Stocks Crash/Gold Soars As Coronavirus Spreads

Okay, very good morning to everyone. Monday, 24th of February. Hope you had a good weekend. Into the briefing then. I'm going to do my part with the, the market fundamentals, and I'll hand you over to Sam from the technical perspective. But if you are watching this on YouTube, don't forget to subscribe to the channel. But Just having a look then, major screen to start with, of course, is this of the coronavirus. Not so much as what I'm showing you here, which is the total numbers and a visual graphic of mainland China, but the virus spreading to other countries is the main thing that the markets are looking at this morning. And looking at the charts across asset classes, quite clear risk-off trade being seen. The DAX is down over 300 points already this morning at session lows, pretty much as I'm speaking. The Dow is down in the futures close to 500. And that, of course, then a classical kind of flight to quality move. Gold already up about $30, getting close to the overnight electronic reopening high that we had. That comes in at around $1,684 that was seen in the overnight session. And then the US 10-year is already trading within about 3 ticks of the R2, up around 18 ticks this morning. Oil likewise, the impact that this could have, the perception on global growth concerns, oil from the demand then implications that that would be, is trading down over $1.50. So quite a big move. And, you know, for any of the, the new traders, this is certainly one of those reasons why in this type of environment it's, you know, very unwise to hold a position over the week— weekend, not knowing then certainly the type of things that can occur and the gap in prices that you can see, like of this nature. So a few things to have a look at from an information perspective, and this is the overall total confirmed cases, 79,000 deaths, 2,619 total recovered, north now 25,000. However, in terms of the, this region, we have actually seen quite a few areas where local governments in China have been relaxing quarantine rules on plants so that they can reopen. Top leaders have urged workers to kind of return to work in China as they look to kind of get things back on track. I think in terms of where they're at in that process at the moment, I did see a lot of conflicting numbers, of course. At the moment, it's hard to pin down, but the actual productivity at the moment at around tracking at 60-odd percent or so from normal rates in terms of their economy. And so this is the kind of what we find ourselves in, the tricky situation between when do they fully return to work, or does that risk then further risk of human-to-human transmission, the further spreading of the disease, is the, is obviously the big question mark. The biggest thing though, and the reason why the markets have taken this renewed kind of fear on the back of this coronavirus, is this. This is a map now that I've moved over to Italy and Western Europe. And as you can see here, Italy has jumped up the kind of league table of confirmed cases to now pretty much taking, as a singular country, the third spot. So mainland China still is very much so the main epicenter, if you like. However, in Wuhan or Hubei, that province where the origination of the virus, actually numbers are leveling out. It's elsewhere now, and this risk of spreading further globally that's become a key risk for markets. South Korea is the other country, numbers there now coming up towards 800. Overnight, the South Korean equity markets were down about 3.5%. Hong Kong, Shanghai, Sydney all lower as well in this risk-off trade. Here is it in Italy to give you a bit of context. I'm sure you would have read the news already by now, but here's Milan in the northern part of Italy, and here's where we've had the, the outbreak, if you like, where all the numbers have been situated within Italy. Now, for those who did read my kind of ramblings over the weekend in my Macro Menu that I write, I normally publish on a Sunday, I was— I kind of dropped everything else and I was just focusing on the virus because of really 3 things that I've been monitoring. And one is, as what we just discussed, the number of reported cases outside of mainland China. What I've been looking at is basically I think markets have been fairly okay with living with the apparent risk on the table as long as the situation was remaining quite self-contained within mainland China. The biggest risk here, of course, is kind of what we've seen change over the weekend. And so that's kind of point 1 ticked off. And then 2 was statistical evidence. As to the impact on global supply chains. And if you remember, towards the end of last week, and we did finish down, what, in the Dow about 230 points on Friday, we're down another 550 or so this morning. Now, one of the, the second point here was about the actual real material impact it's having on supply chains, because this is only going to magnify then the impact that it's going to have on the potential global slowdown, because you so many different products, countries, manufacturers are dependent on goods coming out of China, and the bottleneck that's going to provide is going to have substantial impact on the supply chains. And we saw that, remember, with the UK figures on Friday, where UK suppliers' delivery times index since January signaled the largest month-to-month slide in supply chain performance since surveys began in 1992. So this kind of clear evidence now, which was before, it was kind of a hypothetical estimate, I think is quite a sea change of sentiment. So number 1 and number 2 are kind of ticked. Number 3 is the one that has, hasn't yet quite taken hold. You could say there's a sniff of it in the air this morning, but this is when it really starts to become a much bigger issue for markets and we see a real meaningful correction. Let's say in equities, for example, and gold starts going north of 1,700, 1,750, uh, and upwards. And this would be a behavioral move, this one a lot, a lot harder to kind of nail down in terms of the others, of which you can of course with statistics. This being the behavioral fear in the market attributed to signs towards the development of a full-blown pandemic. Haven't quite got there yet, But if the market decides, well, actually, we are way too complacent with this, which is the kind of main crux of the piece that I wrote over the weekend, I do think that the market needs to reprice now for these new developments of what we've seen, particularly South Korea, Japan, and also what's likely to create more uncertainty here is what's happening in Italy specifically, because those numbers have jumped sharply very quickly. So to give you actual numbers, on Sunday a third Italian died from the virus, as the infection count now up to 152, up from just 3. So there were 3 cases on Friday, there's 152 as of this morning. So a very sharp and immediate rise that we've had. So here then, a few other things. What are China doing? Well, China are just rolling out the normal response in this situation. And that is, if you think about it, they're trying to control really point number 3, which is this: once the market has that, that, that sentiment in its head, things could run away from China quite quickly in terms of the ramifications on market prices. So here, China's Xi Jinping sounds alarm over virus outbreak, calling the president, urging capital Beijing 'on call to spare.' No effort warning comes after local government quarantines officials. And then here, China pushing factories to reopen, risking renewed virus spread. So this is that, that kind of the two sides of this, which both also could be quite risk-negative. That being that China now really has to start getting back to business because it's really starting to almost compound the impact by being shut down in these major major kind of manufacturing hubs and centers across China. The risk, of course, that they have, given the nature of manufacturing plants and kind of blue-collar work, is the conditions that they work in, as well as these cities which are largely and densely populated, increasing the potential for further then spreading of this virus. So there's a lot of risks out there, and of course the one thing that continues to outperform is gold. And as we've seen this morning, we're already trading up $30, and we're quickly closing in on $1,700. And remember, at the end of last week, I was telling you about Citigroup. Citigroup said that they expect gold to hit $1,700 in the next 6 to 12 months. Well, how about the next 6 to 12 hours? I mean, that's how quickly gold can move when it really decides to. And $2,000, they say, in the next 12 to 24 months. Now, The main point here that I thought was, was quite nice was the summary, not, not so much the targets, uh, because, you know, these bank targets, we kind of take them with a pinch of salt. The main thing is, is that most people are expecting more upside is the kind of baseline scenario here. They said that convex macro asset market hedge, a resilient during on-risk ongoing risk market rallies, but a better hedge during sell-offs and vol spikes. And that's that thing that we were talking about last week when we were looking at the reasoning behind it. You know, it's not just the virus in that sense, it's the, the almost the best place as a store of value for upside appreciation because all of the risks at the moment are quite negative. It's how do you play that scenario out the most clean, and, and probably gold offers that opportunity in that respect as a hedge against potential volatility spikes. Goldman Sachs, pretty, pretty similar. They say that low yields and weaker equities could push gold prices further towards $1,750 even if the virus is contained during the first quarter. Well, at the moment I'd say that contained word is probably the one to watch. Not quite there yet, perhaps in China to some extent, but it's this this breach, if you like, outside of those, uh, land borders that's causing the most concern to markets this morning. Here was just a quick look, and to finish off on this kind of overview on the virus, this was a good graphic that I saw, and it's in that, that piece that I've written. I've shared it in the chat room. This is how coronavirus can infect global supply chains and the share of all imports of intermediate products coming from China. And you can see here just how dependent the global economy, economy is from China, particularly in North America, which of course then is of grave concern for general broader markets given the impacts on the world's biggest, most important economy, that being the United States of America. Of course, this was another interesting thing I saw, and this was looking at a couple of years of price activity. If you look at the axis at the bottom But this is looking at a decoupling of the natural kind of correlation between the Japanese yen and gold. You know, often people talk about how the two are seen as perceived safe haven assets. Well, not anymore. If, if this is recent price activity is to be believed, you can see we're seeing a complete divergence between the two prices. I mean, the other thing not to forget is remember the Japanese GDP we had not so long ago with things like the typhoon that they had, the sales tax hike, the general implications of this virus as well on their economy, which has been stagnant. You know, their economy is weakening quite substantially. They're still doing large amounts of quantitative easing. So you're seeing again all the more reason why people are flocking to gold, and that's why, you know, it has seen such a stark movement of late, because these other options are running out. You in that respect. This was an interesting technical chart that I saw. This was looking at the US 10-year yield, and they're closing in down on record levels. You can see here, going back over the last pretty much 10 years, US yields tracking at where they are at the moment brings into sight the 2012 and 2016 kind of dips. So worth also just keeping an eye on from that respect. But it's all about the virus this morning, and, you know, kind of pretty much as I was anticipating on Sunday, because from a calendar perspective, it is pretty quiet. There's nothing really here. So, so typically on this calendar, Monday through Friday, I would normally highlight or bold important economic events, and really there isn't too much in my mind. And the development of what we've seen, particularly with the, the spreading of the virus, I think absolutely takes top of the agenda in the kind of macro themes, at least for the short term, until we see how this plays out. So going through, what have we got? I'll just give you some summary of highlights. President Trump is in India today, so just in case you're looking out for any further tweets that might come out from him. In terms of the data for today, the main thing that people will be looking at is the German IFO business climate. Could be quite interesting just because that generally speaking, this is the companies on the ground. What do they think about the current economy and their future expectations of the German economy? And that, of course, has been a real pressure point on the eurozone's economic performance of late. So that could be interesting, just given their reaction to the, to the virus. Then Tuesday, as I said, I mean, there's a couple of things to look out for. You've got US consumer confidence. Again, has that been dented by the virus? I would probably think not from an American consumer perception, at least not just yet. But things like Richmond Fed manufacturing activity could be interesting to watch. And then you do have Fed's Clarida cap plan. And actually, if you think about the week as a whole from a speaker's point of view, today you've got Bank of England's Haldane, you get Bank of England member Cunliffe speaking a couple times throughout the week, you've got ECB President Lagarde on Wednesday, you've You got Fed officials pretty much every single day. Actually, what I think is going to be quite important, rather than focus on data, is going to be what the central bankers have to say now that we're starting to see more concrete impact of the effects that the virus is having on the speed of the global slowdown, and to what then impact is that going to have on their decision-making for future monetary policy. Now, I wouldn't be looking for real clear forward guidance in that, you know, this is gonna— this is what we're gonna do and this is when we're gonna do it. But any increasing signs of dovishness from these senior policymakers, as per what we've kind of heard from the G20 finance ministers in Riyadh at the weekend's meeting, this idea that they're ready to take action if the virus slows down the global economy, again, will probably have some impact in the rates environment and where people's perceptions are for further easing from global central banks. So I think actually speeches are quite key, uh, this week over data in that sense. Um, elsewhere, the EU-UK negotiation mandate agreement deadline is tomorrow. Now what does that mean? I mean, it sounds a lot more, uh, interesting than it actually is. Basically, at this point, they haven't actually started negotiations, hence this whole debacle over the last 2 weeks about red lines and so on. It's supposed to be they've set the mandate for the negotiations, which formally commence then going from Wednesday onwards, is what that means. So this shouldn't really cause any reaction in the pound. It's about what happens over the coming weeks, which will be key. Wednesday, again, pretty quiet, nothing too much. Speakers though, as I said, Christine Lagarde, Fed's Kaplan, Kashkari speaking. Actually, from a data point of view, it's very much Thursday, Friday where things pick up. And from earnings season perspective, that's all but done now, so that's not really so much of a consideration from an overall top-level macro perspective. So Thursday, um, a couple things from the US. You've got the preliminary US GDP number, durable goods orders, pending home sales coming out. Then on Friday, you get some GDP figures coming out from different European countries. You've also from the US got Chicago PMI, Michigan consumer sentiment, uh, and then on Saturday what actually could be interesting— and, and for any new traders, this is quite normal— China tends to release economic data at the weekend. And on the weekend we've got the Chinese manufacturing, non-manufacturing PMI data. So that will be definitely one that could then be interesting with updates on the virus for the open this time next week. All right, I'll get Sam over. Otherwise, that is pretty much it from me. I'm going to share this link again if you want to have access to that full calendar. It's in the chat room now. I did send it out as well this morning so that you can have a look at. All right, let me hand you over to Sam, and I wish you a good week ahead.

Yeah, hi guys and good morning. Hope we've all had a good weekend. Watching the rugby and Arsenal win, of course. So all is well here. Let's have a quick look over US equities, which, you know, along with gold, are going to be the, the thing, uh, and bonds that catch people's eyes. And we put the S&P— might as well start back on a daily chart. And if we were to get some, you know, continuations to the downside, where could be some, some key levels to, to bring into picture? Of course, when we do move lower, it's always worth bringing on the the 200-day moving average. So let's just have a quick look at that. We were, of course, famously very, very far away from it, and we still are, but you just never know. Maybe over the next few days, something just to, to keep an eye on that. As you can see here, trading, uh, quite a way below here. Of course, trend lines as well on previous lows, uh, it's best to have those marked up. You can see we're sort of going through to a few of these points now, and breaking through, although of course this wouldn't necessarily be one, but maybe worth keeping an eye on that. Quite a lot of support, you would, you would argue, just a fair bit below here. You can see around 32.37, we spent a lot of time around this point. Let's just bring that into picture here. So that would be an area perhaps it will get dragged towards. And also, you know, if you could let me just remove that trend line there. Let's get this previous trend channel one, not for the, the bottom part, but more just for the, uh, the top. Now I don't necessarily think we get here, but if we were, you can see around 3100. I know it's a long way away, I'm not trying to scare the market whatsoever, but just a retest of that trend line. You can see since we broke through, that would be a place, you know, I would absolutely love to, to get involved, uh, to, uh, to get potentially a long as well. Also maybe just a bit below, you can see here, this would be maybe, uh, where I would favor, you know, at least a brief pause should we get down there. The low of the 7th or beginning of January, what's that, on the, uh, on the 8th, and then the last sort of couple of days there, and then that coming in around 3250, uh, to the upside. And let's put this more back on a 60-minute. Of course, uh, as we go through the week, there could well be some comments from the Fed or the coronavirus seems more positive and we have to start thinking about that gap fill as well. So always have that marked on. If we just scoot back to previous days, you can see they have, well, yeah, in recent times they have got filled relatively quickly even when we have been down quite significantly. So of course have that on there as well. And you know, the 15-minute today it could well be some, you know, buying pressure that comes in, albeit briefly. And just keep an eye on any of those previous lows. 3281 hasn't really been tested since we broke through on the European Open, so of course keep a watch on that as well. As a guide for, for today, is there any trend lines? That's something you're going to want to be looking to keep on. For example, this one here that started albeit quarter past 2, you can see has found resistance on the— and the quarter to 5, and then just around 7 o'clock as well. You know, if we were to get back above there, then we could see maybe a quicker move as people that are holding shorts, uh, sort of say, okay, now's not the time for, for us to, to get in this trade. At the moment, you've got to be, I would say, looking to go short unless something like that breaks through. Similar across the board for the Dow and the NASDAQ as well. Just keep an eye, you know, for example, Dow Jones daily chart. Are there any trend lines that I need to be aware of? Where's the next levels of support? And you can see here you've got that one which is similar to the S&P but starting on the 3rd of December and then 3rd of February. And you can see, just put this now into 15-minute, we're literally just about to come back and test that now. So if I was short the Dow, while I think we probably do go lower, what better place to take a bit of that trade off, uh, on that potential trend line as well. Gold of course pushing higher, not far from its spike this morning. Uh, so again, resistance-wise, and then you start thinking, well, hang on, we've got gold resistance here, you've got gold, uh, equity support from these trend lines. Maybe it's not a bad place for a breather or continuation. Of course, if it breaks through, I wouldn't necessarily be looking to sell gold here, and I wouldn't necessarily be looking to buy the Dow on those trend lines. But what better place to, you know, just risk, de-risk a bit of that trade? 15-minute or 5-minute, just to look at potential areas to get back in. You can see we did break through this little area of resistance finally, you know, on that sort of confirmation. We did find support on the, the follow-through. So any of these previous highs, just keep a watch on that. It'll be interesting, of course, to see what will happen if we do push through all of this, uh, that's high that we had today. And then, you know, 1700 may well just be that magnet that does get hit. On the weekly chart, certainly for the futures, just before 1700, you've got a lot of highs going back from the end of December 2012 and then the beginning of 2013. I've drawn that, that horizontal line as sort of rough as I, I can, but you can see here a lot of resistance just before 1,700. So just keep an eye on that if you're thinking, okay, well, let's get that big round number. Come out a bit before would be my advice. Oil as well, you know, this is a market that's come under pressure all year off coronavirus headlines, so it's going to do the same. Uh, worth putting the weekly time frame on this one as well, just because, uh, the trend from those lows that we had back in 2016, you're now not too far away from that coming in. If we put it back onto the 60-minute, just as a bit of a guide should that go, and then the lows that we broke through early trade, for me that's a good guide. I think as long as we're below there, you've got to favor the short. But we are just finding a bit of— or potentially going to find a bit of support around $51.50, which has acted as quite a good level of support in recent days for oil when it's been around there. But break of that low around— yeah, down to $51.50, $51 dollar handle, just a bit below that. Getting those pivots on, and like I said, that trend line for me is the guide for any move to the upside if it's going to happen. Uh, and I— well, I don't think that will. So, you know, something like, uh, bearish below, albeit very short-term bullish above, would perhaps be the way I'd look at it. But again, let's say we get some positive comments with oil, we've got to start thinking about OPEC. You know, if they— if we start getting below 50 again, our comments are going to come out most likely. Uh, so again, these gaps, just always keep an eye on those. Bonds, let's have a look at, uh, US 10-year. Get the weekly. Of course, as we know, it's the, the highest it's been, just like gold, for quite some time. Let's just remove those pivots there, draw some horizontal lines up again. You've got some resistance coming up, but here you're talking first time since August and, uh, summer of 2016 levels to potentially get in here. I know it's obviously going vertical at the moment, um, but any of these previous highs as a potential guide, you know, again, to, to favor if we can see any bit of a pullback to get in long off those. But the markets are heavy at the moment, so I wouldn't be looking to be the hero and buy the dip right now unless you have some comments to, to really back that up. A quick look over the currencies. Euro approaching its pivot. Let's have a quick look at that. There you can see just a bit under the pivot there's some nice resistance. We've just been tested. As you can see, the first test offered a level where the sellers came in was the previous low overnight, and then again through there. Then you start talking about maybe this gap coming in. The dollar did strengthen in early trade, but it is coming down a touch. A lot of support on this level for the euro, as we know, is such a historical area to keep a watch on. I think today focus should really be on equities and gold and maybe oil as well. Currency land might take a bit of a back foot here as we're just seeing equities, uh, you know, across the pond take another leg lower. The DAX— let's bring this in now— which you can see is down 426 points. And I, you know, I think you'd be brave here to even think about trying to call dips. But obviously with, with price moving like this, um, you want to be able to take profit because it can reverse very quickly. So let's get a trend line on there from that August low, see if we've got anything coming up shortly. You can see not too far away a potential trend line. You know, if we, if we go back to August 2019, that low there, you can see the reaction we've came through there at the beginning of Jan. Why can't it happen again? That should be your, your thought process here. And as we draw a horizontal line on that area, what better place to de-risk part of that position around 13,100? It makes sense to me anyway. Uh, but for the DAX, you know, these and that Dow trend line that I drew on— if there you go, well, yes, the continuations, things going through gold 1,700 T-notes now, levels not traded for 4 years. So it could get— it could well get ugly. But I would just be very careful about trying to sell the bottom or buy the top on these markets. Have patience, you know, it's only 8:30 on a Monday. There's plenty of opportunities to come today and throughout the week as well. Any questions, as usual, please do let us know. To see gold is testing the all-time high on the— against the pound. We've seen another leg lower here in equities. Got the DAX coming to that level now, and I imagine a lot of you will want to be looking at potential trade opportunities, so I'll let you all crack on. Hope you'll have a good trading week. And look at that, you've already seen a little bounce there of 20 points off that trend line for the DAX.