Need To Know News & Analysis This Week

Okay, very good morning to you. It is Monday the 8th of June. Hope you're doing well and had a great weekend. Some exciting news to announce to kick things off for this morning and this week, and that is the introduction of Amplify Live. So a quick introduction of what this is, is a new £50 subscription platform that we put together and includes a couple of different things. So let me run it through in a bit more detail. First of all, we have my daily macro briefing. So what you, what you are watching now, if you're looking at this on YouTube, they are from Tuesday the 9th of June, going to be going up on YouTube at the later time of 10:30 London time in the morning. If you wanted to see the briefings at 8 AM in the morning, they will be available exclusively on this platform, platform only. So So here I'll be uploading them each morning after they've been filmed live by myself. The other thing as well, you get the technical trade setups from Sam. So he'll do this at the end of the day where he'll be reviewing all of the day's trades. He'll be looking at then some of the technical setups that he'll be eyeing up for the following day. So great, not just for intraday but for swing traders as well. And then on a Sunday, he also does that for the entire week across all different assets and products. The other thing here, we have a live trader chat room. So basically we have a private channel on Zoom which we use, and that is a community for all of our traders, some of them backed by us, some of them trading their own capital that have done Amplify Trading before in the past, many years gone by. And that's a room for them to share their trade ideas, their ups, their downs, their questions for the desk, and everything in between. So that's exclusive access to the chat. And then we have what we call the Masterclass Series, which is every week one of the members of the senior team will make themselves available for a 45-minute webinar talking about a specialist subject to that individual. So for Will, our MD, he talks exclusively about psychology. For me, about market fundamentals. Sam, technical analysis. And Piers, our head of trading, trade execution. So essentially you can book yourself in for each week to have a session with one of us in a small group, private for the people on this platform. And then finally, the last section, Macro Now. This is where I'll be talking about in short bite-sized videos some of the key themes and topics in markets from a fundamental perspective. So check that out. I'll put a link into the top line of the description on the video, and I'll let you have a look and just let me know if there's any questions in the meantime. Also, my macro menu, my kind of look ahead for the week, is available on my Twitter account as per usual every Sunday. It's the pinned tweet on a Monday morning as well if you need it to get prepared for the week ahead. And so without further ado then, let's have a look at the week and what's in store. And this morning, the main things we're looking out for is quite a quiet start, and I guess that is reflected somewhat on the charts this morning. There's a couple of things for me to get you up to speed on from from what are we expecting from the Federal Reserve and Jerome Powell after the spectacular jobs report that we had on Friday. Where do we go from here, and is it going to alter or not what Jerome Powell and his colleagues are going to say at the FOMC meeting? We are going to be covering that live, so I'll be putting out later on today a link to register for a webinar, so keep an eye out for that as well on the usual social channels on Amplify. Otherwise, we're going to update you. OPEC+ have confirmed basically what was rumored at the end of last week and have extended their existing pact for any further month. But also, we need to be eyeing the performance of a tropical storm developing at the moment in the US, which I'll show you a good way to track that as well going forward. And then a few other bits. China, some big potential M&A news in regards to a potential tie-up between AstraZeneca and Gilead Sciences. Worth keeping an eye on those stock prices as well as we go through the session today. But overall, as far as the cross-asset class mix goes and overall market sentiment, the European Open is fairly neutral. Equity index futures, the US slightly positive, the DAX just coming off a touch, just given some of the run-up that we had after the ECB, the non-farm payroll report. Oil prices a little bit up and down. We, uh, we opened trade and you can see here we initially moved higher only then to see quite a sharp downtick overnight to recover that. So pretty choppy trade, but we'll go into those stories in a moment in more detail. FX markets, the dollar is basically flat after being a little bit weaker at the recommencement of trade. So if we have a look at the major pairs, EURUSD pretty flat, CAD/USD up about 28 pips, just close to the 127 handle at the moment. And gold, just having a look and wanting to have a test on that pivot level which has been providing a strong area of resistance through the early part of the European entrance this morning. Any move and break above there, probably behind that 1700 mark, which would encapsulate then those previous lows that we saw towards the back end of last week. And then T-notes are basically trading flat. So overall, not too much in the way of fireworks to kick things off, but certainly a couple of headlines to go through. And so first things first, let's talk about the Federal Reserve. And obviously this week comes on the coattails of US employers adding 2.5 million jobs last week. I mean, that was a really big shock for markets in every respect, given the fact that we were anticipating, what, a loss of 8 million or so jobs. ADP obviously was quite a bit stronger than expected, albeit still a heavy negative print. and they cut the jobless rate to 13.3%. Remember, expectations were that, um, that we thought that it would be heading towards 20% at the time. And just having a look then at the, the S&P, there is technically some interesting levels at which we were targeting. I think in the briefing discussions that we had last week, I've got these previous two rectangles as key areas that we were eyeing up. First of all, being around that 3113.75, which was the peak of price movement around early March and acted as some previous resistance support around November, December of 2019. But we pushed up right into the next area of technical relevance and finding some highs right on that low point that we saw going back into the early part of February right there. And that was at 3210.5. We're looking at the daily continuation chart here in the S&P. So yeah, really impressive run-up that we've had. Of course the kind of freight train that is US equities not showing any signs of relenting at this point. But certainly as it starts to become more extreme and that kind of pushes further then the, um, the discrepancy between the economic fundamentals and the equity markets, it continues to bring about certain questions. I won't go into that in more detail for now, but certainly we'll be interested to see how equities perform. Can we get above this point? You can see here then technically probably you'll be eyeing that top of that candle on the 25th, which would be 3250. But then who's to say we don't go all the way back up to 3400 again? I'm not saying that that's going to happen necessarily this week, but they would be the key levels on the upside that I would be keeping an eye on. And obviously the 3300 handle as well. But looking more near-term, the price action after the acceleration of price movement post-payrolls, we've kind of held on to that gain, if anything, in US equities. But there are a few things worth bearing in mind with that nonfarm payroll, payroll report. And I did talk about this in my Macro Menu this weekend. And let me just talk you through a couple of points. For one, let me just switch over. So I start off by just saying it's a very important lesson for any new traders, and certainly anyone who's looking to become an analyst in markets. Whenever I used to work on a desk when I was doing this, I kind of full-time in my previous role managing a desk of analysts, one of the things I used to always teach them— I think for traders it's, it's the same because it could impact the duration of the trade if you're being aggressive and hitting market after a big news release— is if you see a statistical anomaly like that, like payrolls, where the bottom end of the expected range was still for a number in the tune of, say, -1.5 million, but not only have we deviated so far from the median, we've actually also sharply broken the bottom end of the range, then yes, you get this knee-jerk reaction, kind of more binary systems, and, you know, algorithmic trading might kick in at that point and see quite a sharp blip, particularly with the nature of the lack of liquidity going into such a big fixed scheduled event like payrolls. But ultimately, if you get a number like that, always question it. You know, one of the things I would say through all my years of experience that nearly always is the case is that whenever you see a situation where there's a real anomaly in a statistical data set, it's normally due to a reason. And that reason, more often than not, is a methodology change that perhaps not everyone was aware of, or there's been some kind of calculation mistake that's happened because of the way of which the jobs numbers are generally created. We are in an unprecedented situation with the rapid pace of job loss that's never been seen before. So that makes it very difficult to compute accurate numbers, and so they're prone to mistake. And so a couple of things here, uh, if you actually go on to the Nonfarm Payrolls report on Friday and you scroll right down to the bottom, so basically it looks like a, an entire report, it goes through all the details, but then there's a box at the bottom which talks about COVID-19 and its impact on the data set. And actually it says there, it's a clear admission that there's been a misclassification error in that some people who should have been classified as unemployed were instead classified as employed but absent for other work reasons. So that in itself then is going to influence the actual quality of the data, but it's also worth remembering the staggered, staggering lengths that the US government has gone through, through things like the Paycheck Protection Program One of the things I was looking at when payrolls did come out on Friday was the employment change by industry. And what you can see here is nearly half of all jobs that were created— remember, it was around 2.5 million— about 1.25 million came explicitly from leisure and hospitality, of which was the complete opposite when you remember we had that -20.5 million payroll reading. So leisure and hospitality took the biggest hit this time it had the biggest ad. And so, you know, a lot of people suggesting then that perhaps it's a case of a lot of these jobs were given back in order to then make sure that these people could be protected and have a, have some income coming in and be protected by that PPP program. So yeah, overall I think that that payroll number was shocking. It was shockingly surprising in terms of how strong it was, but I don't expect the markets to really dwell on it for that long, to be honest with you. And I think it will be quite quickly a distant memory. What does that mean for the Fed and what Jerome Powell is going to say? I think personally, absolutely nothing. I don't think that that's going to change the needle for where the Fed's head is at, at this point in time. I don't think that that really is going to be, let's say, the nail in the coffin, right? The recovery is underway, that's it, it's all improvement here on out. Out. I absolutely don't think that's going to be the case. I think there's kind of room for a degree of positivity in the sense of market has restored a sense of stability, at least for the time being. And I expect Powell to kind of give more of a reassuring delivery to markets, kind of saying not as clear as that the worst is over, but for the moment the appropriate actions have taken place. But importantly, I would think that he would say there is still a willingness and an ability to provide additional stimulus should it so be needed in the future. So it's kind of more like that reassuring arm around the market. Look, things are okay for the moment. We'll continue to monitor, and should it be needed, we are willing to do more. And so, um, I don't think I'm expecting too much in the way of great movement on the back of that midweek event. Certainly it's going to be something interesting to monitor, um, but there's no new initiatives that are expected. It's really going to be the press conference which we'll be monitoring quite closely. From a US data perspective, if we just quickly jump back to the calendar, there are a couple of data points that might be of interest. You've got US CPI coming out on Wednesday, so just a couple of hours before the FOMC, and then on Friday you've also got the University of Michigan Consumer sentiment, that'll be the preliminary figure as well on Friday. Expectations are from the data-wise, data side of things, consumer price inflation should continue to ease given the lack of demand in the economy. And if you think about consumer confidence in the Michigan reading, it should see a slight uptick given the gradual reopening of the economy we've had over that particular surveyed month. So that's the Fed really. You know, interestingly, when it comes to the Fed Remember a couple of weeks ago everyone was going crazy talking about negative interest rates. Haven't heard anyone mention negative interest rates in a long time. So I would say for the time being, touch wood, it's not to say it might not never happen, but it's definitely not going to be something we'll be looking out for as far as this meeting is concerned. Will he be questioned on it? Perhaps. Is it anytime soon that that's going to happen? No, I don't think so. Not unless there is something massively unexpected that occurs in the coming few days. Just going back then to oil, I mentioned OPEC. Well, what have they done? They decided on Saturday to extend those output limits at almost the same level through July instead of tapering them as planned at the end of June. If you remember the deal in which they originally struck to offset then the dramatic fall that we had in the pricing end of the pandemic originally during the period of of March and April, they basically said that they were going to cut aggressively and then they would basically stagger that down slightly over time in order to kind of make sure then that these oil producers, who obviously are very reluctant more often than not to cut aggressively production because of the loss of income that they see off the revenue from selling oil— but basically what they've done is, look, they know that the economic recovery is not yet assured They do know that there are still risks on the horizon to the shape of that recovery. And so at least for the time being, although oil has seen a very strong recovery, they still want to continue to put that underlying support by keeping the cuts in play for the time being. In addition, any member that doesn't implement all of its production cuts in May and June will make extra reductions from July to September to compensate. So Couple things here. What does that mean? Well, this is what they were talking about as well at the end of last week, and this is something I talk about in my, my Macro Menu, whereby I do think that this, this is obviously an important step in, in respect to Russia and Saudi have been able to see eye to eye once again for the time being in order to get this deal through. And they are the two major kind of powers that that will dictate then the success or not largely of these types of deals. But one of the countries that I've been interested in looking at of late is Iraq. I did talk about this briefly last week, and what this OPEC deal has suggested is that all other countries— and there's unanimous agreement here— that they need to be compliant. And that's the kind of pressure of which those, those countries like Saudi Arabia and Russia are putting on these other nations. Now the problem that I see here is that countries like Iraq, which has been decimated by war, sanctions, Islamic insurgencies, you know, there is no way I see Iraq being compliant. And if you're saying if they're not compliant, of which Iraq has never been compliant as far as my recollection since the initial OPEC deals came in a few years ago, they've never been compliant. If you think then that a lack of compliance will mean that you're just going to have to add it on and they're going to have to cut even more deeper in July and September, I can't see that happening, quite frankly. And so for me, this deal is dead in a sense of the fact that if you, if you're looking for compliance, it ain't gonna happen. And Iraq is the second biggest oil-producing nation in OPEC after Saudi Arabia. And so therein lies a big problem for me about legitimacy of what they've struck here. But all in all, as much as I'm saying this and the practicalities around the deal, I think Saudi and Russia know that's the case. They know Iraq's not going to comply fully, 100%. Maybe much of this is just kind of wagging the stick to get them a little bit more compliant, not just them but other countries as well, uh, like Nigeria, Libya, and so on. And so they know they're going to have to pick up the tab, essentially. So I don't think it's too much of a big deal. And if anything, if you think about the value of oil, it's already priced this latest deal in. So the main important thing here when it comes to OPEC is, look, the deal didn't break down. The talk of the town was they're going to extend by a month. Perhaps the Saudis wanted 3 months and they basically delivered the month. So all in all, no positive, no negative surprises, and that was that really. We'll revisit this in 4 weeks, I guess, when they'll have to make another decision whether to do the same again or not. This is the history then of crude oil, and you know, one of the important things here I was looking at was we're trading around $39.70 at the moment, and actually overnight in the Asia-Pacific session we got as high as $40.50, so $40 and about 44 cents. That pretty much closes the gap then on that, that kind of fateful day in March when we had the original OPEC meeting where OPEC+ failed to strike a deal. Remember when Saudi were pushing for a deal but the Russians declined, and then Saudi came out in the FT that weekend in an exclusive and said, look, we're going to undercut you now for new customers and we're going to flood the market. And that was the kind of beginning of this aggressive downtick that inevitably led to this, this negative price point that we experienced in April. Since then though, with equities, we've just recovered sharply. And so as we get to this point now with the gap fill, I would say we, we could well be in for a period of consolidation. The main key points that I'm looking for going forward from here is really any macroeconomic indicators that we see pertaining to the strength of the economic recovery. Um, so other things to be monitoring, of course, when it comes to demand is going to be, you know, data from China all the way through to the US, but also the performance of, of course, COVID-19. We're not really talking about that so explicitly right now, but New York City will begin reopening after recording its first day since March with no virus fatalities over the weekend. The UK, other European cities are going through this process, and obviously this brings about a risk of a potential second wave virus, which has not materialized as yet. And so for the time being, I think markets will kind of go into a bit of a holding pattern, if anything, perhaps continuing to grind higher like what we've seen in equities, with half an eye on the virus developments and of course the ongoing confrontation in the trade war. But for oil, I think now we've got to that gap fill, perhaps a little bit of profit taking, a little bit of sideways price action, just waiting for the next kind of signal now on that economic outlook going forward. The other thing as well is just be aware of the National Hurricane Center. Probably worth bookmarking this if you don't already do so, because as you can see here, uh, Cristobal is a tropical storm that is right going over the Gulf of Mexico at the moment. And of course, this is particularly sensitive for a lot of the refining on and offshore in the United States of America. And so if you zoom that in a bit more, you can start tracking then the forecasted movement, severity, rainfall strength, wind speed, and so on. And this is quite important when you're looking at the disruption it can have in that particular sensitive area for oil prices. Now, a couple things here. Over the weekend in the Gulf of Mexico, offshore drillers idle about a third of oil production, amounting to around 636,000 barrels of daily output due to this tropical storm. But that, that's the important thing. It is a tropical storm, and the last I heard this morning from the Squawk was that the wind speed was getting slower, and so therefore a lesser potential impact. And as it moves inland, it's going straight direct north in terms of its direction rather than causing more devastation across the actual Gulf Coastline, which what we have seen before with Hurricane Harvey and these other ones, which should be much more disruptive than this. But just goes to show these things do need tracking, and probably this to a certain degree has added a little bit of underlying support because if anything, I'd say with the OPEC deal, perhaps a little bit of time to book a bit of profit, um, given that was largely as expected. Okay, then the other thing, talking about the trade war, uh, just briefly, this was kind of the latest thing that occurred over the weekend. I'm not sure if you saw it, but, um, yeah, headlines about Nazi Germany after the US Secretary of State Mike Pompeo has compared China's policy with regards to the security law in Hong Kong as to the same as the actions of Nazi Germany during the Second World War. And Yeah, comments like that— I mean, this is actually the US Secretary of State saying this, but you would think in logic terms, and in probably many— in a parallel universe, the markets would be going crazy right now. We'd be falling through the floor on the, on the commencement of full-on engagement and confrontation of two nations of this magnitude. But this is the latest state of play, and these comments now have had zero impact on the market, as I would expect to be the case. But Just goes to show where the current status is between these two nations for the time being. Um, Hu Xixin, the editor-in-chief for the Global Times in China, which is basically the mouthpiece of the, of the government in China, has basically come out and, and had a, had a pop shot in response. But all in all, uh, we remain, uh, there's a state of verbal sparring I would say there's not too much going on what I can see right now that's a real tangible risks to markets, which otherwise have been fairly stable, uh, from a sentiment and direction perspective. But nonetheless, always warrants a lot of vigilance. Now, with Donald Trump, like was the case last week, he was a little bit more quiet on the China front, and that was because he was trying to fend off and obviously counteract the negative developments that we've seen since that— since the riots have taken place across America. And so he's still probably going to be addressing that as his predominant political theme this week, but of course China is never far from the headlines, so just keep an eye out for that. Talking of China, there was some data from China over the weekend as well. Their trade surplus surged to a record in May as exports fell less than expected, helped by an increase in medical-related sales. Imports also slumped along with commodity prices. So yeah, keep an eye out, there could be more things to monitor in that regard. And then the final kind of story I talked about at the weekend, and probably just worth highlighting if you're not aware of it, um, AstraZeneca has made a preliminary approach for the US firm Gilead Sciences about a potential merger, according to people familiar with the matter. That was in Bloomberg Yesterday, as far as I'm aware, just reading some of the details on this, Gilead Sciences has, has said that they're not interested, not just in this deal but in any deal, quite recently. And so the idea of this happening, I mean, these are the very, very early stages when you start to see these types of headlines come out. Apparently there's been no formal talks at all. A tie-up of the two firms would be far and above the largest healthcare deal on record if it did materialize, but I would say perhaps just keep an eye on the company share price, AstraZeneca and Gilead, when they open later. Um, or Astra momentarily, you're probably going to see some volatility. But if their shares do go bid, either— and let's say Gilead— then potentially then just look for the eventual pullback when it comes true that it's probably too early to say that this has got any real teeth to it at this point. So you kind of get that slight pump or dump type movement when you get these kind of bid talks or potential hookups and mergers. All right, well, that's pretty much it. So if I go back to the actual calendar for this week, just to give you the overview. So for today, pretty quiet start to proceedings to kick off the week overall. As far as today is concerned, ECB's Christine Lagarde, the ECB president, is speaking at European Parliament. But just given the close proximity of that press conference we had just a couple of days ago last week. I don't think she's really going to drop any surprises, but worth just keeping a half an ear when she starts her delivery later on this morning. Then moving on to Tuesday, not too much in the way of major things coming out. A lot of the data that we're getting in terms of GDP from around the globe this week are final readings for Q1, and that's very much now rearview kind of thinking, and that's not really going to influence market direction going forward. Wednesday obviously starts to see a bit of a peak of interest. You get inflation data from both China and the US alongside the FOMC rate decision. Again, we will be doing that live in a webinar, more details to follow. And then on Thursday you've got the Eurogroup meeting, so that does include Christine Lagarde taking part. But Thursday Eurogroup and Friday is the EU Finance Minister meeting, and of course there's still this small issue of Brexit with the looming deadline now and only about 3 weeks away. I'm sure that will be a talking point as well. And I would anticipate maybe not this week, but another 2, 3 weeks, certainly the pound might start to become a little bit more sensitive at this point in time in regard to any lack of progression with those talks. Interestingly, opinion polls over the weekend have seen Boris Johnson's government suffer pretty badly in terms of their handling of COVID-19. There are some articles in the FT as well, scientists suggesting how badly the UK really moved to go into lockdown. Remember, we were one of the, one of the last major nations to do so, and therefore that has had a consequence on our numbers of casualties. So for Boris, you know, can he really keep this, this Brexit, um, kind of rhetoric alive when he's under so much pressure on the, on the virus side? I definitely do think politically he has the wiggle room to get away with breaking his kind of promise politically to get the job done on Brexit by saying, look, we need to secure people's jobs, we need to support the economic recovery for everyone's sake, and then we can deal with Brexit. So I still don't think it would be a massive surprise to see the extension coming, but if that does come at the 11th hour, definitely some room for pricing in more negative pound given the run-up that we've had but I don't really anticipate that for to come for another 2 weeks or so. So that's it. Any questions, just let me know, drop a comment on the, the video. Be happy to respond and help throughout the day. Otherwise, remember to check out the link at the bottom of the description for Amplify Live tomorrow. This briefing will be going up on YouTube at 10:30 AM London time. So for the earlier release and for all those other features that you get with Amplify Live, just check out the link in the video bio. All right, thanks very much guys, take care.