, uh, have got in this week. And I was saying before the, uh, the rate cut, I was saying for— let me just mark this up— for the euro, if we can get back below this area, back below 1.1280 on the daily close, and I'm going to look for a short. And then it was about an hour after we pushed aggressively through that. So that's, you know, still an opportunity I do like the look of if we can close the day stay below there, I think we can drift back lower, looking down to sort of 110 and, uh, 109. From that, I think that would be a good opportunity. But for now, that's going to be a level and an area where the bulls are going to want to defend. And for me, it's a good line in the sand that I'll be keeping an eye on each day going forward. Um, you can see, uh, the euro just finding a bit of support back above that pivot and has pushed on since then. You've got a bit of a break of a trend in early trade as well that You can see here we've got a nice push through, so keep a watch on that if we were to come back lower. Big area support on those lows that we had this morning. So it's nice to see in, in early trade across the board, the, you know, technical levels, uh, you know, reacting quite well. I think for this move here, you can expect to see quite a bit of resistance around 1.1123 to 1.12. Keeping a watch on. That was the high that we had Monday, and a nice little breakdown area from yesterday as well. The pound, uh, let's bring that daily chart in. Is that level that we talked about on Monday still gonna hold? I was saying I was confident yesterday. You would have been even more confident when the Fed cut rates, but we have just drifted lower. Um, and now putting this on the 60, I know it's a big range, but you know, if I was super confident. I would be even more confident if we can get back above that high that we had on Monday. For now, let's bring in that trend line because it's not looking too good. And I think if we can get below there in the S1, I think we get the low that we had on the evening of the 28th pretty quickly. So that's a very important point, I would say, for the cable. S1 trend line, or potential trend line, on lows from yesterday as well. Another intraday level to keep aware of, just to pivot. Good, nice area of support all morning before that breakthrough. But S1 not too far away, and that's what I would be keeping a watch on. Bulls, I think, could get slightly more happy above the R1, which of course now seems quite far away. T-notes, the market that just doesn't want to come down at the moment. One down day since— what's that— the 19th of February. Incredible move here in, uh, in this, this product. It's got the, the dovishness of the rate cut, it's got the safe haven aspect, and it's just continuing to go to— from strength to strength.

If—

I know it's a big if because of course this market again is on its— relatively on its highs for the day now— if we could get maybe down to Monday's high along with the pivot area, uh, you you know, and obviously wait to see how, you know, price holds around that level. It could be a good point to potentially get in. And to be honest, for these markets, I'd only really be looking to get long at the moment. However, obviously a breakdown from there might just give the better opportunity to get long lower down. And I don't think there's anything wrong with, you know, having a bias on, on these products and just waiting for that to come in once you get that confirmation Of course, it may never happen, but, you know, loss of opportunity better than loss of capital. Any questions? As usual, guys, please, uh, do let us know. I think there's some interesting levels coming up, most notably, uh, 3045 for the S&P, which is the same as sort of 8733 for, uh, the NASDAQ, and 26,313 for, for the Dow. Break above there might get a bit of a pop prove, but a strong level nonetheless. Hope you'll have a good trading day, and I'll catch you all in the chat throughout.