Stimulus Overshadows Virus Concerns For Now

Okay, very good morning. It's Anthony Cheung here from Amplified Trading. It is Tuesday the 16th of June. Don't forget to like and subscribe to the YouTube channel. Everything that you need to learn about trading and also financial markets, so daily macro briefings for me, technical analysis videos from my colleague Sam, and kind of markets explained on key topics from Eddie So videos coming out every day of the week. So don't forget to subscribe to the channel. A quick look then at markets this morning. And yeah, what a difference a day makes, to quote a famous phrase. And yeah, equities having a really powerful recovery after what looked like a fairly nervy start to the week on a pickup in the coronavirus cases that we were seeing globally. Particularly in key geographic regions like several North American states and also in mainland China, being overwhelmed, if you like, by the wave of fiscal and monetary stimulus that keeps getting thrown at the market from this time the Fed and also the US administration with talk of another trillion-dollar stimulus package from Trump. So they're the main things I'm going to talk about and going to give you a bit more detail about what exactly happened yesterday and yeah, go into some of these, these stories in more detail. Interestingly, I saw a funny tweet this morning and it was saying the only winners in the market last night were the Federal Reserve and the Robinhood traders, who of course have this idea of not caring a great deal about the underlying intrinsic value of assets. More so, they just keep buying on the notion that you know, this, this, the stock market can't go down. But, uh, they weren't wrong yesterday. And so just having a quick look across these asset classes here, you can see the S&P 500, you know, just an awesome recovery yesterday after, you know, we broke down through some key areas in, in yesterday's trade. Uh, we had that test of the, the blip that we saw before the, the kind of ramp into the close on Friday. The reopening of trade on Sunday night on Globex saw a test and bounce off that level, and then we just broke down in the European session. All the way down to the respective kind of S2 actual level there before the bounce came in. But it's really since the open on Wall Street, we continue to move higher. As Europe exited the market, we just continued to push on, and there were a couple of catalysts along the way here with a new announcement, some more details, and the latest— one of the latest facilities announced by the Federal Reserve, which we'll have a look at. The DAX then this morning playing a bit of catch-up, so a bit of a gap higher in the DAX As you can see here in the chart, just broadening this out slightly here, so a gap up from the close that we had last night and finding a bit of support then. That initial low that was seen at the reopening of trade in the overnight session in the futures market for the DAX just coinciding with that high that we had in the European morning on Friday, just providing a bit of a floor now for price activity. And that's quite a key level. You can see here going back to the early part of June as well, and also as a support level and respective resistance on the 11th. Uh, quite a key area now, support on the downside if we were to move back down at any point today in the DAX. And of course, if we did, then looking for that gap fill down towards those highs that were seen at around, uh, 12,100 there in the DAX. On the upside, keeping an eye here, we've had an overnight challenge on a couple of occasions up at around this 12,329, which also brings into play that low that we saw. This was actually the, the day of the ECB. That was when we saw that volatility, initial pop, decline, and then kind of stabilization to trade pretty much neutral from where we were. And so yeah, some, some interesting upside levels and downside levels here in terms of a range perspective. Now, uh, just, just to see where we go from today, I don't really have too much of an outright view here. Whether we're going to rally or fall, uh, just given the nature of what's been happening with these, uh, kind of focus on the risk, but then these, the central banks and the governments come out and pledge more, more kind of stimulus. It's hard to really call the market, um, right now. All I'd say is, I guess following logic, then that we continue to track with great interest and vigilance the ongoing developments of some of the coronavirus numbers coming out of various states in America, those sensitive ones like California, Texas, Florida, and so on, North and South Carolina. Also developments in, in China. But yeah, as far as, um, the stimulus announcements go, you would say that for the time being, as far as the intraday is concerned, perhaps we've heard everything so far, i.e., there's not much more now to be announced, if that makes sense. So whether or not this equity bid can be sustained, I'd say if I was going to pick a side, um, I'd rather be more biased to potentially no, uh, and that now the kind of the, the general forces at play have kind of shot their bullets. The Fed have come out Trump has come out, the market's moved accordingly, so that's kind of priced in to some extent. So a little bit of a, a drift off perhaps the, the just the strength of the rally yesterday, and to find a bit of consolidation, uh, could well be the order of the day. Um, and then, uh, I guess I'm in the, the mindset now of not really looking to force a view too much, little bit more just letting the charts dictate the type of, um, strategies to deploy at this point. And, and then just finding some, some solid technical setups to, to play out that view. So yeah, just looking elsewhere, gold here in the top right has been a bit of an odd one actually. Hasn't really been responding too much from a, from a risk perspective, but you can see here the pivot level in the near term. It's just trading close proximity to that at the moment. Perhaps a significant near-term level here. You can see in yesterday's session it was a respected level, both in the early and late European session. Was also back on Friday and Thursday of last week as well. So yeah, if that, that gold move— a little bit hard to get the cue off equities at the moment because it has been, if anything, tracking rather than being an inverse relationship according to risk sentiment. So again, I'd be more inclined to look at that from a more technical basis, and we know how quickly gold can move through key levels and see a bit of momentum go through the order books. I'd be kind of looking at that that way. In the FX markets, the, the Dixie gapped down upon the rally and renewed risk appetite last night, so it is recovering a little bit from quite depressed levels. So naturally then, major pairs rallied yesterday but are consolidating at the moment. So again, it really— the FX markets have been quite a good indication at the moment of risk. I think yesterday I was working with a couple of guys, and this was around the time at the open, and we were kind of looking at the S&P, NASDAQ, we're looking to break higher. And actually it was the euro kind of break through quite a key upside level that then the currency market started moving, and that was almost the, the first domino to fall call that then acted as a trigger for those US equities to take out some upside levels, given the fairly tight correlation at the moment of the dollar being a reflection of, of just general risk appetite, i.e., risk on, dollar weakness, risk off, dollar strength in that respect. But let's have a look at some of the stories that have been coming out because there are plenty to talk about, and I'm gonna kick off with the first one. Um, which is here. So the Fed will begin buying broad portfolio of corporate bonds. I actually had a couple of alerts go off on my phone. A couple of the guys were asking questions about this last night. Um, and so here's the kind of the more detail to be aware of. So the Federal Reserve, uh, planned to buy individual bonds under its what's called the Secondary Market Corporate Credit Facility. Bit of a mouthful, but that's the SMCF. SMCCF, underscoring then its role of continuing to be somewhat of a backstop for markets. So the SMCCF is one of 9 emergency lending programs that were announced in March. So the fact that they, they've announced what they did last night is not a surprise in terms of the actual program. What is a surprise is some of the details about what exactly and how they're going to purchase which a lot of people are looking at. So it has a couple of things to be aware of. A capacity of $250 billion, um, so far. Well, that's the capacity so far. It's only invested about $5.5 billion in ETFs that purchase corporate bonds. So, you know, it's a mammoth program, um, and, and hence the reason why, you know, markets look at these types of facilities in such a bullish kind of fashion, uh, given the scale, uh, is quite unprecedented. The Fed announced it would purchase corporate bonds to create a portfolio that reflects a broad diversified market index of US corporate bonds rather than just buying exchange-traded funds that track credit. So that last point there is the, is the really important one. So it's this idea that they're going to be purchasing corporate bonds to create a portfolio rather than a kind of a fixed tracker that the market took as a cue as being a little bit beyond what they were expecting. So this was kind of the first thing that happened last night. We also had yesterday the Fed separately announcing it had now opened its Main Street Lending Program, so the MSLP, for small and medium-sized businesses. And the other thing— well, two things then that we had on the back of this, as you can imagine, US corporate bonds are rallying on the back of the Fed announcement. So when this came out, you can see the Fed saying it'll begin buying corporate bonds on Tuesday. This is looking at one of the respective indexes that you can monitor to track this type of specific movement tied to US corporate bonds. And then the other thing that happened was Trump came out and the Trump team weighing a $1 trillion for infrastructure to spur the economy. Um, so an existing US infrastructure funding law is coming up for basically renewal at the end of September, and the administration sees that as a possible vehicle to push through a broader package, according to people familiar with the matter. The Democrats, they unveiled their own $500 billion proposal this month as well. So again, it's kind of whatever it takes, and, you know, from a, a campaign political campaign year, it is not that untoward to see this type of activity. And you would pretty much, very much expect Trump to be throwing everything at trying to stimulate the economy through infrastructure, that being then to offset the magnitude of the economic downturn that we've experienced in the pandemic and to get the economy back on track. Doesn't matter how depressed some some of the economic figures are, as long as they're moving north, he's got a good narrative there that he can say that, you know, he's helping assist a solid recovery. And that's where they're heading as per some of the tweets he's been saying more recently. So, you know, these two forces have been the underlying reason of why markets have recovered like they have, particularly in US equities. The other thing we've had overnight, Bank of Japan, just another reason for, for the short-term optimism. They are upsizing a corporate lending support program. They kept everything else unchanged as expected. So the central bank's virus response package is now estimated to be $1 trillion worth in size. The bank still has scope to use existing measures more for the economy as well, is what they were suggesting. So not really that surprising in terms of what the BOJ did. But again, the fact they increased the size of the lending support, again, kind of in fitting with the other facilities and mechanisms that the US have put in place. And, you know, all the more support now that they're, they're implementing. Moving elsewhere, we had the, um, 1-hour kind of teleconference call between Johnson and the UK and European negotiators over Brexit. And a couple of things to be aware of. So the UK and European Union look on course to reach a deal over their future relationship, with the bloc's top officials confident Johnson is willing to compromise. And the Prime Minister says the prospects for an accord are very good. Formal discussions will resume on the 29th of June in a more concentrated format than the previous 3-week kind of format. British government, which has ruled out extending the December deadline for negotiations, privately officials from Brussels and London say they are focusing on reaching an accord between mid-August and the summit of EU leaders scheduled for mid-October. One thing I did share with guys I emailed out on the distribution list this morning was this. This was looking at a nice matrix of different scenarios being the highest one the most to the bottom one the least likely. This was constructed by the guys at ING Economics, and I tweeted this yesterday as well. My handle is there, so feel free to grab the graphic from there. But I do like these matrix— matrix that they put together, which basically break down what it is exactly that's expected. But interestingly, it gives us a market impact, in this case for Euro stocks, sterling in the cross and the 10-year gilt over the period of the coming quarters. So ING's base case— and I have read increasing amount of banks looking at this now actually not expecting a transition extension. So despite some of the things that I have been saying over recent months about the idea that the pandemic gives a good excuse to kind of get a delay in order to have a more safer and sound economically transition period into delivering Brexit. Most of these banks now think that actually the UK government will not do that, and that actually they will kind of put together a piecemeal, kind of very basic trade deal, and that would be enough then for politically them to kind of move forward, particularly for the UK to say that they've delivered Brexit. Now obviously this is going to have some initial disruption to supply chains at the start of 2021, when we start to actually start formally leaving the single market. But it kind of is almost like the lightest touch deal where a lot of stuff remains the same, but it gives then the politicians enough political say to go back to the public and say they've committed on the promise and what the government's mandate was, which was to deliver Brexit. And then they can sort out all the other details over the foreseeable future. So that's what quite a few people are looking at at the moment. And as per, as I've just said, in some of these articles this morning, they're kind of talking about a timeline now of looking to get something done by mid-August and a summit of EU leaders scheduled for mid-October. And actually, if I just quickly jump to my Twitter account, again, if you need it, here's a kind of full timeline of the key dates to be aware of. So that, that looming deadline, of course, and those UK-EU weekly talks, they're going to happen at the end of June, which is then the 1st of July, the deadline for the transition extension, which at this point, as I said, most banks now are suggesting that's not going to be the case, that the UK will formally ask or request for that. Then we have the August period, and that then leads up into this mid-October EU Council meeting, which is where they're looking to get the deal done. And so here it would be end of October, UK-EU deal to allow for ratification. And then basically we go through the council meeting in December, the transition period ends, and then the new relationship begins as per the predetermined timetable as it exists today, which is the 1st of January '21. Yeah, good research report from, from ING on this, going into more details about various different scenarios scenarios, their base case, and then what would need to happen for the other ones to materialize and how the markets might react. So again, if you just jump on my Twitter account, you can get that full timetable and also the link to the article with that ING graphic as well for those that need it. Okay, looking at the calendar for today, what have we got? Well, we've already had some economic data come out, so let me just get you up to speed. The UK unemployment rate for April was actually 3.9%, so it's actually lower than expected. Average hourly earnings though were a touch lower. Claimant count change was higher than expected. Overall, sterling not fazed by that economic data. You've had German CPI come in, uh, in line with expectations, so, um, a negative reading on the month-to-month at -0.1% and +0.6% in the year-on-year, but again, these were in line with expectations. RBA minutes overnight Nothing particularly exciting and not really much in the way of a reaction in the Aussie, so no real need for me to go into that in greater detail. But having a look at what else is there, you've got the IEA monthly oil market report. That'll be at 9 AM London time. Always worth keeping a bit of an eye on just to see the adherence to just general compliance with the predefined OPEC+ agreement. And then also the outlook as it evolves about demand going forward. Oil, as you've already seen on the charts this morning, bouncing in step with equities given the fact that, you know, generally the short-term influences fundamentally for oil have been very much so pinned on how the virus is going to impact the global economy and as such consequently demand. And at this point, as we've said, you know, if infrastructure spending in the US is going to be en masse, supplemented by a variety of different mechanisms from the Fed to support the economy, well then that alleviates some of that tension. And so oil has come back up to the top of its recent range, trading on the $37 handle. Elsewhere this morning, ZEW Economic Sentiment looking for further improvement there. So again, this is the economist and analyst kind of current and forward-looking expectations in, in Germany. So I don't think that's going to be too much of a surprise because obviously economies are generally reopening and numbers have been relatively controlled. So we should be coming off the most depressed levels here and a lot of these economic indicators. And that's pretty much the same conclusion for US retail sales today. That's kind of your main headline reading at 1:30, looking for a bounce back month to month 8% from a previous obviously record-breaking negative 16.4%. But again, this is a May report, so it will encompass the fact that many of the US states were reopening during this period. So it's going to be a much more solid figure than what we had in the complete shutdown of April, hence the reason why that prior was so bad. Otherwise, you've got US industrial production, cap utilization coming out this afternoon, the NAHB Housing Market Index, and then the API is coming out after market. Speaker-wise, today is the first of the Powell testimony, so he'll testify before the Senate Banking Committee before he heads to the House tomorrow. So today is always the more important one because he generally just repeats his speech to the House. How important is today's speech? Personally, I think it is not very important, and the basis of my reasoning being that the Federal Reserve meeting was only just a few days ago and not only was it a Federal Reserve statement and press conference, they also released their latest Summary of Economic Projections. So as far as the clarity goes in Fed communication, they've already outlined that very recently, so I don't see any need for Powell to come out and really shake things up here. So it's probably going to be as it usually is when a central banker meets politicians, much more of kind of, uh, prodding the finger and pointing, and why haven't you done this, and 'Why did you do that?' and 'How do you see this working?' and these sorts of questions. And I'm sure they'll try and draw him in given the disparity in the fiscal response between the Republicans and the Democrats currently being experienced on Capitol Hill. But he will be reluctant to really comment on anything of that nature. So keep an eye out for that. 3 o'clock, Fed's Clarida, also a voting member, but that's not until later on, 9 PM London, so 3 PM Chicago. Into the close on Wall Street. Um, fixed income-wise, some UK supply, but that's about it. Um, the other thing as well, the final thing I was meant to wrap in when I was talking about all the positives that helped yesterday was obviously yesterday we also had the other big tail risk for markets was the US-China ongoing trade dialogue. And Mike Pompeo, the Secretary of State, said said he planned to meet Chinese officials in Hawaii earlier this week, two US officials said, and one Western diplomat told CNN on Sunday. So again, that's another thing that can probably underpin some of the, the general positivity from yesterday. I guess the point I want to make today is I think a lot of that now is reflected on the, on the screens, and so I wouldn't just come in today and just start hitting it and going long, not unless the market perhaps comes down a little bit and you get the strategic nice point to get in from an entry perspective. What I mean by that is, let's just take a simple example here in the S&P. If the S&P were to come back down to, you know, this kind of area here, which has been a pretty decent level on prior occasions, so if we come back down to 3075 and a quarter, well then perhaps it starts to become quite interesting. And do we, for the time being, until we get the next, next kind of catalyst, see perhaps a little bit of consolidation in, in that type of nature? All right, that is it. Any questions, feel free to leave a comment on the video. Happy to help as always. And don't forget to like and subscribe to the YouTube channel. All right guys, take care and have a good day. Thanks very much.