S&P 500 Above 3,000 On Renewed Risk Appetite

Okay, very good morning to you. Hope you're well. Hope you had a great long weekend if you're based in the UK or the US. Um, quick mention about the YouTube channel— remember to, to like and subscribe. We have videos coming every day of the week now, so Monday to Friday from me with macro updates ahead of the European Open a technical analysis kind of trade setup video from Sam North, one of our senior traders. He releases out on the Sunday, and then we get into kind of under the bonnet of some of the key macro topics in a bit more detail with Eddie, my colleague, on a Saturday. So don't forget to subscribe to the channel, um, and also check out the website amplifiedtrading.com for any more information about us and what we do. But straight into the charts this morning, and yeah, clear case for, for risk on sentiment. Equity index futures up significantly, obviously everyone getting back into the swing of things, albeit Europe was open, volumes particularly light yesterday, as is normally the case with a kind of coordinated bank holiday market close in the US and the UK. So people coming back into market and a number of different things, whether it's central banks pledging further monetary policy support, whether it's continued reopening of economies without so far any real significant signs of a secondary wave of infections from coronavirus. I would have some comments out of China looking to alleviate some of the tensions from some of the protesting that was seen in Hong Kong over the weekend. And then some data yesterday on the European side, some German iPhone numbers, particularly on the outlook, show quite a significant bounce as firms in Germany are becoming a little bit more optimistic. Now we're starting to see the phased unwinding, if you like, of the stringency of the lockdown measures that have been in place in Germany. So a couple of different things all in the mix this morning, not one definitive thing, but it has meant that, you know, S&P is right back up there once again. And just going to pull that chart then into a bit of perspective. You can see this is the, the move up that we've had since the overnight session through Asia, and then as Europe has come in this morning. But putting this onto a daily continuation chart probably tells a bit of a better picture. There's that low that we had, that we saw back on the 23rd of March after that big rout that we had from a drop from pretty much 3,400 down to into the 2,100 handle. And here we are, we've rallied nearly 40% now since that point. And we're coming up to a longer-term area of quite significant resistance. We're about 16 points shy of that at the moment in the S&P. As marked up here, which is really, uh, the high that was seen around the 6th of March, but then what was capping some of the price activity through the summer and autumn kind of of 2019, and also was a support point after initial break in the latter part of October, early November of 2019. So be interested to see how market reacts. The next kind of obstacle here to the upside, now that we've managed to really break through these previous areas that were holding up some of the price around 2965.70, which you can see we've managed to firmly break at the recommencement of trade today. That was that high that we had back on the end of April, but also you can see it was a big area as well of resistance around a similar time 12 months ago, kind of April, early May time. So if we continue to push higher Anthony Cheung did have a question about, you know, where would we go next. Well, this is a real key test of where we are, and I guess any further risk appetite. If we can get ourselves above there, then I'll be looking up areas probably to those lows that were seen back on the 3rd of December of 2019 that were coming at 69.5, and then a further push up, we'll be looking up at around those highs that we've seen just before the fall at early part of March. So 3069.5, then 3113.75 would be the kind of areas. And then you'd have to be looking, uh, further up as we continue to push, probably these areas, that high on the 26th corresponding with the low on the 8th, that would be up at 3180.75. So yeah, obviously these sorts of things not going to happen in, in one day, but could they materialize over a number of days or weeks Sure, and I'm sure there'll be plenty of those thinking, well, you know, looking at this almost V-shaped recovery you've had in equities, and why not, can we just continue to move up? And, you know, it does beg the question of, you know, what if we don't have— what if there is no second wave? What happens then? And then, all things remaining equal, you've got to think that, well, yes, there's a tail risk with further escalation in the trade war, but you know, it seems somewhat like inevitable that we're going to push right back up all the way up to the all-time highs again. But look, a little bit early to start making that— those types of noises, I'd say, at this point. For the moment, I'd say we're at a very key test where we are now, just given the scope of the rally we've seen over the last couple of hours as US and UK come back into market. And that's this area here at 3026 we need to watch today. If If we did break that, then I think a fairly swift move up then to the next target at this 69.5 type area is not off the cards then at that point. So that's the equity story and the rest of the other assets and the kind of cross-asset class move following suit. Gold down a touch, $4. T-notes already down about 10 ticks. We've had a bit of a dip here as Europe have come in. Bunds obviously back in full flow, down about 50 ticks this morning. Uh, T-notes down 10. Crude oil markets then in step then with the equity move, it's kind of fitting in tandem with this overall global more risk appetite position in the short term. And so crude oil continues to rally, we're up around $1.25 at the moment in the July contract. So we're coming up to an area of potential resistance that we've seen on the 21st, so eradicating any of that dip that we've seen back towards the tail end of last week. We've got the R1 sitting just above that, so that 21st high at $34.66 and $34.80 is the R1 for crude. And then the currency markets, we've been seeing typically movement in the dollar in respect to risk, being that, you know, risk-off, dollar strengthens, and then vice versa. And certainly then, given the movement that we're seeing across assets, the Dixie is down about a third of 1%, so both EURUSD and cable on the front foot. Cable, despite a lot of the noise over the weekend in the UK about Dominic Cummings and so on, just pretty much brushing that aside. Any of that short-term kind of risk or idea about potential more volatility coming towards the end of June deadline for Brexit, it's just kind of being parked for the moment as the market's just reacting to the general risk-on vibe and the weaker dollar, just this morning. So let me just run you through some of the headlines. As I said, Sam released a video over the weekend with all of the key technical levels to keep an eye on in more, more detail. So I'll let you review that in your own time. My job to get you up to speed then with the news and what's been going on. And, you know, let's, let's just cover some of the stories of why is there such risk appetite this morning. And first of all, starting with China and also series of comments out of a number of the major global central banks. So with China, and remember at the end of last week you had that National Party Congress where they did not explicitly outline a GDP target, and that was the first time that's not happened in a very long time. And it did leave some question marks then about the difficulty markets would have in order to quantify the type of fiscal or monetary support that the authorities in China might provide in order to stimulate the economy. However, to kind of nip that in the bud somewhat, the PBOC Governor Yi Gang came out overnight and has said that China will strengthen its economic policy, continue efforts to lower interest rates on loans, reinforcing expectations of further measures to basically support the economy through the pandemic. So I guess a little bit of, I guess, further clarity, a bit of relief for markets who are a little bit uncertain given that particular end of that political conference of last week, just reassuring that they continue to remain flexible and prudent in terms of implementation of various different means to support their economy. Also, there were some further outbreaks over the weekend of large protesting that hadn't been seen in a while, obviously, just given the containment and lockdown to try and control the virus. But it did flare up again, and this came after that law was passed looking to take away some of the legal rights over the city's autonomy in Hong Kong from mainland China. However, China looking to not forcefully but politically manage the situation, you could say, saying that Hong Kong's judiciary to stay independent under new law. And that obviously lack of independency is what people are getting particularly upset about. So again, just looking to tackle that and alleviate any of those growing concerns. The Hong Kong market actually just responding fairly positively overnight, as with the general global move that's been seen over the last couple of hours. And yes, China has come out and basically they've condemned the US for adding 33 Chinese entities to a trade blacklist, but they did and have not come out and announced any any new retaliatory kind of steps to counteract what the US have done. So a couple different things there, uh, that are helping on the— from the Chinese side. Uh, to supplement that, we've had Bank of Japan's Governor Kuroda come out, uh, and not say anything particularly new, but again, it fits with that chorus of what central banks are saying, uh, over the weekend, that they— Bank of Japan may take more steps to cushion the economic impact from the virus. However, they maintain their gloomy outlook, but generally saying that, look, we're ready to do more if that is what is necessary. And then that's similar to what was said by the ECB over the weekend. ECB's Villeroy: more stimulus is probably on the way. And remember, again, kind of similar to China, the few question marks about, you know, can the ECB legally now expand upon their quantitative easing program given that constitutional court ruling that came out of Germany. But having had this already reaffirmed by Lagarde further from Villeroy at the weekend, that the idea here is not a matter of if but when, and it could just be they're coming into June meeting that we're going to see more firepower from the ECB in the form of their QE. So you've got, again, just going through this, China saying, look, we're going to strengthen policy, we're going to lower rates you got Bank of Japan saying, well, ready to go and do whatever is needed to stimulate the economy. And ECB, more stimulus is probably on the way. So yeah, these are the underlying, obviously, mechanisms that help drive market direction, support market confidence. Now, the idea that yes, there's obvious risks on the table, first and foremost the pandemic, and secondly this rising escalation recently. We saw last week in the trade tensions But as long as central banks are willing to do whatever it takes, that, that instills a degree of, of confidence in markets. Yesterday as well, for those who weren't in, we did have the release of German IFO Business Climate. This is looking at the headline reading. So for any of those who are unfamiliar with this, this IFO basically is a survey, it's a soft economic indicator looking at current and future expectations of what German companies think about their own domestic economy. And so from the headline reading, we did see a bit of a bounce. It came in at 79.5 from the very depressed level of 74.2 in April, which was the period of the, the most, uh, kind of onerous of the lockdown when it was in play. However, what we've had is a very steep rebound in the gauge measuring company's expectations about the future. Generally, we're talking about the 6-month outlook And that improved to 80.1, 80.1, from 69.4 in April. So that was a huge jump. And this of course comes as companies are starting to become slowly, gradually a little bit more confident about what the future holds, given now the German government have been loosening some of these quarantine-type measures. On that point, I think Germany, they plan to extend their social distancing until the end of the month. But obviously they're a few phases along from where, say, the UK is at this point of time. On that front, talking of the UK, Boris Johnson, he delivered his speech yesterday. He said UK shops will be able to reopen from June 15th, the lockdown to end June 1st for outdoor markets and car showrooms. And I, for one, being a father, cannot wait. For nurseries to reopen again on the 1st of June. So not this week, the following week, meaning that obviously a lot of parents and things can get back to being more productive at work. So yeah, again, why is this happening? Well, this is pretty much mimicked from, from across most Western parts of the world, albeit India, Brazil, a couple of these areas where the rate of infection is still rising. But in mainland Europe, in the UK, in the US, in China, in all those Far East countries, generally we've been seeing a pattern of no visible signs of a significant second wave occurring as yet. This is what the UK 7-day rolling average looks like. This is the blue line. And we're looking at the, the green bars and new confirmed cases, and above that we're looking at daily test rate in the UK, which is hovering just under 100,000 at the moment. I think it's around 75,000 the government was saying yesterday, but it's the trajectory of the decrease then of this line on the 7-day rolling average that is allowing the UK government to take these types of steps to gradually phase in the more unwinding of the lockdown. The other thing, of course, that dominated a lot of the press coverage over the weekend was the kind of chief advisor to the PM, Dominic Cummings. A lot of MPs, I think up to 20 Conservatives, looking for him to be, to basically be pushed out, fired, or whether forced to resign. Because of his apparent breaking then of some of the legal, uh, rulings around what would actually be conducive of the adhering to the lockdown rules in the UK, and he— him being the chief architect of those very rules. I think I'm not going to talk about this a great deal. The bottom line is, is that he's not going to resign. We saw that quite evident yesterday, so it looks unlikely that's going to be the case. I do think that, you know, he plays obviously a huge role behind the scenes, particularly for a Boris Johnson-led government. You know, he was the chief architect behind that of the Leave campaign of Brexit. He was then behind securing Boris Johnson a majority government with kind of the moving on of that similar theme to delivering Brexit. So Take Back Control, delivering Brexit, to where we've arrived at now. So without him, he would be a huge huge loss. So that really ratified as an idea, and he's not going anywhere anytime soon. So I think, I think the media fanfare will certainly die down. General public, although might not forgive, do forget relatively quickly. And he, you know, he's very— he's not really an in-front-of-the-camera type guy like he evidently was yesterday. He is behind the scenes, and so I'm sure that the whole hysteria around this will die out fairly quickly. But obviously the next big thing though that this does lead us to is that if he still is in play, that does still leave a degree of apprehension about what exactly is going to happen to that end of June deadline, which is only 4 or 5 weeks away, where the UK has got to make some serious decisions about, you know, can they actually get together? Is it actually realistic they're going to make a trade deal by the end of this year? Or do they need to request an extension to the current transition period at the end of the year, or at risk of being at a no-deal Brexit once again? And if Cummings is still in the mix, you've got to think that these things are going to come right down to the wire, of course. So yeah, at the moment, markets not really phasing this in, and as I said, I think it's, it's a lot of noise about not a great deal really at this point. Moving on, Just wanted to point this out. This was from the World Health Organization. They were warning over the weekend that, look, a second peak in areas where COVID-19 is declining is not off the table just yet. So, you know, despite all of the positive things I'll be mentioning, there still is this kind of echo of prudency or vigilance that still needs to be put into place. Given how things are going at the moment. I guess the biggest risk here, as far as the World Health Organization are concerned, is that governments— so not just the UK, but governments in general— see this type of decline in the rolling average of new confirmed cases and they go too fast. They essentially accelerate then the reopening of their economy. You've heard of pretty testing relationships between, say, the Chancellor in the UK, Rishi Sunak, and the PM, Boris Johnson, where Sunak really wants to get this government, this economy reopened as soon as possible because that's going to then offset some of the, the economic damage that we've had. But the PM very mindful then about the cost of life that could come through the mismanagement of this, as well as his political fate. So You know, these, these are the main things that if governments act too quickly, then all the more risk there becomes, and there comes the balancing act. But at the moment, the markets seem comfortable with, with the current plans that are in place. Quick look at the, the calendar for the day ahead. Um, pretty quiet overall. There's not a great deal going on, um, from a US data perspective. You've got the US consumer confidence coming a bit later on. From speakers. It could be quite interesting. Obviously, from the Bank of England, you've got the chief economist Haldane. If you remember, not this week, the weekend before was when he spoke exclusively to the FT, and he was kind of putting on, yeah, this idea on the table of negative interest rates is one of many different tools of which they're investigating. But obviously, the, the market jumping on that like wildfire about this growing chorus of bank officials talking about negative rates. So he is speaking at 10 AM this morning, could be one to keep an eye on. Uh, you've got the chief economist from the ECB, Lane, at 1:45, and Kashkari, FOMC voter and well-known dove, speaking at 6 PM, uh, this evening. For the calendar for the rest of this week, um, overall the week is relatively quiet. So monitoring the, the pandemic government plans, uh, and also The ongoing trade war between the US and China are probably the main things still to be looking out for from a, from a sentiment-driving point of view. On Wednesday you get Fed's Bullard, you've also got the Beige Book out of the Fed, so pretty quiet overall I would say. Thursday you get second reading of first quarter US GDP, preliminary durable goods numbers. Fed's Williams takes part in a moderated discussion as well. From the eurozone economic confidence, preliminary CPI numbers coming out of Germany and Spain. And then on Friday you've got the University of Michigan, but this is the final reading. A couple of numbers coming out of Japan overnight in the form of industrial production, consumer confidence, jobless rate. Eurozone May flash CPI comes out from the Eurozone on Friday. Some final GDP numbers through Europe, but that's about it. So yeah, fairly quiet, um, rest of the week. All right, that is it. I'm not going to go any further. So any comments, of course, any questions, please feel free to leave a comment. Absolutely happy to engage, uh, on the commentary section on these videos. And don't forget to subscribe to the channel. All right, have a good week ahead. Thanks very much, guys.