Markets Rise As US Earnings Season Begins

Okay, very good morning. It's Anthony here and it's Monday the 13th of July. Hope everyone had a fantastic weekend. Um, of the weekend news, we have had the biggest rise in COVID cases in Florida, uh, still outbreaks being seen in Australia, Japan. There's also a bit of apprehension around earnings season With all that being said, equities back to all-time highs if you're looking at the Nasdaq. So you could say business as usual to some extent. Um, before I kick off though and talk about some of those themes in a little bit more detail, recap the overnight and weekend news flow, and look at what's in store for the week ahead. Um, just as a reminder, my Twitter handle is here below, so feel free to follow me. You can always message me or private message me if there's any questions or anything you need. But every Sunday I submit my macro menu which is my written 4-minute read to get you ready for the major fundamentals in focus. So check that out if you have time. But looking at the charts this morning then, and what is on the agenda, first of all, from a sentiment perspective, pretty positive actually. From an equity index point of view, as you can see here, the NASDAQ pushing back up once again, the S&P coming close to and finding a little bit of resistance overnight in the R1, which was the, the 3200 level. The DAX then consequently up about 200 here at the market open. The typical kind of sentiment-related moves that we've seen that translate then from a correlated perspective into currency markets has generally been dollar weakness on the back of any renewed or moderate risk appetite. And that's again what we're, we're generally seeing. And so the DXY is down about 0.2%, both major pairs up equally so. So very much more really a dollar-driven move than it is anything fundamental to euro or sterling this morning, as you can see in the top left-hand corner here, euro and cable. Gold is up though, irrespective of that. And certainly from a traditional flight to quality kind of asset, it's been— yes, I guess underlying from a medium-term perspective, that's what has cemented the rise through the $1,800 handle. But from an intraday perspective, it hasn't really been a particularly great indicator from the normal way in which it would react to, say, some some of the short-term intraday movements to things like, to stocks and in the currency market. Um, if anything, the currency side of things remains a little bit better than the equity side, uh, with the Dixie weaker. Perhaps that's just helping bump things back up here, but it's been particularly seesaw. You can see here, encapsulating some of last week's price action in the gold market, of what we had where we, we got up to around $1,830, pulled all the way back briefly dropped sub the 1800 again before we've risen back to 1810. Elsewhere, the 10-year is pretty flat, oil a touch lower. There are quite a few people talking about the potential, as I'll discuss in more detail, of a taper tantrum, um, oil style, as they have an important technical meeting to see and discuss then what they're going to do in future. And if all things remain as per the plan, they should be set to start reducing the kind of onus measures on the supply pact that's been in force, of course, over the last couple of weeks and months. But let's kick things off then and talk through and cycle through some of the major headlines. I'm going to kick things off with earnings season. It's that time of year again, and there are 35 S&P 500 companies reporting this week, 4 Dow components included. All 11 sectors have recorded a decrease in expected earnings growth due to down revisions to earnings estimates led by consumer discretionary, energy, industrials, and financials, according to FactSet at the weekend. So that really in itself, those four sectors— so again, consumer discretionary, energy, industrials, and financials— are all going to take the biggest hit. Should come as no surprise at all considering the nature of the pandemic and the implication then of shutting down the entire economy as we've seen in the quarter being reported. The main thing with earnings season, that does follow a pretty distinct pattern if you're not used to looking at this type of information. That meaning that this week really is dominated by the US top-tiered financial institutions. So Citi, JP Morgan, Wells Fargo on Tuesday. You can see here Goldman Sachs before the open on Wednesday. Then you've got Bank of America, Morgan Stanley on Thursday, BlackRock on Friday. Now, a couple of things to, to look at here. One is looking at US banks expected to post a big fall in Q2 net incomes. In particular though, as you can see here from the breakdown, the fall is probably going to be slightly lesser so in the likes of Goldman Sachs and Morgan Stanley comparative to, say, banks of a slightly different I guess, um, profile in regard to the actual products and how they generate their revenues comparative to say Wells Fargo and Citi. Uh, and what this is basically suggesting then is when you look at these individual bank stocks in America, they are quite different in terms of what they do. So the more purist, let's say, investment banking names like Goldman Sachs and Morgan Stanley, they're set to triumph over their Main Street kind of rivals due to the fact that, you know, they've they've had surging trading revenues is likely to be seen, just given some of the volatile nature of what we've seen in markets over the past couple of months. Also, lenders continue to face numerous challenges, one being that of incredibly low interest rate environment, a deteriorating economic kind of situation at the moment under the pandemic, and a need to shore up their credit reserves in case of any loans going sour, essentially, given the uncertain nature of what this virus entails and the potential for a second wave and the consequent impact that that can have on their bottom line. So here you can see America's biggest lenders are expected to post higher loan losses, those being the likes then of Wells Fargo, JPMorgan Chase, Bank of America, rather than the more pure-blood investment bank names like GS and MS, who are probably outperforming perform their counterparts here. Overall though, from an earnings season perspective, the main thing I was kind of writing about at the weekend in my Macro Menu is that for Q2, the estimated earnings decline for S&P 500 stocks is going to be around about 44.5%. That's negative. And so this marks one of the largest year-over-year declines in earnings reported for the S&P since basically the financial crisis. However, one of the things here, as we all know, is that— and quite a lot of, uh, quite funny Fin tweets over the weekend that I saw in response to this— is that that's a buy signal. You know, this is the kind of world in which we live in. And as much of the jokes aside, very much so that this corporate deterioration that we've had in Q2 is very much expected. And so what's going to be important when we're looking at these earnings reports really is what does their outlook look like? What do they think about the shape of the, the future for these individual companies and the economy as we go forward throughout the rest of 2020? Remember, according to most banks' estimates— and I say central banks— we are looking for quite a pronounced kind of recovery as we go in towards the back end of this year and into the next, into 2021. And that's what's probably going to be more of a decisive factor rather than the actual here and now figures that would be reflective of the previous 3 months. So that's earnings season, again banks being the main focus, and they kick off tomorrow and Tuesday. Elsewhere then, as I said, still a lot of newspaper attention to the ongoing COVID situation. The US continues to dominate here in terms of those headlines. And just to give you some stats, Florida reported 15,300 new virus cases at the weekend. That was the biggest one-day rise since basically the onset of the pandemic, a 6% daily rise compared to an average of about 4.8% seen over the prior week. Um, US then continues to remain very high here. United Kingdom pretty static. The other two that are rising, uh, even more rapidly at this point than the US, albeit at a much lower level, is Australia That was a talking point last week, of course, and that continues to be an ongoing issue for them. And then there's been the latest outbreak in Japan, which has seen their numbers start to come off quite a low base here on that blue line you can see down at the bottom. As I said though, Florida was a little bit of focus, and you're not— this isn't a superimposed picture of a face mask on the president. He actually wore one for the first time ever. Since the pandemic has begun while he was visiting a military medical center on Saturday. This comes as well despite him taking a few pop shots at his political rival Joe Biden for wearing a face mask. Trump's always tried to duck and dive it, but if you think about it, if he was to go down and become ill on the back of COVID I think that would be an absolute blow for him politically. So I guess it was somewhat inevitable that this was going to be the case, and it comes after now The US states have ordered new restrictions this weekend, and one of those then is and does now include mandatory wearing of face masks. And the president, no different on this particular case. The one thing to be clear though here— well, a couple things. If we start looking at the trajectory of a lot of these curves, the fact that some of these numbers have gone up, I don't think is particularly new information. And I'm talking about this in the cold heart of the the, the stats here. Obviously it's not a good situation for any of those involved, but here you can see, yes, Texas, for example, Florida, the numbers continue to creep up, but you can see that they have been for a number of consecutive days here. I think that largely explains why the market is relatively calm by some of these headlines that we keep reading. So despite Florida seeing the biggest one-day rise, one thing here, the state did report a drop in deaths. I think it was to 44 from 95. The state's rate of positive tests declined to 11.2 from 12.5%, and that's the lowest since late June. So now what's quite interesting still here as well, um, it could be, I guess, subject to the fact that there's more testing happening at this point in time, the ability for people to be more COVID aware, meaning that they might seek medical attention quicker. Those facilities are better set up in order to respond to those people coming into hospitals, meaning the actual death rate remains fairly depressed irrespective of the fact that cases continue to rise. There's a little bit of a divergence there at this point in time. Um, so yeah, although this sounds quite sensational, a lot of the headlines you're reading, I think all in all for this week, unless we see some sort of exponential growth in the R-rates, the reproductive rate in some of these key areas these curves start to re-steepen quite significantly, or on a global level, if we start to see Australia, Japan, even the UK start to show signs of a significant pickup, particularly on the UK side given the fact that we went through our latest phase of reopening and loosening of lockdown, uh, only a week or so ago. So given the incubation period, it'd be interesting to monitor those numbers. But all things remaining equal, unless those things develop or unless there is a definitive new unwinding of some of the reopening in some of these American states, then I really don't see this information having too much of a defining factor on market prices this week, all things remaining equal. Elsewhere then, OPEC, there's a little bit of discussion point around this to a certain degree. The JMMC, so the Joint Ministerial Ministerial Monitoring Committee, which is kind of the technical task force issued by OPEC+ to just see what the latest compliance rates are and have a broader discussion. But just given the inherent nature of the current pact coming to its expiry at the end of the month, there's obviously a lot of discussion about when this meeting happens on Wednesday and what are they going to do next. So Overall, there are 23, um, countries involved in this national alliance to keep 9.6 million barrels of daily output off the market for another month. Well, the decision comes on whether or not they should restore some supplies as they had originally intended to do so, tapering the cut back down from 9.6 to 7.7 million barrels. Now, the reason for that is what they would see is that after the demand shock that we had in March, when obviously going into March, April, prices briefly tipped into negative territory. A lot of that has started to stabilize somewhat, leaning toward then the latter option, which is to follow the game plan about reducing the onus nature of that value from 9.6 to 7.7 million. Um, that's what, um, several national delegates who were asked not to be identified reported to Reuters over the weekend. So at the moment, that's kind of our base case expectation. However, the thing here, and the reason why this, this word taper is being used in taper tantrum, this harks back to a decision made from the Federal Reserve about how quickly you remove the kind of punch bowl, or in that case monetary stimulus. And that could shock markets who have become highly dependent on that type of support. And that's what people and some are looking at potentially with oil in the fact that, you know, the market has been propped up and stabilized around a $40-$41 handle in West Texas Intermediate. And that is based upon the notion that of these very forceful and highly compliant cuts. OPEC in itself, I believe the statistic is they've been around 106% compliant across the board. Some of those countries which typically would be fairly lackluster at complying to these, these compliance quotas, like Libya, Nigeria, for example, Iraq, have been a little bit better under the kind of watchful eye of their Saudi counterparts. And so if you remove this now, at this situation when the, the, the kind of economic future still looks uncertain, global growth still, although looks more stable now than it did a few weeks ago, it's still dependent really on the development of the virus and lots of other factors as well that could quite easily just destabilize things once again. So there's a few people asking the question of if they start to follow the predetermined kind of flight course, if you like, of reducing down the toughness of these supply cuts, so that could create a downside risk for oil prices. But we'll see. Counteracting this in terms of weekend news though, we did have a couple of things. Libya National Oil Company declared a force majeure on all oil exports barely a day after lifting it. Essentially what happened here, that Libya had restarted some exports on Friday with loading off the oil tanker of Criti Bastion at the Es Saida before Libya's Eastern Commander Haftar ordered a halt to exports on Saturday night. And then separately elsewhere, but within— sticking in the Gulf region, Saudi— Yemen's Saudi-led coalition said on Monday intercepted and destroyed 4 missiles and 6 explosive drones launched overnight by Houthi forces towards the kingdom. And so although this is not unusual type of behavior in that particular region, it continues to be some supportive factors to price to set this potential, at least, um, idea at this point of this taper tantrum in the oil market. That's yet to be seen. That's Wednesday, that JMMC meeting is happening. And despite oil, I think this morning is just coming off given the significance of the rally that we had back up during the end of last week. So I don't think there's too much honestly going on right now. That's just a major event happening midweek that you should be mindful of at the moment. As long as equities keep holding up and remain stable, that's generally based on this idea about still a degree of positivity about the economic recovery, not, as I said, with how downbeat the earnings reports are going to be in terms of Q2. Well, that's probably going to be a supportive sentiment factor for oil to remain pretty much locked in into this price activity that we've been seeing over recent weeks, really since June, which is a squeeze in on the price around the $41 handle, which has been holding, which is that initial level before the gap down that we had on that failed OPEC meeting at the beginning of March of this year. Still with oil, it looks like some decision of some type needs to be made because price is getting kind of ever more narrow into this kind of price pattern, which would be indicative of either a breakout in either direction. So this week could be particularly telling for that to be watched. And then the other thing that's happening this week, there are a couple of central bank decisions. Um, I mean, I think from the case of the BOJ, I think you've also got the BOC, um, that they're not expected to see any real changes. The ECB though could be a little bit more interesting, but after their over-delivery of what we had with the purchase, the pandemic emergency purchase program, uh, last meeting. It's unlikely they're going to really unveil anything particularly new. The real decision, uh, all the decisions which will carry most magnitude are really going to happen probably towards the autumn, and we've got a better idea of what does the economy look like at that point in time and whether or not they need to go one step further, or if all things remain on a recovery track, do they need to start kind of talking and issuing forward guidance about the route of an exit, for example? So I don't think the ECB is going to be too exciting. However, it— this happens on Thursday, and that does coincide then with the commencement on the 17th and 18th of European leaders meeting to hammer out the details on their European Recovery Fund. That, of course, is quite a contentious issue. The frugal four continue to be pushing for cuts for the planned recovery package, while Spain, Greece, and southern members continue to kind of call and rally to arms for eurozone further integration, given that they would be the biggest benefit— beneficiaries of such a program. So whether or not that happens and that gets delivered could well have implications then for how much so or not do the ECB have to do and also the type of parameters around the types of bonds that they're going to buy. If the EU in itself is going to be the region's biggest supranational issuer, that could be— then it could change the composition of the asset purchase scheme at the ECB. Probably too early to tell though this month, given the timings of things. So looking at the calendar, today is very quiet. There's just a couple of speakers to be aware of. Fed's Williams, but Bank of England Governor Bailey also speaking. Even though Bailey is the governor, I wouldn't be expecting a great deal there. From the UK, you do get the likes of UK GDP, CPI this week, worth keeping an eye on. In terms of the other events, non-data-wise, to look out for Tuesday, we get the UK's Huawei decision about whether or not to use the 5G network. And this comes after quite a renewed amount of friction between China and the rest of the world, generally speaking, in the fallout of that implementation of the Hong Kong security law change. We've also then got, aside from earnings, um, yeah, you've got the BoC and the BoJ happening on Wednesday with that JMMC meeting for the, for the oil market. And you also get New York Fed manufacturing, industrial production, manufacturing output on Wednesday. Thursday we get some Chinese data, an update on retail sales, industrial output, and GDP. And of course that will be closely watched alongside the regular initial jobless claims out of the US and US Philly Fed and retail sales numbers. That'll be alongside the ECB. And then on Friday, eurozone CPI, housing data coming out of the US, and then we get the commencement of the European Council meeting as I just mentioned. So that really is it. I'm not going to go into too much more detail. If you did want to read these things with a couple of supplementary graphics as well, which help explain, then just check out that macro menu. As I mentioned, feel free to leave a comment at all, uh, on the video if you have any questions. We also have introduced now one of our technology analysts, Milan, who's also going to be delivering some content. And he just released a video on our YouTube channel in regard to what is algorithmic trading, because I think a lot of people get confused or kind of misty-eyed about what that exactly is, and he gives a really nice concise and simple walkthrough of exactly what that is from a technology point of view. So check out the YouTube channel, don't forget to like and subscribe to the— all the content, and I'll see you same time tomorrow. Thanks very much guys, have a good week ahead.