Markets On Fragile Footing Ahead Of PMI Data

Okay, very good morning to you. Anthony here from the desk, Friday 24th of July. And don't forget to like and subscribe to our YouTube channel if you are watching this briefing there. We've got a brand new video coming out from Milan, a follow-up to the video he did about what is algorithmic trading. He's put together a video of 5 points to creating your own algorithm. 5 things to be aware of. So really great video, I've already watched it. It's going to be released on Saturday, so if you subscribe to the channel, hit that bell notification, and you'll get an alert as soon as that goes out. Otherwise, let's get straight to it and talk about the markets for this morning. And yeah, the, the risk-off sentiment has continued on from the negative close on Wall Street. So overnight, the Asia-Pacific session generally lower. The The main Chinese CSI index was down about 3%. Remember, that was the main index of the largest companies I was talking about just about a week ago when Chinese markets were just moving, um, powerful to the upside. Uh, now starting to see a bit of reversal over renewed US-China tensions. So we'll look at that a little bit more detail shortly. In terms of the heat map, the big tech stocks, it's almost inevitable when everyone starts talking about how the proportional representation, as we were talking in the briefing yesterday, of so few becomes so big. Um, we get a bit of a pullback. So Amazon, which of course had been on fire recently, and at the beginning of the week, remember, they— in the singular day, they were up 8%. They were down about 3.7%. Similar losses observed elsewhere. Microsoft post-earnings were down about 4.3%. Apple down about 4.5%. So some of those big tech outperformers and those mega-cap tech stocks just pulling back a little bit. So in regard to the NASDAQ, all major US indices were lower yesterday. It's the first time we've had a downside day of in excess of 1% across 3 indices in a while. And you can see just the size of the move here from the sell-off breaking out through what was a period of relative consolidation through the prior day's price action on the 22nd. And a breakdown through quite a key technical point of previous resistance and then support on that session on Wednesday, and then a breakdown to the lower bounds of the range which we've been trading in the middle of last week. So all in all, I mean, if you look on a daily continuation chart here on the NASDAQ, you know, yesterday's sell-off was, was meaningful, but generally speaking, on the bigger trend, the 21 DMA We are trading just below there at the moment, and that was a strong level of support, of which could be meaningful here in terms of the price action for today from at least a technical perspective. You can see that area at 10,505 was an area of support back on the 7th and, and the 8th of July, also had a false break and then retested on the 16th but acted as good support as well on the 23rd. So yesterday's session but we have gone below there now with the NASDAQ future already down about 77 points going to the European open. So it will be quite interesting because any further push to the downside is obviously quite a big level that would come in, um, quite a bit lower down at 10,292 in the NASDAQ future. A nice level here of resistance and support and that trend line then that dates back all the way to really April's price activity. I'd be keeping a very close eye on. So definitely here there is a possibility then technically for a further move lower, I guess, going into Friday. And we've got some major data of the week coming out shortly, the PMI numbers. If they fail to really excite, and given the fact that US data this week from consumer confidence to yesterday's jobless claims have all been on the disappointing side, and as we were kind of discussing yesterday about this Citigroup Surprise Index now having peaked, coming lower as data points now, if anything, coming out on the downside rather than this string of upside surprises we'd have for such a long period. A little bit of profit taking there in the NASDAQ I don't think is wholly that surprising. That would be a big level though if we get down to challenge there, if that does materialize today. But all in all, I think a little bit of a pullback and that what we have seen through the second half of this week after we hit all-time highs I don't think is hugely surprising. Could we see some more downside down to those lower level targets? I think perhaps we could, and that could indeed happen today. But, you know, looking at the S&P on a, on a daily continuation, again similar to the NASDAQ, there's a really key level here on any pullback that I'd be particularly interested in watching today. And that's around that 3,200 or 3,196 here. You can see that, that area where during the mid part of July, going really from the 15th through to the 20th, that that's such a strong level of support. And so if we did remain under some pressure, that's not too far away. We've already got to go about another 20 points here in the S&P to get to that area. So if we do see continuation of yesterday's kind of risk-off sentiment keep an eye on that around that 3,200, 3,196 in the NASDAQ. If we get a simultaneous break with the NASDAQ on those, on that longer-term kind of trend channel, then things could get a bit, bit spicy going into the weekend. And certainly then, you know, the one trade that probably is, is a winner in either direction is gold because it's already been moving higher with relative calm, but then it just gets another you know, kick higher when we get this risk-off trade as well. So such a good asset that's played out well recently. And we hit $1,900 in the futures, uh, yesterday, and we're not that far off there of the all-time high, sitting just $20 above that level. Uh, the all-time high— well, the, the $1,900 came late yesterday afternoon when things really got fired up, um, shortly after the COMEX open. And then silver taking a bit of a breather from the, the rapid gains that have been seen throughout this week, what, near 20%. And so that trend line which we were talking about the briefing yesterday, you can see when it broke, quite a severe move lower at the time, and then we found respectively some resistance back at the same point. So quite a lot of people obviously watching around these same levels, and then we've, we've just consolidated, if anything. At around the 22.5 being the floor to some of the recent price activity here for silver. So that also worth keeping on. Again, silver comparative to gold, a little bit more volatile, so you just need to be mindful of that if you're trading that asset. It's the technical levels will be quite key to see some quite rapid movements from point A to point B as speculative traders have been— that's been one of the main focal points that they've been locking in on this week has been the price of silver. So let's run through some of the headlines then, um, and gonna start off with the, the situation here overnight. This has come, of course, after that move we saw from the US earlier in the week. So China has come out and ordered the US to close the Chengdu consulate in its retaliation move, uh, that after the US forced closure of the Chinese mission in Houston. We had Donald Trump speak overnight talking about the China trade deal means much less to him now, and the Secretary of State Michael Pompeo was saying some pretty inflammatory comments in reference to China as well last night. So this is the latest, and certainly it just helps further fuel— I think more, if anything, is a little bit of profit taking on this run-up that we've had in markets in the first half of this week. You just have a little bit of a catalyst then to trigger the kind of removal of some of those short-term longs that were chasing that market higher. So where do we go from here with this issue? I think this is probably about the most we'll hear of it for this week. Can't really see too much more in the way of further escalation at this point. The one thing, of course, that has been happening— I'm going to talk about in a second— is the COVID situation in America. Is getting worse. And there has been, I think, quite a clear identifiable trend between the worse that COVID gets domestically, the more venomous the US attack on China becomes, in order to kind of frame the narrative that it's China's fault and to, I guess, discount any accountability for, for the situation as it's developing at the moment in America. The response then from China You probably remember the Global Times editor Hu Xixin. He's talked about Pompeo specifically and basically taken a few pop shots of his own, and then also been talking about this headline that we've had this morning in regards to this kind of reciprocal principle and so on. Um, the other thing of course though was in focus yesterday was this, this jobless situation. This does lead me then to a bit of a wider discussion point about the US economy and its economic recovery, or at least its trajectory that it may or might have been on. And this did cause a bit of interest yesterday. The jobless claims largely for many weeks have been a little bit of a non-event, but it was the first— basically the first uptick in US jobless claims we've had since March. And March, of course, is when we had this, this massive spike up to around 6.6 million. But generally speaking, after that initial knee-jerk reaction to the pandemic status and then the full lockdown that happened during the latter part of March and through the month of April, the jobless claims have been decreasing, albeit at a decelerating rate. However, a bit of an uptick yesterday just made people a little bit nervous. And why does it make people nervous? Well, don't forget as well, we've got these talks ongoing throughout the entire week with the US GOP stimulus bill likely will not be released now until Monday amid disagreements over jobless benefits and other issues. So a lot of people, of course, watching this closely because Trump has blamed Democrats for scuttling his idea for a payroll tax cut. Other areas of contention, of course, remain around this expanded unemployment benefit scheme, which provides around additional $600 a week, a cushion for out-of-work Americans, and that is due to expire, of course, at the end of the month on July 31st. So again, this expiration of some of these programs just making markets as well as a little apprehensive. I would say though that this is, for me, politically, I wouldn't be too surprised by this. This is always, you know, although these deadlines, the timeline is diminishing, this is just a natural order of things, of compromise tending to come right at the last minute. But certainly if it didn't, that does raise some complications perhaps about the the economic recovery in the US. And all of this, of course, is coming amid an ongoing COVID situation. Uh, this is the latest looking at those kind of key hotspots: California, Texas, Florida, and Arizona. As you can see, a little bit different from the last time I did bring up this graphic. We are somewhat leveling out, or at least a trajectory of increases is decelerating slightly from the more rapid, steeper trajectory we were on just a week or two ago. but a few things to show you on this front. Let me just bring a shot into screen and make it a bit bigger. This one here is looking at a few different things. We've got number of positive cases, so new positive cases now are a new high, 66,870. We've also got hospitalizations at a new high in the US and deaths, the highest since the 5th of June, uh, as well at the moment, looking on a 7-day average. So, you know, it's definitely one of those things here where if you think about the COVID situation, if you think about the, the expiration and the political difficulties of getting further stimulus to support the economy at the moment, then this could all have a great influence on the shape or almost this idea of double dip implications for the US economy. So there's definitely some reason for the movement, I think, that we saw yesterday. And you throw in the factor of markets, you know, if you remember on the 13th of this month, that was when the markets have these episodes of getting super overextended. And that was that day when, you know, Tesla was up some 20% in just a single day. It's almost like you get these, these, these catalyst moments, uh, that are, that are really symbolic almost for the initiation of profit taking. Uh, Tesla would have been one there. And, you know, earlier this week with Amazon up 8%, you know, these phenomenal increases, and we hit record highs, that, that retest of the record high in the NASDAQ midweek. It's almost like, right, yep, that's it, that's time to take just a little bit off the table. Medium-term horizon, I don't think it's right— this is, this is the commencement of a significant correction in the US equity markets. I don't think that is the case, uh, not yet. But certainly, is there— could there be a potential for some downside today? I think possibly. I would not— I would not be too surprised if that was going to materialize. But again, those key levels I suggested in the US indices are going to be the ones to watch. The other thing, of course, was earnings. We did have Intel after market last night, and they basically warned on production delay, um, ways that further weighed on kind of negative sentiment that was increasing last night. I'll look at their shares in a second, but the, the 7-nanometer chip process, very specific for the company, is now trending around 12 months below its, um, or behind its intended target for, for its rollout. And what happened to Intel shares? Well, they got absolutely hammered in aftermarket trade. You can see them here, they're trading at $54, they were down 10.6%. But one company's failings is another company's gain. And given the space of which Intel operate in is a fairly small sector in this kind of chip-making environment, well, one of their biggest competitors, AMD, they were up about 8% in aftermarket. Again, no fault of their own, this This was just on the back of the coming out of Intel and one of their major competitors benefiting in that situation. On the earnings front, just to be aware of, you do have a couple pre-open that are worth keeping an eye on— Visa and American Express. Visa is around 5% of the Dow in terms of a market capitalization. Amex is about 2.5%, so, you know, a good 7.5% of Dow coming out pre-market. Honeywell, Chambray, also fairly sizable in terms of market cap. So a few things to keep an eye on there as well. And then on the weather front, for any energy traders, I've just been keeping an eye on the NHC website because of Tropical Storm Hanna, which currently is close proximity to the Gulf of Mexico. If I just bring up this chart, Hanna is forecast to strengthen and is expected to bring tropical storm force winds to portions of the Texan coast where a tropical storm warning is in effect. My understanding is that a number of facilities there from oil majors and refiners are on standby at the moment. It is expected to produce heavy rains across portions of Louisiana, southern Texas, and northern Mexico. However, if you actually look at the trajectory here on the mapping and the projected direction and timings, it should not have too much of an influence. It's kind of just missing some of the key critical areas within that particular location, but definitely worth just keeping a half an eye on perhaps. But again, should not really be too much of an issue throughout the rest of the day. Um, that is pretty much the main bulk of the news. The main thing is now forward-looking for the PMIs. Now we have had some UK data out this morning. The UK retail sales month-to-month came in at 13.9% above the expected 8%, but Sterling really hasn't reacted a great deal, if anything at all, to that number. Remember Brexit, we've been talking about a lot of political kind of elements now that are being factored in, and certainly a bit of a divergence on the fundamental perspective comparative to the euro solid performance this week. Euro still trading in excess of that 1.16 mark. For the PMIs though, these will be interesting, and you know, could this fan the flames, if you like, of some of that brewing negative sentiment we saw develop yesterday. Because what's quite interesting is we got the French and the German PMIs this morning, of course, followed up by the UK at 9:30. And most of these readings are anticipated to bounce back into expansionary territory after being highly depressed amidst that kind of major April slight bounce back in May into these now June, and this being the July readings. So if they remain suppressed and these numbers disappoint, again, that could be quite interesting because it just comes at a point where, um, you know, sentiment generally is a little bit fragile this morning. So for the French numbers, they're expected to be pretty solid actually, 53.2 for manufacturing, 52.3 for the services number. Both would be, particularly on the service side, quite strong improvement that analysts are anticipating. On the German front, manufacturing is still expected to remain in contraction, but a bounce from around 45.2 to roughly around 48 is the consensus. Services moving back above the 50 marker. And then in the UK, manufacturing expected at 52 from 51 spot one, or, or some 50 spot one. And the services in the UK, obviously the, the more important metric, expected to move back up 51.5 from 47.1. Um, the US, that number also will be coming out alongside new home sales and the Baker Hughes rig count for the main releases in the US afternoon. Um, this is expected— manufacturing to bounce again to 51.5 and services to 51, both having been below 50 before. So I think it'd be quite telling, uh, just from almost a symbolic point of view, because we're right on that tipping point now on that key area of being expansion or contraction. So if we get a disappointment, it will just be interesting to see if we get a bit of a retest on those lower levels again. If we get outperformance, talking the other side of the book, let's say the numbers in Europe, particularly from the German perspective and France on the service side, if they come out and really bust on the upside expectations in a positive fashion, or all the more reason then for a little bit of further elevation in the euro currency. And if that comes in the context then of the US number being weak, then you might see a further breakout in the euro on the upside today to finish the week on a really firm footing for the currency pair. So a few things to think about. Um, all right, that is it. Nothing much more else for me to add. So remember, again, if I could kindly ask you to subscribe to the channel, we really appreciate your support for growing our community. Um, you know, feel free to engage, leave comments, always happy, the team and I, to help where we can. And as I said, Milan's got a new video, one of our tech guys, coming out talking about algorithmic trading on Saturday. So hopefully you'll enjoy that, and I wish you a fantastic weekend. All right, take care.