Market Review & US Retail Sales Preview

Okay, very good morning all. It is Friday, 16th of July. I hope you're doing well and hope you've had a good week. And just before I begin the normal briefing, don't forget to check out the Market Watch podcast from us. I'll be chatting with the head of trading, Piers Curran, a bit later on this morning where we'll be reviewing some of the major market events of the week. And it's been a pretty busy week overall, so looking forward to see what his latest assessment is and just the general outlook now going forward. So you can check that out on Apple Podcasts, Spotify, all the other major podcast platforms. So otherwise, let's get straight into it. And I'll start off with, with the sentiment kind of mix as we always do. And it's pretty quiet this morning. Going through the news this morning, there's not a great deal going on, but some updates on the BOJ, relations between the US and China, UK COVID, and New Zealand— I should say, not Australia— New Zealand inflation overnight, which actually breached the RBNZ's inflation target for the first time in 10 years. So we can talk about that. And then we also have US retail sales coming out a bit later on as well today. But as far as the charts are set up this morning, it's been, it's been an interesting week. If you think about the week as a whole, we've had the inflation data out of the US, we've had Jerome Powell speak. All in all, you know, stepping back from the cold face for a moment, Yields generally remain lower, following on from the move that we see— we saw initiated last week. Equity markets are off their record high levels, as you can see here where we had that double top that was seen a few days ago. But we are on a daily chart still right up there at kind of record high territory. And from a technical point of view, you can see here There's an area of support yesterday that will now turn resistance in terms of the intraday movements. You can see here in the S&P that would come in at around this 4353.5 level. So it's just been an inflection point since the middle of last week for the US indices to trade around because the NASDAQ's in a pretty similar shape in that fashion, um, as you will see here. Um, so going back on the chart. If I make it a bit bigger so you can see, and I'll raise it over my camera. Quite a key level here in the NASDAQ at 14,794.5, going back to really last 2 weeks of price action. Resist— resistance turns support, and pretty decent. And now that's restricted some of the upside price action that we saw into the afternoon in US trade and evening, and then in the overnight Asia-Pac session that has held as well. So just forming a bit of a short-term range there between, uh, around 14,794.5 and 7,337 on the downside for the time being. So a bit more kind of bearish in the initial assessment, just given some of the declines off the high. But in, you know, kind of more top-level view, equities on the week still relatively up considering some of the kind of general risk events that we had, which was inflation still being high but the market belief of it still being transitory, and then Powell not stirring the pot at all and sticking to the script in terms of the view on inflation and the timing on tapering. As such then, gold has continued to remain fairly elevated on the week. Again, I'm just keeping an eye really around this horizontal level of around 1,820. Really, although this trend line hasn't been tested 3 times, it would coincide with a test up and around that trend line with that horizontal support area. So I think that's quite a key area to watch, that also close proximity to yesterday's low in the futures market. And you've got the S1 just before that. So kind of looking at that range at the moment of $1,820 to $1,835 in the gold future. Then elsewhere, the dollar index is pretty flat this morning, marginal uptick. Um, in terms of what euro and sterling are doing, pretty quiet overall. I'm going to talk about the UK and COVID a little bit, but overall assessment is about the worsening of the COVID situation on a case rate basis, that's having a very small trickle-down effect into hospitalizations, is that the market's very much prepped for that. The expectation is things will get materially worse on that front, and so it's not having too much of a distinct impact at this point in time. And so for the moment, cable just respecting a broader range that's been in play throughout the week, really. And then in crude markets, in, in oil, we are trading at an area that warrants a bit of, what, a bit of monitoring this morning at around this 71.31 level. And that also, if I pinch the chart, starts to bring in some of the lower bound of the price activity we saw towards the middle of last week, and that was the overnight Asia-Pac low. So 71.31 just being tested at the moment. And having a look on the daily chart, you would say that perhaps oil is susceptible to a little bit more downside. And the rationale being there that we've got the low that we saw last Thursday, and then really this more area of support I'd be eyeing at around the $70 handle, $70, and this coming around $70.25 to the downside. So for me, I think oil remains a little bit susceptible. Um, there's not really any new updates to bring you in regards to UAE and Saudi as they try to kind of posture and leverage for, for a deal-making on that supply pact agreement. Certainly no movement on Iran, that's gone completely cold turkey, and probably because the fact that the administration's been doing the rounds elsewhere. Biden's been meeting Merkel most recently in, in the last day or so. So Iran, definitely nothing new there in terms of supply side. So we just continue to track oil and it's just fading a little bit from the fairly elevated price levels it was at. And don't forget, in the context as well, COVID and the Delta variant is pretty rife globally at the moment. So irrespective of the reopening on Monday for the UK, the rest of the world is confronting that issue generally with a lockdown strategy which is the opposite, of course, of what the UK are looking to do from Monday. So in terms of the news flow, I'll get through this pretty quick. The BOJ, no surprises, rates unchanged, yield curve control target unchanged at 0.0 or -0.1% on short-term interest rates, all very much expected. They upgraded inflation on higher fuel costs and they downgraded growth, expecting the economy to expand 3.8% in the current fiscal ending March 2022, down from 4% when they last issued that forecast in April. So no surprises there at all, and no real reaction in the Japanese yen. New Zealand though was quite interesting. Their headline CPI year-on-year for Q2 came in at 3.3%, above the expected 2.8%. But check this out, inflation's gone from 1.5% up to 3.3%. And so, yeah, pretty meaningful move upward. But we have been seeing this globally, a byproduct of the general price pressures that we've seen from bottlenecks creating certain price pressures on used cars. Again, same case in New Zealand. Fuel prices, energy has been a key component of lifting price pressures and home house construction was also a contributing factor for the Kiwi figure. A rate hike now is, as the headline suggests, 90% chance of the RBNZ rate increase in August. So their timeline is pretty narrow. If you remember, actually the Kiwi dollar broke out just a few days ago, and so the actual move overnight in the Kiwi was very quick-fire spike higher on the back of the, the inflation number, but it hasn't really sustained much of that move because the Kiwi was already higher markets were already pricing in increasing rate hikes after they said they'd end their QE bond buying program. So they're already leaning in that direction. So it doesn't come as too much of a surprise, the fact that people are now increasing their odds of pricing in of when they're going to remove rates. But they certainly would be a real front runner in terms of that normalizing of policy. And then from a US-China point of view, the tit-for-tat kind of goes on. The US is preparing to impose sanctions today on a number of Chinese officials over Beijing's crackdown on democracy in Hong Kong. So again, the market's really desensitized to this at the moment. So unless you were to hear something of extreme elevation in this, in this kind of confrontation, and typically more practically, if they start looking at things around tech stocks in particular, just given the magnitude of how big some of those companies are, then it can get interesting. But at this type of level, this news flow isn't really having an impact on global markets at this point. And then for the UK, um, just having a look at the UK, uh, we reported just under 50,000 coronavirus infections. Um, that's the largest number in exactly 6 months. So over the course of the last week, it's gone from around 32,000 to 48,500 or so. The death rate, thankfully though, is still very low. And I was just looking at hospitalizations. So this is the, the actual case rate. So case rates are accelerating at a much more rapid pace than we saw in the autumn of last year, but fewer people are being admitted to hospital. And so this is the comparison. So even though the trajectory here is much steeper in the spread of the more transmissible Delta variant the actual result of hospitalizations remains considerably lower, and hence then the strategy about pushing forward with the reopening on, on Monday. UK ministers are said to be mulling putting France on the travel red list alert. You remember there's that green, amber, red list, because it was originally going to be 150 nations that UK citizens could then holiday destination to, but I would say that that number is probably going to continue to shift down from green to amber and ultimately into red over the coming weeks, most likely, because mainland Europe still as well confronting the increasing case rate across much of the mainland eurozone at the moment. So that doesn't come as much surprise at all. And as I said, the pound's not really moving too much. I think really I'd expect that to be the case but continue to track it. And let's just see how quickly we do rise up to 75K, 100K cases. Um, does that happen much quicker than we anticipated? And if so, where is the kind of endpoint on that figure? Uh, the modeling would suggest that hospitalizations will still be smaller ultimately than what we had in the second wave, and hopefully that is the case in reality. But unless Anything different from that, I guess, is what's going to be more potentially impactful for sterling in a negative way if that were to develop. But that's not the base case scenario at this point in time. As far as looking at the calendar for today, um, overall more of a US-centric session with retail sales on the docket. The HICP final numbers for June come out this morning. As I said though, final readings, not expecting any reaction to that. For retail sales They're roughly going to be unchanged in June versus the 1.3% decline. As you can see here, we have the headline that we saw back in May. A few things to note: auto sales will likely be the culprit of a lackluster report. Analysts at Credit Suisse, though, do note a couple of factors to be aware of. They cited high-frequency data, and they said that restaurant spending will have continued to pick up in June, But goods consumption is likely to have declined because of the fading impact of the stimulus checks. So it's kind of— you've got the further reopening happening, more people going into restaurants to dine as normality kind of returns more broadly across America. But at the same time, the stimulus check impact is fading, which obviously pumped the numbers on two previous occasions back in the January and March figures. And today we're going to be getting the June reading. One potential upside surprise that could help elevate the numbers could come from non-store retailers. And the reason for that is because you had Amazon Prime Day, which was actually in June instead of the usual July event. So they actually brought that forward. And so worth keeping that in mind. That is non-store retailers. If that number is particularly elevated, then you can extrapolate that out of any longevity of that being a more consistent retail spending pattern, and so therefore it could nullify any upside figure if that was particularly prevalent. Otherwise then, you've got, um, University of Michigan sentiment coming out at 3 o'clock. It's expected to be relatively unchanged. I wouldn't be looking at that for too much excitement, to be honest. Fed's Williams speaking off topic on culture in a post-pandemic marketplace. 2 PM this afternoon, and no real major big earnings coming out today. So that's pretty much it, fairly quiet then on the calendar overall. Retail sales probably your highlight from overnight, not a great deal to really initiate any shift in sentiment. So I'd just be keeping an eye on the technical setups on the charts at the moment, um, and keeping an eye on those aforementioned levels I just went through. So other than that, um, again, have a fantastic weekend. I think the heat wave is finally arriving in the UK after a pretty miserable run. So enjoy the sunshine, kick back, put on the podcast, and, uh, if you like it, rate it, review it, leave a comment. It'll be much appreciated. So, all right guys, take care, have a great weekend.