Markets Remain Unfazed As Coronavirus Spreads

Morning, it is Wednesday, 22nd of January. Hope everything is going well. Hope you are virus-free at this point. Don't forget to subscribe to the channel on YouTube if you're watching this on that platform. Plenty more of these updates to come for sure. If you hit the bell icon to turn on notifications, you'll get alerts whenever we publish new content every morning for our kind of macro overview. But yeah, talking about the main things from, from my side, we have updates of course about now this coronavirus apparently spreading to other geographic regions. A US citizen who was present in Wuhan in China where the deaths have occurred so far with this virus, he went back to, I think it's the state of Washington in America, and apparently now he's been taken into quarantine. But obviously the first time in is shifted over to, to the Western world. And that did have a bit of a response in markets last night, which we can review. However, that's already been almost brushed over. And, you know, credit to people like Sam who have been long equities since the middle of last week. I mean, you had a pretty decent pullback of almost 200 points yesterday in the Dow. But again, the luxury of being patient and holding a good entry on a medium-term position allowing, you know, room for the trade to breathe in respect to the underlying notion that really, despite these short-term moves that we have seen, like with yesterday in the recovery, like with yesterday in the US reaction initially and then recovery by the close, the overall underlying idea here is that it's not yet to the point of, you know, sheer panic to instigate a continuous push to the downside. But having a look at the other things before we, we circle back to that subject, uh, how are charts looking this morning? Well, actually, index futures, although albeit the DAX has just come off a little bit as I'm speaking, generally elevated given the recovery that was seen. If you actually look at the charts on the, the index futures last night in Asia, at around 2 AM, we had a pretty decent pop on the upside, technically breaking above a couple of areas as well in the US indices, but obviously fully recovering the dip that was seen yesterday. Elsewhere, currency markets, things are relatively quiet overall. Some of the major pairs just nursing very small losses for the moment. Gold down about 3.5, similar tick loss in the US 10-year, with oil down about 40 cents, just hugging the $58 handle. For the moment. I'll let Sam go over the charts from a technical perspective in a moment, but let's just run through a couple of the news items in play this morning. And so, yeah, Chinese officials have stepped up their monitoring of transportation links in China, ordered nearly a complete shutdown of that central base city of Wuhan where the virus apparently originated from. The death toll now at 9. Confirmed cases have stretched now to 6 locations outside mainland China and the first diagnosis in the US. So just to give you a bit of a graphical representation of this virus and the current state of play at the moment, if I just shrink this a little bit so you can see, these are reported cases. You can see in yellow, so there's been, what, 1 in Japan, 4 in Thailand, obviously the majority happening in China, 1 in the US. So far. But of course, initial, as we were saying yesterday, knee-jerk reaction to what happened. And certainly US equities did have a bit of response when it came and it was run on CNN, that initial headline about the first case in America. I mean, this was the response in the S&P 500, and it was fairly meaningful at the time. But as I said, once the, the rationale returns And if anything, the market then starts to recover, and it's very similar price pattern to what we had yesterday morning with that overnight Asia extension of the, the losses, only then to recover through the European morning. And then the US have come in, first case in America, it's almost panic short term, and then it— then we start to recover again. So I'm not expecting any further persistent weight on this issue, not unless again, the numbers start to extrapolate and get much more far-reaching. And if it starts to then hit other, let's say, mainland European locations, but not just people contracting but dying in the Western world, and sure, then it starts to become a much bigger pressing issue and starts ramping up a few notches on the ability to move markets in a more sustained fashion. This was quite an interesting comment I thought I would bring up. A few different things here. One, from a statistical point of view, all the deaths that have happened from this virus, this coronavirus, so far have all happened in the city of Wuhan in China. So the others have been episodes of where people have said to have had contracted the virus, but no deaths other than that city. Now, to put a bit of context, Wuhan in China, I would presume that most people have not been to to that city. But that city is actually bigger than London. It's not the biggest city in— not even the biggest city in China by any stretch of the imagination, but does put into context just the mammoth size of the, of the population in mainland China. Interestingly though, of the people that have died, 8 of which are men, they've all been aged between 61 to 87 and all have had pre-existing illnesses. So again, in terms of those being obviously most susceptible to the impact of a virus, so these have generally been elder people and also have a pre-existing condition. And so again, just to put a bit of context as towards the kind of doom and gloom that obviously the press is spinning on this, you know, I think it's definitely— you need to be a bit more rational in the way you approach a lot of these headlines, you know, scratch beneath the surface and make a more informed decision yourself about the severity or possibility of this indeed becoming much more of a serious thing. So again, same status as yesterday, we remain vigilant, but it's not, it's not panicking us at all at this moment. And as I just said, Sam's still in that long position, so You know, I think that's testament to the fact of how much we see this being a risk or not, the fact that we're still long, uh, at this point in time. Um, but this was something that Goldman says. This was a just an interesting thing, and, and certainly this isn't something that I would say would justify a short-term position in crude oil. But, uh, again, for the, the, the ability to add some context, GS basically put out a note. Now and they've said that they've done some backtesting about how the oil market was reacting during the SARS virus. They've said that coronavirus could result in a global demand in oil falling by about 260,000 barrels per day this year, with jet fuel accounting for around two-thirds of the loss. That would probably lead then, by their calculation, to a $2.90 a barrel drop in oil prices. Projections translating the estimated SARS demand impact into 2020 volumes. So this was the graphic that Bloomberg are running in addition to some of that data from GS. And this is the Bloomberg Commodity Index, and it's just looking back to 2003, of course, when this was all breaking at the time. The World Health Organization issuing their first global SARS alert came in March of 2003, and And you can see here commodity prices overall did take quite a severe hit at the, at the time. However, as soon as the WHO said that the world should be SARS-free in 2 to 3 weeks, you know, rampant return. And now this is not forgetting there's obviously other things at play in markets at that time, but you know, definitely this is not a small issue by any means. So again, one to be, to be monitored to just see how it develops going forward. This was a really great tweet though I saw this morning, and I think, I think this was absolutely summarizes the current situation, which is quite unusual at the moment. So this was a former, I think he's a former JP Morgan portfolio manager, and he was basically tweeting, the stock market couldn't be brought down by an impeachment, Couldn't be brought down by war and can't be brought down by a pandemic. What left is there to be afraid of? I think that absolutely strikes the, the right tone at the moment. And if you think about it, you've got the US president, the leader of the free world, is trying to be thrown out of office. You've got potential world war happening out of tensions in the Middle East to kick off the year, and now you've got a potential episode of a global virus spreading. And, you know, nothing has dented— we're trading all-time highs. What a world and time that we live in. But it does beg the question then, you know, what exactly has got to happen for this market to go down? And don't get me wrong, I think a healthy correction for another push higher, I don't think is out of the realms of possibility. And of course, that's a normal function generally of a market that's trending higher. But yeah, even if we get a substantial pullback— and I think there was a couple of guys I was talking to here about, well, if we did get that pullback, I'm talking much more longer timeframe here, you know. This was a chart I had with some markups from some previous discussions discussions. But, you know, at what point does the market need to come back to where you'd want to be long again? And then obviously there's this, this long-term— I know it's a bit difficult to see because my camera feed's slightly partially blocking it, but, you know, this is where we are at the moment, right in this top right-hand corner. But if you look at that trend channel, which was very much in play from the beginning of 2018, uh, the, the top side of that channel come— would come in around that 3100 level, and that's obviously a great area there. But there's lots of other areas in between, you know, 3159, 3263. So that, you know, there's big levels of which even if there were concerted pullback in this market, I mean, even to get back down— to put it in a bit of context— where we are right now, all-time highs, down to that level, I mean, that's a 7.5% percent pullback, which would be, you know, decent. That would be a sizable reversal in markets. But for us to come back down south of that when we're talking 10-15%, I just can't see it happening at the moment. And, and hence the reason why, as per the outlook we issued at the beginning of the year, uh, still, you know, remain quite bullish for where we're going to be at the end of the year. In that respect, just given as well the necessity for Trump to massage his rhetoric and his promises, and obviously the heightened importance of the value of the stock market for his popularity in order to, to bet on the second term. But yeah, some just broader macro thoughts I thought I'd share. A few other things. Where are we with the trade talks at the moment? Well, this is the latest kind of headlines. No date for phase 2 talks with the US just yet. I don't think that's unusual. I think this is basically the status quo for the moment, which is they just want to see how phase 1 gets implemented first. Trump obviously has given some mixed signals about wanting to get talks underway straight away, but I don't think that's— I think that's just him trying to make the most of the situation. I don't actually think that there's much drive on either side of the negotiating table for them to really push things forward too quick. If anything, it's the opposite. They'd want to make this a long, protracted period, particularly on this— on the US side, in order that they get maximum payoff for keeping equities where they— where they want it for the— for the political narrative. This is the other thing that's been quite interesting. You'll remember Trump has been You know, at the end of last year, there were obviously a lot of associated risks to the protectionist policy coming out of the US. This wasn't just about the US-China escalation and question marks on whether or not they would sign Phase 1, but this was also targeting other trading partners, and particularly a crucial one is the US and the eurozone. But obviously in the last couple of days going into Davos, Trump has kind of changed tact and he's been fairly passive with France about this digital tax that the French have been wanting to put on to some of the, the big tech giants. And so Trump reaching a truce with Macron was quite a positive, but Trump has also come out and basically reiterated his EU auto tariff threat. So yeah, it's— he's been quite positive actually at the moment, um, so he's definitely been eating the right cornflakes for the moment, and he seems to be happy. But obviously, you know, these things are subject to change, but all good for the, for the time being. And this, of course, coming with last night— I'm not sure if you were watching, but the Republican-controlled US Senate voted early yesterday on party lines. So as you would expect, they approved the rules for Donald Trump's impeachment trial, rejecting Democratic efforts to obtain evidence and ensure witnesses a herd. So basically, uh, this playing out so far as you would imagine, which although it's in the news, I wouldn't say again it's a massive pressing feature of what you need to be worried about from a risk factor that would drive price action in the short term. Elsewhere, talking about just general trade negotiations, this was something in The Telegraph, and again I'm pointing this out just to make you aware of it, but what I really want to say is that this really is not surprising at all. Basically, The Telegraph sources have reported that the European Union is preparing to offer the UK a trade deal on tougher terms than its deals with Canada, Japan, and a host of other leading trade partners. And this picture here of Boris and, and the EU president. So obviously there's been a bit of a standoff. We know the general strategy here. Boris needs to remain credible about the threat of essentially no deal, not requesting a transition to put the pressure on Europe. So European response here are just playing the usual tactics in retaliation, saying, fine, you're going to get basically a worse deal than we're going to give anyone else. Again, this is the art of the deal, so to speak. And I would expect nonetheless— so I don't see this as a negative for the pound. This is just deal-making. And I wouldn't expect any movement on either side realistically, really, to come until a couple of months down the road when we get to that end of June deadline, when then the pressure's on whether Boris Johnson is going to request an extension or not. for the transition phase, of course, which is due to end at the end of 2020. Quickly, earnings from the US stateside— there's two really to be aware of, and both were fairly positive. Netflix shares were up in excess of 4% after market yesterday, generally upbeat results, overseas growth helping offset a general slowdown that we're seeing more domestic-based in the US and and seemingly just trying to appease shareholders that they're fighting off the attack coming from Apple, AT&T, Comcast, Disney, with all competing services at the moment. They did say they're going to boost spending on shows and movies by 20%. I think I, I read the number this morning. I think they, they're spending something like $12 billion on new content. It's just phenomenal. I mean, the days of Hollywood are dead. I mean, when Netflix Netflix is going to start sweeping the Oscars and things like that. I think it's an inevitability at this point. Uh, the world certainly on that side has changed. The other big company to report last night was IBM, and that was actually quite interesting. Their shares also jumped after market last night. They reported revenues in the fourth quarter that beat analysts' estimates. They broke a streak of 5 consecutive declines, and it's pushed into hybrid cloud market slowly bearing some fruit is what analysts at Bloomberg are reporting this morning. Um, quick look at the calendar. What else have we got for the session ahead? Well, from the UK you've got public sector net borrowing. Not a great deal of interest in that, to be honest, from a pound trade possibility. So it really takes us into the US afternoon. Canadian data inflation at 1:30. US housing data, we've got this afternoon, then back to Canada for the rate decision. Expectations are for rates to remain on hold at the BoC. However, there is a few banks looking for a cut at 25. I'd say that is the lesser likely case. And then looking out for any accompanying commentary, of course, that they issue. And then you've got the oil inventories out of the API this evening. Um, other than that, that's, uh, that's pretty much it. So general summary here. There's been again short-term reaction to expansion of the, the location of where people are said to have contracted now this coronavirus, it moving to the States. This is just one person, but that enough to see a bit of a knee-jerk reaction last night, but already recovered. So again, I would say what could happen here is a little bit of coronavirus fatigue as far as market participants are concerned. And unless we see a quite a severe escalation, and particularly that then spreading into major Western cities and then subsequent deaths from this— because all of those have occurred only in the city of Wuhan at the moment— do I see that then having a more broader impact. Otherwise, earnings-wise, generally positive from some of those big names, as just mentioned. Not really too much though, I'd say, to really drive things completely. Let's not forget Boeing, the biggest component in the Dow, was down about 3% yesterday after their 737 MAX jet was not cleared to fly until mid-year. So there are some individual stories to be aware of from the larger market cap perspective, but I'll leave it at that. I'll let Sam come on and I'll wish you a good day ahead. Thanks very much, guys.

Hi guys, hope all is well. 3,333, first time we've said that for the S&P, a level that has been trading at. It's actually trading there right now as well, as you can see here on the futures for 4 numbers exactly the same. Unbelievable, really. But, uh, the, the, the run seems to, to continue. Let's have a quick look at some potential areas today to, to be aware of. You can see the previous all-time high that we broke through in early hours of trade is also, uh, on the R1 today, and yesterday evening's high. So let's have that marked up as a potential area where we could find support for another push to the upside. Today's pivot, which would be give or take 15 points away from where we're trading, uh, decent price action there yesterday, and then of course on the 20th, uh, on Monday and, uh, on Friday as well. So keep a, keep a close eye on that, I would say. And it's really more a zone than— unless I was— unless we were to see price really get below there, I think you've got to remain happy to, to stay long. Uh, the same really in for the Dow and the NASDAQ as well. But let's just have a quick look to see some of these trends from the bottom here. You can see certainly on the S&P there's one just to keep an eye on from the 10th and then a couple of times in the 15th, which at some point may well also align with that pivot. So just keep an eye on that if we do push lower. But in truth, I think you've got to prefer for areas here to look to go long and continue this. Uh, longer term levels for, for oil— I just want to bring in this. I know we sent out the, the strategy report on, um, on Monday with some of these longer term points, but just having a look here and you can see depending where you obviously get that trend line, but we're really respecting, uh, this one here and going back to October and another test Yesterday on that, so keep a watch there for oil because obviously if that is to break to the downside, there could be a further run lower. I think other than the low that we've had of the year, 56.79, previously the 3rd of December high would be an obvious place to keep an eye on. Also to the upside, and I was looking at this, uh, well, the beginning of the week, just have a quick look at this, getting that fib from the, the high of the year. It's roughly drawing this on now, but you can see that 382 would come in along with that double bottom from the 31st of December and then the first trading day of January as well. So keep a close eye perhaps on that. If we do retrace, but a break of that trend line, we know oil can, can push quite quickly. Euro, longer-term levels, we confirmed that break yesterday below this level and it is really killing key to see what happens really this week. I know we've got the ECB tomorrow, so, you know, might just, uh, be worth holding your horses. But you can see just how clear and strong this area is, you know, buyers above, sellers below. We're now back below there, got a bit of support horizontally here on the, the low of the 12th of December. But I think, um, you know, confirm this, this week below 1.1123s, and we're even 1.11 if you wanted that extra confirmation. And a drift down to some of these December lows isn't out the question. Looking more intraday, whether there's going to be much movement today in the euro ahead of the ECB tomorrow, I think you'd, uh, you'd have to wait and see. Pivot just a bit before that, really the, the high of the day. You can see the significance of that, basically the classic on that low breaking. So, you know, above really the pivot, you'd be a bit more comfortable in looking to get long this market. And also just having a look at some of those previous highs, it's getting squeezed in. Probably worth as well just having on some potential trend lines if we were to, for whatever reason, get a decent push to the upside. However, I think you gotta, uh, for now anyway, prefer that, that look to go short. The pound, obviously we know about that longer-term trend line that's held up just beautifully. Let's bring that in one more time. Oh, on the daily chart you can see starting here from the 8th of November. Let's get that on, bring that in. Well, is that going to be the low? Time will tell, time will tell. And again, next Thursday you have the Bank of England, so remains to be seen what happens there. Are they going to cut? Are they going to keep it on hold? Seems pretty much 50/50, uh, at the moment. Pivot, good price action around there yesterday on the, on the breakthrough support. Today, 1.3050, below that 10 ticks or so, uh, a previous high in the early hours yesterday before we did break through, uh, as well on the data release, which was a bit of a relief rally. Can that continue or not remains to be seen. The bigger move for me is going to come either on a break of that trend line or if we can really break out of one of these trends where we're we're also getting squeezed in from the upside. So they're the key levels I would say to keep a watch on. The dollar index at the moment is slightly stronger as well. Gold yesterday, really nice opportunity, wasn't it, on the break of those trends that we had marked up during the briefing. You can see, look at that beautiful, beautiful push lower, actually came back all almost to retest it late last night for a second opportunity. If you didn't get in, I mean, on the 5-minute and 15-minute candle yesterday, actually did, you know, come back to retest. I do believe you can see there, you know, depending of course where you have that, uh, but yeah, it came into area of support where you'd expect support to be found, those lows that we had back on the 15th and the Anthony. So first real test of that, that again finds an area the buyers come in. Uh, gold, for now you've got to say that bigger move, uh, if we can, you know, there's a longer term trend line as well if we put this on the daily chart. And for now that's, uh, sort of intact and we close back above. So it's still within this range. I wouldn't get too excited bulls unless we can today intraday get above that resistance level from last night. But of course now keep an eye on where that trend line would reappear, uh, if we were to push to the upside. Where we're trading now, I think you've got to put this on the 5 minutes just to show the significance. We broke through this Asian session, no, came back to find resistance for what was then the high around 2 AM. We're coming up to test that now, uh, maybe a shorter intraday, you know, line in the sand, minor resistance we'll call it, around there. The lows, double bottom. Obviously a break of that could lead to another test of the low of yesterday, which is a very key support level as well. I'm gonna— a quick look over just the general theme again. Let's just move this over there. S&P last trading at the 3— at the 4.3s, still there. Relatively quiet morning. I think you've got to prefer to look to go long. It's gonna bring in the Dow Jones, which is just hovering around this whole area of the last few days where a lot of resistance, uh, opportunity-wise, maybe post-cash open above here, getting that extension through, uh, towards some of these more round numbers, 29,500. Could we get there today? I'd be surprised, but above these resistance points, that would be the, the obvious target for me there. Hope everyone has a good trading day, and as usual, any questions, please do get get those in the chat. Couple of interesting levels to consider today and also on that longer and medium time frame. Should we break any of those trend lines or support resistance levels, we could see things to start to pick up again. I hope everyone has a good one and catch you all later on.