Market Update & FOMC Preview

Okay, very good morning. It is Wednesday the 16th of December. Hope you're doing well. And just an early heads up, if you haven't already done so, remember you can join us on Amplify Live this evening. Full FOMC coverage from myself and the team. So the initial statement coming out at 7 PM, we'll be doing a full rundown and live coverage as it comes out. And we've also got the masterclass happening this evening. We've got a special industry guest speaker as well joining us. So don't forget, if you're watching this on YouTube, check out the link below to get access to that. But let's get straight into it and talk about what's moving markets this morning. And we had a higher close on Wall Street yesterday, seemingly then snapping this 4-day losing streak in US equities as optimism is quite high, intensifying of talks in Washington on Capitol Hill to try and get this relief bill over the line. And so focus was very much on those congressional leaders from both parties. The Senate Majority Leader Mitch McConnell came out last night upon conclusion of a number of calls that Nancy Pelosi, the House Speaker, was having with various different departments and team members about how lawmakers— McConnell said he will keep them in Washington until a deal gets done. And that kind of commitment was met with kind of mild relief that ultimately it looks like things might happen. Of course, the pressure is on because these negotiators are working flat out to try and finalize a coronavirus aid to attach to a package of spending bills, which they will need to push through by Friday at midnight in order to keep government agencies funded. And so hence, that's the timeline they're working towards. So It might be that, you know, we're in Wednesday now. It could just still be another few days of haggling over the finer details. But the market's still pretty hopeful in terms of market reaction and positioning that a deal does get done. And that's been one of the main things from overnight. So higher close on Wall Street, the S&P, Dow up around 1.3%, 1.1% respectively, the Nasdaq up around a similar margin. And then they handed the baton to the Asia-Pacific region, which kind of followed suit. And generally higher across the region. So this morning, stock futures, S&P pretty flat, but importantly just holding on to the, the relative gains that were seen yesterday. As you can see here in the center right, just coming up to a little bit of near-term resistance here at around what was the early Asia-Pacific open, a retest we had in the middle of that session, and a European open test this morning. Price getting a little squeezed up from the low point and yesterday's R1, which was around the final half an hour into the rally that we had on Wall Street in the futures market. So worth just keeping an eye here as this, this price gets squeezed in. If it continues to remain that way during European morning, perhaps then the volume pickup might see a breakout in either direction as we go into the NYSE session. We've also got that high as well, the weekly high which was printed, uh, going back on Monday, uh, that we'll see just above these current levels. Around 8950 is the overnight highs, and then around 6061 is that weekly high that we'll be keeping an eye on today if we remain fairly bullish in equity space. Otherwise, how does this translate? Well, generally when we've seen progression on that front, we have seen a degree of dollar weakness. That is a little bit apparent this morning, some fluctuation seen in the dollar today. Um, it's just recently bounced off its lows as I deliver this, but it is broken through what was the lower bound of the Dixie yesterday, and that's then promoted a bit of an extension of a moderate dollar weakness. So the major pairs have picked up a touch this morning, albeit just seeing a bit of reversal off the pullback from the initial highs. Cable, a bit of a standout. We'll talk about cable in a bit more detail in terms of the fundamentals in a moment. But you can see we've had a bit of a false break around this real important psychological and technical relevant level of 135. We look on the daily, that 135 of course is this meaningful level that puts us up at around 2-year highs. I think going back to around Q2 of 2018, if we can really get above then that initial false kind of move we saw at the beginning of the month which was that election 2019, this time last year, pop that we had on a Tory majority, the beginning of SEP, and the area which we tested just a few weeks ago. So people still fairly optimistic and hopeful of a Brexit deal emerging. Got a few comments from yesterday, and we can get up to speed on that in a moment about what I think going forward. Otherwise, gold has formed now a relative range. So looking to consolidate perhaps a little bit after what was a pretty phenomenal move over the last 24 hours or so, because we've risen the best part of $30, really initiated by not the overnight but the previous night's Asia-Pacific session. And so we bumped up. Whether or not this is tied to the idea about, um, the associated risks with things like the coronavirus, with the increasing restrictions that we're seeing in the US or in mainland Europe or in the UK, as far as the announcements and the kicking of the new tiering system today, or whether it's more tied to still concerns about future forward inflation, given the fact the success of this stimulus deal coming forward, which has promoted at the moment dollar weakness, and gold has continued to remain on the upside. As I said, somewhat consolidation now, 54.5 to 62-ish, which was the overnight Asia-Pac high. And you can see it was a little bit choppy, but a rough area of consolidation we had back on the 9th and the low back on the 7th. So worth keeping an eye on that on the upside if we were to see any further more substantial gains in the yellow metal here, as then we would look to target up at around the probably the R1, which starts to draw in some of these pre- previous highs. You can see here it's pretty much lined up perfectly to the T with the R1 at 68.5, which was the high on the afternoon on the 9th. If you remember, well, that was the 9th of December before we had a bit of a breakdown in price. Otherwise, elsewhere, oil respecting the technicals quite nicely in yesterday's session in terms of the initial push-up to the high, which was the Thursday high that we printed which was around the 47.74. So yesterday it was a nice technical area of resistance with that high in the R1, and just given the scope of the rally that we had seen from Monday night session after the initial dip that we saw on the OPEC cutting back on their demand forecasts. So again, somewhat consolidation now. So looking around the pivot level at around 47.29 to that double top now at 47.74. Would be the ideal areas to look at on the upper and lower boundary of that price for the rest of the session ahead. All right, well, let's get stuck into some of the news. I've already really talked and got you up to speed with the general vibe on the GOP leaders citing progress in talks with Pelosi. So definitely we need to continue to track this. This will be one of the defining factors really for the second half of the week. But then let's have a quick update on Brexit. What is going on here? Well, yesterday, as you would have seen, sterling saw another pop on the upside. And as I've just shown you this morning, and as I'm just speaking, cable is at its session high now. So definitely worth keeping an eye on here because technically a firmer move through 1.35 might see a bit more momentum to the upside if we can really push on. Now, one of the things yesterday was a BBC journalist called Nicholas uh, whacked. So if you aren't following him on Twitter, I suggest you do so. Tweeted about a feeling among British lawmakers that a Brexit deal may be close, and that was enough then to really trigger further acceleration to the upside in the pound. I think one of the most important things now is we need to see follow-up, more definitive confirmation that that indeed is the case. Remember, with a lot of this Brexit noise, which does create a lot of volatility and false movement in the pound generally in a day trading environment. A lot of this commentary is coming from journalists and hearsay that they've spoken to an official who's been part of a conversation or a roundtable meeting of the negotiations, and from what they're hearing, they're saying X. Now what I need to hear is what's Y and what's Z, and do they all stack up pointing to the same thing, that indeed, yes, a deal is going to be imminent. So there's a potential here for a buildup of potential negative kind of reactions. And given the market now, it's very reminiscent really of last week. I feel that people are quite bid up the pound into the idea of, yes, ongoing somewhat dollar weakness, but also optimism over a deal, only then for that to kind of fall flat towards the back end of the week when we see seemingly no slam dunk concrete deal is signed. And therefore, as those comments start to emerge in a similar tweet fashion to the positive one yesterday, we start to see quite aggressive downside risk kind of flashes to the downside. And that could be largely borne out of the fact that the market has moved considerably higher in the, in the prior session. So it's worth bearing that in mind. And actually, overnight, sources in The Times newspaper here in the UK have stated that nothing was imminent on Brexit as of last night. Both sides are pretty certain nothing will happen immediately, and pretty similar what was echoed by Paul Brand of ITV News as well. So definitely not a done deal yet. I think at the moment I feel like the pound potentially could move higher before then towards the back end of this week it starts to move lower and perhaps quite violently so in terms of aggressive pullbacks as people get again apprehensive that the reality kicks in. Perhaps the deal is not going to happen as soon as they might think. So that's the latest on Brexit. The other thing you've probably read a lot about, it's really dominating the national press at the moment, is guidance around celebrating Christmas. As we know, the government is set to relax the rules over a specified period of time so that family and friends can get together under certain criteria of intermixing of different social groups. Now, it's come under a lot of scrutiny because various different medical advisors have given advice to the government that this would be a bad idea. As we already know, the COVID situation, if anything, has worsened, particularly in the likes of London and the Southeast of England, which has resulted in this change in the tiering system effective today where approximately 61% or so of the UK now are in the highest possible category of tiering for the, the stringency of restrictions. So at the moment there's a lot of pressure on the government. The latest that they've said overnight is that they're expected to strengthen the guidance but not actually alter the, the rules about up to 3 households being able to mix to form a so-called bubble. All four nations are scheduled to talk further today. This is a, this is, I'd say, a situation, a fluid one that could well change. I think the governments are going to find it particularly hard to do so because of the, the public reaction then to what that might mean over such a cultural period. However, polls have suggested that public opinion might be swaying in the way of actually people not particularly happy with the government handling and would prefer to put actually new rules in place. So how much of an impact really does this have from a market's perspective? Quite honestly, perhaps some. If we do remain in more strict lockdown and let's say, let's say Christmas is off, I think in terms of containment of the virus then That would probably be very beneficial. How much that would influence the pound? I mean, perhaps mildly positive, given the fact that what a super spreader event like Christmas could have is something we talked about yesterday, which is what we've seen in the US post-Thanksgiving, which is quite an acceleration in cases. And the problem here is that services like the NHS like in America with the US hospitals, they're near full capacity, which brings about big difficulties in terms of not just people with COVID but other people who also need to be treated for other different diseases and, and so on. So, um, that being said then, I don't think the government are going to change what they're saying. I don't think that necessarily is a negative for the pound. However, it might well do so I mean, become negative if then we see a big spike in COVID cases, if hospitalizations get to full capacity, of which is a risk, and then subsequent deaths start to rise quite sharply when we get into the beginning of January, then certainly that at the time then will need to be factored in. As far as now is concerned, I think it's somewhat overshadowed by the fact that this, this looming Brexit deadline that's in play that's going to be more of a near-term draw for the pound, for the here and now. The other thing, of course, today, and probably the most important thing of the day overall for global markets, is the Federal Reserve. Really fantastic article in the FT just summarizing things and the 4 things to watch. So let me just give you the, the summation really of that. So since June, in the early months of the pandemic, the Fed has been buying $120 billion of US government debt every month, $80 billion across Treasuries of all maturities and $40 billion of agency mortgage-backed securities or MBS. And they have said that they would maintain that policy, quote, and this is the wording, over the coming months. And it's that particular phrasing that's probably going to be the key thing to look out for when they announce their statement and then their subsequent press conference later on this evening at 7:00, 7:30 London time. So today it is expected to make a fairly significant signaling change in that regard, extending the time frame for those debt purchases by linking them— we don't know to what specifically as yet— but linking them to certain economic metrics in the recovery. So at the moment, instead of saying coming months, which is kind of saying although there's some wiggle room, there's an idea of, okay, so coming months means 3 months, let's say, for an example. Whereas if it was more tied to a certain economic metric in the recovery, well, markets can take somewhat confidence out of the fact that, well, look, if it remains like it is at the moment and the economy— the economic data remains weak like what we're kind of seeing now re-emerge in America, because of the fact that COVID's been so violent in its spreading, creating these new round of restrictions where jobless rates are going to go up and confidence is probably going to diminish in the period ahead in the short term. Well, that means there's nowhere near that the Fed, um, are going to exhaust their bond buying program, and that would be a net then more dovish move in terms of the language change. Um, so that's one of the key things. A more extreme scenario would be but a very much so less likely option would be for the Fed to increase the aggregate size of its asset purchases. So it's not so much about the size, it's more about the commitment of the timing of how long they're tied to doing it for. There are a couple of other things as well. People have talked about this idea of targeting then different parts of the curve to try and pin down rates in the long end to try and keep then if there's a risk of a stimulus deal coming forward soon, then that's going to create renewed demand in, in the economy as we go through in the period ahead. Let's say as the economy recovers, stimulus really starts to pay off in the, in the actual real sense. But so then the Fed will be conscious of trying to hold down yields in the long end in order to keep then a lower lending environment per perception, if you like, because the pressure that would put on credit where companies are pretty high on debt at the moment could be one of the biggest tail risks for markets under those scenarios. And they will be conscious of that. And in that kind of yield curve targeting fashion, which we've seen adopted by the BOJ or the RBA, they won't commit exactly perhaps to that, but something akin to it by just moving out the average maturity of their purchases. Another thing to be aware of today, they're publishing their new macroeconomic kind of forecasts, so similar to what the ECB did just last week. Good news on the vaccines may well lead to a rosier overall economic assessment. If the Fed does see solid macroeconomic improvement next year, it may lead officials to predict earlier interest rates than they did in September, when the median prediction was for no liftoff until at least the end of 2023. Um, I think that makes sense. I mean, the vaccine has come to market in a relatively quick fashion, which does give some cause for being perhaps a little bit more optimistic than where they were before. However, I would say the Fed under Powell, like under Yellen, who will soon be the incoming Treasury Secretary, very much so of the disposition of, um, kind of slow, gradual, cautious type approach. And I think if they're going to be any more bullish at all on their macroeconomic improvements for next year, it's going to have to be like outweighed, I would say, by a more dovish signal elsewhere, whether that's in the bond buying language or somewhere else. The other thing as well is, if you remember, there was this kind of whole slew of emergency measures that got adopted by the Fed in response to the initial onset of the pandemic to offset to offset the immediacy of the economic collapse that we saw in post-spring. However, there's obviously been a rift developed between Powell and the central bank and the outgoing Treasury Secretary, Steven Mnuchin, where the latter wanted to pivot money back under— from these underutilized programs back into more federal kind of spending. And basically what markets might be looking for today is that the, the hope that perhaps then some of these facilities get reinstated in the near future. We know that Yellen is going to come in under the Biden administration. She's going to work in a much more collaborative fashion with Jerome Powell than the previous administration ever would have done. And as I said, knowing her characteristics from her tenure as the head of the Fed, it could well be likely that this is another form that the Federal Reserve could give that, that idea of a very looser accommodative stance going forward for the fairly still uncertain period ahead to ensure the economic recovery. What does all this mean? Well, ultimately a lot of this then would be supportive generally of equity markets if the Fed do tweak the language that's a little bit more accommodative of pinning it down to certain economic metrics, if they change the average maturity further out, if they kind of are lesser, let's say, bullish in their macroeconomic forecast, which supports then more dovish actions from the central bank. And if there's conversations about reinstatement of some of these emergency facilities because they're prepping up for them to transition with Yellen coming in, I would see weaker dollar, higher equities under those types of scenarios. So that's how I'd be interpreting things as we go further forward. But we'll, we'll get very much more into this as we deliver this live later on Amplify Live. Finally, a couple of things. You had the API oil inventories last night. They really had no lasting impact. There was a momentary blip on the downside and then we moved back higher. The headline crude number, a build of 1.973 million Uh, that was a little bit bearish, hence that initial reaction. Um, Cushing draw 165,000, gasoline build 828,000, distillate build 4.762 million. So not really too much there to speak of really. Um, uh, so we'll wait for the DOE's later. But as I said, crude is trading around technically some interesting levels at the moment. And just as we've been talking, we've seen a further extension of some of the movements, uh, key metrics coming out this morning. And this leads us on to the calendar. So you've just had the French Services PMI come in at 49.2, 49.2. Expectations were for 40. That is a phenomenally strong French Services PMI number. And again, don't forget, this is for December. So people, analysts were expecting a very depressed number given the fact that we're in a fairly stringent lockdown at the moment across France, particularly the capital. Manufacturing in the French flash PMI for December came in at 51.1, and that's above the expected 50.1. So awesome French data there, and it's really fired up the market, as you can see here. So the euro— look, just to give you an idea of the type of speed of reaction. If I stick this on a 1-minute chart, you can see just as we've been talking here in the briefing, the euro's just bounced higher here. Nice, nice move breaking above then the early European entrance high. A bit of resistance being found at the R1 at the minute, and that is quite a key area. You've got the previous high that was seen on Monday just above there at the moment, and this is an interesting area actually for the euro if you look at it on the performance. This is going back through the month of December here. The euro is right up there at the moment at around that 122 handle. So we got the R1, you got the weekly high that was printed on Monday sitting just above, and then that takes us back to the third and fourth high. On the daily chart, what's interesting here is, um, you can see we're just continuing to, to break out of what is quite a key area of which for the euro then, um, does mean that if we can really punch above today, coming days, this area, it really does mean that potentially this onward upward trend can continue over the medium term. Certainly that would be the view of most who anticipate EURUSD to trade higher in the coming months on the persistent weakness of the dollar. But intraday, key level of resistance here being tested at the moment in the euro, and you can see European equities loving it. Uh, and rightly so. The French number, that is fantastically strong on the service side against expectations. I don't think in my 14-year career I've ever seen a 9.2 beat over expectations, but there again, we're in a different unique era in the post-pandemic world, um, and these numbers, the variance of them, are particularly large at the moment. So the DAX has catapulted higher. You can see really was an injection of that. The German numbers haven't yet come out, they'll come out at half past, but usually the way these PMIs work is that if the French number is very strong, the German number usually— then people trade that ahead of time, positioning for equally a strong number. And you can see here in the S&P, it's helped as well. Technically, we were knocking on the door of that, um, the weekly high on Monday, and that range restriction of price that we had And you can see it's just popped on the upside there through that level and up to the next area of technical response, which is around 96.75, which brings in that previous high on the 9th and that range support that we had through the 9th in the overnight session. So yeah, some quite bullish news here in the PMIs this morning. We got the UK PMI obviously coming out later. And then you've got the US PMI also coming out. So another interesting chart to watch today will be for those PMIs. You know, if you think about it, if all the PMIs are not as depressed as perhaps people might have thought— remember, these are flash December numbers— if stimulus does get delivered and we have no more hiccups in the vaccine situation, if Brexit gets delivered, um, You know, these are, these are very positive catalysts which largely have been priced in by the market, but confirmation of them will probably see a bit of an extension on further relief. And it'll be interesting to watch as well the crude oil market, um, if optimism generally is quite strong, we get some more positive signs on the stimulus with the US manufacturing service PMI follows suit in what's likely to still be a fairly cautious, dovish-sounding central bank in the Fed. This is kind of the perfect kind of semi-Goldilocks scenario that could see then oil as well break out above this key area of resistance to push on, certainly to trade at a $48 handle in the near term. Um, all right, I'm going to leave it at that actually. Um, the full calendar is available on Amplify Live. Uh, remember we've got our guest speaker later, who is this chap here, who just happens to be my brother Matt. So Matt started his career working at RBC in investment management. He then was a trader for a US proprietary trading firm. He then started what is the world's leading squawk service, and now he is the CEO of a fintech startup called iPushPull. So he's going to come on, he's going to have a really great chat. A lot of questions at the moment about these rich tech valuations, but he's really got his finger on the pulse of a lot of emerging technologies and companies that might be exposed to those types of things on a single stock perspective. So really look forward to having a chat with him, uh, with the rest of the community later on today. All right guys, that is it. Have a good day ahead and I'll see you on the live stream. Thanks very much.