Markets On COVID-19 Watch As New Week Begins

Okay, very good morning. Anthony Cheung here, the head of market analysis at Amplified Trading. Hope you had a great weekend. Just a reminder, you can see my, my Twitter account up here and my pinned tweet, so my last tweet being the Macro Menu. So for those who are not aware of that, it's a piece I put out every Sunday evening which is basically my fundamental look ahead for the week. It does include the technical analysis video that Sam does, so predominantly my role here is to get you up to speed and talk about my views and thoughts about the latest news in play. But Sam does a great video where he looks at the technical setups across the different products and asset classes. And then on the YouTube channel as well, check out the latest video from Eddie where he talks about the latest retail phenomenon that is Robinhood and asks some interesting questions about is it really retail traders that are causing some of this equity rise, or is there something more kind of involved on the hedge fund side? Uh, that's quite interesting to, to find out as well. So check out the YouTube channel, remember to like and subscribe, and we really appreciate all the engagement as well from last week. So long may that continue. So let's have a look at the charts this morning and what exactly is going on. And we've got a bit of a— I would say from a sentiment perspective markets are on a bit of a knife edge at the moment. And not to dramatize that, but what I mean more so is that it feels like one kind of new headline here or there could tip the balance slightly. And much of the weekend news flow, as I will walk you through, is very much dominated by COVID-19 in particular. So we had a gap down of around about 1% or so in the S&P 500 futures on the reopening of Globex on Sunday night. You can see that then follows the downtick that we saw really when Europe left the market on Friday. Equity index futures in the US started to come under some pressure. We had Apple, of course, come out and said that they would again close almost a dozen stores in the US because of the recent rise in coronavirus infections in the south and in the west of the country. And although Apple as a company can survive, I would say, fairly comfortably by operating and advertising and branding its products then to consumers online, it's a pretty telling sign, I think, about maybe this degree of over-optimism about the process of reopening in the US, about how quickly that is going to be, about how much the market has factored in this aggressive bounce. And to that degree then, you had quite considerable selling pressure going into the close, and we actually managed to finish below what had been quite a key technical point around 3063.5, which was last Tuesday and Thursday's low points. So yeah, definitely for the kind of more traditional brick-and-mortar retailers, still seemingly, uh, quite an arduous path back to a degree of normality for sure, uh, going forward. So we gapped down overnight, but as you can see, sentiment did recover in the Asia-Pacific hours. However, it has soured once again slightly as Europe's come back into the market. So we're trading right back to that key, key level once again. So yeah, pretty decent move overnight in Asia. But one of the things we've— we've gone from quite a negative open to fairly positive recovery to now Europe coming in. And now it's interesting to see not only Europe but really when the US come in, how do they want to react to this latest kind of COVID updates. So elsewhere, gold, you know, despite some of the Asian move, actually gold was moving higher overnight. So continues to remain a pretty decent asset to be positioned in for the, the general risks on the table at the moment. And from a, you know, looking on the monthly candlestick, there certainly is an interesting area still in close proximity at the moment, which is up and around this 17, um, kind of 1775-90 mark. So obviously the psychological 1800 handle is just above, which starts to encapsulate some of the highs that we were seeing during parts of the European sovereign crisis. And yeah, we've rejected twice off that level. And so this, this week could be particularly interesting to see how we close here, because, you know, if we can get above this, this kind of key cluster of resistance here around 1,800, then certainly, you know, I, I wouldn't discount then a pretty rapid move up to 1,900 being the previous record high territory that we were, we were trading back in 2011 would not be off the cards for sure. Um, having a look elsewhere in the currency markets, the dollar index is kind of close to flat, down marginally 1/10th. And in the major pairs, kind of reflective of some of the other assets' general movement. So as equities were recovering overnight, the dollar was weakening in that kind of what we have been seeing of late which is kind of a tie to risk sentiment being something more positive. However, as Europe's come in, just soured slightly, and both EURUSD top left and, and beside it, Cable here have just come off down below their pivot for the moment. In Germany, the DAX, similar type price movement, the DAX futures currently down about 180, so well off its lowest levels, but has been fading slightly. The gains that were seen overnight running into some resistance around, as you can see here, the pivot level. But also that was a close proximity to that double top that we had from Friday afternoon and evening at around that same similar price point. In terms of the DAX movers, not too much of a surprise, I guess, to see the likes of Wirecard down another 40%. Um, their explanation of that 1.9 billion hole in their balance sheet still kind of coming to light, and the chief executive Markus Braun resigning on Friday as well. So even though they're a relatively small component now in the DAX, around 1.3% or so, that's probably the biggest individual stock mover within that index. Deutsche Telekom also a little heavier, indications down about 3.3%. In the oil market, finally kind of tracking, I guess, a little bit the equity move, we've got support near term in the form of the pivot level for the time being. Pretty seesaw price movement obviously that we had to see off the end of last week. And so, you know, where we go from here, I wouldn't really want to say, to be honest. Not so much again of an OPEC compliance type view, but more based on the kinds of sensitivity and fragility almost in markets to any further developments on COVID, I would say. And the implied nature that that would have on impacting the demand for these energy products, I think will probably be the telltale sign of how oil will perform for the week ahead. Um, getting up to speed then on coronavirus, what exactly is going on? And got to start with the US. As you can see here, this is looking at a US map of nationwide. So total cases now 2.2 million plus, deaths coming into around 120,000. And notably then, the shape of that 7-day average continues to move move higher. And California's new cases rose by a record as of yesterday, just over 4,500. Florida infections were up 3.7% from a day earlier, compares to around a 7-day average of 3.5%. So if you start looking on here, which is the, the kind of overall hotspot map of the United States of America, and this is looking over the period of change of the last 2 weeks The more red, then the more the severity of new cases that has emerged. And nationwide, cases have risen 15% over the last basically 2 weeks. Cases rising in 18 states across the Southwest and Midwest. 7 states have hit single-day case records as of yesterday, Sunday, and 5 others hit a record earlier in last week. So yeah, continues to see particular, you know, in this Texas area and Florida. But one area as well that you've probably read about over the weekend was Oklahoma. Why? Because it was the first time, you know, in this political campaigning period that Trump's kind of got back on the road show, and he gave a rally on Saturday. And I guess unsurprisingly, but quite unbelievably, Trump called the COVID-19 disease, the kung fu virus. He also urged staff to slow testing down. However, his trade advisor later came out and said he was only joking. So what he means by slowing testing down is, you know, if you think about it, the more testing that's done, well, then the more cases you're likely to find. So therefore, what he's tried to do is he's been you know, in these cases where case increases have been quite, you know, uh, significant in a number of these areas, particularly in California, it has come in step as well with testing also, uh, becoming more frequent, which he's trying to play off as explaining that. So yeah, more, more kind of distraction from Trump, but I guess you wouldn't really expect, uh, much else at the moment. You know, what, what does Trump saying the kung fu virus mean for the trade talks? I think absolutely zero. This is all just kind of the political rhetoric that he's deploying at the moment in order to kind of frame the situation in a certain way to, as we know, part accountability for any— excuse me— of any way in which the virus might play out in the future. So yeah, with the virus in China, what's going on there? Well, It's looking a little bit more self-contained at the moment, but China has blocked some US poultry imports over cluster outbreaks that were seen at some Tyson Food plants. So perhaps worth keeping an eye in regard to the response that Trump comes out with, with that. But you know, when you're looking at these types of areas and you're trying to understand the kind of the method of, of the US president, I mean, this is looking at the area of Oklahoma in particular Tulsa, which is where the rally was held, and that's the hardest-hit area of the virus. Every 1 in 274 people has actually had the disease or infection. And if you start looking at the rapid increase of new cases, you can see why Donald Trump needs to really ramp up the type of rhetoric. And, you know, similar can be seen. And if you were trying to judge the timing of the type of wording that he's going to be using, you've only got to look as far as where is he going to be geographically nationwide as to what audience he is addressing, to what language he's likely to use. But, but really, he needs to get his base galvanised, so to speak. And so you can expect more of this type of rhetoric going forward. The other country that a lot of people were talking about at the weekend was Germany. I'm not sure if you've seen this, but Well, let me just bring up the main article that people were looking at at the weekend. So basically, Germany's R-rate— and the R-rate is that key rate of which then the, the basically the coronavirus starts to then start compound growth where it gets exponential in terms of the acceleration of the phase. And this is exactly what people were worried about with the reopening of economies, was that you go too fast and well, then we get over this, um, this one figure, and then for every, um, X amount of people, it infects so many more going forward. And so this was the main figure that we were looking at on Sunday. Quite, quite surprisingly, and this is what did cause a little bit of that negativity at the original reopening of trade, is that coronavirus infection rate shot up to its highest level for weeks after more than 1,300 abattoir employees tested positive for the virus. The R rate now 2.88 on Sunday from 1.06 on Friday. So this is one of the, the things like, much like with Apple, I mean, although this was based from an abattoir, like with Apple, it's a couple of these isolated outbreaks can mean then it reverberate. And through the necessity of taking protection and precautionary stances from the government, you can quickly unwind, slow down that reopening of the economy, which of course now the markets are pricing in a fairly fairly strong bounce, as we've seen in recent economic data. So I think markets are a little bit susceptible to this, and that's the way how I'd be reading it at the moment. You know, things like retail sales reports that we've seen in the UK to the US, nonfarm payrolls, the PMI kind of numbers as well this week are likely to see a fairly decent recovery. You know, that's fine, but if you think about the PMI data, that's a diffusion index. So basically it's just a summary of people, are they feeling more confident or less? And if it's above 50, then fine, expansionary, below, contractionary. And although these numbers will most likely bounce, at the end of the day they are not reality, they're just people's forward-looking expectations. So they are subject to change. And if we start to see numbers like this, what we've had in Germany, well then a restriction in movement again, a rethinking about the reopening plan, which had been going fairly well, you would say, all things remaining equal in some of these countries. Well, then people are going to have to reprice in the type of recovery that we're going to see after this very optimistic kind of economic data surprises to the upside that we've had of late. So that was the German situation. Australia as well, overnight, the second most populous state, Victoria, tighten controls following a spike in cases. So there definitely are a few pockets globally that are causing a little bit of concern. That's not to kind of run away with the negatives at the moment. I think this is maybe a day out of date or so because it still has Germany fairly flatlining, but obviously, as I've just discussed, it has bumped up. So that 7-day average is likely to be altered now going forward. But you know, countries like the UK, Italy, Austria, Denmark, they have not really seen too much in the way of any new spikes apart from this German one that we've just mentioned. And so this has come with the year-on-year change in retail entertainment footfall that has been gradually moving higher. So that's quite, you know, I don't want to talk it down too much. This is quite a positive for these specific areas. Which means that as they've gradually gone back to this process of reopening, it has not yet then led to a second significant outbreak. But that of course comes into question this morning given the situation that we've just discussed with, um, with Germany in that sense. So the other thing as well that I thought was quite interesting was something I was talking about in my, my macro menu Um, was if I just scroll up, I was talking about the PMI data. I just mentioned it briefly. It's one of the main data highlights for this week. It's coming on Tuesday, and these are the flash readings, so people will put some weight to them. But one thing I've been looking at, and this was highlighted by analysts at ING, aside from my point about the fact that these, these kind of soft economic data points are forward-looking, so subject to change, the other thing that I think is quite interesting to track at the moment is the COVID-19 community mobility reports that Google are putting out. And basically, if you were to search for your own country— so if I put United Kingdom in here and I download the latest report, now one of the things that it does here is it starts to look at tracking data for mobility trends, and it does so by breaking down individual kind of sectors that then will be related to pockets of the economy. So here you can see retail and creation obviously getting an almighty hit given the fact that restaurants, cafes, you know, museums, theme parks, all these things are shut at the moment, which is why the economic implication has been so severe. But supermarkets and pharmacies, you can see obviously parks up sharply as people try to get some fresh air from the lockdown and do exercise and so on. But a number of these numbers are deeply negative. So although things like the PMI data might see quite a sharp, almost V-shaped recovery, The idea here is that the underlying economy is not quite keeping pace to that. So yes, people are becoming more confident, and you might well see that in some of the PMI numbers here where you get this aggressive bounce. But at the end of the day, the underlying economy, as far as mobility is concerned, would probably not hold up to suggest then that the economy can continue that type of positive, uh, bounce. It's almost like we've come from such depressed levels that if you were in ultra-depression and you are— someone asked you, well, how do you feel now about the future? Well, yeah, sure, I feel a little bit better now, a little bit more confident. And so rightly so, the index will bounce. Does that mean we're going to have the, you know, a accelerated economic recovery? In reality, I, I would say not, not unless these types of numbers from these Nobility Trackers start to fall into line and fall closer towards some degree of normality. And if they don't And if things like retail and creation or recreation, which if situations like Germany start to unfold, or that all the more longer it's going to take, and then that's where markets might become susceptible to then having to reprice out some of the optimism that has been priced in, I would say typically in the likes of equities over the last couple of weeks. Um, that's kind of the main bulk of really what I wanted to discuss. So it's all very much a COVID-19-led discussion. Looking over then on the calendar for the rest of this week, there are a couple of interesting things to look out for. On Tuesday is the flash PMIs, as I mentioned. On Wednesday you've got the RBNZ rate decision. You've got German IFO coming out, so that would be the, the German underlying companies on the ground's perspective about how they feel about coming current conditions and forward-looking expectations. A couple of Fed speakers coming out over the, over the course of the week. Kashkari speaking today, and Kashkari made a pretty interesting comment actually at the end of last week, and I've got it written here on my, my macro menu. Kashkari, who is a voting member, the most dovish though, I must also reiterate, so it's not that surprising to hear this type of rhetoric, but he said, unfortunately My base case scenario is that we'll see a second wave of the virus across the US probably this fall. And more interestingly was Rosengren, who does tend to sit on the more hawkish side of the spectrum but is a non-voting member. He said the lack of containment could ultimately lead to a need for more prolonged shutdowns, which would result in reduced consumption and investment and higher unemployment. So definitely the Fed still remaining in quite dovish mindset at the moment. And as we go through the week and we start tracking these speeches, you'd expect the others to kind of follow suit at this point in time. Um, other things then going through into Thursday, uh, US durable goods, the GDP numbers that are going to come out are generally in the US, but our final numbers, as is the PCE price numbers, the initial jobless claims are still likely to track around the million mark. So still elevated, but again, kind of, if after the spike we've had this kind of graduated decline from where we were, as we know. And then on Friday you get Japanese CPI, US PCE price index, personal income spending, and the final University of Michigan. So yeah, not, not a great deal out on the docket, to be honest with you. The PMIs will probably be the, the headline fixed reading. We're also still keeping an eye out for any updates on the overall situation that's happening in the UK in regard to really two things. So yeah, in my, my report I did last night, there's kind of two things to look out for as far as the UK is concerned this week, and that's an update on Britain's coronavirus lockdown process. The Health Minister Matt Hancock spoke yesterday and he said potentially relaxing the 2-meter rule on social distancing allowing many businesses to reopen in early July. But just given what's happened at the weekend in Germany, you'll think there'll be some quite heated discussion about the best foot forward for that. One person who's wanted to really push on has been the Chancellor, Rishi Sunak, because he knows with government spending rising at a phenomenal rate at the moment, he needs to get the economy firing again. And reports in the Sunday Times The link's here if you, if you want to have a look. He's planning an emergency VAT cut in his latest effort to tackle the economic fallout from the coronavirus outbreak. Now, if you remember, if you were in markets during the financial crisis of 2008, the then Labour-led Chancellor Alistair Darling did cut VAT to 15% from 17.5% for a period of 3 months in initial knee-jerk kind of reaction to the the global financial crisis. So it has been done before, but one of the stats I was reading over the weekend was the HMRC estimate that for every percentage point that VAT goes down, they lose the Treasury about £7 billion a year. So yes, you're trying to instill confidence, and hopefully that gets the economy, and that's— that heavily outweighs then the loss of kind of income from tax receipts. But Certainly it does come with a cost in that respect. They're also said to be working on plans for deferred tax rises and cuts to public spending in the Autumn Budget as well. So yeah, worth keeping that in mind. But the other big thing here is of course any updates on the UK and EU negotiations. I mean, there's nothing really formal expected yet. The more formalized talks actually start this time next week on the 29th, right before that deadline for whether or not the UK requests an extension on the transition. That's looking less likely. So as that timeline runs down, although we're not expecting anything great to happen right now, I guess the continuation of the, the rhetoric of, of kind of some compromises but no concrete conclusiveness to the, to the talks is likely to be a bit of a drag and potential headwind for the pound. And Now, one of the things I'm thinking with sterling at the moment, you know, with the virus at the moment still to be tracked, of course, with the ongoing EU and UK Brexit negotiations, that in contrast to any reflection of renewed risk emerging from global thinking about the coronavirus, which typically strengthens the dollar, I think could keep cable a little bit susceptible to some downside if that were to materialize in that way. But for me, it's not just a UK story. I would want to see dollar strength coming in on a move back into that kind of flight to quality into the greenback to see that materialize, rather than just negative sterling fundamentals in isolation. All right, that is it. Um, any questions, please feel free to, to just send me a message or just leave a comment on the video. Absolutely happy to, to help as and when I can. And remember to subscribe to the channel if you're watching this on YouTube. But have a fantastic week ahead. All the best, uh, stay safe, and have a good, consistent, and profitable week in markets. All right, take care.