Market Update: Trump Impeachment & Biden Stimulus

Okay, very good morning to you. Hope you're doing well. It's Thursday, 14th of January. Uh, thanks very much for everyone who joined us on the Amplify livestream last night for the masterclass with myself, Willem Peers. I hope you found it interesting. Uh, the recording is there now available on the portal if you missed it. If you're not part of that community at the moment, remember to check out the link below. And you can access a free trial to lots of other unique and kind of exclusive content that we put out only on that platform. Otherwise, let's get straight to it, talk about charts this morning. And I think a lot of this week has been awaiting President-elect Joe Biden's stimulus plans. There's been some information that's come out overnight, and as you can see here down at the bottom right Uh, the US 10-year has seen a fairly distinct move to the downside here, also reacting technically to the high that we saw at around 6 PM last night UK time. But a fairly pronounced movement on what otherwise has been a decent reversal really of some of that yield increase that we had been seeing. So prior to the overnight move, the last 24 hours and yesterday, the US 10-year yield posted its biggest decrease actually in 5 weeks. And I've been quite clear with the guys that I talk to within the team and, you know, talking on Twitter and things like that. I really truly do think that people have got a little bit overly excited about the idea of this inflationary reflation trade happening, you know, kind of right now, and that that would lead to some form of tapering from the Fed. I think it's way too early for that. I think that any inflationary spike that we're going to see in the near term is going to be somewhat temporary in nature. I think it's been overexacerbated by the nature of the market kind of recalibrating somewhat from the still somewhat surprise blue wave control now that the Democrats have in the Senate. And if I look back to lots of previous historical crisis that we've had in markets over the last years, decades, and so on, it nearly always then the first glimmer of talk of recovery sees this overextension of a knee-jerk reaction of normalization of policy. And, you know, I think that is natural, but I think it's slightly misplaced for now. And I don't think that those inflationary pressures, once we get on the initial reopening of the economy, are going to be sustained for lots of different reasons. So check out the notes that I put out in Discord room this morning. There's a really fantastic piece written by the chief economist at ING yesterday which I shared on my Twitter account. I retweeted it, so that I encourage you to read if you have time. I'm not going to mention any more on that for the moment though, but yields did see a bit of a blip down— a blip up, excuse me, and T-notes down in the overnight session. That did come after we saw some New information coming out from President-elect Joe Biden's potential plans, time yet to be confirmed, but coming out later today. But I'll go into those details in a moment. Just wrapping up and looking at the other asset classes, uh, the Dixie's pretty flat at the moment. The major currency pairs, both EURUSD and Cable, sitting around some interesting support levels, uh, for perhaps the intraday environment. Uh, just looking at the EURUSD currency pair here on the weekly chart 1.2155 has acted as a, as a nice area in the futures as support. We've got down there, have a brief look at that level of the initial European open, having tested it in the overnight Asia-Pacific session. So there's a little bit of mounting pressure coming here, and obviously dependent on the confirmation of the details from Biden, that definitely will have implications for US dollar movement. And if he does come out with quite a grand scale plan, then it could well be the case of a higher yield, higher dollar type move. And the technical break here could then start to see a move lower in the euro. And you know, looking on the daily chart, it is an interesting level that we're trading here. I mean, I'm just going to zoom in going back to the beginning of December and where we are at the moment. So this is on a slightly higher time frame, and you can see this is quite a key level. And any breakdown here, it wouldn't be a surprise to start start moving further down to the 121 handle and perhaps even further down to the 9th of December low, which would be down around 1260 type area. So this would be contingent though, kind of thinking along the lines of Biden being a fundamental catalyst for a technical breach to then see a little bit more weighted move come in with a bit of momentum, given the substantial nature of that, that technical level. Cable likewise, not quite as clean in that respect. I think, you know, here it's again likely to be derived from chiefly dollar movement. Both major pairs in EURUSD and cable pretty much got the same net change on the session so far, which would be more indicative of really just awaiting dollar movement. Otherwise, in the equity indices, we had a mixed close on Wall Street. The Dow was very minor negative, broadly flat. The S&P up a quarter percent. The NASDAQ was up, minor outperformance, up 0.6%. In terms of those US indices, still relatively range-bound. Um, the last couple of sessions have been quite quiet there, and again, I, I kind of put that down to the fact that quite a few people are just awaiting what Biden has to say later today, and potentially then that could liven things up and we could see a breakout in some of those ranges. Uh, oil, uh, just coming up to pivot, which was the high from yesterday evening in the futures, previous area of resistance as well back on Tuesday this week, and provided a bit of a platform for them to move higher on that evening. So just keep an eye on that level near term. Technically, some resistance just being encountered here at the moment at $53.12. But from a fundamental perspective, not really a great deal to speak of new with oil. Again, there will be some read across, of course, and what Biden has to say the greater the stimulus. I think near-term reaction is kind of fairly binary. It's kind of, okay, that's going to give the economy a boost, that could be then beneficial for demand. I think beyond the knee-jerk reaction though, there is a reality to the fact of what exactly can Biden pass. Even with obviously a kind of full control over Congress, there still is the fairly thorny issue of getting things through the Senate, which would not be as easiest passage in the House given the kind of composition of numbers. But let's get into some headlines. Let's talk about a bit of news and what's on the docket outside of Biden as well for the rest of today, because there is Jerome Powell speaking as well. And I do think that would be quite interesting given the context of some of the recent Fed rhetoric. There's been a lot of Fed speak given this, I think, misinterpretation by markets about tapering. And they've definitely made a conscious decision to roll out the troops to try to counteract that. And we've had a pushback from Brainard last night amongst other members. So I'm particularly keen to see what Jerome Powell has to say, but I don't think he's actually talking till half 5 this late afternoon, evening, if you're talking about the UK time. But let's, let's have a look then. What have we got? I've had a number of questions from arguably more new people, so I understand why they would ask this because the media has made such a big splash about the fact that Donald Trump has been impeached again. I'll cut to the chase. It really is not that important for markets. I'll give you the context and I'll explain why. So Senate Majority Leader Mitch McConnell— so just looking at some of the articles here— told Republican senators he's reached no decision on whether he'll vote to convict Donald Trump on the House's impeachment charge for from yesterday that he doesn't plan to call an emergency session to begin the Senate trial before Jan. 19th, which is obviously then the inauguration's happening on the 20th. Bit of context then. So, so far no Republicans have said that they would convict Trump, um, but in the House at least 6 Republicans have broken ranks and announced they would be in a vote in favor of Trump's impeachment. Um, As a reminder, in terms of the, the way of which this works, so here's a graphic for those, uh, again, not familiar with this, this kind of impeachment process. So the House of Representatives, any member may bring forward a resolution of impeachment. If a simple majority of the House votes to approve the resolution, the target of the motion is officially impeached and the matter moves to the Senate, as is what has now happened. Now it moves to the Senate though. Here then lies the problem. The House selects representatives to act as prosecutors in the trial before the Senate, which acts as the jury, but two-thirds vote of the Senate is required to convict. And that's why he won't get convicted, essentially. Um, a couple of things to be aware of here, a little bit of US history. Andrew Johnson, 1968, uh, Bill Clinton 1998, Donald Trump obviously last year. These guys were all impeached by the House and all of them were overturned and failed their trial in the Senate. So this isn't new ground here for US politics. It certainly isn't for Donald Trump having already been impeached before already. So again, a lot of this is symbolic. There's also been legal scholars a little bit divided. I was reading last night about the question of whether or not a president can even be convicted after leaving office. So yeah, I'm not going to mention this then anymore for now. It's really a non-event, but I just wanted to explain why I'm saying that. So moving on, what have we got then? Well, Biden's the kind of the main event of today, and there's a couple of things. As I said, yields have seen a little bit of a move overnight. The 10-year backed off 7, 8 ticks from where we were at the initial commencement of trade in the Asia-Pacific session. So the reason for that is that there's been reports overnight that aides to Biden have told allies in Congress that his aid plan could be valued at about $2 trillion, which is $700 billion higher than what Senate Democrat Leader Schumer was calling for earlier. Um, one thing I would say though is if I was looking at the dollar, the dollar saw some very minor movement initially when this came out overnight. The move though nowhere near as perhaps sustained as what we've seen in the fixed income market, but even the latter has been relatively moderate in size. And I would say that's largely down to the fact that we'd already known Biden himself had already said and promised that the stimulus that he would present would be multi-trillion in size. So The fact that it's $2 trillion, the fact that that's quite a bit higher, $700 billion more than what Schumer was, was suggesting, uh, has that knee-jerk reaction again. But overall, I don't think it's particularly that surprising. Uh, the guys over at Newsquark, they were highlighting a few more details. I'll share a really great crib sheet that they've done with the guys in Amplify Live to have a look at. But in summary, while areas like stimulus checks, unemployment insurance enhancement, more money for vaccine distribution would all be included, It is not clear whether the plan will call for higher corporation taxes, policies on climate change, and infrastructure spending, which may follow later. So analysts generally believing then that with this announcement will likely support the, the quote, reflation trade, resulting in higher bond yields as market pricing more Treasury issuance to finance support underpinned by wider deficits. So again, it's that kind of classic trade that we've associated now with what a blue wave would constitute would probably be the way in which markets will react in the intraday environment today. Um, so yeah, time to be confirmed. I'll keep you posted on that, but obviously going to be likely later on this afternoon for UK time. Quick word then about coronavirus. A couple of things I was reading last night, which is about the very— the new variants of the virus. Boris Johnson was talking yesterday and he was talking about this new Brazilian variant that the UK government is watching very closely. The UK has already banned flights in from South Africa, of course, where there's been different mutation to the one that's emerged out of the UK. And also Ohio's capital in the US, Columbus, has also— researchers have found a different variation again to the one that's in the UK. So Yeah, more of these are happening, and there was 3 main points that I covered in my morning note that I really wanted to reiterate on this briefing. And the first one is, is that these mutations, this, this is not an uncommon thing, particularly when you think about the fact that this coronavirus now has been here for the best part of 12 months. It's been spread on a pandemic, so definition, global level for for the past probably 9, 10 months. So a mutation of this virus, and given the fact that geographically, you know, communities are different, temperatures are different, ethnicities are different, so the body is going to react in different types of ways. And then throwing in the mix of underlying health conditions, which can have all types of varying degrees, mutation in a fairly moderate sense from one place to another is always going to occur in a natural sense. So I don't find these kind of headlines too unnerving at this point. But then that leads to point 2. Now, point 2 is the most important thing for financial markets, of course, which is do these mutations go far enough to render the existing vaccines whomever they're from, redundant. And if they do and they're proven to be less effective, that's going to have a big implication for markets because obviously it's going to have— it's going to impede the ability to immunity for populations, which just means that lockdowns, restrictions are going to go on for longer as these pharmaceutical companies do need to rework their vaccine, which is going to take time. Then it needs to be remanufactured. So on, so forth. Hence then why it would be quite a big negative for markets. We are not at that point yet. There isn't really any empirical evidence to support the fact that these mutations have, have mutated far enough in a sense, but definitely this is something to be aware of. And then point 3, I was reading a report in the FT this morning and it said that people who have already contracted coronavirus are as protected against reinfection as those who have received a COVID-19 vaccine, according to a 20,000-person study by frontline workers in the UK healthcare service, which I thought was, was quite an interesting statistic as well. So it could be another variable to kind of plug into your model if you were trying to think about the trajectory of immunity rates, so not just vaccines but people who have had it that we know of through testing but then have not shown any dramatic symptoms and so on but now have as effective immunity as you would do even if you've had the access to the vaccine, which obviously is going to take time because it's got to work from top to bottom through the more targeted at-risk demographics first before it gets out to the wider kind of community in that sense. The other thing that was interesting was after market, a little bit of movement in Johnson Johnson's share price. And this has been one, one of the guys in the, in the team, Mike, we did a really great session for the Amplify Live community probably 2 months ago where he gave a fantastic breakdown of every drug that pros and cons, went into great detail. And J&J was one that we spoke about at length. And, you know, one of the top-level things that made the J&J one particularly interesting was this idea of one shot. Now, you've probably read about in the UK, there's the degree of complexity, you know, how much immunity does someone have with just one shot in a two-dosage kind of vaccine? Do you give everyone— you administer the first doze first and then prolong the second, so on and so forth. So there's, there's added logistical measures that need to happen with a two-dose. So one dose is kind of like the magic fix if it can be achieved, and J&J has always been of that, that target. So what's happened here is Johnson Johnson's experimental one-shot COVID-19 vaccine generated a long-lasting immune response in early safety study. Now, this isn't like that one-and-done headline Pfizer 90% efficacy rate type thing. We're not there yet, but this initial early safety study would be a net positive and bode well for their large efficacy studies, which are still yet to be concluded. So it's, it's kind of a good sign. A one-shot vaccine would make mass vaccination campaigns, as I just described just said, much more easier to implement. And the company expects to get definitive efficacy data from a final stage study by early next month, potentially leading to regulatory authorization by March. So they've been a bit slower to the game here to get this out, but again, overall, stepping back from the day-to-day for a moment, you know, it's just important that more of these companies get their vaccines to market greater availability, that means you can kind of accumulate then the manufacturing capability to then hopefully eradicate the virus as best that we can. So yeah, something to be aware of. The other thing I wanted to mention, this has been going on for a while. You know, if you were looking at BTP futures, Italian yields have been rising all week and, you know, rising yields in a periphery nation in Europe is only really indicative of one thing, and that normally in the case of Italy is politically or political instability. And here we are again. I mean, Italy is never far from political crisis, to be quite frank. I think they go through, you know, kind of premiers like they do in Football Managers in the Premiership. So they do change rapidly, and I think that takes a little bit of the sting out of the tail of this particular news article. But there's a few things to be aware of. Obviously, ultimate risks are snap elections, which would be the most disruptive, particularly when a country is going through immense pressure at the moment to deal with a crisis in the form of COVID-19. And there's many reasons why I think that that's an unlikely event, but the disruption that's happened is down to the following. So basically, the former Premier Matteo Renzi has seen his— he's got two ministers basically as a junior partner in the existing coalition in Italy. His party is called Italy Alive, if you were kind of translating it to English. They've pulled their support for the coalition, essentially unhappy about how the government Conte has dealt with the response to COVID-19. The cost of borrowing then for Italian government has risen modestly, I'd say. We saw a bit of a bounce in BTPs yesterday, but it's quite volatile at the moment. Renzi's two ministers now exit the government. The focus now turns to Mattarella, who's the president. How it works in Italy is if there is political instability, the premier then looks for direction from the president in Italy, who basically has a fairly symbolic role other than he is given responsibility for political stability of the country. So he then kind of manages then what happens next in the process. So the president and the current premier Conte did meet yesterday, and if Conte opts to resign, he could be given a mandate by Mattarella to try to forge a new alliance. Renzi has not ruled out a new government led by Conte, but said Italy Alive would not support any coalition including Matteo Salvini's League. So here we go, we're right back in there where we were 2 years ago with Salvini and this kind of more national movement, if you like. And there's nothing like, you know, kind of a situation like COVID-19, where inevitably it's such a difficult situation to handle for, for governments, given the, the kind of precarious nature of weighing a health crisis against economic implications, that it's going to generate then support for some of these opposing parties. The existing coalition, though, will be desperate to avoid a new election. And the reason for that is because the League, Salvini's center-right party, according to most polls and surveys, would likely win if the country was forced into another snap vote. So none of the other parties that form the existing coalition want that to happen. So analysts have noted as well a recent constitutional reform has meant that if there were new elections, it would probably result in a downsizing of Parliament, meaning that a number of MPs probably won't get reappointed. So if I was an MP, why would I back that? I'm going to lose my potential ability to, to govern in Parliament. So that's another problem. And then the other thing is, even the likes of Salvini's League, would he really want to take part and take the helm in the middle of a COVID-19 crisis, which would disrupt the implementation of your incoming recovery plan, which is going to make the economic difficulties the country's facing even worse. You know, politics is all about timing. It's about striking at the right moment to get great success, and on all fronts, it would point to the fact that I think snap elections are not likely in Italy. And so you've had a little bit of, of calm restored yesterday in the Italian bond market, but it still is something that I would be monitoring, of course. In terms of the day ahead, then, just to wrap things up, it is very quiet actually from a data perspective, at least. ECB minutes, I'm not sure how interesting, to be honest, I think that they will be, but they'll be out at 12:30. Then you've got the weekly jobless claims, of course, which garners a little bit of attention in the context of the fact nonfarm payrolls obviously dipped for the first time in several months into negative territory on Friday. That number has been relatively elevated as lockdowns have continued to impact particularly leisure hospitality type sectors within the industry breakdown, with COVID-19 case rates still particularly high in North America. So that's pretty it on the data side. We've had some Chinese data overnight. I mean, I haven't really touched upon it because, I mean, exports came in year on year 18.1% above the expected 15%. But quite frankly, it's not really a market mover for this morning. And then Biden obviously is key. And then as I mentioned earlier, Powell is speaking at 5:30. But just as I wrap things up, I can see there's a little bit of dollar movement just backing down a little bit. I can't see anything on the newswires that's come out, but yeah, just so, euro-dollar and cable in fact are just coming off those initial low areas. So protection so far for those support levels we were just looking at. Um, again, oil as well just breaking out above that pivot and overnight late US session high. I'm going to leave it at that. I'll see you all in the Discord room. Look forward to live streaming throughout the day. And if you're watching this on YouTube, I really appreciate it if you could like and subscribe to just help build out our community. My colleague Eddie, who you're probably familiar with, he's going to be doing a video about what to expect from the US bank earnings, which are due tomorrow. We'll be putting that out there to the public later on today. All right, have a good session, guys.