Nasdaq: To Infinity and Beyond

Okay, very good morning to you. It is Wednesday the 2nd of September, uh, normal service resumes, and that meaning then that the NASDAQ and the S&P continue to push to the upside, a higher close on Wall Street overnight. In the briefing, we're going to talk a little bit about the reasons behind that, what might come next. We'll talk about the economic calendar for today. We'll talk about potential for further forthcoming fiscal and monetary stimulus in the US. We're also going to talk about the euro and some verbal intervention coming on behalf of the chief economist of the ECB yesterday, coinciding with a key technical rejection around 1.20, 1.2050 in the currency pair. And also a quick look at the US election, given Donald Trump has been in Wisconsin, which has been at the epicenter of some of the recent violence in North America. Um, so that's what we're going to cover. But before I do do that, just to remind you, here we're going to be covering— the team and I— the full US non-farm payroll release this Friday. All you need to do is go to the link. I'm going to put it in the YouTube video description and in the comment section. Uh, it's going to be capped at the first 500 registrations, so, um, do register for that early. And I really look forward to taking you through that live release. We're going to have everyone on board, Piers, Will, Sam, Alex, myself, Liam will all be present. So any questions, we'll be on hand to help. But let's move on and let's look at the charts then this morning. What have we got? And as I said, index futures are on the ascendancy once again. And if you look at the DAX, we're up around 120 points just following the slight gap up we've had, the recommencement of trade in the overnight session on Eurex. Following then the continuation of the push higher that was seen late into the close on Wall Street and then has continued during the Asia-Pacific session. Overall, it was a little bit of a mixed performance for the Asia-Pacific indices. The Australian stock market actually did outperform. This comes irrespective of the fact that their second quarter GDP came in quarter on quarter at -7%. Expectations were for a contraction of just 5.9%. But what that's done then is kind of that mantra of the worse the news, the more powerful the anticipated stimulus response coming from the government. And so therefore, naturally, the Australian equity market has kind of jumped ahead and looking forward then to increased stimulus measures to boost their economy. So weaker GDP but a stronger result for the Australian stock market. but a little bit mixed elsewhere. Japan, South Korea, modest gains. China, Hong Kong, a tiny bit lower. But overall, if we look at the close on Wall Street yesterday, let me just flick over to the heat map because that really tells the story. And one of the companies you can see once again here that is in the green, one of the big market cap names that generally just drags the equity indices higher, in the case of the NASDAQ certainly, but also the S&P, is Apple. They were up another 4%. Remember, they were already up a similar margin on the back of that 4-for-1 stock split kind of going live, if you like, in the prior session. Added another 4%. Um, this follows that news that we were covering in a briefing this time yesterday about Apple asking their suppliers, uh, to build at least 75 million 5G iPhones later this year alongside new watch models, new iPad Air, new smaller HomePod, lots of other products they're bringing to market, irrespective of the pandemic. Obviously, that has still interrupted somewhat a lot of these, these retailers, but not for Apple in terms of their expectations going forward, and the market liking that. To give you a bit of context here, I saw an interesting stat: Apple's market capitalization is now equal to the combined value of all the stocks in the Russell 2000. Um, so quite incredible really, those smaller domestic-focused kind of small caps in the US, 2,000 of them is equal to just one mega, mega-cap tech name. But obviously one of the big things from yesterday that helped push the, the market higher just generally in terms of risk appetite, it caused the dollar to also reverse some of that persistent selling pressure that it was under which coincide with that kind of cap in the EURUSD, quite a key level we'll look at in a moment, but also underpinning the general equity push. With US manufacturing activity, obviously that expanded in August at the fastest pace since late 2018. Again, growth in new orders jumped more than 6 points, which reached the highest point since the start of 2004. The gradual reopening businesses and steady improvement in consumer demand that left inventories depleted boosting manufacturing in the United States. But factory employment does remain a little bit weak, and that will be a consideration when we look at the Labor Department report in non-farm on Friday. But, you know, really strong figure coming out of the US, and it does follow the coattails of that Chinese manufacturing activity number we saw the day before, which expanded at its fastest clip in nearly a decade, with also the first increase in new export orders this year. So And if you think about the things that are going on at the moment, then these are some really positive and encouraging signs for then the strength and speed of the global recovery. And so with that, in the context of the fact that there's probably a more likelihood of further stimulus to come, whether that's the Fed remaining very accommodative— we had Fed's Lael Brainard, who's a governor at the FOMC, suggested yesterday that the importance is for the Fed policy to pivot to accommodation from stabilization in the coming months. Furthermore, Treasury Secretary Steven Mnuchin said yesterday the US economy urgently needs additional fiscal stimulus to fully rebound from the COVID-19 crisis. So think about it, at the moment you're getting this continuation of further commitment from both fiscal and monetary forms And it's being put into a context where economic data is showing a fairly robust recovery. And all of that happening, of course, with this also happening, which will just transition my screen, which is COVID-19 cases in America continue to decline. So, you know, if we look at daily case numbers, current hospitalized numbers, and daily deaths, they're continuing that trend which has been in play over the course of really the month of August. And so, you know, if we look at that, when people were talking about the second wave in the Sun Belt states and about how that was going to have potential real pressure on hospitals, you know, we're pretty much getting back down to the levels of where we were at the lowest point after the initial first wave. And I believe in Texas, in the next week or so, they're going to start reopening certain businesses and so on. So all of this then is a real positive sign for, for equities. It's like a perfect storm. It's the Fed not changing. There's nowhere, no chance they're going to tighten. If anything, they're going to ease further. Whether we go from, you know, Clarida yesterday still keeping yield curve control on the table, to Brainard saying that we should pivot to accommodation from stabilization, to the new adoption of average inflation targeting, to then Steve Mnuchin still pushing with, uh, on Capitol Hill against Nancy Pelosi to get some form of stimulus in. Well then I can't really see, all things remaining equal, any reason why this equity market shouldn't just continue to rally. Now, that doesn't mean it won't be without its momentary pullbacks of profit taking on— in terms of some of the short-term speculators looking to book some on the way up. But yeah, I mean, we look— we're at almost 3550 now coming up in the S&P future. I mean, we're trading close to that, um, the the pivot— or excuse me, the R1 comes in at 44 there, just above. But yeah, 3600, yeah, why not? Is that going to happen today? I would say no, it's quite far off. But it— would it happen this week or in the future? I think it will. So I don't see much to detract from that at the time being. If you pivot that over to crude, crude oil should be supported by a similar narrative. And overall more solid global picture, as has been identified by the manufacturing PMIs in both from China to the US, would indicate then a better return of demand coming for consumption of these energy products. And typically that would be supportive of oil. The American Petroleum Institute reported crude inventories dropped by 6.36 million barrels last week, according to people familiar with the matter. Uh, that was in a report in Bloomberg this morning. That would mark the longest run of declines this year if confirmed by government data on Wednesday. So you've got a, a better global picture which should then increase general appetite in terms of demand forward-looking. You've also got then persistent drawdowns happening in terms of inventories, and also from a technical perspective, if you look at this crude chart looking on a daily continuation. And we've just had in the last day the 50 DMA has now crossed the 200 DMA, which would be typically known then as the golden cross, which would be a bullish signal from that technical indicator. That, you know, we were already looking at the 21 DMA as being a good area of support for price generally, so I'd still be keeping an eye on that with that low for the 27th of August, which is around $42.36. But you know, lower down, that shorter-dated moving average crossing the longer one generally would be a bullish factor. And so yeah, whether that's going to be the key today or not, we'll see. Perhaps then the oil inventory numbers, whether the API, but usually more the DOE, sparks price activity. Could that be the midweek catalyst it needs then to push it on up higher? If that does happen, as I said before, technically we need to get above the 26th of August high, which came in around $43.78, which is about 50 cents or so above the current price. But if we did, then I don't really see too much in the way of obstacles technically from a resistance point of view until we get all the way up to $44, and then $45 would be a key target on the upside. So still remain bullish in the current setup, um, and I would anticipate then oil to move in a similar fashion to the general grind higher that we've seen in equities because they're both trading off a fairly similar generalized narrative in that, in that sense. Elsewhere then, with some of that pickup, gold just coming off a touch yesterday, gold being rejected at the 2000 handle. We know that was important before on the rally up, and so on the decline it was equally so. And now we've got back to that point. So I think, you know, just given some of those positive developments from yesterday probably a good chance to just book some profits given the run out. We had a bit of a technical break, if anything, in price, uh, yesterday. We got above some key levels that were defining last week's price activity and in the early trade of this week, and then we broke above that, extended up to 2,000 before they're just running into the resistance and profit taking on that move. Nothing too much more so than that, I would say. Um, and then elsewhere, yeah, let's have a quick look at the currencies. I mean, one of the main things that I was looking at was, was this one. Um, Euro surge is ECB's newest complication for pandemic economy. And it's talking about, um, in the past, those who were trading for many years will remember Mario Draghi dealing with the euro, particularly a few years ago when it was at 1.40. But remember, it was up at 1.60 at one point, and that's where you get this kind of termed jawboning, where they try to talk down the currency. And because of the nature of the fact that in the euro area, the European Currency Union is particularly exposed to currency strength because of its relatively high reliance on exports. And so what we've had here is a little bit of that soft intervention, verbally I'd call it, and it's come by way of the chief economist of the ECB, Philip Lane, who said basically that the euro-dollar rate does matter. So he's trying to— that's kind of the very soft signal putting on the table. Look, we are mindful of it. It's rallied an awful lot in a very short space of time, just a number of weeks when it's broken out to the upside amidst as well some of this dollar weakness, of course, but really initiated that euro strength since Merkel came through, over-delivered with the latest form of German domestic stimulus. Coincided with the coordinated EU Recovery Fund delivery, and that really fired up, galvanized the euro in the context of the weakening dollar that we've seen with the further move to accommodative policy from the Fed. With the technical breaches on long-term trend lines, the euro has really soared. So, um, this isn't too unusual activity. It, it is probably to be expected from the euro. And if we look at the EUR from a technical perspective. And a key level that Alex was looking at with a few of the guys yesterday was up at 1.20 to 1.2050. I'm looking at a weekly candlestick chart here, so that's that breakout of that long-term trend line and that summer '18 high. But as we get to around 1.2050, you can see that there's that peak of price movement in September of 2017 and that low that we had in the summer, July of 2012. As a key area. So that's a big resistance point. And obviously what's quite interesting is the ECB have shown their first hand, if you like, in that they're not— they're looking to control and tame the appreciation of the currency, because what they don't want to happen is what was happening back here during 2014, and certainly back in the midst of the financial crisis itself. So yes, quite, quite interesting there. Otherwise then you know, coinciding with that technical rejection on those key levels. Obviously, really the instigator was a dollar bounce off the lows following the Stellar ISM yesterday. So consequently, cable also a little bit lower, just backing off the surge that it's had, just falling short to 135 handle. So those major pairs down a touch this morning. The DXY is not really doing anything this morning, it's flat, but it importantly is holding on to, to the gains it made yesterday. So we were trading sub-92 handle yesterday. We're back up to around 92.40 now in the Dixie for the time being. Okay, one of the final things I just wanted to cover was a quick look at this, and this is to talk a little bit more, I guess, from a political strategy point of view, more so than I think it's really a definable thing to trade right here right now. But you probably saw some of these images from from yesterday and they're circulating this morning. And Donald Trump met with local leaders in Kenosha, Wisconsin on Tuesday. He barely even mentioned Jacob Blake, who was the black man shot 7 times in the back by a white police officer in front of his children. Instead, Trump made it clear that his sympathies lay with the police force. Now herein then is the big kind of strategy play from Trump. His campaign, of course, is aiming to counter the loss of faith in his administration over the handling of the pandemic and also the economy by painting a dystopian picture of a Democratic administration where towns and cities are kind of, as he would term it in his tweets, succumbed to the mob. And the mob's running riot, causing violence, smashing homes, smashing shops, causing disruption, rioting, and so therefore reinforcing his call for law and order that he continues to repeat as a message. Now, one of the things here then, um, that's, you know, that's quite interesting in terms of developments, in terms of what Trump has at his disposal to try and catch up and narrow this gap with Biden, is that if you think about these things here The main thing is he needs to counteract then the loss of faith and what created a loss of confidence in himself reflected in the polls, which was his dealing with the pandemic and its impact it's had on the economy. But if you look at it, as we've been discussing in this briefing, the economy is recovering, and ISM really epitomized that yesterday. Stocks are rallying, COVID cases are declining, and also we've still got the televised debates coming up, which the general consensus is Biden's got his work cut out. Whether it's his own mental agility or whether it's Trump going to be more kind of refined— I'll not say refined, that's a bad word to describe it— but Trump being more perhaps comfortable in the routine of a televised debate forum. So all of that, I would say, in the current context is playing out fairly favorable for Donald Trump at the moment. And one of the things that's been quite evident is I was looking at some, some data from the FT and it was talking about— it was asking white voters by different political parties, so whether you're Democrat, Republican, or independent, and asking, do you support or oppose the Black Lives Matter movement? And obviously this was a massive thing after the George Floyd death a few months ago and it went kind of viral. It was a big global social issue, but very different now, I'd say, to the type of engagement that the world and domestic communities in America really had with that subject matter, albeit it's still a very, very divisive and, and clear subject. But here, what was interesting, I thought, was if you actually look at what's happened, um, do you support or oppose the Black Lives Matter movement. Um, the actual independents here, if I actually look at it, um, the oppose in the independents— now I'm going to focus on that because I think it's a little bit more interesting given that they don't have any political leaning in either direction. Um, the oppose has gone up and the support has gone down. So what this would suggest to me is that as time has gone on what's started to happen here. And it does fit in step with some signs about COVID declining, the economy improving. Trump's jumping on this, trying to then further exacerbate the movement back towards law and order and away from, from COVID And this is reflected in white voters who are more perhaps indecisive, sitting on the fence, are starting to get starting to buy into this kind of idea and, and, and somewhat tiresome of then this social movement. And the more violence there is, for whatever justified reasons there might be for conducting that, for the history of the actual issue in question, the point is it's actually being self-defeating for the Democrats at this point in time, and it's actually further fueling more popularity towards Trump. Because it just further legitimises the law and order and being tough on crime, supporting the police force kind of movement for the white voter in this case. So yeah, I just thought it was, it was quite interesting to see some of these latest developments. And certainly Trump, he's aware of these figures, and hence the reason he's doing what he's doing. And then obviously situations like what we had in happening in Portland in the state of Washington at the weekend with a clash between Trump and Black Lives Matter movement protesters that resulted in the death of a Trump supporter certainly helps this narrative, of course. So what is all this leading to? Well, the gap continues to narrow. My foresight here would be that I would anticipate that this gap will continue to narrow. And as the economy— what's going to be important is COVID cases continuing to decline, economic data continuing to stabilize and improve. And I do think that Trump will come out more favorable in terms of those televised debates. And so at the moment, I would say further gains for Trump is probably on the cards. Now, what does that mean? I guess as we get closer towards it, and we're already seeing this in a few other articles in the FT FT this morning. If I quickly just jump— I'll go very quickly here, just conscious of time— but there were some good graphics in the FT talking about volatility kinks, looking out where in the options market obviously you can start to anticipate then where the peak of volatility has come. And the biggest VIX election premium on record now can be seen. And, you know, the closer these polls start to converge the more up for debate is going to be on who's going to actually win, what the actual victor will be, and the more people are going to have to hedge themselves for potential more volatility ahead in the, in the period. So not so much for trading right now, but I think an interesting observation and one I wanted to share. And if, yeah, this article's in the FT if you wanted to have a look at it. All right, that is it. So as per usual, really appreciate it if you're new to the channel, if you could subscribe. Absolutely feel free to leave a comment. I always try to reply and engage with everyone, so have absolutely happy to help as best I can. Otherwise, do register for the payroll event. I'll remind you of that a few more times before it actually takes place on Friday. But yeah, have a good day and I'll see you same time tomorrow. Thanks very much.