Short-Term Relief For Stocks As CB's Reaffirm Policy Support But Yields Still In Focus

Okay, good morning. It is Thursday, 25th of February. Going to get you up to speed on what happened on the close of Wall Street, some highlights from overnight in Asia, and then just generally what we're looking out for for the day ahead. Had a really great masterclass session with Bilal Hafeez from Macro Hive yesterday, uh, so for anyone in the community on Amplify Live, if you missed that The recording will go up later this morning. If you would like to check that and you're not part of the community, just check out AmplifyLive.com. But look, let's start with this, which is the heat map of the S&P 500 yesterday. And yesterday we saw a firm higher close on Wall Street. The S&P 500 up 1.14%, the Dow up 1.35%, the NASDAQ again slight laggard but positive 0.8%. So one of the first decent major updates that we've had, and if you're looking at things like the S&P We basically reversed all of the week's losses. In terms of the Dow, we briefly touched 32,000, of course, as well, an all-time high. Energy, as you can see on the heat map, and industrial companies led the gains. Financials as well, particularly firms. So this is that rotational play that people are talking about. So some of the familiar softness seen in some of the large mega-cap tech names like Apple and Amazon down half and 1% each respectively. But some of the more cyclical-based names— industrials, financials— outperforming on the narrative of this improving growth picture that people are buying into at the moment. Importantly, what is underpinning a lot of the movement at the moment was apprehension, if you like, about what higher yields means, particularly for the stock market, beginning of the week. Now that we've had Jay Powell's semiannual testimony and he's very much reiterated the Fed's accommodative monetary policy stance. We heard very similar from the Bank of England governor yesterday, dismissing the idea of the threat of what higher inflation might mean. We've had similar as well from further commitments and tweaks to ongoing bond purchases that could be done at the ECB from Christine Lagarde. So at the moment, any idea that the central banks might be nearing the point, particularly with the emphasis on the Fed, of having discussions around tapering are unwarranted at this point in time. This low rate, very expansionary monetary policy is here to stay despite the general improvements that we've been seeing in underlying economic data, improvements in vaccinations, which as well consequently we're seeing lots of improvements on the COVID-19 developments in the likes of the US and the UK. Albeit, you know, one thing we do need to be aware of is that situation in Europe a little bit more precarious on that front, particularly in the likes of France, one of the major eurozone economies, of course. But allied to just generally this, these moves, we've also had vaccine updates. So just get up to speed. We've had Pfizer-BioNTech COVID-19 vaccine was overwhelmingly effective against the virus in a study that followed nearly 1.2 million people in Israel. Johnson Johnson's COVID-19 vaccine, as we saw yesterday, is seen as safe and effective according to US regulators. Ahead of then more formal approval at the end of the week. And Moderna is planning to study multiple approaches to vaccine booster shots that could protect against emerging coronavirus variants. So just a lot of positive news there in general. And so if we're looking at the charts this morning of what's going on, we've, we've basically held much of the moves that we, we had at the end of yesterday. So index futures in the US still holding on to the upward move that was seen in the cash markets really from the opening bell. And the NASDAQ's up about 44 points, the S&P up 10, the DAX then up about 74 at the get-go this morning. In the currency markets then, we're seeing a kind of reversion back to general dollar weakness theme. The DXY's down about 0.2%. That is giving a bit of underlying support to both major pairs this morning, which is more a reflection of the greenback, as both EURUSD and CAD each up around 30 pips respectively, as you can see here in the top left. Gold market, not too much movement going on. A little bit of resistance found at the daily pivot, which is also the psychological and technical resistance point of $1,800. As you can see here, an about-turn in price just as Europe came in, and we're trending back down to a fairly moderately interesting technical level around $1,793 at the moment, down $4. Crude just generally holding on to what has been a persistent move higher. So all of those major factors we've been talking about all week still remain in play. There is some perhaps you could deem bearish news coming out of an article citing sources on Reuters about the potential influx of, of more supply coming from OPEC. But I think at the moment that is very much overshadowed generally by this whole kind of reflation view at the moment that's, that's happening and the more positive signs about the economic story. Going forward. A couple of stories then, uh, otherwise to update you on. Um, and one of the things I want to talk about briefly was this, which I just thought was quite interesting. I don't necessarily think that this is a big, uh, positive to an action or trade right now, right here in, in terms of the European Open, but it's another variable that helps support the underlying notion that equities have still got room, headway on the upside to go. And the stimulus checks— there was an interesting survey that came out from Deutsche Bank, and they basically were surveying, canvassing people's opinion on the street in, in the US about, with these forthcoming US stimulus checks, what are you going to do with them? And actually saw that there was around 37%, um, well, respondents would put about 37% of stimulus check on an average basis into equities. So retail buying through, we'll see whatever form that might take, you know, a lot of these zero-commission trading platforms and so on. But then looking at the size of checks to the percentage, this would equate to around $170 billion of potential fresh wave of retail inflows coming into the stock market according to Deutsche Bank. One of the interesting underlying metrics there was that Basically irrespective of your demographic, so age or income, everyone's looking to get a piece of this stock market at the moment on a retail level. And obviously the government dishing out $1,000+ checks to people, there's a, there's a significant proportion of that that's going to be going into the stock market irrespective of the valuations that we might be trading and some of the perception about whether we're overbought or not. At this point in time. So yeah, quite an interesting assessment that was done by the bank. The OPEC headline, I mean, this is it that I was talking about. So just to get you up to speed, OPEC+ is reportedly weighing a boost to oil output of 500,000 barrels per day from April, and Saudi Arabia is expected to end its voluntary 1 million barrels per day cuts from April as well, according to sources. At the moment, for me, you know, a million, million and a half here or there is obviously a meaningful amount. But I would say that the market is more forward-looking about the speed and trajectory of the economic recovery at hand at the moment. I would say beyond that of what OPEC are going to do. And realistically, this is 2 months away as well. So I think at the moment this type of news flow is, is a side issue. I don't think it's particularly bearish for price. If we're looking at things this morning, if anything, looking at WTI crude, even if we were to get some pullbacks, which we have kind of been seeing throughout the, the week with oil, the general directional trade as we have been going from 58 handle all the way up to nearly a 64, I still think is to the upside at the moment. Any pullbacks here, 63 and then 62.78, encapsulating some of the high from midweek, or I should say Tuesday session, could be quite interesting there to support prices as we go through the rest of the day. Um, looking at the calendar, what have we got? And there's a few things to comment on. The UK/European morning is particularly quiet. There's not really a great deal of things going on, so it really is a US-centric session. These 10 o'clock numbers coming out the eurozone are never market moving I know they sound quite punchy, these sentiment readings, but they're really not a focal point in terms of a catalyst to create movement in European assets. The US session really is, is then the focus. You do have durable goods, you've got the second preliminary reading of Q4 US GDP, you've got initial jobless, core PCE prices. But the price— core PCE price indexes on Friday is the key one that we're looking out for on that regard. Jobless claims is expected to come out 838,000. That is a slight improvement from the prior week, but it is relatively on the upper end of the averages of what we've been seeing in recent weeks. But overall, you know, pending home sales as well coming out at 3 o'clock. So a lot of US data points, and traditionally what would be, you know, quite key ones— jobless, GDP, and durables. But for me, I think as far as where we're at at the moment from an intraday sentiment basis, I don't really see these data points creating too much of a meaningful move in markets. I think for the time being, the market is still kind of digesting and playing out this rebalancing, if you like, of getting over the fearfulness that I think dominated market sentiment at the beginning of the week. Has been lifted almost by, by Powell and some of the other major central bankers by just coming out and reassuring the market nothing's going to change quickly. And so yeah, equities have moved higher. Um, could we be in for a bout of consolidation now for the time being, which is basically a net neutral positioning if you're looking at S&P for on the week. And I think that's probably pretty fair for the moment. Um, yields still warrant watching. Of course, yesterday was meaningful. We had a break above, um, the highest levels to where we were pre-pandemic of last year, so beginning of 2020. The US 10-year still resides down and around its lower levels this morning. So it does still constitute watching for the time being. But right now, right here at the European Open, it's pretty much where we left off really at the end of yesterday. And, and going forward, I don't feel like we should necessarily right now punch higher and stocks start moving again. I think perhaps then some moderate profit taking perhaps on the move yesterday that then leads to a bit of consolidation over the coming hours and then waiting for the US market to really get underway for, for direction is how I'd be playing today. Cool. Well, look, that's it. Uh, so nice and short today. Um, you can check out my, my full kind of briefing if you like, um, on my, my Twitter handle below. I've updated it already in the community in the Discord room. And yeah, worth having a read as well on an FT article that is out about the, the vaccine side or the virus side of things. I did post the link with a couple of graphics on my Twitter. I do recommend taking a read of that as well. It's quite, quite an interesting story to look at. All right guys, gonna leave it at that and wish you a good day. Thanks very much.