Pressure Mounts On UK PM Johnson To Trigger 2-Week National Lockdown

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to you. It is Wednesday the 14th of October, so I hope you're doing well. I'm going to kick things off and start with kind of where we finished yesterday on the close on Wall Street, which was a negative close. And reading through the press coverage this morning, I would say a little bit making a bit of a mountain out of a molehill, talking about, you know, the equities in the US got hit because of bad bank earnings, because of another pharmaceutical company, this time Eli Lilly following J&J in putting a pause on some of their vaccine trials that are ongoing, and also the lack of US fiscal stimulus. But all in all, I mean, the net percentage changes here, we're talking in the S&P 0.6%, the Dow 0.5%, and the NASDAQ was basically flat. So fluctuations, if you like, being seen in some of these US stock indices. And I do think that is largely a reflection of people hanging on tenterhooks for the outcome, a lot of these key things, i.e., being particularly the election which we're going to talk about a little bit more in a moment. And then also the idea about is there or won't there be fiscal stimulus coming out of the US, and then the further developments of the actual COVID virus itself, and also then subsequently when the vaccine is going to, going to hit the market. So I wouldn't say it was complete risk-off. I mean, equities have stabilized since this closing point. You can see here Apple were down fairly significantly. We'll talk about them in a moment after they unveiled their latest 5G iPhone 12 yesterday. So quite classic Apple-type price movement, um, quite bid into the event and then sold off after the event in that kind of buy the rumor, sell the fact type price movement. But from the open this morning, equity index futures are actually marginally positive, um, and elsewhere T-notes have held on to the, the bid tone that we saw Yesterday, as markets were reflecting some signs of apprehension, which also contributed to a bit of dollar strength yesterday, and that's— that in turn did weigh on gold. So a bit of a counterintuitive move. And certainly this is something we have seen in the post-pandemic environment, which is gold not acting so much as a barometer of sentiment from a safe haven point of view, but much more inverse correlation to that of the dollar movement. And certainly yesterday, an upward movement in the dollar seen into the US session did certainly weigh on gold. And when gold starts to break then down through key technical levels, it can trade heavy very quickly. And we did so yesterday, getting rejection from that early European high on that trend line from the weekly price action and the prior high that we saw on Monday. From that point then, uh, we, we moved substantially below to $1,900 before finding a bit of support around those low points that we've seen going back to the prior week. We have stabilized since. At the moment, we're sitting around the $1,900 level, which was the overnight Asia— late Asia-Pacific high. So let's just keep an eye on there. Any further push on the upside on a recovery, be looking at around $1,905, which as you can see here encapsulates that previous high that was seen back on the 8th, but also is the daily pivot level as well at around that price point. So again, in terms of gold, you know, it's always one of those things where people kind of instantly ask the question, is there a piece of news that's come out when gold was starting to move quite violently? But it— that can often be the case, of course, but more often than not in recent times, it's been the case of really just monitoring the dollar as a good pre-indicator then for subsequent movement in, in gold can often be the case. Crude futures still struggling really to, to stay above $40. We're trading just below there at the moment, having had Europe just coming to the market. We have found some support around the pivot, which was the Asia-Pacific low and also rough low that we saw from late European exit yesterday. So worth keeping an eye— oil around that $40. Again, kind of balancing at the moment, renewed supply coming by way of, you know, everyone from Libya to Norway, but also, as I said, the idea linked then to is there going to be forthcoming fiscal stimulus, is there going to be a vaccine, any of that pullback in kind of the shape and speed of the economic recovery globally is going to impede then people's demand perceptions. And yesterday we had that OPEC monthly report kind of conveying that, where they pulled back on their 2020-21 oil demand forecasts. So overall though, fresh fundamentals, not, not really too much to speak of here. In the currency markets, the DXY is flat. Euro-dollar is pretty much stuck in a trading band for the moment, defined by 1.1753 and 66 on the upside. Worth keeping an eye on that downside level at 53, given we've got this short-term trend line from the low marked from yesterday afternoon's price activity in the overnight Asia-Pacific session, that coinciding with around the horizontal lows that we were seeing during parts of the Asia session as well. Um, Cable. We're going to talk about Cable from fundamental point of view in, in a bit more detail shortly because of Brexit. We've had a bit of a breakdown through around 1.2223, which was that low briefly that we saw back on the 9th, so towards the end of last week. Had a test and bounced off around a similar level in the Asia session before Europe's come in and it's just moved a little lower. Obviously, combination of things. EURUSD mimicked this type of movement yesterday, so don't be fooled thinking this is just a Brexit narrative. Definitely was a case of dollar strength in those major currency pairs. It was forcing them lower. But obviously the whole situation that it's looking ever increasingly unlikely that deal is going to get done in between the UK and the EU. And at the moment, I don't find that surprising. I didn't think they were going to get a deal done as soon as this week. And we've already had some comments, which I'll go over in a moment, which would suggest then that they're still going to continue their focus talks going forward. So if we do continue to trend lower, looking here, just, just stepping back slightly, you've got the 129 handle where the market has found a little bit of support this morning. But beyond that point, be looking down towards the low that was seen here on the 8th, so last Thursday, which would come in at around 128.96 or so on the futures at that point. All right, well, let's get, let's get into some of the headlines. As I said, then, a lower close on Wall Street, but nothing that I think is to get overtly stressed about at this point. As I said, I feel like the media is putting a bit of an overemphasis on the negative side of things, and I don't think that perhaps is quite appropriate. Apple shares did finish down 2.65%. So while we're on that subject, let's just have a quick talk Absolutely nothing surprising coming out of the event, as is always the case. It's well telegraphed and leaked in the various different Apple blog sites. So what happened was they released their 5G phone. Still similar from a technological point of view, they're pretty late to the game with the 5G phone. But what's likely to happen is, just given how generally expensive the average selling price is now of these handsets, A lot of people are on extended contracts now in order to facilitate having the latest phone, that being the case all around the world really, particularly in credit-led kind of Western developed nations such as the UK, for example. So no one really has refreshed for some time since what, the X came out, and that was about 3 years ago, and that generally is now coming into the contract lengths where people are coming for refreshes and renewals. So The actual demand for the iPhone 12 is said to be— is expected to be particularly strong. The fact as well it can cope with 5G, and a lot of people are saying, well, 5G hasn't really been that well or broadly adopted in the wider market, and largely because a big chunk of the market is captured by users of an iPhone. And if iPhone hasn't moved there yet, well, then there's no real necessity for the infrastructure to facilitate that. But now that has happened I'd expect 5G to really become the norm now as soon as this phone comes out. Investors were disappointed that the company did not introduce long-rumored accessories including over-the-ear Studio AirPods and also lost items tracking tags, is what a couple of analysts were saying. I think a little bit of context is quite key here. I mean, if you look at the scoreboard, it looks like Apple's a quite a deep color red comparative to the rest of the broader market. But do remember that on Monday the mega-cap tech stocks were on fire, and actually Apple were up 6%. So they've just— they're still up 3% on the week, or just over that, in fact. So overall, I think the event has been and gone. I don't think it was particularly exciting, to be honest, so I'm going to move on. Otherwise, in the Asia-Pacific session Well, before I do, what were some of the reasons here? And that will encapsulate, um, for the, for the downturn yesterday. And that will encapsulate some of the key stories we, we need to be aware of in the session ahead. So fiscal stimulus side of things, what's the latest there? Well, Nancy Pelosi, the House Speaker, is demanding that the Trump administration revamp its latest offer. And Senate Republican Leader Mitch McConnell pushing a smaller-scale strategy she very quickly rejected overnight. So at the moment, it's still— I think the thing to remember here is that politically there's a lot to be lost by walking away from these talks, because a lot of people in Main Street are struggling right now in America. High unemployment, people, they're generally are low on confidence. This coming, of course, on the back of the fact that we're, we've, we're in a pandemic. And so the last thing that they want to do into a major political event is to be seen as not assisting, generally trying to facilitate, um, helping the general public. So this is where the difficulty lies. They obviously need to manage that perception. However, none of them want to do a deal at this point. So I do expect this kind of toing and froing to kind of go on. And if we go on beyond the election, I don't think that's surprising at all. It's almost too big to fail for them to walk away from the political cost that it would have. So I would say much more of this is to come. I think markets are becoming— it was very sensitive at the beginning of last week. They're becoming less sensitive now to this kind of posturing and negotiation as it, as it goes on. But it definitely warrants keeping, keeping an eye on, of course. The other thing was we, we kicked off earnings season. I mentioned the US banks, and if you actually look down here, some of the US banks— Wells Fargo, Bank of America— were down pretty heavy actually. JP Morgan were down 1.6% at the close. Loan loss provisions were less than half of what analysts foresaw, and, and one thing people are looking at is that Well, that's fine. Perhaps they're a little bit more positive in terms of what the future holds and that they don't need to carry so much provisions on their, on their books. But COVID is so uncertain, of course, is that although we can try to predict the future based on the data we have now, scientifically, let's say, from testing and so on, but is that going to be enough? And I think the overall tone from these bank earnings has been that it's going to be a grind back to normality, not this kind kind of quick V-shaped recovery. And I think investors were generally a little bit disappointed by that. The other thing is, is for the pharmaceutical sector, of course, Johnson Johnson, you can see here, were down 2.29%. They were the biggest laggard of all of them. If you actually look at the block of healthcare and drug manufacturers in general, you can see here you've got J&J at the top of the scoreboard. Then the other big red percentage decline was LLY, Eli Lilly. They were down 2.85%. So those two companies, two of the kind of big guns in that space, were lower. Eli Lilly tumbling after putting its government-sponsored antibody test on hold due to potential, due to potential safety concerns. And of course that came after J&J paused its COVID-19 vaccine trial as well. So definitely something to keep an eye on. A number of companies now starting to stack up the running into some speed bumps at the moment on getting this to market. As I said before, I still think for now I don't find that too surprising given how accelerated these normally several-year periods would be. What they're trying to achieve in a matter of weeks, it's almost inevitable, I would say. But something again to keep an eye on. In terms of the overnight Asia-Pacific session, um, it pretty much was just a continuation of handing the baton over from the US to Asia. And so markets generally were a little bit lower. There was a speech which people were highly anticipating, actually, from the Chinese President Xi Jinping in Shenzhen, where he laid out a broad vision for the region's growth. But actually, it provided little in the way of actual tangible market-moving information. And I think a lot of that was priced in back at the beginning of the week to be to be honest, because people knew that speech was upcoming as China looked to, despite a trade war, try to open up their market further for further investment. All right, let's move on, talk about Brexit, and let's talk about COVID as well, because both warrant a mention. So with Brexit, the pound is underperforming a little bit at the moment, obviously in context of a little bit of a firmer dollar in the last 12 hours, but also the inability to construct some kind of compromise at the moment on this trade agreement with Europe. And Johnson and European Commission President, they're going to be discussing the impasse on a video call later today, so I'll keep you informed in the Amplify chat room as to what time that will be. But Johnson has said he will walk away from negotiations if there is no clear progress seen by tomorrow, which of course is that soft deadline. However, there's been a draft document obtained by one of the major financial newswires this morning, and they're saying that EU leaders are to say no breakthrough has been found in Brexit talks and are poised to vow to step up preparations for a no-deal Brexit. So for the moment, it's kind of this kind of Mexican standoff of who's going to blink first. And as such is negotiation. And I guess the problem being here is that with everything that's been linked to Brexit through the era of Theresa May to Boris Johnson is that these deadlines are very rarely concrete cliff edges because they can always be extended, there can always be more talks, more roundtable meetings, all this type of thing. And I just think the October one was so soft given the fact that calendar-wise. Obviously we've still got quite a while to run out until the end of the year. Obviously all of this needs to be ratified across Europe, hence there was that initial flexibility of 2 and a bit months to get this done. But the— despite a lot of the increased frequency of meetings, they still not managed to really make much, much movement on this. And as I said, both Johnson and the EU are kind of stepping up their preparations of a no-deal Brexit. So the market, as much as I think that that's not going to happen, does need to price in an increasing prospect of the probability of that scenario. And hence the reason why it's a bit of a headwind for sterling. You know, I think if markets truly believe that no deal was going to be done, the pound would be a lot lower than where it is currently. So I think it's kind of managing risk. At this point for a lot of investors. So keep an eye out for that. The, the thing I would say is that there's going to be way more comments and tweets and things coming out over the next 24 hours, obviously, as we go into this deadline. But again, I would not be surprised at all if no deal is done and they, they continue to just say, right, we'll just have to keep talking going forward. Wanted to talk a little bit about COVID This is a chart looking on at Italy, France, United States, Spain, United Kingdom. Now the blue line, which is United States, the deep blue line, you can see this is looking at new deaths attributed to COVID-19 in United States, a 7-day rolling average of new deaths per million. As you can see here, the US has really stabilized. Quite the opposite though happening in the UK in particular, which is probably the worst at the moment out of all nations here that I'm showing. The death rate increase is more steeper, but we're also seeing an increase in those other mainland European key nations. To give you a run-through of some of the stats at the moment: infections rose at the fastest pace since April in Germany, the Dutch PM ordered a partial lockdown, France reported a surge in patients needing intensive care. New cases in Italy jumped to the highest since March, uh, and in the UK, going off the numbers from yesterday, they reported 143 new deaths from COVID-19 on Tuesday, the highest daily figure since June. Total cases on Tuesday was 17,234. So these numbers are getting continually worse at this point in time. Political pressure then of course, on Boris Johnson is mounting for a short national lockdown. It's being referred to as a circuit breaker, i.e., trying to intervene to cut off this exponential rise that we're seeing at the moment, and by doing so, then locking down basically the nation in something similar but to a controlled small period of time over half-term as to cause the least amount of kind of impact in regards to schooling and things like that. This is being pushed by not only the opposition party, and Keir Starmer's kind of front page story in a lot of newspapers this morning. All of that's coming on the back of the fact that it's medical scientists who are suggesting and have suggested, even Chris Whitty, the Chief Medical Officer, back, I think it was the end of September, September, it was the one that first brought about the idea of a circuit breaker, 2 weeks to get on top of then the, the virus. And of course at the moment Boris Johnson is deciding, and it's a high-risk gamble to go against that advice because he and obviously the Chancellor Rishi Sunak are caught in that catch-22 of they want to keep the economy open. They've introduced a 3-tiered kind of system of restrictions, everything not to go into that national lockdown situation. So if that happens, a national lockdown, that's going to be another Sterling headwind because I don't think that that's fully priced in at this point. Although people are aware of it and it's been something talked about, the PM has been resistant to it. So move toward that, and obviously that, that period which people have talked about is coming up very soon. That I think could create further downside and probably is another reason why the pound has traded a little bit more heavy than the euro at present. One senior source in the FT I read this morning, close to the government, said the chances of the circuit breaker happening were at least 80%. 8-0. Okay, just before I wrap up on the calendar, I wanted to quickly cover a couple of things that I was seeing on the election front. And this was one, because I was talking to a couple of our trainees on the professional program. They were asking me questions about what was it like in 2016 or before that, and so on and so forth. So here is a look at what the betting markets and how they were priced this far out, 2 and a half odd weeks before the 2016 election. I thought this was quite timely because yesterday I was showing you a chart about the divergence of betting markets that's happened over the last couple of weeks, which has led to that notion of a blue wave, as Biden's leading now not only in the polls by— on a national basis, 10 points— but also in the betting markets. It's gone from 50-50 to 70-30 in Biden's favor. Favor recently. Now that sounds pretty, um, pretty concrete in terms of a strong bias towards a Biden win, but I was looking back here on the data and actually the average kind of margin for a Trump win at this same time prior to the 2016 election was around 18%. So actually in the betting markets, it was even worse for Trump at this time in 2016. Uh, it's just something to be aware of, uh, in that respect as a bit of context. The one thing, of course, that people look at is the RCP, which is the kind of aggregated average polls. At the moment, that RCP average stands at +10. Obviously, the biggest variance has been up. I've seen polls at kind of 13, 14. The narrowest being +5 on the Hill. One thing though that the RCP do, which I think actually is, is perhaps even more interesting, is they have what they call the top battleground, um, average polls. So this is looking at Florida, Pennsylvania, Michigan, Wisconsin, North Carolina, Arizona, you know, some of the most hotly contested areas which could well define the outcome of the the election. And a lot of these, particularly Florida of course, but Pennsylvania, Michigan, are fairly sizable in terms of their Electoral College representation. And so here it's quite a different story. Biden, of course, ahead in every single area, but you can cut that in half. So if you extrapolate out, you know, some of these big areas like California or the state of New York, which of course can be heavy in Biden's favor, that actually somewhat skews some of the figures towards a Biden much bigger lead. Whereas if you actually look at the battlegrounds, which is really where elections are won and lost, that, that gap is much more narrow, only actually 5. So I just thought it would be worth pointing out. I thought it was quite interesting. Looking at the calendar for today then, just to wrap up, economic data-wise it's pretty quiet. There's not a great deal going on, but there is a whole batch of speakers you need to be aware of this afternoon. You've got the chief economist of the ECB, Philip Lane, speaking at 1 o'clock London time, and then you've got the chief economist Andy Haldane of the Bank of England speaking at 2 o'clock London time. Now, those two particularly interesting characters because they have been both in their own right quite vocal in being— well, for Lane's point of view, probably the most outspoken about his concerns on the recent strength of the euro. And then from Haldane, he's kind of been the most optimistic in terms of his economic view going forward, and therefore subsequently deemed as more or less dovish than some of the other MPC members. Obviously, the subject of negative rates quite key here for the, for the BoE. The subject of the euro currency rate inflation quite key if you're looking at the eurozone speaker. You do have other eurozone speakers as well, Villeroy, but then for this evening mainly. There's only one in the afternoon, but there's also a batch of Fed speakers forthcoming as well. So do make sure you mark those in your calendar if you are trading late into the US trading hours. Earnings-wise, we do have a couple coming out pre-market. You've got Bank of America, Wells Fargo, Goldman Sachs. Again, for any of those who are relatively new to earnings season, The earnings reports here will have the propensity to move the single stock share price, but as generally now the sector has reported in regards to Citi and JP Morgan and BlackRock, the actual impact on an index point of view tends to just diminish slightly because generally these banks, although even with banks they can be divided into more kind of global banks in kind of the form of Wells Fargo, Citi, comparative to more classic investment banks, which can see some divergence obviously because of the underlying products and services they offer. Generally speaking, once the cat's out the bag and you generally get a bit of a health check on the first banks, doesn't really have too much of an overall macro, um, market-moving point of view. Although if you're looking at a single stock, of course it will do. Then after market, you've got the likes of United And following Delta yesterday, obviously these airliners are really falling upon tough times at the moment. So maybe one to watch after market. Um, that is it for the moment, so I'm going to leave it at that and wish you guys a good day ahead. Um, thanks as ever for watching. Do subscribe to the channel if you haven't already done so. Really appreciate all the engagement and the online community. Otherwise, I'll see you guys same time tomorrow. Thanks very much.