Market Update & ECB Preview

Okay, very good morning. Hope you're doing well. It is Thursday the 29th of October. Just a reminder, we're going to have the US election preview tomorrow night, so Friday night at 6 PM London time. Myself, I'll be joined with our head of trading, Piers Curran. I'll have Sam, Alex, Tim, and also special guest, Michael Brown from Caxton FX, who you might have seen quite prevalent on Twitter. He's going to be joining us as well for giving a bit of a longer-term view to accompany our intraday kind of step-by-step process of how we're going to tackle the night next Tuesday. So don't forget to check that out. I'll put a link, if you're watching this on YouTube, into the description below and you can register there. Otherwise, let's get straight into it. Let's start talking about the news and how markets are shaping up this morning. And last night on Wall Street, obviously big selling pressure that came in, uh, the biggest drop we've seen in the S&P 500 since June, in fact, a loss of just over 3.5%. Dow down 3.4%, the Nasdaq down just shy of 4%. So one of the biggest down days we've had in a while, and adding to some of the negative sentiment that's been developing since really the beginning of the week, with the overall emphasis not so much on the election but in the near term threat about lockdown anxieties growing, I guess, is a good description for it. And we saw that unfurled last night with France and Germany, which we can talk about in a second in more detail. So at the moment, one of the things I would say if you are relatively new to trading, it's quite easy to get caught in kind of rearview mirror thinking. And what I mean by that is kind of this idea that you're just going to come in today and keep selling just because the Dow finished down close to 1,000 points yesterday. I think one of the things you need to take into consideration is the market has already moved a decent amount lower already at this point, and there definitely is some things looming in today's session which might make investors a little bit more just wait and see, you know, what does the ECB say, how do those big corporate earnings from the mega-cap tech names come out after market today, and then the decision might come whether or not we start to see some further pressure So, yeah, always try to mentally press the reset button. I think to a large degree, I think technically from the charts, it's a good thing to do. I mean, I was just having a bit of a cycle through, and at the moment we're seeing a little bit of a similar, albeit much more moderate, move to what we had this time yesterday and on Monday, which is minor risk-off. Asia was down overnight, but that was largely a continuation of the losses on Wall Street. We've kind of gone full circle now. Because a lot of selling pressure has been initiated since Europe have come into the market. But the DXY's had a little bit of a lift as Europe's come in. We're up about 0.1%. So EURUSD, you can see in top left, just pushing down a touch. As to as cable, just back to the 130 handle in the futures. Gold then, again, the correlation at the moment is more aligned with dollar movement, and as the dollar has picked up, it's just moving above some of the higher points in the DXY that we trade in the overnight Asia Pacific session. That meaning then that gold's just coming a little lower. And, you know, from a technical point of view, quite a nice area of resistance here in the futures market at $1,886, around that level. That's coinciding with the pivot and the kind of double top that we had from yesterday afternoon and first thing when Europe stepped in this morning. And it was an area where the market responded to yesterday before the eventual push down that we had around midday London time. So that's That's going to be a key level to watch for gold that could well cap the upside, and that will be contingent directionally on the dollar movement. Otherwise, in the equity market, similarly with the DAX, we've had a little bit of that opening volatility. We've just gone through the cash open here, 8 AM in London, and so initially futures were down. Cash open has blipped up higher, but you can see I've put a rectangle here, quite a solid, again, area of resistance that may cap upside price activity pretty similar really to gold in a sense that it defined the initial push down low we had at the European open. So, you know, it's quite clear to really look at two distinct sections of market geographic activity here. You kind of got the European selling. So this is really 6 AM through the cash open. That's the European entrance. And then you get the second wave, if you like, coming in when the US interpret what's going on. We get that, that secondary push down also through the open on Wall Street, given that US indices were trading heavy. Um, so at the moment now then, it's really those upside levels which will probably provide here a decent degree of resistance. I think if we break above there, could well quite quickly see a bit more of a further push and retracement of some of yesterday's moves. If that does happen, be eyeing around these levels where we responded initially as a cap to some of the reversal before the continuation of the push down, and then we'd be looking higher up to again just look at the kind of map of the price activity as we were coming down yesterday as reference points for any retracement back up. But at the moment, the key level really is here. Uh, if we don't fail to break that, well then directionally it might continue to just drift south. And if we do, then obviously we'd just be keeping an eye back down to around the lower levels that we printed already this morning, which are close proximity to yesterday's low. From a daily continuation point of view, it is quite interesting because that level that's capping that near-term price activity we're just looking at that is around on a longer time frame chart the low we had on the 15th. So it's quite a significant level. If we really fail to break that and we remain kind of capped by that level, then I don't think it would be too surprising to see us make another push onto the downside until we really start getting down to quite a bit lower again. Another, um, kind of 150-odd points would be the key reference on the daily continuation, which really starts to bring in this type of price activity we were seeing on the high in April, and also an area of relevance from back in mid-May. So that's the DAX. The other indices I was looking— obviously the S&P's traded heavy yesterday. All the US indices were under pressure. I was looking at the NASDAQ for one, and this was on a daily continuation and some markups I've had here just sitting on the charts for a while. But one of the things is we're capped again in a similar kind of situation to the DAX. And I think if we fail to really get back above, uh, this level here I've got marked at around 11,268 type, then I think we, we could see another push to the downside. Again, we got the, the 100 DMA line coming in just below with those previous highs that we had back in July as a double top. Uh, which would be an area I'd keep an eye on at 11,058 if we did come under some further selling pressure. Again, really important, the aftermarket earnings. It's kind of the day for earnings season, uh, I'll get around to it in a moment, but there is 36% of the entire NASDAQ 100 reporting after market close today alone. So it's definitely going to be a market mover for the index. And then elsewhere, finally, just looking at oil. Oil, just continuation really of the trend that we've had, and we're at quite an interesting level right here. Obviously just getting close proximity to retesting the low that we saw shortly after the European exit. If I look at this on a, on a 90-minute chart, if I just move this back up so you can see on my camera feed, there is an area here on downside where we've had 3 attempts really around this $37 price point. The market's responded to that on each occasion, going back to the beginning of SEP, to the beginning of October, to where we are right now. So definitely keen to keep an eye on this. We're at the bottom end of, as you can see, this kind of largely a period of consolidation via $37 to $41.5. A break of that obviously might mean things get quite heavy. What would be a trigger point for that? Well, further, further dollar strength perhaps. Be keeping an eye on the correlations. If equities still remain quite heavy, all the more reason, higher conviction for the break here. But based on the same notion that really this is all about repricing of the, the kind of risk of demand diminishing given the repercussions of the restrictions that are being imparted at the moment across across the world. And this comes as well that oil prices have had a little bit of support from the Hurricane Zeta, but that's now hit and is passing through, and production is expected to be coming back online pretty quickly because the impact is going to be relatively short-lived, is what most analysts are saying. So that, that in combination with the general US production adding to existing oversupply, Libya coming back on market as the the kind of civil war starts to stabilize, and then the renewed global restrictions on COVID, there's certainly plenty of fundamentals to be more bearish in oil. And that technical break could be quite interesting. Looking on the daily continuation here for, for oil as well. So this is looking at a slightly bigger picture going back to September, October. There's a trend line here just keeping an eye on, again, the significance of where we're really trading right now. A break below here, then we'd be looking down, ultimate target down at 3613, which would be down to around those September lows that we had, uh, with the initial sell-off that we saw at the beginning of that, that month. So yeah, that, that, that's the charts overall. So, so definitely a couple of key areas to look out for. I think generally speaking, it's a little bit of a bearish mindset. I'd say that's a continuation on the whole COVID side of things. The thing I'm a little bit apprehensive about is not getting caught on what could be just a bit of a short-term rebound. But as I've said and hopefully showed on some of the charts, technically we're still below some quite key levels of resistance. And if they hold, then it could then act as just a temporary reprieve we've had this morning, and then we continue the downside kind of move that we saw materialize yesterday. It could certainly be on the cards today. So keep an eye on oil, keep an eye on the dollar and gold for, for indications of market sentiment overall. And then if that dollar fires up, euro is not far off the lows that were seen from yesterday morning as well. Okay, well, let's get into some of the headlines. I'm going to run through them fairly, fairly prompt. I'll give you a summary. Germany and France, first of all, will shut bars, restaurants, and non-essential services while allowing schools and most businesses to operate. France shutdown will start on Monday. Germany's restrictions start on— so France will start on Friday. Germany's restrictions will take effect on Monday. So these are the most stringent measures we've seen put into place pretty much since the onset of the pandemic, going all the way back to March when we had full board national lockdowns. The only slight difference here, schools and most businesses can continue to operate. But the options discussed by the government so far— this is looking at France specifically— we've been looking at some of the numbers from Bloomberg estimates, and they say that the government proposal in France could strip around 0.8 to 2% off quarter— fourth quarter GDP in France if it stays in place for an entire month. This is in addition to the 1.1% contraction that was already forecasted for Q4. So again, hence the reason why the market moves has been quite violent. And yesterday and really this week, because of the implications of just a very short period of kind of a circuit breaker, as it's been told, that is necessary to control then a health crisis. But the implications for the economy are severe. Over elsewhere in the UK, The government's emergency scientific committee SAGE suggests the second wave of the pandemic will lead to more deaths than the first because the daily death toll will stay higher for longer. Presumably this has something to do with the weather, I would make the assumption, particularly going into winter. Although it might not— the peak in itself might be lower, it's kind of like what we saw with the shape of the curve in the differences in the temperate situation in the tri-state in America compared to the south and west. In the tri-state, there's a spike in return, whereas in the more warmer climate, it's a slower pickup but a longer overall period of higher, higher numbers and consequently deaths. At present, the reproductive rate of the virus, so how much one person spreads to others, is at 1.6 currently in the UK, which is particularly high, and hence the reason why government scientists predict that at the moment, without obviously action, about 25,000 people will be hospitalized by coronavirus by the end of November. Modeling suggests the whole of England is likely to require the tightest restrictions then by the middle of December, which is kind of puts to bed then the idea of any of these localized type lockdowns. So The others have gone first, mainland Europe. This has been the pattern. UK's kind of always held off, but as a reflection of that, some of the case numbers in, in the UK have been some of the worst. So Boris Johnson remains under immense pressure at this point in time. If he does then decide— not thinking that that will come as soon as today— but if he does buckle to the pressure and we see something more akin to what's being adopted in France, for example, that is going to weigh on the pound, I believe, in the very immediate future because of the economic implications as we've just discussed. So that's that side of things. Talking about the overnight, you've had the BOJ. Not really much need for me to spend too much time on this overall. The Bank of Japan, they cut their growth forecast for the current year while keeping their interest rate and asset purchase program the same. So everything there was pretty much as to be expected. On inflation, the bank trimmed its forecast for this fiscal year. They cited the impact of government-sponsored discounts on travel packages to help regional economies and the tourism industry. So nothing really exciting for me to mention there, but that does lead us on to the other central bank, and that is being the ECB. So we'll be covering this, of course, live with the rest of the team on Amplify Live. If you wanna check that out, the link is in the description of the video on YouTube. But here is by far and large the easiest way to kind of break down in preparation for an ECB event. This is the crib sheet via ING. And what they look at here, again, to remind you of the axis, from top to bottom, more dovish, going down, more hawkish, from left to right, the 4 main key areas of European Central Bank policy: inflation, growth, the interest rate, QE and PEPP. So the actual physical tools that they use, and then commentary pertaining to the level of the exchange rate in the euro at this present point in time. And basically, again, making it as simple as possible, it's like a game of bingo. Basically, you just kind of have this up ready. You can strategize ahead of time on looking at key European assets and what are key levels in a hawkish-dovish reaction where potentially there could be an entry point and areas to then manage that trade from a, from a stop loss and target point of view. And then it's about, well, as they are coming out with the information, firstly in the statement and then in the press conference with Lagarde, what type of notes are they striking? Is it more dovish? How do they describe the inflation growth outlook? And here the crib sheet has the definitive ways of which they could express that. And so if you just follow this quite carefully, it will help very much so in order to really break down what is otherwise quite a complex thing to, to trade in more often or not. Overall, the summary here, we're not expecting any policy change as yet from the ECB, but what the market is looking for is some kind of hint towards an eventual increase to the PEPP the emergency purchase program of an additional €500 billion is what most economists surveyed expect, and that to be happening in December. But the way central bank works, they like to drop the hints, the breadcrumbs leading us up then to factor in that that stimulus is coming. And that's very important for the ECB to send that signal today because of the general, as I said, anxieties in the market right now. So the ECB will be mindful that if they can drop the right hint, make the market sure that more is coming, that might help offset some of this downside negativity we've been seeing of late. So that's the main thing we'd be, we'd be looking out for. Um, elsewhere, Hurricane Zeta, I did briefly mention when we looked at the oil chart. As you can see here now, from a positioning point of view, it's moved through the Gulf So the kind of worst is over if you're looking at it purely from an infrastructure damage potential point of view. Um, two-thirds of US output has been shut in in the Gulf of Mexico. So although this by far hasn't been the largest and most powerful hurricane of the season, it certainly has had some degree of disruption. Uh, Zeta though, looking at the National Hurricane Center's forecast, is to weaken into a non-tropical gale force by low or low strength by Thursday morning US time. Zeta's impact is expected to be short-lived, and the return of US production will add then to existing oversupply, as we've already seen from some of the inventory numbers, in addition to the COVID demand side situation and, and the Libyan one as well. It keeps those downside key technical levels under some, some pressure, and definitely to watch out for today. Day. Okay, looking at the calendar, what else have we got to come? There has been some of the German state CPIs coming out already this morning. Just to give you the last one, German state of Saxony was flat month-to-month, year-on-year against previous -0.1 and +0.1. To be honest, these aren't— I would foresee as particularly market movers. The market's going to be very much more so just waiting for the ECB to speak week later. So the European morning is quite quiet. In fact, the UK mortgage data is inconsequential, I'd say, in the context of things for, for sterling currency. As to the various sentiment numbers coming out of Europe, these, although look interesting, they're very rarely market-moving. The main focal point from a data perspective is going to be US Q3 advanced GDP. So it's the first time we're going to get our eyes on how strong has the rebound been in America during the third quarter, and expectations are for the biggest return of growth in American history. And there's one guy who's going to be loving that narrative, and you guessed it, your man Donald Trump. Given the fact that Q2 we saw a catastrophic drop in U.S. growth of 31.4%, we are in fact expecting on the consensus estimate a return of growth of 31%. So a nigh on 62.5% shift, if you like. And then the topside estimate is around 37% with a bottom estimate of 8%. So very wide ranging, but the consensus is much more skewed towards the top end of that range. The reason why I think this is particularly important is a couple of things. For one, The— we're coming off a spectacular fall in growth, and just given then the amount of stimulus that's been thrown at the economy fiscally and from monetary policy, a rebound of this magnitude is not surprising. So it's definitely going to be coined that way and try to be framed by Trump that it is absolutely amazing, but it's just a byproduct of all of the other mechanisms that have been put into place. So markets are pretty prepared for this, and so reaction could be fairly tepid, I would say, unless we see something particularly weak or strong. Um, high-frequency numbers— so this is the things that we can monitor and track in more real-time, uh, things like Shopatrac data, footfall fall, these sorts of things, mobility numbers, which give a greater sense of the here and now, what's going on, not backward looking, um, they are signaling a slowdown in activity after a strong rebound due to waning fiscal support. Obviously, that's been not forthcoming out of the US in particular. We've had an uptrend in COVID cases, so restrictions are taking hold. So all in all then, remember, markets inherently are forward-looking. And so despite how spectacular this rebound in Q3 advance reading will be, markets are in a state of realigning future expectations in a more bearish fashion, and that will overshadow that. Now, that doesn't mean though that from a political point of view this is going to be— this is like perfect timing for Trump. And the way I would absolutely expect him to frame this is that this is one of the greatest comeback stories in history. I've overcome COVID. The American stock market is back to where it was, all because of the great things that I'm doing. Elect me, elect me, and I'll do more. Look at what happens when Joe Biden leads in the polls. And I would be pointing directly to what happened yesterday in the stock market as, as what you can expect. And so if this there's a difference here. I think from a market point of view for trading today, uh, the GDP, I don't think it's that important. If any impact, I think it will be momentarily reflected on price very quickly, and then people will focus back on the COVID situation. GDP is yesterday's news. Right now we're in the middle of a COVID increase, which is really what people are focused on. Um, so yeah, I'd be looking for though going forward over the coming days and then into the weekend and next week into the election, I would not be surprised if the, the GDP bounce will, will probably help and add some positive performance to Trump in the polling, which might add to some further narrowing of the polls. And therein lies probably another catalyst, which, which has created kind of a lot of the negative moves this week. Which is the fact that the closer these polls get, particularly in the top battleground states which are now narrower than 4 points, and obviously Florida flipping to Trump and some of these key other areas like Pennsylvania in focus, um, the idea being that the closer those polls get, the more nervous markets become because the more protracted the election is likely to be, given the fact that not all states are going to be able to report their numbers on Tuesday night next week. Uh, the closer it is, the longer that's going to take, the more legal contention there's probably going to be towards what the end results are going to happen. All of that is a negative for markets. Remember where we were just 3 or 4 weeks ago? The notion of a blue wave— volatility was low, equities were rallying. That's— we're in a different state of affairs now. Not only are we more focused short-term on COVID but Biden's lead has been diminishing, and that means then that the outcome becomes more uncertain, and markets don't like uncertainty. And so that compounds the, the COVID situation to the negative developments we've had of late. Other than that, you get your weekly jobless claims, of course. You got the ECB. Remember, today, this is quite unusual because of the clock change in UK but not yet in America. You're going to get the GDP number just before the initial statement from the ECB. Obviously, normally it's the other way around, so we're gonna have to tackle that first, then hit the ECB, and then the press conference will be at normal time of 1:30 London time. So we'll cover that full with all the Amplify Live guys for sure. Um, and that's pretty much it until we get to earnings. So let me finish with earnings. Um, I'm just going to get down to here. I know this is a bit difficult to see, but these are all the earnings that are coming out after market. So it's one of the busiest days of the earnings season as yet. But the thing I want to draw your attention to really is on the right-hand side here. I made a comment on, on my Twitter account this morning, and Amazon, Google, Apple, Facebook are all reporting after market. Combined, that has a cumulative index weighting value of 36%, just given how they've massively outperformed in these kind of pandemic conditions against the overall broader market. Uh, that is a whopping size for such just 4 companies. I don't think in my career, certainly, I've ever seen, uh, being so dominated by so few. So after market today, I'll cover all of those, um, as well when they come out. So I'll probably share some stuff on Twitter, but I'll be sharing it all live on, on Amplify. 5 Live. Cool. All right, that is it. Gonna let you guys get on with the day. Hope the rundown was useful. Uh, feel free to subscribe to the channel if you're new, and I wish you a good day ahead, and I will see you hopefully tomorrow morning, same time. Take care.