S&P 500 Recovers But The Nasdaq & Mega-Cap Tech Names Underperform

Good morning, it is Wednesday the 5th of May. Hope you're doing well. Usual recap then of what happened on the close of Wall Street last night, where we did see in the cash US equities the NASDAQ underperform, down about 1.85%. Comparatively, the Dow was basically flat and the S&P narrowed losses after some of that selling pressure that was seen earlier in the session. On that point then, let's start off with the S&P chart and have a look at that from a technical perspective. This was the, the chart that we were looking at yesterday in the community, which was, as per the briefing yesterday morning, a key level, uh, over the course of the last couple of weeks has been that 4167 marker here, as defined by the, the kind of pink rectangle. Breakdown of price there happened. And, you know, yesterday was so interesting. The move came at the open on Wall Street, so definitely the kind of ignition of the pickup in volume helping that move. But technically, the break— we'd already broken through it. We came back up to that level before then the push came on the open. And lots of people were trying to pin different things on it. There was all kinds of things doing the round, from speculation of military tensions between China and Taiwan, new coronavirus restrictions. I saw Bloomberg even going as far as to say that Ferrari delaying their outlook on their financial targets as a reason for the sell-off, which, you know, you have to be aware that a lot of these financial news agencies are working, operating in a, in a particular business where they need to put a reason on these moves. You know, it would be unacceptable for them to be able to say, you know, it's just flow and the market's just selling off, someone's just unwinding a position, whatever the case actually might be, they need to pin it. So do be aware of that. I guess the easiest and most simplest thing is, you know, just, just trade what you see and don't get overly caught up too much and just trying to find a reason. If the tape looks heavy, order flow is kind of indicative of a bit of momentum on the breach, on the volume pickup, you know, you're going to get these speculators looking at these fast money moves to, you know, push the market down, then just go, you know, go with the flow. Or as, as the late and great Bruce Lee would say, you know, be like water and just adapt to the conditions and, you know, and just ride that move. But do be conscious of the fact that, you know, from a longevity of move perspective, if there isn't any one fundamental headline that really is quite clearly driving that move, then you've got to be wary of the quite severe pullbacks coming at some point and dip buyers being confident to come back in, lift that market if it's aggressively sold, particularly at the open. And this was kind of similar to what we saw yesterday. And here you can see that there's this trend line going back to the 13th of April. It's been well respected through the middle of that month. And yesterday it was quite choppy at the time, but with that horizontal support level from the 22nd, 23rd, that was an area that we were eyeing the kind of eventual low of this move, just running out a bit of steam, of which then we saw really aggressive bounce as European players really exited the market. And the recovery really took, took place all the way up into the close on Wall Street, and then, and some during the Asian session where it just moved a little higher. Overall volumes overnight in Asia, very quiet. Obviously China and Japan still out. South Korea also closed, so not a lot of participants in the marketplace. The other thing that was being pinned on some of the move was Janet Yellen, the now Treasury Secretary and formerly the, the head of the Fed. And she was also kind of looked at as a potential catalyst that caused a little bit of nervousness in markets yesterday. To get you up to speed with what she said, the former Fed chair mentioned that the mix well, interest rates may need to rise modestly to prevent the economy from overheating. She kind of said that first, and then she came back not too long after and basically said, um, it's not something I'm predicting or recommending. So she had to come out and kind of clear things up, which, yeah, a little bit surprising given her kind of vast experience that she has. But perhaps she kind of over or underplayed the idea of how sensitive markets are, obviously, to rate talk, and particularly coming from a person like herself. Overall, I, I don't think, um, I would read anything other than it was just another variable to the mix that just contributed to some market movement yesterday. Looking at different, you know, kind of volatility indicators, the bond market really was unmoved by a lot of this, which I think really says it all. It was quite an equity-centric move when it was happening. As far as forex markets are concerned this morning, both major pairs are pretty flat overall. I'm just keeping an eye on EURUSD here from a technical perspective. You can see as we've, we've been on this downward trend really since going back to the end of last week, Thursday, Friday, and we've had a short-term trend line being respected through that period of, of decline. And that coinciding with the pivot level in the futures market, um, and any early birds in Europe might be a good entry point for the short to play the move back down to the, the rectangle here, which would be the previous resistance points that we saw in mid-April before the eventual break that came on the 19th. The market did also respect that level in yesterday morning's European session, so Yeah, quite, quite a nice entry point there and riding that move down, down to the 120 handle. But beyond that point you've got the S1, but then kind of deeper targets would be S2, uh, and then the, the range low that we had through the 14th to 19th of April. Elsewhere, the other thing just to have a quick look at was the Oil market, we did see a bit of a breakout in price yesterday. I just dropped this down to a 5-minute. You can see if I just forward it on to here, this was the, the top end of yesterday's trading range. The dotted line was yesterday's R2 on the daily pivots, and we had a breakout as you can see here at half past 9. And the rationale behind that being we had the latest API crude oil inventory number which was the biggest weekly draw since January, in fact, of this year. So multi-month, uh, size drawdown, and that caused that acceleration in price. Last night saw a pop and we drifted higher in Asia. Before then, we've kind of more broadly consolidated, if anything, here at the moment as Europe has come into the market. So we'll look to the oil numbers later. Obviously usual time, 3:30. It was only a UK bank holiday, don't forget, on Monday, so those data points not delayed, they'll be coming out at the usual time. So using those previous areas here now as downside levels of support, but we're looking for the bulk of that volatility potentially to come to see whether the API— the DOE can live up to the API drawdown that we had last night. But market obviously pricing in a large portion of that for the moment. Otherwise, a few other things just to quickly mention. One was on the COVID side. Biden set a target of administering at least one dose of the COVID-19 vaccine to 70% of adult Americans by the Fourth of July. As part of a new package of measures aimed at boosting vaccine take-up, Biden is planning spending hundreds of millions of dollars on education outreach efforts to try and really increase enthusiasm for the vaccines, particularly those of the ethnicities in particular who've been quite reluctant to take those vaccines. The measures being taken after 2 weeks of declining vaccination rates that we've been seeing in the US, which are largely have been expected, but at the moment in terms of numbers as context, they have dropped an average of 2.3 million a day from where we were tracking at 3.4 million just a fortnight or so ago. Um, the other thing I just wanted to mention from a stocks perspective, as we go into US trading hours later on today, it's probably worth noting for Boeing, a fairly large constituent of the Dow. I think they're about the 7th largest. They account for around 4.5% or so in terms of an index weighting. And Reuters have got an exclusive that came out very early hours of this morning And it's basically saying that US air safety officials have asked the company to supply fresh analysis and documentation showing numerous 737 MAX subsystems would not be affected by electrical grounding issues first flagged in 3 areas of the jet in April. The extra analysis injects new uncertainty of the timing when Boeing's best-selling jetliner would be cleared to fly by the FAA. And basically then, US airliners have said they expected Boeing to release service bulletins as soon as this week but this latest issue could push back that timeline. And given how key obviously this aircraft is for Boeing, it'd be interesting to see how they perform in pre-market and then the eventual opening later today. The other one is tomorrow, of course, we get the Bank of England. And some of you might not be aware of this, but the Times newspaper in the UK have something called the, the Shadow MPC And who these guys are, are basically a group of 9, so the same kind of number, if you like, to replicate the, the official Monetary Policy Committee. And they're former bank rate setters, so they could be former central bankers with direct experience of managing the UK economy, to Treasury officials, to top economists. And basically they go through the same discussion points and then have a vote to see what those very like-minded individuals, um, are saying is the best course of action. And sometimes it can be a bit of a lead then for what the Bank of England eventually might do. They, the shadow MPC, they urged the bank to leave rates and QE unchanged this month, so no surprises there, but to prepare the market for a slowdown in weekly gilt purchases under QE. And also, I'd say no surprise there either. So very much that is the bedded-in expectation for tomorrow, and of course we'll be, we'll be covering that more detail when we get to Thursday session. Quick look at the schedule for today. In terms of this morning, you do get the service PMI numbers coming out of the eurozone, so France, Germany, eurozone, so on. But these are final readings for April, so not looking for any meaningful market reaction to that. Going into the afternoon Uh, not so much the market, but the ISM Services PMI will be their main headline reading. And if you remember, last time this number came out, it came in at 63.7 against the previous 55.3. It was the biggest kind of uptick, biggest lift we've seen in this figure ever, basically, as the economy continued to reopen, um, at a fairly rapid pace in the US. Respondents from that previous report basically indicating the lifting of coronavirus pandemic-related restrictions had released pent-up demand for many of the respective company services. And analysts do expect that trend to basically continue today because that number is going to head even further north to 64.3 from 63.7, top end of the range seen at 66 potentially. The other things, uh, we're looking out for— we've got the oil inventory numbers as mentioned at 3:30, and then you've also got the quarterly refunding announcement in 3s, 10s, and 30s coming out 1:30 as well from the, the US to be aware of. This coming with a little bit of attention just given the fact that, you know, the US is bringing about an unprecedented amount of supply to finance all the government spending that's going on at the moment. You've got various different bond auctions coming out the UK and Germany this morning, and from the speaker's perspective, all based in the afternoon with a Fed focus Fed's Evans being a voter, uh, the others, Rose and Grenn-Mester, not voters till next year. Evans speaking on current economic conditions and monetary policy, so one perhaps just keep half an eye on at the New York Stock Exchange open at 2:30. ECB's Lane partaking in a panel discussion also at 3 PM this afternoon. So I'm gonna leave it at that, let you guys get on with the day. Overall, my assessment is I don't feel particularly too concerned about some of the volatility yesterday. Um, I kind of feel a little bit like the, the market making a bit of a mountain out of a molehill on the back of that sell-off. And I think that's reflective with the aggressiveness of the bounce back the S&P saw during the, the post-European exit US evening. NASDAQ though remaining a little bit underperforming as it has done over the last two sessions, but I think that's largely reflective of the ongoing reopening kind of trade reflective on that rotation in terms of the sectors. Um, you know, yesterday was no different really. High-value technology names— Microsoft, Apple, Amazon, these— Facebook— these types of companies fell anything from 2.3% to 4.2%, whereas defensive consumer staples, utility, real estate, um, fell to a much less, lesser degree. Um, so I don't think anything there is, is too surprising, to be quite honest. In terms of today, I feel overall fairly neutral. I just want to wait really for the, for the US section to really dictate proceedings, and then that ISM be keeping an eye on, uh, with also a look at the employment constituent, of course, heading into Non-Farm. The employment constituent in the manufacturing beginning of the week was a little bit of a decrease from the prior reading. All right guys, I'll leave it at that, let you guys get on. And I wish you a good day ahead. Thanks so much.