Markets Continue to Rise Despite China Lockdown

Okay, very good morning. It is Friday, 24th of January. Gong Hei Fat Choy to any of our Chinese viewers, wishing you a pleasant New Year celebrations going forward. And obviously thoughts go out to those on the lockdown at the moment. Hope everyone is safe and sound in the mainland. Because that is generally the, the still the main dominant news subject. However, as it has been for really the second half certainly of this week, it's not really been that much of a market-moving situation, at least for the moment, for other Western kind of based assets. Certainly the closer to home in the geographic region of China, local equity markets have felt a bit of pressure, but because of the Lunar New Year holiday celebrations The Shanghai market closed, Hong Kong had an early closure. This is all normal formalities going into that holiday period. So this, this is the headline you're seeing this morning. Essentially, China just widening the net of the kind of lockdown. 30 million people now are being covered. One of the main things that we did see, which is maybe had a slight degree of relief, at least for the time being, is that the World Health organization, the WHO, stopped short of calling the virus a global health emergency. However, apparently the board that made that decision, that the vote was pretty split. But all in all, it, it has, uh, the situation escalated to some degree. But the point being is, from a market's perspective, not aggressive enough where people have started to panic, despite reports yesterday, of course, that following the US earlier in the week. Apparently there's some people who have contracted that disease as well in— or virus, I should say— in Scotland. The actual number of confirmed worldwide cases now resides at 848, deaths worldwide at 25. Still though, you know, one of the other things as well perhaps that has created relative calmness on the issue on a global scale is is that in terms of the actual demographic of the age and health condition before contracting this virus, predominantly are very old and have pre-existing conditions. So younger people, some of the reports I've read have said to have fared better, those in already a good position of health. So it's pretty similar really to a normal human reaction to, to the common flu in a sense that, as I've said before at the beginning of the week, I think in the US on a seasonal period, tens of thousands of elderly people per year would die from just normal flu. So it's, um, it's definitely— they are more susceptible. So the fact that these things are still, I guess, to be monitored, I've got to remain vigilant, of course, about any further episodes. An interesting comment that you might have saw that I tweeted yesterday was about this idea that And generally speaking, now a lot of people have been looking about the economic ramifications that this could have on the Chinese economy, particularly given the fact that it's only recently really stabilized after being through a period of pressure to the escalation of the trade war for much of 2018, 2019. But that being that, well, okay, yes, the economic implications could be consumers might not be confident, they aren't— don't have an ability to go out and spend spend or go to work. But has behavioral, you know, consumption changed? And actually, with everything being done online these days, comparative then to backtesting against Ebola or SARS and these other historical events, you know, is the impact going to be as prevalent? The other thing is, because of those previous viruses that we've had on a larger scale, authorities and governments now should be in a state of better preparation. But obviously somewhere like China, with, as you can see from this graphic, with a monster population, I mean, they've only locked down a couple of cities, but cumulatively over 30 million people. I mean, you're talking about what, 40%, 45% of the entire English population, and that's only just a fraction of the population in China. So yeah, maybe the size, but the other thing, and I think the thing, the reverse of of the situation I've said about perhaps this time's a bit different because of the behavioral changes and shifts to online purchasing from consumers. The other thing is consumers, or, you know, the population now, are heavy users of social media, and that wasn't the case when SARS broke in 2003. Obviously, things like Instagram, Twitter, and all these types of things. And so is there an ability to spread amongst the population, and enough fear breaks, then that can transpire into something more meaningful in terms of perception. And if that switches, well then regardless of numbers, this does become an issue. So yeah, there's a few things to contemplate, but for the moment the market is taking it in its stride. And if we have a quick look, although the Dow did finish yesterday negative, have a check out where the US equity index futures are trading right now as I speak, right on cue. The Dow, S&P, and the NASDAQ just printing fresh session highs. So yeah, pretty, pretty V-shaped performance from the Dow yesterday. A lot of people were saying, well, look, this is the US's interpretation of what seemingly was a bit of a further expansion of the, the reach of this virus. However, once again, that kind of buy the dip, and timing-wise, quite a familiar pattern. It coming after the European cash close, the Americans taking over and ramping it up into the close to reverse course quite aggressively. NASDAQ again, record highs. So we're back into familiar territory once again, and I'll let Sam go over those charts. Bit more, a bit more from a technical perspective in a moment. But otherwise, for the open this morning, there really is not a great deal for me to say. Um, in terms of the currency markets this morning, the euro has held on to the losses that were seen yesterday. Uh, my, my kind of overall assessment of what we heard from Christine Lagarde yesterday was that I didn't really think I heard anything that was spectacularly dovish, but obviously the price would reflect something of that nature. But I would say a lot of that price movement, as we were discussing it, it was as it was unfolding yesterday, I think a lot of it was technically driven. The way the chart was setting up initially on the break of the prior day's high— or prior day's low, excuse me— and then the snap lower and the way it was moving at the time, I think definitely was more reflective of potentially a technically induced move, perhaps with a catalyst of— there was, remember, slight misinterpretation of the way she was connecting low rates with low growth, and it was almost like that was an ignition then for those technical trades to play out. Sterling really flat at the moment, as you've probably heard. Still the normal formality process going as per plan. The senior officials in Europe say signing off on Boris's deal after the same case happened with the government earlier this week. So all remains on track for the delivery by the 31st of January to move into this implementation phase. So no reaction, as you would expect. Focus very much there for the pound today turns to this, which is the UK PMI data. So this is the flash manufacturing and service numbers. These obviously particularly important because people are looking to try and see— and let's just get it up actually right now, uh, BOE CME watch. So markets are pricing essentially around a 50-50 bet between what is it that the Bank of England are going to do next week on the 30th. So it's a 58% now probability that they're going to cut rates, but but this is right on the fence. And so all the more meaningful today's data will be for us to make some kind of assumption about which way to tip the balance. Are they going to hold or cut? And so that data at half 9 will have implications for the pound. Expectations are on the manufacturing. If we quickly jump back to the UK, remember, manufacturing in the UK has been in contraction for several months. I mean, we've been below 50 ever since May of 2019. So a number below 50, I don't think is surprising. The actual expectation is for a slight recovery up to 48.9 from 47.5. The top end of the range actually is a 50 print, but as per normal with UK data, particularly with the PMIs, it's not so much about manufacturing, it's more about services. And that's where things get a little bit more interesting because Yes, we have dipped on occasion below 50. Service is obviously particularly important for UK growth, but services has more stagnated than contracted like manufacturing has. And here the expectation, the emphasis will be on services, and the Street is looking for an improvement back up to 51. Now if we get a 51, which is the base case scenario on the Street, that puts us back in services highest level since the summer of last year. So that could well put to bed any fears about an imminent cut, and perhaps then we start to see a shift back towards the idea of them holding for the moment. A lot of people— I guess it's a pretty split argument in terms of what would be the most prudent and correct course of action, because at the moment still a lot of uncertainties around Brexit, of course, and Although next week is, as I said, somewhat of a formality. It's about— we're still quite a distance apart between the UK and Europe at the moment. So do— does the economy require preemptive action to cut now, or is it better to wait, save some bullets and ammunition for later on down the road, given the fact that most likely we're going to go through a period of heightened political uncertainty before we get any type of compromise and agreement, possibly? So that's happening at the same time. Something to be aware of is that Jonathan Haskell is actually speaking the same time the data comes out. Now, Jonathan Haskell, you remember, is one of the dissenters who has already called for a cut. So probably one of the lesser interesting NPC members to hear from in this situation because he's already really shown his hand by calling for a cut before. I'd want to hear more from the neutral members—whereabouts are they at the moment—or in fact even the hawkish ones. If they're bringing more back towards the center or center dovish, then it's almost a done deal that they're going to cut. So data particularly important. And on the flip side, the PMIs are coming from the eurozone. So, um, probably while I'm still on the mic, we're going to get the French numbers. So I'll bring those to you when they come out momentarily. But the German number on the manufacturing side obviously is going to be particularly important. Uh, this kind of there's a strong correlation between future ECB action and the performance of the German economy, of course, given it's such a pivotal component of how the eurozone as a whole performs. This is what German manufacturing PMI looks like at the moment. You know, this is heavy contraction. Let me just transition my screens. This has been a particularly weak period for Germany. The latest reading pointed to the 12th consecutive month of contraction, basically, in the sector, with makers of investment goods noting the worst performance, followed by intermediate good producers. The decline in production accelerated for the first time in 3 months. The inflows of new business fell for the 15th month in a row amid uncertainties around trade and global economic outlook. Employment fell at one of the quickest rates in over a decade. I mean, I could go on. Basically, it's not good, in short. Uh, and, and in some respects, this does hold the key as to, uh, to try and think further forward in the future of whether or not, uh, and when the ECB is going to take any further action. So this number is going to be important. Expectations are for the manufacturing flash PMI in Germany, 44.5, so maybe a marginal improvement from where we have been, putting us back up towards the again, similar with the UK in the summer period of 2019. The range there on the German data, 43 at the low, 45.5 at the high. French data coming out in a second. You get the similar figure as well, the same data set coming out for the US this afternoon. So in addition to just generally how indices are performing at the moment as we reside up at all-time record highs in case of the NASDAQ at least. We're also going to have this data point coming out 2:45 London. Uh, the US figure has been showing a bit of a bounce actually, this looking a little bit more healthy, uh, for the moment. And that is expected to come out on the flash reading at 52.5, so holding basically steady of the last 2-month pattern. Uh, the French numbers just come out then, so the service number in France 51.7, below the expected 52.2. The manufacturing 51 above the expected 50.6. So basically a split. You've got a slightly higher than expected manufacturing number and slightly lower on the service side. So, I mean, just looking at the charts, you're not going to get much reaction out of that. That, I would think, was well within ranges and mixed data. So no real definitive clear clues at the moment. But that is pretty much it. I don't think there's any need for me to show you the calendar because you've pretty much seen it. The only other event I think that you need to be aware of is Davos. Christine Lagarde is speaking right now as I'm delivering this. She's skipped over to Switzerland and she's now giving her global economic outlook. Today she is speaking from 10:30 AM, and this could be one to watch. You've got Christine Lagarde, US Treasury Secretary Steven Mnuchin, the German Finance Minister Scholz, the Bank of Japan Governor Kuroda, the the UK Chancellor, Sajid Javid, and the IMF Director, they're all speaking on the same panel discussion from 10:30. So I'm not expecting actually any market moving, but these are some serious players on a top level who do have the ability to move markets. So definitely worth tuning in for. But yeah, overall assessment from me for today is perhaps a little bit of relief, uh, the World Health Organization stopping short of calling this an all right all-round global health emergency situation. Uh, yes, China locking down further cities, looking to contain this, but a lot of that in my mind is preemptive. Don't forget, we're going into one of the biggest, uh, flux of travel globally that happens seasonally on a year basis as we have the Lunar New Year holidays. So a lot of this is just trying to be as proactive as possible. The actual increase in the number of cases I think is in in a controlled manner at this point, but obviously still to be, to be monitored for sure. All right, I'm going to wish you a good weekend. Um, don't forget my Twitter handle. If I quickly just go here, on a Sunday of course I'll put out the calendar highlights, and as per you might have seen last week, um, I put out a short overview as well for my view on the week ahead. So do, do check that out if you need it in preparation. Otherwise, have a good session. Uh, and I wish you a great weekend as well. So thanks very much, guys.

Hi guys, good morning. Let's have a quick look over some of the markets as we come into the last trading day of the week. And just gonna bring in oil here because yesterday we, uh, had another day where we We pushed aggressively lower in the morning into the afternoon, and now we're— we came to that $55 handle which we were talking about in the briefing yesterday. Is this going to be a short-term bottom or not? It absolutely remains to be seen. But that whole area just around here, you got those lows from November, December, the trend line that started back on December 2018, pretty key level. Decent enough reaction yesterday. Day off that 55 handle. You can see decent push up, up nearly 100 ticks or so where we closed the week. Evidently will be— it will be key, can we hold on that price or, or do we push lower into the back end of the session and actually get below there? And that could lead to further selling. The move to the upside, you can see these lows that we broke down a couple of days ago, if draw just a quick horizontal line there, 57.74. Above there would be the period where if you're short, you'd probably want to exit this position, uh, I would say. But for now, oil, let's just go 60-minute. Let's have a quick look. You can see just struggling to get above its higher of the day, a double top there, nice resistance from yesterday. You can see the— when we did break through this 56 handle, we tried a couple of times to get above it and couldn't. 1, 2, 3, 4, 5, 6 times now. So the seller's coming in quite nicely, uh, around that point. Let's have a quick look, see if we have any trends to, to be aware of to the downside. Nothing amazing by the looks of it. Potentially this one here, actually, that's not too bad, comes in with a bit of the low of the morning. So if that was to go, could that ignite the, the further move to, to the downside? We'll have to to wait and see. European, uh, data coming out, the German in, in 10 minutes, and then the, the euro as a whole in 40. So be careful if in a euro position. Obviously a decent move lower yesterday here, trading back at, you know, early or late November, December levels. Decent enough bounce off that horizontally, looking just a bit above the pivot, and you can see around 1.1130 13 on the futures. Quite a lot of previous support there that if that was to come and get retested at some point, you can imagine there'd be a decent enough area where people would look to get short. A couple of fibs as well. Yesterday's high to low, you can see in the mix there is the 50%, uh, which again, as technicians will, will like the look of perhaps as well. Data's good, then of course we can get— we can push above and that could lead to a bit of a relief rally into the end of the week. As with the pound, this data release could be quite important if we are to have ultimately quite bad number from the euro and the selling pressure continues. Well, where the next key levels on the daily— you're looking really at areas we traded early December on the daily chart, 1.1045, 40 ticks below or so. I don't think that's completely out the question on the longer term charts as well. Worth getting some of these trends on just to see if they look like they could come into play at some point. A fair bit away for now, but you can see here after breaking that support, all we did yesterday was come back to retest it and now we're back lower. So it's as easy as that, right? Obviously not quite. You're, uh, the pound here and your trend line, just the, uh, just the 150 pips higher uh, there and actually almost made the 200. Uh, pretty key release here, 50/50 at the moment, you would say, for the, the Bank of England. Good number, uh, we perhaps look to avoid that bad number. Well, from a technical point of view, I'd be looking for this to correct a touch to the downside after a decent push higher. So, uh, I would say, you know, in, uh, looking back at the previous months where the, the pound hasn't really reacted too much to data Uh, it could well do so now. And just having a look at the, the way this is traded from drifting lower from Wednesday's high, 1, 2, 3 touches, you got your trend line there. Opportunity if the data is pretty much in line, and we're waiting for something else to happen. A break above that trend could lead to another push to the upside targeting the highs that we had back on, uh, the earlier part of the month. To the downside, uh, you can see here yesterday's low S1, obviously, uh, an important point along with these previous highs from the morning yesterday, and then Wednesday's high as well, uh, around the 131 handle would be an area to, to keep a watch on. Trend lines from the lows, let's have a look. I don't necessarily think they're that great. You can see we had a couple of times just testing it this morning to see if we could get that third test, but ultimately a couple of false breaks on it. Uh, with the data out in an hour, it could well be that this, uh, this, um, this is broken. Um, yeah, I, I like it enough as a guide, but we have to wait and see what the data does, uh, to be honest. But those would be the levels that I would look at, uh, there. Aussie dollar, uh, the data which, which got us higher yesterday, we reversed that completely. We're coming back to the pivot, which, you know, is the pivot. It's an area of resistance. But I would say more importantly, you're coming up to what was that neckline on the futures where yes, you could argue anyone short is stopped out, but should you have held it over the data? No. So this is now the next opportunity to get short around here for a push to the lows that we had of the month. And then of course, if I just move this camera to the right-hand side, that 10th of December low as well. So Aussie dollar, I'll be, be keeping a watch on that. Equities in the US, um, it's going to be probably another day of twists and turns. Viruses here, there, and everywhere. And it's just whether we can— you get a sustained move into, into the close, really. Uh, we yesterday, you can see we came down to the 3300, uh, handle. Uh, the area we talked about in the briefing would be the area where if you're a bullish, you want to defend, and defend did they do that. 3300 handle, now 33 points above that where we're trading now. Obviously got the all-time high and that resistance point one to keep an eye on. The Dow and the Nasdaq just a bit below there. Um, obviously Boeing has been up and down all week, mostly down, and, uh, however, a decent recovery, uh, from there, which, which did come to— let me just remove that, uh, this, this point here. So this is actually where I got in my trade, unfortunately, uh, on Wednesday, the 15th. Nice push higher, de-risk someone on all-time highs, and as it came down yesterday, it, uh, it stopped the remaining part in that position now. And of course what happened was it went all the way up. But, uh, we're not too bitter over here. But certainly intraday, it'll be interesting to see what happens. Would people want to hold positions into the weekend with these virus stories going to start to pick up a bit? Probably not, I would say, as well. Gold yesterday, on stocks coming down, did push push higher, but it's not above that resistance point that we had from, uh, from the 21st. So I think it's another one, this wait to see what happens for gold, uh, in terms of that close the week before maybe making a decision next one, unless that high goes. You know, we've got these trend lines from the lows as well. Gold just getting squeezed in, waiting for a bigger move to come. Just be patient and, and hold off for that. Uh, of course, last day of the week, so it's always interesting to see where markets do close. The morning is going to be structured by this German, European, and UK data, and the US numbers in the afternoon as well, along with these virus stories. I think it could be a pretty good day. So I hope you all have a good one. Any questions, please do let us know, and hope you all have a great weekend as well.