Should You Be Bullish Stocks Right Now?

Okay, very good morning to you. It is Wednesday the 15th of July. Hope you're doing well. Uh, much for me to discuss, including this latest article here that came out after the close last night that's caused a gap up in prices in stock index futures after Moderna vaccine produces antibodies in an early trial. So going to discuss that a little bit more detail, going to talk about the coronavirus as a whole. Also going to have a quick look at the charts, some interesting moves, and actually I'm feeling a little bit more bullish about things, and I'll underline my reasoning why in this briefing. Also going to update you on the latest in regard to the US and China trade wars, a few developments there to be aware of. We've got the OPEC JMMC meeting today, you've had the BOJ overnight, you've got the BOC coming later on this afternoon, so plenty for me to discuss and for us to get through. So without further ado, let's have a look at the charts first this morning. And what is most interesting is the speed of which we've recovered this time. Yesterday, obviously, we were talking about the prior night's news where California had gone into a new state of kind of closure in regards to restaurants, bars, kind of dining, indoor gathering essentially. And that caused quite a severe sell-off into the market. However, yesterday, quite the opposite. And that in itself, I think, is quite a telling sign. I'm going to have a look at the COVID numbers on a state level in a second, but for me, the overall lack of persistency in any downside pressure, given that one of the biggest, I thought, risks to markets in the near term would have been the closures on one of these major significant states, California of course being one of those, that if the market's not going to go down on the back of that type of news, which others would assume then that other states potentially like Texas and Florida follow suit, then what is going to knock this market down? Um, I mean, that is a big negative in terms of the speed of recovery of which then these localized areas can start to get back to some sort of normal state of activity. And that California news certainly is a bit of a hindrance to those reopening plans. So that in itself, in combination with what has been a mild moderate escalation in the trade war, and still equities wanna— don't want to sell off continuously. So that for me is quite a telling sign and does put me in the mindset over the short medium term of remaining fairly positive on things for the moment in terms of equity prices. Overnight, of course, though, there's been a new piece of information. Moderna has come out with the latest vaccine producing antibodies in an early trial, and that's called— that came after the market closed, hence the reason why you've had a big gap up in the futures. And you can see here then, technically, we've got the initial opening price with a retest in the Asia-Pacific session, and that also being a level of significant resistance as well in prior day's session. So So quite a strong near-term level of support. On the upside, you've got the R1 just containing some of the price action at the moment. So I'd say probably likely, just given the European morning fairly quiet in regards to fixed events, you're going to see potentially a range bound until Americans come in between 32.03 and 11 on the upside. Looking elsewhere then, a few other charts just quickly in the FX market. We continue to see that kind of correlated move with the dollar, i.e., whenever there is a bit of a bump in risk appetite, the dollar typically weakens. That is the case this morning. So DXY is down about 0.15%. So the currency pairs, Cable's just managed to see a bit of a breach then above what was restricting some of the price action yesterday. Well, I should say in the overnight Asia-Pacific session and around the daily R1 level. We've broken a little higher here on the, the daily. Of course, we're still a little bit way off, um, where we would be about a point till we get to the 200 DMA. And certainly on the upside, as we go through the next day or so or this week, be keeping an eye on that kind of triple test that we've had through the end of last week and beginning of this week. So some decent upside levels of resistance here in sterling. But as you can see here, some clean air perhaps to get a little higher from where we are at the moment, particularly if the dollar continues to remain on the back foot here. The euro as well looking quite interesting, uh, coming back up towards where we were in the Asia-Pacific high in the overnight session. Because if we start looking on the weekly, there's that really interesting area we've been watching longer term in the euro, which dates back to around the summer of 2018. We've had multiple retests on this descending trend line and also what's been capping some of the recent price activity here. And so if people continue to remain fairly positive, discounting a lot of the COVID developments nationwide in the US, and we've got this positive drug news, albeit I'm gonna give you some big caveats on that news we had last night, but then you've got the EU leaders meeting happening on Friday and Saturday. And if they can formulate a real concrete action plan for delivery of their recovery fund, well then this is that euro positive move that we've been looking at. Some technical breaches here could open up the door for a run-up to 115 for sure over the, the coming period ahead. Oil markets, a little bit of movement seen overnight. You can see here this ellipse just marking then a momentary break, or albeit still in play. I'd say that 40.73 being a near-term level of technical resistance going back to last week, also the beginning of this week on Monday and last night. The, the pop here in price came after we had the API inventories last night. Pretty sizable drawdown, 8.322 million. Analysts were only anticipating a drawdown of 2.1. Gasoline also slightly larger draw than anticipated. Uh, haven't managed to sustain though any price. I think it was more of a short-term tradable affair if you were in the market last night, which I know some of you were. Otherwise, we've just faded that move and we're sitting back now waiting for the details coming over that OPEC technical gathering. In particular interest, of course, about their decision-making about whether to taper down on those supply cuts at the end of this month going into August. So that, that's pretty much the overall picture on the charts this morning, but certainly some headlines I need to run you through. So let's get on to those and start with that main news. Moderna's potential COVID-19 vaccine reported in the FT last night. I mean, I did tweet this a couple minutes after it came out, shortly after 10 PM. So yeah, I'm looking at this stuff all the time, so feel free to follow me on, on Twitter. But the vaccine produced immune responses in patients in early-stage trials. So look, whenever we see this type of information, there is always nearly, or has been, whether it's Gilead Sciences or Moderna, been a knee-jerk reaction overestimating the positivity to some of the headline information that we see in relation to medical trials, particularly therapies and vaccines for COVID-19. Obviously there's this innate human response where we really jump on it because of the nature of the, the pandemic, and that the subject matter in itself evokes quite an emotive response. The one thing I would say, and I've said this before in many of the other briefings, is whenever you're looking at medical news The devil really is in the detail, uh, because anyone who's semi-familiar with the process would show that, you know, the clinical trial process goes through many multiple steps before it then becomes a proven and tried and tested method or vaccine, whatever the case might be. And typically, this is why in order to get these things approved and to market, it takes it can take years. And so hence the expectation that, you know, markets really, you know, gap up and we jump on this positive thing. It's— look, I would— all I would say is that in previous occasions we've gapped up and faded the move nearly every single time. So let's, let's just wait and see. But there's a potential for that to repeat again. Now, I wouldn't be looking for a massive sell-off. We just fill the gap to where we were, and all things remaining neutral, it's just a very short-lived knee-jerk reaction. The biotech— it's a US biotech company— their vaccine candidate produced antibodies in all 45 participants in the first cohort of Phase 1 trial run by the National Institute of Health, while the paper also said there were no safety problems that could furtail or curtail further testing. So that was all positive. The trial showed that after 15 days of the first dose all participants had produced antibodies after 57 days. The participants had on average more antibodies than a group of 38 recovered patients. So again, some positive indications there. However, couple of things to be aware of. More than half of the participants experienced side effects including fatigue, chills, headaches, and muscle pains. The adverse effects became even worse after the second injection. So look, there's still a long way to go here, uh, with this. And the vaccine now will move to a larger late-stage trial later this month, the site to determine whether or not it can get approval from US regulators. Nonetheless, Moderna shares, they were up around 13+% overnight. However, as I said, from a broader overall risk perspective, um, personally I wouldn't buy too much into that headline in isolation on its own. And if anything, there's some key levels there we just discussed in the S&P, pretty similar to the other charts. I'd keep an eye on retesting that overnight Asia-Pacific low. You can see the DAX just testing close to it at the moment. Let me just quickly show you, um, and that coinciding with close proximity to some reference points from yesterday's session here, um, which you can see here. And also you've got that, the low that we saw just before the EUR/USD close, and that was the Asia-Pacific low. So yeah, some, some areas of support to keep an eye on. Um, but yeah, I wouldn't be looking for that to be the silver bullet to really define the, the day's activities in terms of the Moderna news. Talking of though, COVID, uh, and a couple of important things I just wanted to show you. Just looking here at the CDC's COVID data tracker, overall numbers I think we're fairly, um, up to speed on in terms of total cases now north of 3.3 million, death count at higher than 135,000. Couple of interesting things though that I've been reading from some of the banks, and gonna start off with the recent surge that we've had in new cases across the Sunbelt states. So that being here, California, Arizona, Texas, Florida, these areas here with the slightly deeper kind of tan color that you can see on this, this graphic, indicating of more total number of COVID-19 cases. Now, a few things here to be aware of. The recent surge in new cases across the Sunbelt states has warned that there could result then in another spike in deaths. That would be the logical assumption, would be as that figure continues to go higher, then, well, then naturally there's going to be more deaths. Um, that as well as a reduction in mobility and overall consumption, um, would, would suggest then a potential threat of a fresh hit to the economy as a new round of shutdowns either mandatory or voluntary get enacted. Hence, like what we saw in California and that knee-jerk negative reaction we had just the other night. Um, that would be the more pessimistic view of looking what's going on. However, if we look at this chart, this is then looking at the more optimistic view of what's going on. And this is looking at an increase in testing and looking at US daily tests on a 7-day average going all the way back to mid-March to where we are today. So the optimists, meanwhile, they're more inclined to look at the case that, you know, higher cases are merely a function of widespread and successful testing strategies. Now what we have seen as this case number has continued to accelerate, chiefly led by just a handful of these Sunbelt states, death count rate really hasn't moved. So the optimistic scenario would be that, look, testing is just getting more, uh, effective in that respect. Now isolating out these things to look at the world in a slightly different, uh, composition, some people prefer to look at the number of hospitalized people. That, although is a bit lagged, if you look back on the data to around the March-April period, the peak in number of hospitalized came 17 days after the peak in newly infected. According to certain models that a few banks like Bank of America have been running. This is less dependent on testing strategy, but if you look at these three colored lines here, they're quite interesting. The black line is the estimated daily US COVID-19 infections. Then you're looking at the ex-Florida would be the orange line, and then ex-Arizona, California, Florida, Texas, which are some of those hardest-hit states. And so actually, when you start to X out then a number of these, those, those big four, things are relatively flatlining. The outbreak definitely somewhat driven by those areas, but if you extrapolate that out and look at the nationwide picture, perhaps then this is a little bit more controlled than people may have feared. And then if we are focusing on the four, I know this is slightly difficult to see on this chart, but Arizona cases appear now to be easing over the course of the last 2 days or so. It's almost like we're seeing the first emergence of hitting that peak, starting to come out on the other side in what was Arizona, the leader of the acceleration of this initial second wave spike that we've seen in North America. So have we got to that point now where these cases here start to moderate and hit their plateau, and all the meanwhile more effective, more successful testing strategies are leading to more contained deaths. That in, in, in combination with the fact that the market has not managed to remain beaten down for long, as per the, the kind of litmus test of California the other night, I think means for me this equity market, if for whatever reason does come down, I don't think it's going to come down hard and fast in a persistent manner. Meaning then, I just think people are going to come in lower down and just bid the market back up. So any selling of an aggressive nature— Sam's going to be very happy for me to hear me say this— but I'll be looking to be a buyer at that point, all things remaining equal, as I see it this morning at least. All right, a few other things and reasons that support that argument even further is the Federal Reserve. Some comments out of Brainard last night. The FOMC member gave a speech and she painted a pretty dark picture about the US economic outlook. She was using the words that downside risks are the predominant theme, uncertainty is as thick as fog, she was saying. Where does Braynard sit on the kind of hawk-dove spectrum. She's kind of center-leaning dove, so it's not massively surprising that she's said this sort of thing. But certainly she's ramped up the dovish rhetoric quite a bit. She said the central bank should pivot its forward guidance and asset purchases towards providing longer-run accommodation. Now, what does that mean? Well, when they're talking in this type of language, when she's talking about the longer run, she's usually inferring about the dot plot matrix and the fact that when these FOMC members are requested to update their Summary of Economic Projections about where they see interest rates at the end of this year and subsequent years thereafter, they only map out in detail the next 2 years. Then they have what's called the longer run, which is kind of this unknown period of just further into the future. And what she's indicating essentially is that it's this longer run which was just highly inaccurate really, because it's a bit pie in the sky thinking with this dot plot. We're basically flatlining zero for the next— through 2022, which is current Fed stance. And then at some point in time, undefined, we're going to normalize at around 2.5%. What she's saying is this has got to be way lower, which I agree with. So, um, that being said, that's another supportive factor. You could argue not her alone, but if other Fed officials share that theme, so you've got a lower, longer, looser accommodative policy coupled with perhaps some emerging signs that the COVID situation in the US starting to get to a degree of peaking in some of those hotspots areas in the market not being fazed by the likes of a reversal of the pace of reopening, with then the idea that the Fed have got ample sources of liquidity that they can turn to, which really haven't been picked up in a number of these Main Street lending programs. Other facilities are highly underutilized at this point but are ready to fire. Yeah, it's just really— it's hard to see what's gonna, what's gonna weigh on this market at the moment. And I'm not indicating, look, let's just get long today, but what I am saying is that I find it hard to see how this market is going to go down over the medium term. Because on that front, we've even got China kicking off at the moment and still no real tangible impact. What is happening here? Well, President Trump has issued an order to end Hong Kong's special status. With the US and signed legislation yesterday that would sanction Chinese officials responsible for cracking down on political dissent in Hong Kong. This is as expected, so hence the fairly kind of muted reaction in markets. However, China have come out overnight and the Foreign Ministry said that Beijing will impose retaliatory sanctions against US individuals and entities in response to the law targeting their banks. What has Trump said? Well, he's basically come out and said he's not interested in trade talks with China. I quote, he said, "We've made a great trade deal in Phase 1 agreement in January, but as soon as the deal was done, the ink wasn't even dry and they hit us with the plague." So continued kind of framing of the situation here blaming then the outbreak of the pandemic of coronavirus solely at the door of China. Nothing's really changed there. And so at the moment, it's kind of just the usual rhetoric, I would say. The Chinese thing overnight, symbolic of course. And actually, there is some underlying implications here and some argument that actually by not treating Hong Kong differently to the rest of the mainland in China, that actually this is somewhat self-harming to US interests in itself. But I think a lot of this now has been priced in, at least in the intraday perspective. One country, of course, which is suffering is Hong Kong. And, you know, it's hard to forget. You know, I've got half my family out there, and certainly they've had a bad run of it of late from protests, a global pandemic, a collapsing economy, a crackdown on individual freedom. The end now of the city's special status in relationship with the United States, uh, continues to see then quite distinct underperformance of the Hang Seng Index comparative to the overall MSCI All Country World Index. You can see here, if anything, a further divergence been materializing as we've gone through the last few weeks, and with this latest status change that we've seen seen over the course of the last 2 weeks or so. Elsewhere then, OPEC is going to be a key talking point for today. OPEC is seeking extra production cuts from its members that haven't missed— or that haven't missed their targets again in June, potentially tapering the impact of supply resumption planned by the wider coalition in August. So essentially what this means is, is that within OPEC there are countries like Saudi who are nearly always compliant or over-compliant, and then there are always those, um, that typically Iraq, Nigeria, Kazakhstan, that tend to be very loose in their compliance. And what OPEC have been very stringent to try to enforce— or I should say encourage— is to try and get them to be more compliant. And that in itself picks up a degree of slack then for how effective the overall supply pact has become. So at the moment, it is looking still that OPEC are going to push ahead and they're going to drop this kind of, uh, around a, an impact of 10% of global supply of crude, down from a supply cut of 9.4 million to 7.7 million. That looks like it will go ahead, but they're going to try and offset that by looking to get greater compliance out of some of these other names. Who need to pick up and over-comply to compensate for the lack of compliancy. I know that sounds a bit odd to say in that way, but hopefully that makes sense. So a technical committee will meet, um, they've already spoken yesterday, they've outlined for countries including some of those names I mentioned to make an additional 842,000 barrels a day of compensatory cuts in August and September according to delegates, to make up for some of the inaction that they've done. Uh, a technical committee then is going to be meeting later on today, and this is where we're going to look out for ministers to confirm the overall cut to be tapered, uh, in August. BoJ— not going to talk too much about this— kept short-term interest rates on hold at 0.1%. Uh, they left its asset purchases unchanged, everything as expected. They, they got a little bit more gloomy about their economic prospects on the economy for this year. But I don't think that's particularly new information or exciting in that respect. So not really a market mover. Very much a recurring theme at the moment you're going to see from the BOJ, from the BOC, and the ECB. They've already done quite a lot in terms of their strategic response to the pandemic, and now it's about just waiting and see. And, uh, potential next big decision points will come in the months ahead. And so at the moment, it's kind of just assessing conditions, uh, for the time being. For the calendar for today, we've already had some UK data. The CPI numbers came out this morning, uh, in combination with the slightly weaker dollar. The UK CPI numbers year on year, 0.6% above the expected 0.4%. I'm not going to say that that's a major thing, but certainly just helps helps the directional play of sterling this morning amid the dollar softness. Otherwise, in the, the morning, relatively quiet. We then get the US sessions, a little bit more interesting. New York Fed manufacturing, import-export prices, industrial production, and then you've got the DOE oil inventory numbers and the Fed's Beige Book later on this evening. Bank of Canada, not expecting any rate change there, but of course anyone looking at the loonie It will be responsive as it always is. Uh, and then speaker-wise, Tenreyro with the Bank of England, um, worth keeping an eye on. Again, kind of center-leaning dove to be speaking on COVID-19 and the economy lessons learned so far. Could be quite interesting at 9 AM. Uh, then you've got Governor Macklem, the new governor at the Bank of Canada, speaking, um, 4:15 this afternoon. Harker as well at 5 PM. And the supply coming out the UK and Germany. Earnings-wise, the turn of the next big banks, as we were discussing since the Macro Menu at the weekend that I, that I issued, disparity between the kind of investment banks and the lending-oriented financial institutions. That was brought to the forefront yesterday. Wells Fargo out underperformance, JP Morgan outperformance. So Goldman's probably likely to follow suit of the former in that respect. Um, and yeah, that is it. As I speak, just as we was discussing several minutes ago, you can see now we've broken that Asia-Pacific range and the market now is looking to just back off what I feel was an inappropriately large bounce that we had on the Moderna news. This kind of reality hits home and people get over that emotive knee-jerk reaction. So yeah, I'd anticipate a gap fill. Would we trade any, any heavier than that? Possibly not, then we consolidate, wait for the US to come in. On that note, I wish you all a good day ahead. Any questions, as usual, feel free to reach out, leave a comment on the, on the video. Happy to help as always. Take care, guys.