Market Remains Sensitive To Stimulus Talks As Trump Heads To Pennsylvania

Okay, very good morning to you. It's Tuesday the 20th of October. Hope everyone is doing well. Just a reminder, don't forget to like and subscribe to the YouTube channel. Really appreciate all the engagement. Always feel free to leave a question if you have one after any of my briefings. I'm absolutely happy to help. As and when I can. But just getting straight into things, and let's look at how the markets are shaping up this morning. And relatively quite open actually in the European session. This comes after we did see a bit of seesaw price action last night. And I guess starting from a chronological point of view, you can see here, uh, looking in the center right-hand chart, that's the S&P 500 future. And you can see that mimicked by the other US indices— NASDAQ in the center and the futures We did see a move lower from around 7:00, 7:30 last night. We did see a bit of a late-stage recovery into the closing bell, but generally then finishing lower, losses ranging from 1.4% to 1.8% across the major 3 indices— the Dow, the S&P, and the Nasdaq. Now, what was the catalyst there? Well, a lot of the attention still remains on the US stimulus talks. Of course, that still really is one of the defining kind of topics which is dictating intraday sentiment. So Once again, we need to be monitoring that with great vigilance as we go through today's session. The stimulus deal with Treasury Secretary Mnuchin is not sounding imminent based on comments from Pelosi and committee chairs, according to sources close to the White House Democrats. And that came out in the Washington Post last night, and that's what caused that late sell-off that was seen into the final few hours of US trade. However, there's been some further twists in the plot, if you like. And overnight, the US Chief of Staff Meadows spoke with Treasury Secretary Mnuchin on COVID-19 relief and said there had been progress but that no one is, quote, popping the champagne corks just yet. That was coming from Fox News. So yeah, obviously you've got to look at the type of sources as well that you're getting these kind of somewhat contradictory headlines. But at the moment, there's still an air of apprehension in the markets on will they, won't they. So for the moment, I still— long term, I actually think— when I say long term, I mean in the coming weeks. I still don't think they're going to get anything done prior to the election being so close now. But that doesn't mean that markets won't remain still quite sensitive to the will-they-or-won't-they type scenario as news headlines start to hit the tape. So I would interpret them pretty much as that matter of fact. It seems like they're trying to show that both are willing albeit very gradually, to come to the table because no one wants to see that they've been a hindrance to a deal that ultimately could help the general public at a time where you're trying to cajole your base to vote for you in a, in a populist election. So in this sense, the main bottom line here is that these conversations are in flux. There's no real set timing. One would believe then that probably Mnuchin and Pelosi will be speaking again, but given the timings, it will probably be based later on London time this afternoon, if not into the evening, and markets will remain sensitive to that type of commentary nonetheless. But looking elsewhere, what other things that we've had— a quick look at the aftermarket earnings last night. We did have IBM, which is obviously one of the bigger market cap names, to report. They actually, you can see here, in aftermarket hours finished down about 2.9%. They posted double-digit cloud revenue growth but did say that some customers are deferring some projects And it is that kind of matter of fact of the uncertainty around the global pandemic at the moment, which is clouding the kind of future of what they're able to foresee, has meant that they did not issue a forecast for the current quarter. And so their shares reacted a little bit negative to that development in the overnight. Otherwise, in the overnight session, a couple of things elsewhere in Japan, Australia. From Australia, the RBA minutes noted the board discussed the case for additional monetary easing to support jobs and the overall economy. Uh, the Aussie is a little bit softer going into the European Open, down around 27 pips in the futures, um, trading sub its S1, which has provided a bit of an overnight area of resistance if you're looking at that currency pair. And then over in Japan, Reuters exclusive— I don't think this is particularly that surprising, not much in a way of reaction in the yen, but the Bank of Japan are believed to be set to cut cut their growth and price forecast for the current fiscal year at next week's rate review, according to sources familiar with the thinking. And that comes as, again, the coronavirus pandemic weighs on the economic recovery at this point in time. So that was kind of your overnight session. Overall though, as far as this morning is concerned, it's pretty flat. The DXY is unchanged, and that is reflected in the major currency pairs, which trade similarly likewise. Cable finding a bit of resistance here in the center top chart around its pivot level. And I'll get into some Brexit headlines in a moment and what I think about that for the day ahead. But otherwise, in terms of stock futures, as I said, a little bit of recovery late in Wall Street. We've kind of generally gone sideways in the overnight Asia-Pacific session, albeit just coming off those lows that were seen at the close in the US. And we trade minor positive, but overall the DAX a slight negative at the moment after that minor gap up that was seen at a recommencement of electronic trade. T-notes close to unchanged. Similar case for bond futures in the fixed income space, are very quiet overnight. Oil's been grinding out back to the upside despite some of the, um, the commentary that we had from yesterday with OPEC, which I'll go into as well in a bit more detail shortly. And for gold We are seen recovering from the overnight. There was a little bit of a blip lower in the middle of the Asian session at around 2:30 AM, failed to be sustained though. Volumes just generally a little bit thin at that time, breaking through the prior day's range low, probably just helping exacerbate that, that price activity. But we're back to where we were really at the close of Wall Street last night, trading at $1,905 at the moment. So I wouldn't over-interpret the $6 loss in gold at this present point in time. All right, gonna go through then a couple of other news stories, and first off, going to talk about Trump and vaccines and COVID. So where are we with this at the moment? So I'm going to jump to here. Reuters reporting then that US President Trump is heading to the battleground of Pennsylvania today with hopes of rekindling the 11th-hour surge of support that powered his surprise 2016 victory. Again, a lot of these battlegrounds were pretty much a clean sweep for Trump, and hence the reason why he, he kind of stormed to victory in 2016 despite losing the popular vote, because of the key nature of those Electoral College votes. And in the US, obviously at the moment you are seeing Wisconsin, other battleground states are posing a bit of a headwind for him at the moment, just given the fact that COVID numbers have started to increase. This in itself continues to be a real headache for global markets overall and is probably what's capping some of the upside, kind of more positive sentiment, because millions of Europeans at the moment are facing tighter and ever-increasing tighter restrictions from London, Paris, Vienna, all enforcing stricter curbs. And with Ireland last night coming out and enacting some of the region's tightest toughest measures in mainland Europe so far. Wales will impose a 2-week so-called firebreak lockdown from Friday, which is basically everyone apart from non-essential workers has got to stay at home. So it's pretty much back to where we were, back into the March and April main stringent lockdown that we saw. So a lot of that is generally capping, I think, just runaway upside type of price activity. Obviously a lot of people looking at the vaccine situation, which is another, of course, determining factor on how people perceive then the impact of the virus. And at the moment, Moderna, in a Wall Street Journal, uh, piece came out overnight and said the federal government could authorize emergency use of the company's experimental COVID-19 vaccine in December, contingent though if the company gets positive interim results in November from a large clinical trial. So again, this is one of the companies that's been at the forefront of trying to get a vaccine through the system and out there as quickly as possible. And markets do keep a close eye on this and, and would be sensitive to any further acceleration or delay of vaccines from these types of companies. So worth keeping an eye on. But going back to Trump, we talked about Pennsylvania. One thing Trump has done overnight as well He was quoted from yesterday as really lashing out against Anthony Fauci, who's the kind of top White House coronavirus task force member. Irrespective of the fact that he's, he's very reluctant to fire him, he has called him a disaster in an attempt then to defend his own handling of the coronavirus pandemic. So at the moment You know, it's a tough one for Trump because those numbers of cases are deteriorating, getting worse. I mean, uh, increasing hospitalization rates and subsequent deaths in those key areas that will really define the election. So at the moment, I think this is as to be expected from Donald Trump, and you're going to hear a lot more of it. He's going to try and pivot away and reframe attention away from any accountability of his hands and his decision-making process of what's led then to this current situation of the outbreak in, in the US, particularly in the Midwest at the moment. So this is very usual strategic approach from Donald Trump. If you go all the way back to 2016, whether it's Russia, whether it's North Korea, whether it's Iran and Bolton, whether it's now Anthony Fauci and the pandemic, Trump loves throwing a team member under the bus because ultimately then that means that he washes his hands clean of any type of responsibility. It was their fault, not mine. So tried and tested tactic. I don't think this is really too much of a big deal, but it definitely is worth pointing out in the context of obviously a looming election in the coming weeks. And on that point, interesting developments I'm seeing at the moment on RealClearPolitics, and this is looking at the aggregated kind of polls nationally that we're seeing. And Biden still maintains a fairly significant lead. You can see the RCP average stands at 8.9 in Biden's favor. However, a couple of things I want to, want to have a look at. I mean, that's on a national level. You can see if anything there's been a divergence more recently as we've gone through really the month of October. So far Biden's continued to eke out a further near 10-point lead. However, in the battleground areas, the ones that really count— Wisconsin, Michigan, Pennsylvania, North Korea, Florida, Arizona— those of which, as you all know, Trump has been doing the circuit trying to cajole sentiment at the moment. And as we know, Pennsylvania this evening, um, that has been actually very slowly but narrowing of late. And that lead for Biden now is down to just 4.1. So it's quite interesting because on a national level Biden's getting a greater lead, but on a focus level, Biden's lead is actually shrinking. And actually, if you look at then the betting markets, you can see how sensitive they are. And this is kind of the, uh, the smart money, if you like. And this is definitely more of a perception of where market expectations probably lie, is that there has been now a convergence back in toward what had been pretty much a 70-30 split in Biden's favor has been narrowed by almost 10 points now. Still Biden favorite, but now more like 60-40 than 70-30 that we were seeing just over a week ago or so. Interesting point here is that the— basically the televised debate, which is the final one, which is going to happen on Thursday night London time going into Friday morning. So it's going to be around 2 AM in the morning. They have made an actual rule change because you remember there was no second debate because of Trump having COVID. The first debate was a bit of a mockery of the whole system because everyone was shouting over everyone and Trump wouldn't let Biden get a word in sideways. And so the rule change that they've done is to have a 2-minute mic silence for each candidate to speak on certain key subjects. As you'll know, a debate is hosted where they have a definitive kind of topic list, and actually they're going to mic silence each other from the actual, uh, the broadcasters who are running the event. So Trump has agreed to that, that is going ahead, and definitely then this could be an interesting final twist in the tale perhaps as we go into the final run into the actual election itself. But, but yeah, as I was saying, the, the actual betting market has been moving a little bit here in recent days, making it more of a contested race than this kind of runaway blue wave scenario that we were thinking 2 weeks ago, and what was really underpinning quite a big rise in markets at the time and low volatility, given the fact that that would have been a more clean-cut election. The more these, these lines converge, the more disruptive, the more uncertain, protracted the election might be, and therefore the more negative it might become. We don't necessarily need to wait for the election If these lines continue to narrow toward one another, you might already see some of that downside weight. And if you overlay rising COVID cases, a lack of fiscal stimulus coming out of Congress, these could be key catalysts then for a little bit more downside under those circumstances. All right, moving over to the UK. Where are we with Brexit? The never-ending story. Michel Barnier has said is willing to start work on text. Intensified discussions, but the UK have said the EU still needs to make a fundamental change in approach to the talks and have refrained from engaging into new dialogue just yet. However, EU's chief negotiator Barnier has reportedly this morning in the Times newspaper given indication that the bloc is prepared to cede to UK Johnson's demands regarding concessions to get a deal, particularly on fishing. 3 Brussels officials— this was in the FT last night— speaking on condition of remaining anonymous because they weren't authorized to speak publicly, have said that they expect negotiations to resume in London by the end of the week. And so yeah, pound— I think the pound chart really says it all about what the market believes is the outcome of this current impasse that we're facing. Which is it's complete and utter political posturing, nothing more than that. Um, from David Frost, the UK negotiator for Brexit, I think there's no other strategy at this point to basically stand off, knowing then that the actual more definitive deadlines are really not until the end of this month, if not mid-November, then mid-December, and then legally binding the end of the year. So I would follow the same approach if I was a strategic advisor to the PM. I'd be saying, "Let's just sit here and do nothing." And I know that sounds rather careless, but I think that that overwhelms then the, the nature of what's happened with this whole debacle, which is now— it is a game of brinksmanship, and I wouldn't expect any real concession or movement on the actual deal in itself. Until something comes. So at this point, I would expect the UK to stand off. Europe, as is being intimated, if they start to concede to some demands, then perhaps that brings the UK to the table. But generally speaking, I don't really see too much in the way of heavy downside in sterling as a risk here in the immediate term. And this type of situation of the toing and froing and comments that we're seeing, I think, will continue for the time being, at least for the coming coming days. Um, elsewhere then, a quick word on OPEC. Oil prices this morning, uh, not really doing too much of a great deal. I mean, if you actually look at the price action, which we're generally in a range, uh, really between $40.50 and $41.50. OPEC+ panel made no recommendations on Monday to change prior policy for 2021 according to 3 sources, as expected. But obviously there were some outside expectation building given the diplomacy dialogue between Saudi Arabia and Russia had intensified to a point that hadn't been seen really until OPEC took that pretty historical measure to do the deep cuts that were enforced then. This was going back to April of this year. So they haven't decided that they want to kind of move the needle as yet, despite some of the demand concerns which the OPEC Secretary coined as anemic. And as we've just discussed, coronavirus cases globally are worsening at the moment, which is going to impede demand if further restrictions start to be imposed globally. So it's one to watch. I'd say they're standing off at the moment. It's kind of like a central bank communication tactic. They don't want to fire all their bullets at once, not unless the price really starts to collapse, and then you'll start seeing them unleash, unleash leash a few bullets at that point, talking about they could change. So I think it's all as expected. OPEC+ did say full or partial lockdowns this winter could put oil demand at further risk. Again, as expected, I think. Their next meeting will be held on November 17th, so around a month from now. So not really too much movement on the back of any of those developments, not so much for, for this morning at least anyway. Um, then the final stock story I wanted to mention, and then we can talk about earnings as well to wrap things up. Goldman Sachs, they're poised to pay more than $2 billion to the DOJ in the ongoing 1MDB probe, and that's going to push Goldman's tally of penalties now to around $5 billion. So I've not— I mean, I don't track this ongoing story. I haven't done so for a little bit of time, but the part— the accord, part of international action, will let the parent company avoid U.S. criminal conviction, according to people familiar with the talks. The payment to the Justice Department broadly in line with the bank's prior reserves and analyst estimates. So I guess the point I want to make here then is that these fees, these penalties are growing to what otherwise would be quite astronomical numbers. But the point being is, um, that the number in itself and what the DOJ have gone for is in line with the bank's prior reserves and analyst estimates. So perhaps not too much in a way of actual market reaction to that in their stock price. And it's worth tracking those today. They are just shy of 5% of the Dow Jones Industrial Average, so they're fairly large. All right, the earnings picture— what does that look like today? Well, pre-market you've got Procter Gamble, uh, then after market you've got Netflix. They're probably the two headline ones to look out for. There are other companies, and I will be sharing that in the Amplify Live chat room with all of the details that you need for all of those. Otherwise, let's have a quick look at the calendar. What's on the agenda for today from a fixed calendar point of view? Very quiet in the UK European Open. You get the US building permits, housing starts coming later on this afternoon. You get your API oil inventories this, this evening. And so nothing really there to a great deal that's a real catalyst, I would say, for, for market sentiment on the intraday. I'd still say probably Everything is much more focused on the stimulus situation, which has been ongoing, of course, over the last couple of sessions. Speaker-wise, Bank of England speaker at 10:30, and then you've got two voting members, Williams and Fed's Quarles, speaking this afternoon, with Fed Seven's a non-voter speaking later on at 6 PM London time. Shatz auction for any fixed income traders as well, and don't forget you've got the WTI November futures expiry coming. But of course, the contract we've been looking at, the front month, now already in the deck. Okay, that is it. So yeah, any questions at all, let me know if I can help. Otherwise, gonna wish you guys a good day. I'll let you get on with the session. All right, see you same time tomorrow.