New COVID-19 Outbreaks Keep Markets On Watch

Okay, very good morning. Anthony here at Amplified Trading. It's Tuesday, the 12th of May. I am the head of market analysis and I'm here to give you a bit of a fundamental update about the news stories in play this morning. And so if you have any questions at all, feel free to leave a comment on the video. Don't forget to like and subscribe and also check out the AmplifiedTrading.com website for those who want more information. But looking at the charts this morning, as you can see, a couple of different things to talk about. First of all, the overall kind of sentiment as we go into the European session, and it's a slight risk-off kind of mood to proceedings. We've got US index futures down marginally, the DAX futures down about 63 at the moment. Consequently, gold and T-notes up $5 and 5 ticks respectively. In the currency markets, uh, Dixie's pretty flat actually, and despite some of the movement that was seen in the overnight session, EURUSD breaking the range low from yesterday afternoon and late US session to dip overnight, it has recovered that move. A lot of the currency movement overnight inspired by a dip in the Australian dollar. However, we'll look at that in more detail as to the reasons why and also the fact that the currency has recovered for the moment. But a quick look at some of these charts, there's a few interesting technical levels I just wanted to look at before we begin the, the run-through of the major headlines in the morning. And I was looking at gold, a trend line that the master of all trend lines, Sam North, was, was looking at last week. I just saw this morning was still being quite well respected here at the moment. Um, and obviously just given the equity performance of late, it's been fairly choppy. But as I'm going to discuss, there's quite a lot of kind of more negative developments perhaps on the table. Um, just generally domestic demand pretty weak in some Chinese data overnight. Um, you've got some potential secondary outbreaks in the likes of China, in Wuhan, the epicenter of the actual origination of the virus, or believed to be. And also in South Korea. And so a few other things here on the table, and a quite bearish call as well, once again coming out of GS on the S&P. So worth keeping an eye on. Obviously all of those things would— you would hope help elevate the price of gold. But from a longer-term perspective, a few things to watch out for here. For one, a pretty decent level here. If I just mark up these with an ellipse, the pivot level today does encapsulate a little bit of that, uh, late US push-up that we had before the Asian session commenced, and we actually moved back down to that trend line. That also brings in the morning European entrance to yesterday's session on Monday. So the pivot level, quite a near-term level of support to keep an eye on. Obviously you've got the 1700 level residing just below in the futures market, but if we did break any lower Uh, you do have that overnight Asia-Pacific low, that generally coinciding with that low that was seen yesterday afternoon. And this is that trend line going all the way back to what, the 23rd of April. Multiple tests on that level, so it's a pretty solid one and something to be keeping on as we go through the session ahead for sure. Elsewhere in the equity market and the S&P, equally so, quite technical at the moment. The, the chart really reflecting what I feel is quite a bit of indecision. We did have payrolls, and obviously post-payrolls actually ramped up into the close on Wall Street. Then when yesterday's session commenced in Europe, came in, we sold off only to then bounce back higher. You know, equity is a bit of a mess from a directional point of view. Um, so with that being said, we are forming some quite key levels here to the downside, as I've got marked up. You've got the overnight late Asia-Pacific low, That also coincides with yesterday afternoon Wall Street, the initial volatility at the open, and also the high that we had on Thursday evening session. Uh, any breach through that then opens up the S1 on the daily pivots, the prior day's low, and also the high and resistance that was seen, uh, constricting the price action back on the 5th of this month. So definitely some key downside levels there to keep an eye on on the S&P today. Any breach below there certainly does open up potentially room for a bit of a deeper move pushing to the downside towards kind of 67, 70 type region. So keeping an eye on that as well. And then finally, in oil— oil was an interesting one yesterday. This was a tweet that I put out at the time of which, as you can see by this big green wick, oil was shooting higher and it broke out of quite a key topside range that we had been seeing around 2630 in the July future. We broke above that, and then this is what I was describing to some of the new traders, that often when you get this kind of news catalyst and you get this what I call a fast money or move, the market jumps up and people jump on the headline, but they want to exit that position. It's kind of, you know, speculation in its purest sense. And the exit point often does coincide with these logical kind of lines in the sand, i.e., the pivot points, given that they're a mathematical calculation from the prior day's obviously price movement. And so everyone's got the same levels marked up, and you can see that working pretty much to the tick around that point. And the price started to back off, and just given the area there of the R1, and here you've got that, that low point that was seen on the 7th and the high on the 5th, just thought that was quite a good technical area of resistance. But then if you actually look at the, the actual headline itself, what happened was Saudi Aramco said it would reduce its crude oil production for the upcoming months of June by an extra voluntary amount of 1 million barrels per day. Now the idea here was that they're looking to be overly compliant, and in the hope that they kind of set the example and that the other OPEC+ nations plus G20 energy producers follow suit. Now I get that for logic, but the problem would be in my mind that fundamentally the OPEC have always over-complied. They've always shouldered the burden of OPEC. And so them doing that, I don't think necessarily translates into others following suit because as well, when you look at the necessity for Saudi to take action, then, you know, it really is very important to them. And actually one thing I saw this morning Arabco's Q1 results are out today. A little bit fishy, right? They overcommit to cutting the supply situation a little bit more. Obviously, technically, that should squeeze the price higher the day before their Q1 results come up. I mean, I know that's not going to impact the underlying numbers, but it certainly helps the sentiment when now they have a listed company, of course, and the price of oil is, is going to have a translation overall over a period of time, uh, the reflection of the value of that company. So here, for me, fundamentally, I thought the headline after the spike was a little bit weak. I think perhaps a little bit of over-interpretation, people just jumping and hitting that headline with the technical area. And if I flip back to the crude chart, um, you know, that kind of played out, which obviously when you're making these types of calls is— it's always a pleasant thing to see. And hopefully some of you guys got hold of that and We hit that area of congestion, if you like, of resistance, and then we backed all the way down. We actually came down towards the lower end of the range, you know, so a decent about-turn when it came all the way back down to the low that was seen going all the way back to Friday midday, you know. So we're talking about a $2 move there, uh, over the reversal in the course of, uh, only a matter of 3 or 4 hours. So yeah, all in all though, going forward That headline doesn't mean a lot now. I don't think so. And I think the price reflects that. We're back in that range for the time being. So for now, unless we break above really this 2630, uh, area, or on the downside really this zone I've got kind of marked up here between what is the S1 today around 2450 to 2480, uh, then I'm not really too interested at this point in time. All right, plenty of headlines for me to get you through, so let's jump back to that. And, um, yeah, as I said before, any questions, just let me know with a comment. Absolutely happy to, to engage and help, uh, as and when I can. So with the overnight session, a few things to be aware of in China. Uh, their factory deflation deepened in April as consumer price gains have slowed. So let me just run you through some of the numbers here. PPI number came in at 3.1%, uh, that was against expected 2.5%. CPI came in at 3.3%, weaker than expected 3.7%. So the falling consumer and producer prices inflation reflects weak demand both at home domestically but also obviously abroad, just given the ramifications of the lockdowns and the significant impact that's having across the globe. And obviously it's putting further pressure on policymakers to look for more options. So definitely worth keeping an eye out for anything further in the overnight sessions uh, from the PBOC. Um, consumer inflation continues to fall on easing food prices, uh, factory deflation to persist on weak demand and oil prices. So certainly not out of the woods yet for China. And importantly, quite an interesting development overnight is in Wuhan there's been a new outbreak and the city of 11 million population are going to be, uh, tested, the entire city in order to try to get on top of that potential second wave. That's not it though in China. There's a few things else going on. So here's just a quick graphic of those drop-offs that you can see in the PPI and the PPI. So again, any kind of bounce that we've had more recently in Chinese data, um, still decidedly short-lived. Again, the reality of the recovery from the situation going to be much more gradual, uh, than this V-shaped belief that was kind of apparent just a few months ago. And certainly not just a domestic but a global situation is going to impede the speed of recovery for China. The other thing was renewed tensions, obviously, on the trade war front. We knew this was going to be a key theme for this week and it will continue to be so. There's a few conflicting headlines, but let me just give you what is out there as of this morning that's brand new. The Trump administration moved on Monday night to block investments in Chinese stocks by a government retirement savings fund. This is what this headline is here at the moment, and this obviously has increased or reignited tensions between the countries. However, what happened this morning was the Chinese Finance Ministry have released a second list of tariff waivers for some US goods. Exemptions will last from 1 year starting from May 19th. This follows reports that Chinese officials were considering invalidating Phase 1 of the trade deal or negotiating a new one tilted more in favor of the Chinese side. So again, just to surmise here, a few things that have happened. China have basically released a secondary list of tariff waivers for the US. So that's a good thing for the trade deal situation, it's a positive step. However, this comes after a kind of almost like a knee-jerk response to some undisclosed officials reportedly saying that they were considering kind of reneging on the deal. So China perhaps forced that to come out and say something, but also as well, US putting the pressure on by cutting off savings fund investment in Chinese stocks. That's not it though, there's other things. China is stepping up purchases of soybeans. We know this is particularly key for a lot of those US states like Iowa, for example. And these are specifically important for the political success of Donald Trump, of course, given that these are kind of deep red Republican states. And obviously they've, they've felt the brunt of this trade war even before this whole pandemic was kicking off. So they've stepped up purchases, China, of soybeans from the US as Brazilian sales start to wane. Brazil being the second largest supplier of soybeans. As the two look to kind of continue to meet these pledges that would make up the phase one of the deal. So there's lots of kind of jostling here politically. Trump trying to obviously remain the aggressor, trying to keep that political perception strong that he's got the pressure down on, on China, forcing them then to commit to this phase one deal, whether through soybeans, whether through secondary lists of tariff waivers, and But again, it's quite messy at the moment. And you remember that kind of trade war infinity loop? It kind of feels like we're in that a little bit. And I would be looking to these types of headlines when you come in every morning to try and piece together what you think general sentiment is. And, and definitely, as I will be doing and sharing with our traders, I'll be keeping a close eye on Donald Trump's general daily agenda to try and almost front-run, anticipate when it is that he could potentially say something. You know, where he is and what time he speaks are definitely key components for the intraday market to be aware of from a risk perspective. And then, as I mentioned, um, there has been some updates on the COVID situation. Wuhan, their first new infections since the lockdown ended last month, and they're going to retest basically the entire city That's not it though. South Korea reported a flare-up due to basically people going to nightclubs in the South Korean capital of Seoul. They confirmed cases around 54, but they've worked out that given the nightclub scene, they anticipate that between late April and early May there could potentially have been 6,000 to 7,000 people exposed then to those who had the virus. And so that's, as we know, when the initial infection was in that acceleration phase, it only takes a very small outbreak to then manifest and compound till we get— start seeing, you know, numbers in the thousands. So definitely that's made markets perhaps a little bit apprehensive, not a great deal, but definitely warrants monitoring. And the other area, of course, is Russia. I'm not sure if you've really seen Russia, um, if you remember when this all was happening, there's really no mention of them at all. However, if you look at the Johns Hopkins Coronavirus Monitor, after the US, Spain, and the UK, which are the top 3 amounts of total confirmed cases, Russia is now number 4, and they are now the new kind of emerging as the new hub of the outbreak. In terms of the geographic location. So there's definitely a few things here, and obviously what everyone is watching, of course, is what's going to happen with the unwinding of the stringency of these lockdowns across the globe. And obviously one of those is Boris Johnson. You know, he's had a real backfire from the national media, the business community, about how vague he was with his speech the other day. So you know, despite the bluff and bluster of someone like Boris, who obviously can deliver a good speech. The problem was it was very short on the actual specifics where businesses need to get back to work. You know, a lot of this, this was talking about the fact that, you know, he wants people to go to work, but he doesn't want people to use public transport. He wants people to, to go to work if they can, but then don't go to work if there's not actual practices put in place by companies. So it's all very messy at this point. And a few people pinning then a little bit of sterling weakness down to, um, this, this development. And I think that's a little bit media just looking to pin something to, to fit the narrative. Um, but you know, this is the reality of it, uh, you know, it is the fact that it's going to be very gradual, and I don't really read too much into it at this point. All right, back to China and Wuhan. The other thing was this. You might have seen this overnight, and definitely if you're trading the Aussie currency, you know, part of your daily routine as an FX trader, if you're trading Aussie, is you need to look at the Chinese economic data, the Chinese stories, as much as you're looking at the Australian stories. And overnight there's been information from both sides. The So just having a look here at the Aussie dollar first, you can see quite a distinct downtick was seen overnight and we broke through some of those lows that were seen through yesterday's session. However, the price has recovered, albeit just a few pips lower than where we were before some of this news headlines started coming out. So I guess the question, why the dip? Well, this is what happened overnight. Um, China has suspended meat imports from 4 Australian abattoirs. It comes after the Australian PM called for an independent inquiry into the coronavirus outbreak. So there's a few speculating that perhaps this is the Chinese retaliation. Look, you do not join this global chorus of looking to do an independent inquiry as to the origination and reasoning behind the outbreak of this virus. You are one of our main trading partners. If you want that to remain the case, then don't mess with us. That generally is kind of the vibe of what some people are suggesting. Uh, and why is this so important? Well, this suspension, if it does take place, will start on the 12th. So as of today, uh, the 4 plants, um, that they're talking about that China would suspend meat imports from in Australia, they actually make up about 35% of all Australian beef exports to China, you know. So this is significant. Australia is also facing looming threats of major tariffs on its barley shipments to China as well. So again, got to be particularly vigilant in this type of thing. I remember probably about 12 months ago there was some downside movement in the Aussie on the back of China threatening— I think it was coal imports at which is another key trading material between the two countries, of which Australia depends on in that sense, with China being their, their biggest customer. And so these are the ways and means of which China can really pull the strings, where not only for the Aussie is it looking a little bit precarious about the domestic situation in China, as we just discussed with some of the things we are seeing— declines in PPI, CPI, another outbreak in Wuhan, and so on— The domestic situation obviously is going to impact the demand for imports from Australia, but also then you're going to be impeded by the potential for, you know, this type of action as well. So it's a double whammy in a negative sense here for potentially Australian economy. The other thing that's happening domestically in Australia is this: business confidence conditions weaken further as jobs slump. So overnight you've had the Australian business Conditions Index, and basically this measures hiring, sales, and profits, and it slumped sharply overnight. So business confidence, you can see here, came in at -34 from -22 in March. So yeah, it, you know, business conditions, that is, business confidence even worse than that. So certainly Things as in Australia, uh, shared as what we're seeing globally, just under pressure immensely at the moment, and hence the reason why the Aussie has dipped in the overnight session. However, as I said, things have stabilized a little bit. So, um, would I come in now and just start, you know, with a really heavily trying to hit the Aussie? No, I'd look for a strategic point. I think perhaps then uh, from a directional bias point of view, you could anticipate that the currency might remain a little heavy. And just having a quick look at the chart here, I've not had a chance to really look at the Aussie too much this morning since I've been looking at things. There's a couple of areas perhaps on the upside that could be quite interesting if it comes back up to these points, um, then just looking to play the move back down. We shall see. Okay, a few other final news stories then, uh, to cover off. One is this— just going to switch over. This is Goldman Sachs, and we know Goldman's have been bearish on equities for a while. They continue to kind of beat the drum this morning, and this comes after a lot of indecision. Some of you guys were asking comments yesterday Um, and that was on the comment section on the video, and you were saying that between Sam, who's quite bullish, me, I'm quite neutral, Eddie, who you've probably seen, my colleague who drops videos on the weekend, he's quite bearish. Um, that's pretty much a fair reflection, I think, of the market and why there's this kind of uncommitted directional movement that we're seeing in the S&P at the moment. Now, I think that's a, a fair view that's quite mixed at the moment in US equities. We're looking at this yesterday, is that kind of extreme V-shaped recovery that we've had, that's been way more sharper and faster than what we've seen ever before. And when we've gone into a bear market, you know, is that valid, that move, or is it just too fast too soon? Uh, and you know, the, the jury's out on that one. But what Goldman Sachs are saying here, um, is that they've warned that investors have gotten ahead of themselves, that the S&P 500 might drop almost 20% in the next 3 months. They actually said 18% as the headline, as you can see. So with that being said, let's just have a look where 18% would be in terms of where we're at at the moment. So here's a daily continuation chart of the S&P 500. You've got the all-time high that was printed in February before really the corona pandemic started kicking off. Then you've got March 23rd is the low point before this big kind of Fed-induced rally coupled with the fiscal injections coming. Lifted the market back up in this incredible bounce that we've had. Now, if we were to go 18%, I've just put an ellipse here where the GS call would put us. It put us back down to basically those 2018 lows that we had. You remember, do you remember at the time we were saying, wow, Q4 2018, that was a really memorable big sell-off and a dramatic recovery had in markets. Look how, um, weak that move now looks comparative to what we have had. I mean, the, the pandemic movement has, you know, overshadowed that significantly. I mean, the recovery in Q1 of 2019 was the strongest we had had in just over 3 decades, but if you look at the trajectory of the recovery there in the S&P to what we've had now, you know, there's— it's so much more steep. Right now, and the fall is so much more violent. But yeah, the GS call at 18%, if that did materialize, would put us down here. Now, one couple of things that they're saying here, Goldman's— if I just quickly transition back my screens— they said they, they cited a lack of flattening in the US infection curve outside of New York, what promises to be a lengthy restart process, a 50% hit to buybacks in 2020 2020, and a risk of higher corporate taxes and de facto consumption taxes if US-China trade tensions start to flare once again is their main reasoning. So again, I don't really put, you know, all my eggs in one basket and just think, well, if Goldman says this, then that's what's going to happen. And obviously there's always that talk in the market about, you know, whatever Goldman says, they're doing the opposite to get out of position and so on, so forth. But I do like understanding, at least generally, when I read around these different bank calls, where is the general median consensus at? Because I think that's how you can better define then general market positioning for a more medium-term basis. And at the moment, I'd say even though they've kind of stuck to their guns, um, let's see, certainly as I've always said over recent weeks, for me the key catalyst. You know, even now you can throw in the trade war, is, is a newer one that's become a quite clear and apparent danger to markets now. But I still think the loosening, which is done out of necessity to resuscitate these economies, to get them back off the ground for the sake of the employment situation and the livelihood of people, to get the economies kick-started there lies the danger of economies in the unwinding of lockdown being mismanaged and leading to a significant second wave. I still think that that period, as I've said, the next 3, 4 weeks is going to be crucial to determine that. And I see that still as the key risk, or whether or not we push on up or we start to see a bit more of an aggressive reversal. We shall see. But again, we Wuhan, South Korea, Russia, perhaps giving us an early glimpse of what that might be like for Italy, Spain, France, Germany. Germany, you probably would have seen yesterday, the R, obviously, that everyone talks about, went above 1, and this coming after they had loosened the restrictions considerably. And so, week or two after the, as expected, infection rate has gone up. And this is what's going to be key to monitor going forward. Final things, uh, the Fed says it will begin buying corporate debt ETFs on Tuesday. This isn't new, they have said this was going to happen back in March. The so-called Secondary Market Corporate Credit Facility, a bit of a mouthful, but they'll begin purchases of eligible exchange-traded funds invested in corporate debt. As of today, Congress allocated just shy of $500 billion, uh, in equity to backstop the Fed loans as part of more than $2 trillion economic relief package passed in March. Um, just to be aware of the other thing though that I thought was interesting was when I was talking in the briefing yesterday, a lot of the talk was about the movement at the end of last week where federal funds rates were indicative that we could be seeing negative interest rates in the US perhaps by the end of the year. And throughout 2021. Now that pricing has since changed and altered slightly, and what's been interesting for me is obviously Jerome Powell's speech on Wednesday when he's going to talk about current economic issues is a key speech, could be a key moment for markets, uh, for this week. And what's come out is a couple of the Fed speakers. Now these are non-voting members, but nonetheless I think they have set a bit of a precedence for perhaps then trying to manage the market's current, uh, kind of, I guess, sensitivity to this issue. So what's happened is policymakers have said they're negative on negative rates. Basically, the Chicago Fed President Charles Evans and also Fed's Bostic have come out and they've both basically said they'll do whatever it takes. We want to cushion the economy and help the recovery But there's only one thing that they won't do. They will not take interest rates below zero. Now, I think this is quite telling, uh, this is quite strategic. If you actually look at the calendar for today, and let's quickly jump to that, you can see that not only were there two of the Fed speakers yesterday, but there's another three more today. Now, this is quite typical of the Fed communication strategy. Rather than wait for the, for the the main man, the Fed Chair Powell, just to come out on the big stage and deliver this, this kind of bombshell. This is what we think. The Fed are much more eloquent than that. What they'll do is they'll drop in lots of different speakers from a variety of different views and voters and non-voters, and generally it builds up. Then when Powell delivers his speech, the kind of pressure's off, and we're already pretty much pre-positioned and pre-aware of the likelihood of what he's likely to say. And in this case then, it really does ratify what we talked about in the macro menu and the briefing yesterday, that he's likely to push back on this notion of negative rates, at least for now, and continue to kind of push governments to do more on the fiscal side. It's probably the latest state of play we'll hear from Powell on Wednesday. But today, Fed's Bullard 2 o'clock, Harker 3 o'clock, Mester later on this evening at 10 PM London time, if you're still around at that point. And that's pretty much it. Um, the other things on the calendar today then to look out for— it's very quiet in this UK European morning, so I think that's pretty much reflected in what we're seeing on the charts right now. Uh, so a US-centric session. As I said, a couple things keep an eye out for, really. Uh, President Trump, watch what's his daily schedule, what where's he going to be, what's the timings around that. And then the other— I'm just trying to bring up that journalist who is the chief of the Global Times in China and tends to act as the kind of mouthpiece in the Western world using the social media platform of Twitter of the Chinese government. I'll definitely be keeping an eye on him as well because he will be giving the latest kind of flavor of what's going on in the, the minds of Beijing in response to some of the latest developments that we've had. So trade wars, let's continue monitoring of any new forms of outbreak as coronavirus restrictions start to get lifted across various parts of the globe. How severe are those ones that we've identified in Wuhan and South Korea will be quite important as a litmus test, given they're so much further forward ahead of the curve than we are in Western Europe and in the US, uh, and then waiting for the US session. The main thing this afternoon then for that is you've got CPI, um, coming out, and that's pretty much the main data, with the API inventories due after market this evening at 9:30 PM. All right, that is it. I'll let you go. Have a good day, and remember to subscribe to the channel if you've not already done so, and I'll see you tomorrow. Thanks very much.