Stocks Bounce After Worst Day of 2019 - But For How Long?

Hi guys, good morning. Tuesday the 6th of August, just gone quarter past 8 here. And as you can see from my, uh, my screen on the right-hand side, the picture not looking too good for stocks yesterday. Red all over the place. We'll have a quick look over at the charts, how we traded as well yesterday coming to, uh, this morning. And well, yeah, spot the green, spot the green on the S&P 500 yesterday. Red all over the place. Google down almost 4%, Amazon similar, just over 3%, and Apple down big, uh, at over 5% on the close of Wall Street last night. Quick look over at the charts, how we did get to, uh, the this morning's session. You can see we have had a bit of a bounce. We'll come on to the reasons behind that, but a strong push down yesterday. Dow almost down 1,000 points. You can just imagine how happy Twitter was yesterday. We're seeing tweets saying how Trump has no idea what he's doing and he has no clue about economics at all. You'd almost think he's never been in this situation before, right? And we uh, find ourselves down— well, currently trading at 2845. And if we have a quick look here, more intraday yesterday, you can see just the strength of this, this push really from last week. And, you know, did continue yesterday morning. We, we pushed lower right on the, the open yesterday before a really strong move to the downside. We gapped lower overnight, um, from, uh, the Asian session on the open before rallying quite hard from, uh, those lows. While only up 15 points on the day, you can see from the lows that we made, uh, overnight at 2776, we're already up 70 points, uh, from that on the S&P. And similar stories, of course, in the Dow Jones, uh, you can see looking exactly identical, and the NASDAQ as well. So all those markets very very similar. The DAX this morning, worth keeping an eye on as we just go through this open, what happens around this area. A lot of resistance there from yesterday's session, uh, as well to, to keep an eye on. So as a summary, uh, of the headlines this morning, which to be honest on the, on the way in, just, just checking Twitter, were actually quite a lot more positive than you would expect after a massive down move. And I think that's something to bear in mind as you come to your desks this morning, not necessarily expecting there to be a massive leg lower, that stocks are going to go through the floor, that it's going to be like it was October to December last year straight away right now. Um, you can see the headline here from, from Bloomberg: Stocks Drop Eases. And that's pretty much what every other headline was saying. US futures rise as yuan gains. So while yes, it was the biggest slip of 2019, you can see also just from the charts this morning that we have had already a bit of a push higher. That helping— well, let's just say the PBOC setting its daily reference rate higher than what was expected and sort of almost priced into the market. So of course we went through that all magic number 7 yesterday and and we saw a big, uh, push down in stocks. The, the dollar weakened, uh, gold pushed higher. Very much a case of risk-off in the market. We can have a quick flick back just to look at the, uh, the general, uh, theme for the markets yesterday. You can see I'll just transition my charts here and just bring in gold. You can see how yesterday just pushed all morning. We did actually have a, a bit of a dump yesterday around 3.20. No real reason for it, just a bit of summer trading, putting a position unwinding perhaps before pushing back higher to reach that multi-year high traded around 14.86, 88 on those futures. The T-note, uh, another strong day similar to gold. You can see that push if I look— bring this into picture as well. So very much risk off, the yen helping from that as well. One market in particular, we'll come on to this a bit later on, that did surprise me was just the, uh, the strength of the euro against the dollar. While of course it had been in relatively small ranges anyway, just such a big push yesterday from, you know, trading down at 1.1144 to getting overnight 1.1285. Just a massive, massive push higher. We have, uh, as well just over the the last couple of sessions started to price in more cuts than expected. We've got a chart we'll come on to in a moment where it suggests that by 2020 December there is more— well, there's a quarter more being priced in than there was previously. So yes, there's a fair bit of dollar weakness now in the market, but yesterday you can see here pound wasn't interested in that whatsoever, completely flat. On the day. You look at Aussie dollar yesterday, pretty flat. I know we had the RBA to look forward to, but the dollar as such didn't weaken that much against other currencies. Yes, gold and euro were the main benefits, um, but quite interesting from that point of view. Back to the headlines, as mentioned, uh, it seems a bit more positive than it did last night, and this really coming from the the PBOC, uh, announcing the daily reference rate stronger than expected. So, and this being stronger than that, that 7 as well. So that coming in at, uh, 6— let's get this— 6.9683, 6.9683. And that was also stronger than, uh, what the Bloomberg survey, uh, suggested, which was 6.9871. So There, yeah, you're just having a bit of relief rally. Uh, we also got those tweets from Donald Trump last night. I'm sure you've seen all of these, uh, as well. Let's just go over those. Based on historic currency manipulation by China, it is now even more obvious to everyone that Americans are not paying for the tariffs. They are being paid for compliments of China, and the US is taking in tens of billions of dollars. China has always used currency manipulation to steal our businesses and factories. Hurt our jobs, depress our workers' wages, and harm our farmers' prices. Not anymore. China is intent on continuing to receive the hundreds of billions of dollars they have been taking from the US with unfair trade practices and currency manipulation. So one-sided, so one-sided, it should have been stopped many years ago. God bless America. And Yeah, the— this, this Twitter attack, nothing new. It's not the first time he's called them a currency manipulator. But we did have the, uh, the, the headline, as mentioned, the PBOC setting that daily, uh, fix stronger. And, and whether it was in response to that or just trying to calm the markets, uh, you know, depending which way you want to spin this, uh, the the sell-off is over for now, in my opinion. Um, we have a quick look over at stocks. I think while it wouldn't be the most surprising thing to see us, you know, still have a down day, I think the, the strength of this move, uh, is, is going to be, is going to be over. I'm sorry if you're a bear. I, I just think we've been here so many times before. You can see we were in a similar situation at the beginning of May where trade headlines started to get worse and Trump knows what he has to do to get those back up. So I wouldn't expect— I wouldn't surprise me, I should say, to see some positive comments come through. I certainly don't think we're going to have a move like we did at the back end of last year where we get down to— well, what was that low? 23, 24. It doesn't seem as serious as yet. And one of the reasons behind that, I think, if we just switch over to the, um, well, you can see the rate here just trading at 7.03, so really down on the day. But this chart here, quite interesting, uh, more easing expected. Markets now pricing for 25 basis point rate cuts by December 2020. So, um, that has changed from, uh, the back end of last month by a quarter more now expected. If we're looking to cut rates more than expected, what are the stocks— stocks in the US been doing? They've been going higher. As you know, I'm not gonna sit here and say Donald Trump is a genius because he's many, many things else as well, but he got the Fed to turn dovish very, you know, you know, quickly after this December sell-off and and that helped stocks push to new all-time highs. We then came back down in May and the Fed started to pick up their dovish chat and we made a new all-time high. Yes, they were slightly more hawkish than expected at the, the last FOMC meeting, but what better way to get the Fed to turn dovish than to start the hawkish trade rhetoric yet again? I'm— I honestly do think he's got this market in the palm of his hands. And come election night, uh, in Q4, we're going to be on the all-time highs. That's not to say there isn't more downside to come. I just don't think it will be as aggressive as we've seen in December, or certainly, uh, the, the last few days where we have had a decent push to the downside. There's no denying that. I know obvious technical level people would be looking at, you can see, is, is 2735, and With trading, you have to be able to change your, your view and your biases as quick as that. And if we were to get below there, then absolutely it does change things. But for me, you know, it's, uh, Trump knows what he's doing. And you can like that comment or not, if we go over the last 2 years, you know, stocks have been going higher when, when he's wanted that. A quick look over the reaction of other markets. So we also see saw in the back end of the session yesterday. Oil pushed lower, that's already recovered it. So it seems this morning that we're just, you know, uh, just a bit more calm than we have been in previous sessions. I think it's important then to look at these markets with those lines in the sand. When would it start to get a bit more bearish again today? You can see the NASDAQ trending higher this morning, worth getting on those trend lines. And if those were to break, then fine, we can start to put push lower. The pivots seem very key across all US equities with that resistance from last night. I'll be getting the, the cue from the DAX this morning about what's going to happen. You've got this similar trend higher, so if that was to, you know, continue to, to hold, then sure, we can push to the upside. If it was to break, then I would be looking to, to favor a short. Quite a lot of resistance trading above here. Let the DAX tell you what's going on. One of the, the best things anyone ever said to me was to trade what you see, not what you think. Anyway, so let the markets tell you what's going on. T-notes have come under a bit of pressure this morning, as has gold, after their big push over the last couple of days. This yuan fix has obviously helped calm markets elsewhere. We had the, the RBA keep rates, uh, on hold, holding on, um, you know, any further cuts after June and July already doing so. It's the first time in 3 months keeping rates on hold there, still really very low at 1%. However, they did warn there could be more cuts to come as it waits to see the impact of those previous 2 cuts in the economy. And of course, the, the classic central bank comment. We want to also see the impact of trade wars. And there's also comments saying they'll wait to see what the Fed do. Where have we seen or heard that before? And this brings me on to the strength of the dollar. What do I think going forward? That push higher in the euro yesterday does, you know, when you, you know, come in and read that there was now another quarter point rate cut expected You know, it does make sense, and we have been in this big downtrend, so a bit of relief of that is the summer, silly season, so sure. But I think a bit of an overreaction in the euro. And if we, if we have a look at what's been one of the trades of the year, and I know with the, the low volume in the euro, you're thinking, why you got the euro chart up here, Sam? Well, what's happened every time the euro has strengthened, you get those trendline breaks. And you really get the, the next leg lower in the euro. A couple of them obviously are steeper than others, but I wouldn't be too surprised to see that start to happen now. I know a few people had eyed up this level of, uh, of resistance as a place to get short. You probably would have, you know, had to trade it out in the early hours of the night, and then, you know, the speed that it pushed up, you probably wouldn't have wanted that. But certainly over the next few days, I'll be keeping an eye on what happens with this, uh, this euro dollar. I'll start to see Can I get, you know, a trend line that's already started to be respected, but can we gradually keep climbing? And then I'll be waiting for that break to come as the ECB will start to get dovish again, in my opinion. Uh, and where do people put their money when, uh, all central banks are dovish? Well, likelihood is, uh, it's gonna go— well, cash-wise anyways, it's likely to go back into the US dollar. Gold, I think, is still, you know, one of those markets where it can push to, to the upside. And, and having a look at this more intraday and other, other sessions as well, wouldn't be too surprising now to— if we can just drift to 1467, that kind of area of previous highs, for getting another leg to the upside. But today I do think that stocks are just going to recover a touch. However, those trend lines would also be key. Moving over to other stories You would have seen this yesterday or heard about this yesterday, but the pound, as mentioned, did absolutely nothing and was pretty flat. So this is maybe something to, to think about, uh, once we're sort of back from, from recess and, and Jeremy Corbyn maybe sticks to his word on it that when he returns he is going to table the, the no confidence vote. He, he had mentioned before that he was going to do so, just not the the timeline of when that would be. So he had signaled that he's going to, to do that when upon return, supposedly. And also, uh, the UK Prime Minister denies he is preparing for a general election. But if you were to look at the, the characteristics of the last few weeks, you've got all these new spending announcements and more jobs for the police, the NHS to get all this money. Seem— and of course his tour as well. You'd be, uh, I'd say a brave man to not expect the call for a general election soon. But something to keep an eye on, uh, maybe over the next couple of weeks, uh, about the no-confidence vote and also, uh, the general election chatter. You saw the tweet from Piers, you know, thinking that that will come in at the, uh, the back end of the, the summer. Of course needing a certain amount of time before that can go through. Quick look at the pound today. We are just seeing it drift to the upside. Haven't necessarily seen any headlines come through, but very small moves in the pound at the moment, just hovering near those yearly lows and also decade lows as well. So putting this on the weekly chart, you can see— and I was saying this to someone yesterday— if you were not in a pound trade, uh, there's really for me two options, and, and that is either waiting for price to come a bit higher towards 1.2365 and the trend line of 1.24, or waiting for, you know, uh, an aggressive trade on the breaks, the low, uh, and then obviously targeting down towards 1.20. Where it's trading now, it's kind of no man's land. It's in a bit of a choppy range. It's probably waiting for, uh, a new headline to come in. Again, there was more chatter yesterday about the no deal, and that's the government stance, or that's Boris's stance. And this isn't new, it's not like these headlines are driving price anymore. The pound is, is flat, it's not doing anything over the last few trading sessions despite the fact that the dollar is ridiculously, you know, weak against the euro. If we have a look at the euro pound as well, this market is starting to, to get really interesting up at these levels. You can just put this on the the daily chart. This is, you know, the highest we've been trading since— let me just remove the pivots to clear it up for you guys. This is that, the highest that we've been trading since we hover over one of these candles, 2017. But what month? Uh, October 2017 for Euro Pound. So if you were, uh, going on holiday soon, it's not looking, uh, too good, uh, there. But this market has been pushing higher and higher, higher. And I do think, uh, that there is still a bit more pound weakness to come. I do think we get down to 120, and I imagine that market's gonna just be weaker than the euro. However, on the euro side of things, certainly against the dollar, I think there will be a good short coming in the next couple of weeks as we break down and the ECB have to turn slightly dovish and the Fed cuts are priced in and so on and so forth. Also headline overnight, worth just making a note of this: UK retailers suffer weakest July sales growth on record. And that's despite a boost from summer blockbusters The Lion King and Toy Story 4. Good films by all accounts, but struggling to, to boost things in the retail sector. The industry figures add to signs of slowing demand from households, the one sector of the economy which has held up relatively well since June 2016's vote, helped by rising employment and wages. So this now not looking good, the lowest July on record. However, so we've got this headline, we've got the, the Corbyn no confidence, and we've got the blocking of no-deal Brexit, and the pound has done absolutely nothing. We're waiting for new news, we're waiting for new developments here for the pound. And as mentioned, trade opportunity for me is a break of the low, or waiting for price just to retrace higher, which could happen with this, this potential dollar weakness. But for the moment, there's better markets to trade. So in summary, uh, of overnight news, we've got obviously stocks which, um, have recovered a bit following the yuan, uh, rate stronger than expected. I would have those trend lines on all equities as a guide. The pivots are massively key, but for now, right now anyway, it seems that the, the worst is over, certainly for today anyway. Oil has recovered. Gold and T-NEX is coming down on the flip side of— we have just got less risk off in the market. I'm not necessarily saying it's risk on at all. The RBA keeping rates on hold, but more of a wait-and-see approach. That is another market that didn't respond to the dollar weakness we saw yesterday. Euro has pushed higher. We still did see some negative Brexit chat between the two, and that hasn't really affected things. But I wouldn't be too surprised to see potential reversal in euro over the coming sort of few, uh, well, days, should we say. This is your key level for euro, 112.54. We broke above it yesterday uh, to then come back down. If you want a line in the sand, uh, that's as, as good as any, uh, for the euro dollar. Quick look at the, the calendar, uh, switching over to that. Going through this morning, obviously we had the RBA. We've got nothing out at the moment, and that might be what exactly what equities want. They want a quiet morning, no real headlines, no new drama, to gradually grind higher. The markets, as we know go, uh, go down a lot quicker than they go up. When it's all quiet and there's no new news, that's perfect for equities. So quiet morning, and then really the only US data release into the afternoon is the JOLTS job opening, which as we know really very rarely moves the market. API, usual slot, 9:30. Speakers, we've got one, uh, voter and one non-voter, Fed's Harker 5 past 3, and Bullard at 6:05. As usual, any questions, do, do let us know. My summary is, is that I do think stocks will recover a touch today unless those trend lines are to go. I think for now this is what the market needed, just to calm a few fears. Not saying it's the bottom, not saying there's not more to come, but today it just seems a bit more, bit more relaxed, shall we say. But any questions, as usual, please do let us know. I hope you all have a great trading day and a good week ahead as well.