S&P 500 Notched Biggest One Day Advance In 9-Months But China Is "Very Worried About Bubbles"

Okay, very good morning. It is 6:45 AM on Tuesday, the 2nd of March. Hope you're doing well. Just going to give you a quick update on what's happened overnight in terms of the close on Wall Street. Some meaningful news coming out of China overnight where their domestic market underperformed on fears of policy tightening and some focus on their property market as well as the, the broader global view that the Chinese have at the moment about the general frothiness of the market with this whole yield-inspired move that we saw dominating market attention over the last week or so. And then just going across the charts and having a look at things, there's some definitely interesting levels in the currency FX pairs, precious metals, gold getting very close to that $1,700 level. So it has recovered a little bit through the latter part of the Asia session, but But generally, downside pressure is still emanating from the firmer dollar at the moment. The Dixie this morning is still trading up, albeit moderately, only around 0.2%, but as I'll show you in a moment, I think on a dollar index perspective, we are looking, um, like potentially technically on the upside, some room to move further north, which could insert further downward pressure on the major pairs. Otherwise, as you can see here in the cross-asset class mix, equity index futures a touch lower, but that does come in context of yesterday in the cash markets in the US. You know, after such a nervous end of last week with equities under pressure from accelerating yields, actually we saw yields just hold quite a bit more steady in, in comparative terms from what we were seeing last week, and that that generally alleviated some of the tension. And just having a look here, this is the US 10-year yield. And as you can see, it's currently trading at 1.42%. And so after we jumped up last week considerably, we have now paused at around what is the bottom end of that range of yield consolidation that we saw roughly through the second half of 2019 and beginning of 2020. Before yields obviously plummeted on the onset of the pandemic. And so I do think this is quite a meaningful area now for US 10-year yields. I do think it's kind of a bit make or break for this week, and obviously some of the data catalysts could well come to the forefront because we've got the other ISM figure coming out later this week, got ADP tomorrow, Non-Farm on Friday. So these all could be meaningful things to spark some price movement. But at the moment, it feels like we just hit a bit of a decision point, which is, is this fair for pricing in reflective of things like the growth prospects improving, the vaccination rollout, the drop in COVID in the States, the forthcoming stimulus and so on? And so yields, having rocketed higher, have found their natural resting place now with a bit of upside resistance at around the bottom end of that trend. from where we were back over that period in 2019, or do we break above and do we see another quick move from around 1.4s up to 1.6s, which is up to around this kind of double top area from going back to February of 2020, and which was around 1.63. So I think this definitely still warrants watching quite closely. Um, yesterday it was interesting because you know, we had a really— as this settled, we had a really firm close on Wall Street. Um, the S&P finished up 2.38%, and in fact, it was the biggest advance we've had in 9 months for the S&P 500. Uh, the NASDAQ Composite jumped 3%. The Russell 2000 small caps was actually up 3.4%. So really strong performance there for US equity markets, and did come as well with US manufacturing activity, that latest ISM number coming in at a 3-year high. Amid a surge in new orders. But factories still do face increasing, uh, higher costs for raw materials and other inputs amid labor shortages at suppliers as the pandemic drags on. So that prices paid component was particularly eye-wateringly high, which would be indicative of inflation concerns. However, given the aforementioned reasons of higher costs from raw materials and other inputs amid labor shortages. I do think that that is a key reason of why inflationary pressures will be temporary of nature because of that, that impact of the shortages due to the pandemic. So markets look beyond that and actually took the data for what it was, and actually that initiated some of the positive reaction that we saw generally in equity markets yesterday. So kind of yield calmness with that data point, uh, help lift things. However, as we go into the overnight session, things have soured a little bit, and that has led to some dollar strength, generally speaking. And this is a look at the dollar index on that longer-term trend line we've been kind of jostling with over the last couple of weeks, either above or below. Generally has been quite indicative of dollar movement for the intraday session. And one of the things I was looking at yesterday to start the week off was around this 91 level, which if I put the crosshair here and you can see the dotted line, and if I just zoom it in, actually make it a bit more clear to see. Um, so kind of around 91 would be about here, which was capsulating some of these peaks of price activity we've had over the course of the last 2 and a half or so months. And you can see we're just breaking a little bit above there at the moment. And so it does bring into question, you know, do we push up to the year-to-date highs, which would be a little bit further extension of dollar strength, up to around 91.59 from 91.18 that we're trading at the moment. So at the moment, I do feel a little bit more bullish about the dollar, uh, given this technical setup. And if we're looking at the major pairs, I do think it does warrant watching quite closely. And if I just bring this EUR chart into play here. And this is the kind of areas that I'd be looking at in today's session. This 1.2030 level in EUR futures was quite key. We broke underneath there with some of that prevailing dollar strength in the overnight Asia-Pac session, and you can see we dropped quite quickly. That level is significant over the course of the last month's worth of price action. You can see here It was a support area on the 8th, the 17th, and a couple of times in yesterday's session. So the breakdown of that, that support has now turned resistance for this price recovery initially just going into the early hours of European trade. So worth keeping an eye on there. On the daily, does look interesting now actually because around this level is quite technically key. As you can see, it kind of brings in as well that peak of price activity that we saw back on the 1st of step. So I think it does mean that if that dollar does push on, the euro does look a little bit susceptible here to downside. 1.20 psychologically not far off, and then you would be looking to target really around this 1.1960 and a half kind of area, which then starts to bring in some of these price points here that we had previously as resistance in the summer of last year. So definitely feeling a little bit more downside bias for, for the major dollar currency pairs, all things remaining equal for the time being. Euro looks a little bit more compelling technically. Cable at the moment, I'm just eyeing any further push to the downside around this 1.3863 level. That was previous resistance going back to the beginning of February. And so if we do push back down, be keeping an eye there and any move through there. You you've got the S2, and then be looking down at the low we have on the 18th and 17th as potential areas to have a look at. Looking at, you know, pound in a, in a slightly higher time frame, and, you know, this is looking kind of stretched out. And what I wanted to kind of encapsulate here was really this range what we were trading through the back end of January. So key areas here I think are if, if we do continue to reverse course, would be down towards those areas I just mentioned, but then a further deeper pullback through 1.38, which would be quite a key kind of zone area around 37.50 to 1.38. Um, is this really to do with sterling? No, not really. It's nothing to do with the budget, it's nothing to do with the ongoing UK rollout. It's all to do with dollar at the moment. So I'd definitely be looking for dollar to dictate proceedings today as well. And as I said, upside potential for dollar was going to put some downside pressure on these pairs. Similarly so, if we're just looking at gold, the precious metal is definitely being weighed upon by some of this recent dollar strength. And this is just looking at Friday session. We had Monday's recovery, came up for a nice technical test on the pullback right to the kind of scene of the crime for the support and breakdown of price we had on Friday. As we now, uh, kind of look to recover slightly after that initial Asia-Pac low at $1,704, what's interesting here is that we are seemingly continuing to thrash out new lows targeting the $1,700 level in gold. Now on the pullback higher, I'd be looking then for the prior price action on this breakdown of prices as areas of resistance. So You can see we've tested and just seeing a little move above it now, which is that previous lows here on, on the breakdown of price. As we move higher now, it does open up potential recovery up to around 25.5, which would be these highs here. And then above there, next resistance would be seen around 31, with 32 being the daily pivot, with the broader recovery move up at 54. Not so sure we could get up there today. Um, but looking on the daily, this is what does look interesting because— and, and does make gold seem quite susceptible at the moment to potential downside kind of headwinds— is we had— and you can see the, the rationale behind on the daily the breakdown in price that we had quite quickly in the overnight Asia-Pac session. That's because we've been holding relatively nicely around that 1717. Breakdown there saw quite a quick flash lower to, um, 0.04, as I said, and we've recovered back to the spot now of that previous era on the daily of the low prints of those sessions, that being as well around the lows that we had in mid-June. So definitely keeping an eye here, um, 1,700, definitely a psychological target, and I'd say around this kind of band of 0.84 to 0.92 Captures then the kind of range high and low of this period of consolidation that we were seeing after gold was initially pushing up as the pandemic took hold at the beginning of last year, and that price consolidation we had of Q2 of 2020. So definitely, again, it's a dollar story there that I'd be looking at to dictate what the gold direction generally would be. And then similarly, oil markets being weighed upon a touch. I don't really think there's too much OPEC play in this. Um, obviously we are expecting around 1.5, 1.6 million, uh, the supply cut to be watered down. Um, the Saudis taking back their million and perhaps another 500,000 put back online by the OPEC+ group. Um, so I don't think that really comes as too much of a surprise. If anything, I think with the situation with oil, we kind of rallied so fast, so quick, it doesn't really make me feel particularly uncomfortable with the scope of the pullback at the moment, albeit it has accumulated now to around $3 in size. We found a fairly nice resting spot now at around the $60 handle, which does bring in— you can see these kind of areas here that we were trading back in Dec 2019, and then the beginning of last year. And so perhaps then we, we find a bit of a flaw to price at the moment. Any further deeper pullback, be looking for the next kind of area of support down around 58, um, 40, 45, uh, would be something I'd be looking at. All right, well, a couple of headline stories. As I said, we had positive close on Wall Street as a general summary, uh, in fact particularly strong in the equity space. I wouldn't get overly obsessed with that though, because it does come on the coattails of general weakness seen at the end of last week. And then overnight in Asia, things did turn a little sour given the fact that China came out with some interesting comments. Um, they basically said that they're very worried about bubbles in overseas financial markets. That was according to their China Banking and Insurance Regulatory Commission chairman. Who also added that they're worried about risks in China's property sector. This has led to some growing speculation as what did weigh on their local equity market just a week and a half ago or so, which is that of policy tightening away from this very accommodative general stance that the central bank has held in line with most other global central banks, and that then causing a little bit of nervousness in, in local trade and just generally dragging down the region. Um, so things have— are a little bit, um, more negative than perhaps where we finished on Wall Street on the back of that. I don't really think that that reverberates too much directly into the European Open. It's very much a China narrative, but perhaps then a slightly weaker hand to lead on into the European Open. Overnight we did have the RBA interest rate decision. They kept their cash rate steady. and their yield target on their 3-year, 0.1%, and the QE program at $100 billion. They did reiterate their yield kind of target strategy and said that they would buy more bonds if needed. In fact, despite that commitment, yields in Australia actually rose. So it was more of a hawkish type reaction by price movement on the back of that. Now, I think the rationale behind this I mean, it's not definitive, but my take would be that actually this is a bit of a disappointment because just looking at my notes, if you remember yesterday, the RBA doubled down on its bond purchases to start the week after what we had last week in terms of the yield acceleration that was seen globally. And so if you think about it, then we did see the biggest drop in Australian yields in about a year. Going into Monday session. So today, to see a mild move higher on the back of generally then an as-expected in-line agreement, I think is, is nothing to get too caught up in, just more for market positioning reaction, I'd say. The other thing then from a news perspective, the Senate— so the latest update here is they'll start debating Joe Biden's $1.9 trillion stimulus program as soon as this week, according to the Senate Majority Leader Chuck Schumer. It could potentially, according to other senators, be as early as tomorrow, Wednesday. At the moment, the Democrats then have backed down from their effort to raise the minimum wage to $15 as part of that kind of olive branch to get these talks ongoing. The oil market, as I mentioned, oil prices is sitting around $60 at the moment, is down around $0.72. In the near-term price action, just, just some short-term resistance being encountered here in the early European entrance at 6022. Does encapsulate some of the area of support that we've seen going into around the close of Wall Street or US trade last night. So perhaps a band until the US session really commences at 6022, and from the Asia-Pac low at 5945 for the time being. Again, as I've already commented on OPEC, one thing to be aware of is that the Joint Technical Committee gathering starts today ahead of the OPEC meeting then that takes place on Thursday. So this is when they all get together looking at stats more to then really define the decision-making they might make 2 days later. But given the fact that those meetings are taking place, I would probably expect then an increase in tweets and rumors and hearsay and those types of things. So people like Amina Baker, um, definitely worth following on Twitter. I did share her handle on my own Twitter account yesterday. If you're not following her already, I strongly suggest you do so for any energy traders. And then looking at the session ahead, what have we got? Um, so yeah, German retail sales numbers, nothing to get too excited about, not really a focal point for their economy. So then very much so looking to later in the morning, we get the flash CPI data coming out. So this is kind of HICP for the eurozone, and inflation definitely a key to, to watch for a lot of these central banks with the view of the impending inflation spike, albeit most would see it as, as temporary. And the reason for that is energy is expected to be a big component driving headline inflation higher in the coming months, given that oil chart I showed you in the pretty quick acceleration we've seen in oil prices over the last couple of weeks. Um, the ECB probably going to insist that temporary increases do not constitute, um, something more sustained in regard to its goal, um, of around the inflation target. So again, um, although this number might have upside potential both today or in the coming weeks, I don't really think it's particularly going to be something which, um, is going to be that meaningful overall. for, for price reaction. I guess the way I'd look at that data is anything on the softer side with a generally firmer dollar setup could then take out those lower levels in euro. Then it gets quite interesting for that directional trade, um, for on the back of dollar, dollar strength. Then in the US session, it's pretty quiet. You've got Fed's Brainard discussing the economic outlook, um, and then Fed's Daly. Both are voters and they speak at 6 and 7 PM each respectively. You've also got the ISM New York Index at 2:45, so shortly over the— after the cash open, um, this afternoon in the US. And that is it. So that's your briefing for this morning. I'll share some of these technical charts I've marked up into the Amplify Live Discord room. If you're watching this on YouTube, don't forget to like and subscribe to the channel. Really appreciate it. Um, plenty more content coming uh, for sure in the future. Otherwise, have a good day ahead, guys. Thanks very much.