Markets Bounce But Will It Continue?

Okay, very good morning to everyone. Tuesday, 3rd of March, Anthony here. Good to be back and going to talk over a couple of key things to think about for the session ahead. And then as per the normal routine, Sam will come on and look at the markets from a more technical perspective. But obviously I was out of the office on Friday and yesterday, and I just wanted to have a bit of a, a stock take on things, a look at a few different areas as well of things to be aware of, because we've had an almighty ride over the last week or so. And I know Sam did a good job putting this into perspective on Monday, but I just wanted to reshare and kick things off with this graphic again because it'll probably help make a little bit more sense why we had a somewhat 1,300-point bounce in the Dow yesterday was because if you actually look at the severity of the sell-off on the week-on-week change in the S&P from last week, there's only been a handful, in fact 5 occasions, where we've sold off more than what we did last week. The financial crisis, the dot-com bubble, Black Monday in the '80s, Hitler invading France, and the Great Depression itself. So, you know, context, looking at historical size of price movement, last week was fairly unprecedented in the sense that, you know, this is looking at pretty much 100 years worth of price activity, and you're talking about, you know, monumental historical events of when the last time the market have moved so much. So a little bit of a bounce from those lows certainly was of the order yesterday and this is just a look at the major US equity gauges all climbing 4% or more. It's the first time that's happened looking on this graphic here on Bloomberg going back since December of 2018. And you'll remember what happened in December 2018. That was when the market was getting hammered through Q4, kind of a process of fears about synchronized tightening at that point of global central banks in terms of their rate policy with the escalation of the trade war saw that big shakeout in the market. However, as soon as the Fed kind of said they're gonna stand pat and China started opening up the various arsenal of fiscal and monetary responses, markets spiked back aggressively. And so similar type price activity of which what we saw yesterday. In step with that, as you would expect, all oil as well, moving in tandem with that move and reversing some of the significant losses. I mean, I did see that price chart. So as we'd been looking at for a number of weeks, there was kind of that key threshold in oil that we saw breached last week, of course, which was kind of just around that $50 level, that kind of summer of 2019 low. As soon as that broke, you saw that run down in price. what we had last week. So a bit of a bounce. We're trading up about a dollar at the moment, just short of the $48 handle, uh, with the DAX already up in the futures about 175, just taking the lead from the positive close obviously on Wall Street and the feed through into the Asia-Pacific session. One of the things that people are looking at this morning is this talk about the G7 and there was quite a lot of whispers at the end of last week about some kind of coordinated central bank response, just given, as I've said, the historical size of that sell-off that we were seeing was phenomenally large, and it's very rare that you see such persistent selling. And really, certainly in my career, the only time I can remember that was in the depths of the financial crisis. And when you do get a run on markets like that, typically it's, it's born out of fear more than anything else. I think that certainly is what gripped markets last week. But what's helping some of that bounce and what's going to be quite key going forward as to now today and also the rest of this week is what have the G7 got to say. Now, the last time that there was, from a central bank's point of view, a global coordinated rate cut I do remember it quite vividly because I remember I was covering the US desk at the time in my previous job, and this was back in March of 2011. And you'll remember March 2011 was a really big year, or big period for markets, because that was when that catastrophic earthquake hit the northern part of Fukushima, and that then caused massive devastation at the time, big market movement, and so in an attempt to ward off any economic downturn from that event, we saw a synchronized simultaneous global interest rate cut. So it included the likes of not just the BOJ but the ECB, the Fed, the BOE, the SNB, everyone else as well. So that type of thing, as I said, is incredibly uncommon. And one thing obviously people have been looking at is I don't think you're going to see— I think the likelihood of a, of a, of a synchronized move all at the same moment in time— back in 2011 when they did that, it wasn't as part of any type of meeting. They just all did it at the same time. And if I remember rightly, it was around midday London time. Talking of midday, well, that's when the G7 are going to be meeting. So the G7 finance ministers basically, and the heads of central banks are going to be meeting today on a teleconference call. Now, this report is suggesting that drafting a statement on how they plan to soften the global economic hit of the coronavirus, but importantly, are not yet making specific calls for new government spending or coordinated central bank rate cuts, according to a G7 official. This, of course, comes after the likes of Uh, the ECB, Christine Lagarde, late yesterday, uh, said the outbreak is a fast-developing situation which creates risks for the economic outlook and the functioning of financial markets. She said, we stand ready to take appropriate measures and targeted measures as necessary to help address these underlying risks. So a lot of that yesterday from Lagarde. And if we were to look at this as well, I was looking at the FedWatch tool. Don't ask me why, but on my day off. And one of the things here, once it loads up, that I thought was— I still can't quite get my head around it, but you know, you can't fight what markets are pricing. Markets are 100% priced for a 50 basis point— 50 basis point, not 25— rate cut from the Fed in about 15 days. And so all of this, again, as I was saying, is this idea that they're going to take a proactive, coordinated, some type of approach. However, overnight, what I think might be a little bit of disappointment from this Reuters exclusive is that according to these sources, they are not yet going to make specific calls for new fiscal or monetary responses. If that is the case, well, just a little bit of that relief, if you like, from yesterday just fade a little bit. Yet to be seen. 12 o'clock London time is when this is going to be happening, so 6 AM in the morning in Chicago, 7 AM in New York if you're watching it from the other side of the pond. So key thing to look out for. One of the things though we've already had is the RBA, the Australian Central Bank. They have come out overnight and they've cut interest rates. To 0.5%. Lo, the governor says the government's to assist most affected parts of the economy. Difficult to know how large or long-lasting the impact will be. So very much the virus right square center, given around a third of all of the exports that come out of Australia go to China. If they've been significantly hit economically, that's going to reverberate and impact Australia directly. that as well in context of the already weak economy. And this was even before the bushfires, which are also going to have a meaningful effect as well. So first of the big ones, you, you could say, of the major central banks to lead the way, and the RBA have cut, but they've only really got about room for one more until they're pretty much at the lower bound, and then they're going to have to start looking at things like QE, which they've not gone into before. 4. So this is one of the biggest, um, I guess, frictions within the various different councils on the central bank level, is interest rates already really phenomenally low, uh, X-ing out the Fed. Then if you look at the likes of the BOJ and the ECB, there really isn't a lot of wiggle room. So I would suggest there's probably quite a lot of resistance to taking any immediate type of action at this point. Remember how central banks operate? They've kind of hinted, almost verbally intonated towards policy action, and the market responded yesterday. As long as they can keep that response going, lesser need then to take real physical impact. So I think perhaps the strategy might be that by calling this teleconference with the G7 finance ministers, with all of the heads of central banks, gives this— the market a a sign that these powers that be are being proactive, they are willing to act if needed, and is that enough in itself to alleviate the pressures and the nervousness in markets to cultivate a bit of recovery? If it is, then I don't think that you're going to see this kind of cross-the-board coordinated action. And that's not to say as well, the thing I was talking about in my weekly piece on, on Sunday night, if you did read it, was about this idea that there's a lot of politics to manage as well. And to think that a fiscal kind of silver bullet is going to be forthcoming, I think, is a little bit wishful thinking when there's other narratives and objectives to manage in a lot of these political situations in the likes of the US and elsewhere in some of the mainland European countries as well. One thing that I thought was quite interesting from the news this morning was this. This was a Bloomberg report and it was talking about hedge funds and it was basically saying, and obviously this would be, you know, the idea or the analogy of trying to catch a falling knife, but the data suggests that hedge funds kept buying the dip in stocks towards the end of last week despite the large rout that we had. Hedge funds that make both bullish and bearish equity bets bought the dip last week as markets plunged into a correction. Fund managers were net buyers of airlines, hotels, and restaurant stocks. If you remember, those three specifically are the three that have really been hurt on the back of the coronavirus-induced selling that we've seen, you know, particularly the airliners, the whole, the kind of containment areas that have been put on lockdown, the fearfulness of then further transmission of the virus has meant that those sectors have been beaten down, uh, badly. Which, does that add value? And according to these hedge funds, it does. So, you know, quite an underlying interesting, uh, thing being observed there from the, the real money in the market. Um, just quickly going back to OPEC. Not forgetting as well, not only have you got this G7, uh, conference call happening at midday today, you've got the OPEC meeting happening on Thursday and Friday. Now, to give you a flavor of what to expect from that meeting, all but 29 of the analysts surveyed— so an overwhelming majority— predict that OPEC and its allies will announce new curbs with an average expectation of 750,000 per day additional cut to their production quotas. So that number has gone a little north, as I guess people are expecting that really they've got to go with a little bit of a further or deeper cut than before when it was talked about at 600,000. Remember when we initially got close to threatening that $50 level a few weeks ago? They said about 600,000 cut at their technical meeting, markets bounced, now they got to do more. Otherwise, the market will be disappointed and it's going to be a self-defeating move because if the markets are disappointing, they're still cutting production and they put their back against the wall. So they've either got to go kind of go big or go home in some respect. Anything short of $750 is going to be a bearish probably outcome for oil. Anything north of that, a million plus, we'd probably get a little bit of initial kick higher. How long lasting, though, is questionable. Because ultimately, as we're going to see in forthcoming economic data, it's probably going to show that consumption is going to dwindle over the course of the coming months as the hopes of a V-shaped recovery are probably a little bit of wishful thinking, particularly given how shockingly bad that Chinese PMI data was. I'm sure you saw at the weekend. The other thing I wanted to mention before I give you To Sam is this. Today is Super Tuesday. A quick overview of what does this mean. I don't want to talk about it too much because the coronavirus and the ensuing sentiment implications on that is still the main story. However, you're probably going to see a lot of headlines on this later today and certainly tomorrow. So the reason why it's so important is this is a map of the United States. Of America, 14 states will vote today, Super Tuesday. Now if you think about it, what have we had so far? We've had these other area caucuses. We had Iowa, which was a surprising win for Pete Buttigieg. We then had New Hampshire, where Bernie Sanders performed well. And what have we had, and why is this important? Well, if you think about not just the number of 14 states being you get the kind of super states, i.e., California and Texas specifically. Now, a couple things to think about: Super Tuesday accounts for about one, uh, more than one-third of voters who elect their delegates. And so if you perform particularly well today, then that again comprises of pretty much the bulk of them getting your, the nod to be the Democratic representative. Going forward for the president— presidential election at the end of the year. Now, a couple of things. Biden, who was looking really bad only a few weeks ago, he was severely lacking in the polls, has made a sharp comeback. And why is that? Well, he's taken a bit of boost because Klobuchar and Buttigieg have both pulled out of the race. Now one thing I was talking about in my kind of weekly strategy piece about 2 or 3 weeks ago was the fact that you have a very splintered center in the Democratic Party, which meant by default then Bernie Sanders was taking a lot of gains out of the fact that the centrist vote was split, meaning that there was no credible backing for one candidate to go against Sanders. What's happening now is Klobuchar and Buttigieg pulling out, they've now both backed Biden, and that's a big game changer actually for what could happen today. Now looking at this, here are the polls looking ahead of Super Tuesday, and you can see Bernie Sanders still well ahead, but just check out California and Texas, the two major areas that will be under the spotlight today, and look at Biden. Biden's taking a sharp blip on the upside to now move into second, where pretty much he was more like fifth place before. And this is because now it's almost a strategic move from those more, uh, center type of politicians in order to back a more credible candidate in Biden, who's probably got a better chance when then going against Bernie Sanders. When you're talking about particularly older voters in the Democratic Party. Now what does this mean? Well, Biden is probably the worst case for Sanders, obviously a well-established and well-known politician, and you can see as these latest moves have happened, the bookies' odds have narrowed, Sanders taking a hit and Biden jumping, so we're seeing the two drawing in towards each other. Whereas check out Mike Pence, and this is a really great strategic move from the, the kind of marketing master, which is Donald Trump, of course. So you probably would have heard that Donald Trump has nominated Mike Pence as the Corona Czar. That pretty much is like a poison chalice. Because now if you're Donald Trump, think about the strategy. If coronavirus becomes an issue and grows, let's say numbers of confirmed cases and deaths in the US increase, well, it's not my fault, it's Mike's fault. So I'm sorry, Mike, you got to take a hit for the team. And so this is an absolute stroke of genius from Trump. He's basically just laid it on Mike Pence's table, and unfortunately Mike is gonna have to take the hit on this one for the benefit then of Trump disassociating himself already from any virus. You know, this is what Trump is extraordinarily good at, is trying to pass on the blame. The other thing, of course, is the blame on the Federal Reserve, and this was some of Trump's tweets. He was tweeting actively only a short while ago And who is he tweeting about? Australian Central Bank, of course. He said the RBA have cut interest rates, stated it would most likely further ease in order to make up for China's coronavirus situation and slowdown. They reduced to a record low. Other countries are doing the same, if not more, whereas our Federal Reserve has us paying higher rates than many others where we should pay less. And then he finishes here Jerome Powell, led the Federal Reserve, has called it wrong from day one. It's sad. So again, Trump being particularly active where he's putting himself strategically in a position where it's win-win. The market recovers, all good. If it doesn't, it's Powell's fault. If the virus then slows down the US economy, it's Mike Pence's fault. Trump wins. So, you know, what does this mean for intraday markets? Very little. But I just wanted to show you that, you know, at the moment Trump, in my mind, still looking rock solid in order to capture a second term at this point. And that is even irrespective of whatever Super Tuesday throws out. But just keep an eye out for, for Biden tonight. It's really Biden and Sanders. And so let's see whether the backing of that more credible candidate— or let's say, I say credible, I'd say more established candidate in Biden— makes it, makes a difference to then try to bite into Sanders's lead. All right, a quick look at the calendar for today. What have we got? So this morning you've got the UK construction PMI coming out. You've then got the eurozone flash CPI that will be a watched number. However, midday is probably going to be a big one, and that's when the call begins. Now, I haven't read too many other details other than that, but what I would say is that you want to be vigilant probably from midday till 1, and that would be any outcome of that meeting that starts to get leaked via financial news services like Reuters or Bloomberg, but also via Twitter, any noises that come out of that. And the way to kind of think about it is my base case scenario, I don't think they're going to talk about any specific details. The question is, does that disappoint markets after the strong bounce from yesterday or not? I don't think it will a great deal because I don't think you can expect them to really commit to too much at this point. But the fact that they are talking and having these discussions, I think, is positive enough. So let's see how that plays out. And I think the technicals and what Sam has to say are going to be quite key to playing out today. This afternoon, for the US session, not too much in major data. You got the API inventories later on tonight, as usual, a couple of speeches. Bank of England's outgoing Governor Carney does speak, but really not too interested in what he has to say now, obviously. Andrew Bailey is the main man. And then this afternoon and this evening, a couple of speakers for the Fed, not until much later, Fed's Mester and Fed's Evans. All right, gonna leave it at that. Let Sam come on. Wish you guys a good day ahead. Thanks very much.

Hi guys, good morning. Hope we all had a good Monday. Is the recovery on? Oil up to $48, I saw this morning. Uh, Dow up nearly 200 points as of trade right now and just testing the high that we had overnight and yesterday as well. The dollar just recovering a touch after getting hit yesterday in, uh, in early trade throughout that morning. So a quick look over at the S&P just to begin with is this level we're testing now, 3100, obviously the handle, but also the low that we had back on— what day is that— the, the 26th, the high the next day, the high of overnight. I mean, that's a pretty important level and a good line in the sand, really, you know. I know I use that word a lot, but if we can get through there, it's, uh, from a technical point of view, what I was saying yesterday, that, you know, you know, price can lead sentiment. No better guide. If we're above there, well, a little argument before any fundamentals come into play where you would say the bulls have won that. But 1, 2, 3 tests now, we're holding up there pretty, pretty perfect. To the downside, 3050, the low of the morning along with yesterday's original high around 330, uh, going to be an important level. So 3037 and then 13 points above that is going to be your zone to, to the downside. I would say you'd want to keep an eye on I guess with moves like this as well, probably worth getting on the, uh, the Fibs from the previous all-time high if you're that way inclined. Let's just have a quick look where we're, we're trading on that. The 50%, just a bit above, uh, there as well, um, went through the, the 3.82 as if it wasn't there. I think that gives you enough reason to perhaps remove those, uh, on for now. But keep an eye, uh, on this whole level as we're going through the morning, uh, and of course If we do get through, just be aware that there are a few levels just a bit above there from those previous days, most notably on the 27th and 26th as well. Obviously big ranges yesterday in markets. I think the Dow, the, the bottom that we had in early trade yesterday morning to the highest price— to get my maths tested here— it's almost 2,000 points, which is just bizarre. But have a look at this level as well here. It's exactly the same. It's your lines in the sand that you need to have on. Breaks of that, well done to the bulls. If it's, uh, held, the bears have, have got a small victory, and you could look towards those lows of the day. But at the moment, testing that. Just have a quick look over at Europe just to, to get a guide perhaps what may happen. The DAX has exact— I mean, this is, you know, find a more correlated market in the world right now than scenario than what's going on right, right now. You can see yesterday's high, there's the low there. If we can get above there and close above, you've got to imagine the US equities are also going to be doing the same thing. Not to say that they're completely out of the woods, of course there's quite a lot of resistance just a bit above. I like the look of this low, the 26th, in the DAX as a potential place where people could look to take profit as well. Oil You know, you could argue, I mean, people that, that, you know, were brave enough to take on the, the oil long yesterday, fair play to you. I mean, you know, you're in a position now where, you know, it's not going to spike you out, uh, off any sort of OPEC headlines, and you could be pretty comfortable probably making this risk-free now. And the thing is, you could hold this. I mean, I remember I was saying last week, uh, just about the, the 50/50 level, and You know, my longer-term bias of a trade, if we can get above there, is that we can get towards $60. So I'm happy to be, be late, and it just happens that I'll be $7 late on this trade. But I'd, you know, I didn't trade yesterday, uh, at all. Didn't really want to get involved in the first day of the week after what last week was, and, and that's absolutely fine for me. And for oil, I'm only really interested if we can get back above that point. However, a couple key levels to, to be aware of. Just on the R1 today, you've got a little breakdown area from the 26th and then the highs of the 27th evening. You know, mark that up around $49 as well. To the downside, pretty much the low that we just made, you can see, was yesterday's original high as well. So there are, you know, some very key support resistance levels that are being respected very well. Yesterday's original high then was the low that we had Yesterday evening as well. So very technical, these markets, uh, even though driven overall by fundamentally what's going on. You can just see how well respected these levels are, uh, just like you saw yesterday evening and then again this morning on all equities as well. Moving over to currencies, have a quick look at the dollar, which— put this onto the daily chart, you can just see how, how strong I'm just going to remove the pivots there. How strong that recent push was to the upside. I mean, this time yesterday I was talking about how I'd bite your arm off for this level here in the euro. We are now just a bit below that. Is that going to be the false breakout? I guess it'll be interesting to see where we finish the day. Uh, there'll certainly be arguments there to say that this is now an opportunity to get short and potentially looking for us to drift back down towards 1.10 as well. If we bring in the, the trend channel, that is sort of guided price, albeit roughly, with a few false breakouts. Let's have a quick look to see how, how that is traded. I mean, it's, it's choppy, it's choppy, but certainly, uh, an area now where the bears will start to get interested, uh, again. I think for, for this trade to— let me just put the pivots back on— to, you know, potentially for later on, what you could perhaps want to see is a clean break of this zone, because obviously there's going to be a lot of support around there, to then come back to it for that to be a resistance level to target, yeah, 1.11, the handle, and then some of these lows from before. But if the, you know, the, the, the bulls, you know, like the look of it— where we finished yesterday was, was relatively, you know, above this level, albeit just— uh, could be an opportunity for them to get in. However, I do prefer that we start to now just drift down a bit, uh, for the, the euro pound. Let's put that on that, that daily chart. It's, uh, it's certainly battling around all these levels, isn't it? I mean, we, we've seen yesterday how that low that we made— is this down the opportunity to get in for a more medium-term position? Uh, I would be happy to, you know, what I was saying, we'd be happy to be in that with the stop just below. If it goes below there, realistically it's— it has then got the legs to run down to the 126 area. So I think from a risk-reward perspective, it's, it's pretty nice. Stop just below the 127s, initially targeting up to 129, this area that we had a support. And if that goes, then fantastic, we can get a bit of a push through. Ultimately, with this week, with the, the Brexit comments, uh, going to be firing on all cylinders. It could be one that gets stopped out before it eventually works anyway, which would be frustrating. For those that prefer perhaps the opportunity to get short and look for those breaks, there's going to be a couple of trend lines that are starting to appear. You can see here almost making that third test of that from the low that we had from yesterday. So keep a watch on that. Of course, if that breaks through, we can get a further run down and start testing those lows that we had from the end of last month, uh, as well. Bit of UK data out this morning, expected under 50. Fine, not really expecting too much, uh, a reaction from that, to be honest. To the upside, when will I start to get excited again? Well, we couldn't quite break above the 128.08 level, and you can see the importance of this yesterday. If we're above it, we find support for the push higher. If we're below it and fail test, then the bears take over. So keep a watch on that. I think that's, you know, important enough. And also the R1 yesterday evening's afternoon high as well, before a really key level which around that 128.70, which I would say is that first real target to look for from a medium-term point of view. Gold, little recovery this morning from the, the lows that we made last, uh, last night, but it's relatively range-bound to a compared to a lot of the, the markets. I wouldn't be surprised to see us drift higher, um, over the course of the week towards this $1,620 level. And I think that's going to be very key to see overall how, you know, gold does go. If central banks are going to be ultimately dovish today and even more so this week, then gold could be that opportunity for us to see a move towards that level. And then you're gonna get just people looking at this from, uh, well, it was such a good support till we broke down Friday. What's the reaction that we're gonna get from there? I could argue we're just getting squeezed in for now, but I would just wait for, you know, the, uh, the move to come later on, the news to filter through. You can just see here it's not the best in the world, but we are just getting squeezed from both directions, and probably worth having that on for now. just to see how we, we pan out. Quick look over at equities, which are just testing that level now. Can we get the close above there? That's something, you know, we're really going to want to focus on. The Dow just trying to get above the, the DAX, not far from its level. S&P, I imagine following the Dow, is yet testing that now. Key levels being tested here in equities. If we can get a push above, it looks like the bulls might have just done enough to to see the lows, um, in— well, I guess until midday. Um, hope you all have a good trading day. Any questions, as usual, please do let us know in the, in the chat. But if I don't speak to you, I'll catch you all later on.