Stocks Rally But Will It Last?

Okay, a very good morning to you. Hope you had a great weekend. Obviously really sunny outside, but I hope you managed to stick to the rules and remain somewhat self-isolated. But other than that, I hope everyone made the most of it, of what they could. So it's Monday the 6th of April, gonna do the usual look ahead for the, for the week. But before I begin As per usual, if I could kindly ask, if you do not already subscribe to YouTube channel, please hit that subscribe button. If you turn on the bell icon, you'll get notifications when I release these briefings every morning. Um, here is the AmplifiedTrading.com website. So for anyone not familiar with us, please do check it out. If you scroll down on the home page, basically you're presented with a few different options. So if you're a trader or interested in developing your trading, then just click on that Learn more in the Professional Trader Program section. We've just updated this webpage actually, so do check it out. There's a few things there that might be of interest to you. And then on the student side, if you are a university student or a recent graduate, then this is our kind of flagship internship training program, which is where we use our quite sophisticated simulation technology that gets used by all the banks and all the business schools around the world. So check that out as well. But let's get stuck into it. Let's talk about markets and let's talk about the week ahead. And this is what the charts look like this morning. And just to give you a refresher, I've got EUR/USD cable on the top, followed by gold in the top right, the German DAX, the Dow, the E-mini S&P, and I've got WTI crude in the bottom center, and then on the right, WTI— excuse me, T-notes futures. So here then, what you can see is a relative risk-on actually. The Dow futures are already up over 800. S&P's up just shy of 100. DAX up 375. You got Tinos down 11 ticks. It's a pretty decent reversal from where we were when we finished the week last week. Gold, however, marginally up, up about $3. So not quite playing to the tune of the general risk environment, but broadly flat. But overall, higher equities, lower fixed income, and then oil prices, which saw quite a dramatic gap down of about 10% at the reopening of trade overnight have basically clawed back those losses. And we're now down just $0.38. So having reversed course of a good $2, $2.50 from the overnight move. But we'll discuss that more in a second. The main thing, of course, people are looking at and how to kind of rationalize why this morning is quite a stock positive type of environment. Well, the coronavirus, of course, remains absolutely center to investors' attention and traders alike. So the total confirmed number of cases now just short of 1.3 million with a death toll just under 70,000. Now, one of the main things though that people are commenting and looking at this morning is this, um, this graphic here is the kind of rolling update from the FT. Um, if you actually go on the FT website and go to the coronavirus-latest, web link. So usually there's a paywall on the FT website, but they've actually, because of this being a humanitarian issue, they've basically unlocked that part of the website. So you can actually use this in real time from the FT for free at the moment. So here, Italy and Spain's death tolls are plateauing. You can see that here, Italy right in the center and Spain actually dipping ever so slightly. But the UK and the US, every day is bringing more deaths than the last at the moment. But a couple of different things to update you on here. Italy had the fewest deaths in more than 2 weeks over the weekend. France reported the lowest number in 5 days. Spain's tally fell for 3 days in a row. The US has warned that the hardest week is still ahead for the coronavirus. And on that note, this is what the United States looks like at the moment. So of course, very much situated in the New York State and in the northeast part of the country. You can see here as well the color is defining whether or not— blue being there is a statewide stay-at-home order, so definitely much in play on the, the West and East Coast. And then the kind of striped lines, so Kentucky for example would be an advisory to stay at home, and these other areas much lower case numbers— Iowa, Nebraska, North and South Dakota, and so on— where there is no warning in effect, if you like. So this isn't particularly new, I guess. We know the, the lay of the land here and where the more kind of hotspots of, of this are. Now, at the weekend, the US advisory team were warning that we are in for the hardest week of the coronavirus in terms of America. So we are expecting this number of currently in America of 337,000 to go much further north, unfortunately, for the time being. However, an interesting development was New York reported its first decline in daily coronavirus deaths on Sunday. New Jersey, which is the second highest number of US cases in North America, they also saw a slowdown in the death rate. So there's a couple of glimmers here, some, some potential positive signs developing on what we had been watching, of course, in the likes of China, which is this inevitable kind of peak and then decline of the amount of confirmed cases and subsequently deaths as well. Now this does then lend its hand to two real things on this, this subject that I'm watching. And let's not get away from the fact that despite economic data and speakers and things happening, the coronavirus updates and how severe or not it becomes is definitely the most, most key macro driving theme for this week once again. So the two things I'm really looking for is one, with the US and UK, how fast are we accelerating? Obviously, as you can see on these lines here, it's still a fairly steep trajectory for the moment. So do we continue on that path, just going at the same rate, or do we start to— the curves become more shallow to a certain degree? So that needs monitoring and tracking. And then the second thing I'm looking at is areas like Spain, Italy, and France, which you can see have seen very slight dips over the weekend as I've just run through. Is that sustained, or is this just a momentary dip before then we see another phase higher? So these are the things I'll be looking at to determine whether or not, you know, this truly is something to get much more positive about, because, you know, the virus trajectory will, will decide the economic reality that we have going further forward in the future. So that's the kind of wrap-up on the, uh, the coronavirus side. Um, well, the final one is this. This is Boris Johnson, of course, has been admitted to hospital. I'm not sure if you saw that yesterday. Now, personally, I think the newspapers and the financial media are trying to make a bit of a mountain out of a molehill here. I think it's just such a sensational headline, right? The Prime Minister taken to hospital. I was looking on Twitter last night before I went to bed, and there were loads of rumors about he's been put on a respiratory system and all this sort of stuff. And to be honest, it's all just nonsense because it's just people trying to scaremonger, people just trying to, you know, fit some sort of rumor to moves. We did dip a little bit at the reopening of trade. You can see that, that was this candlestick here, but the move's already been taken back and we're moving higher for the moment. So yeah, I wouldn't— I don't really see him being incapacitated is a massive thing because, to be honest, he is just a front figure of a whole team of people. And particularly when you, you know, you think you've got Dominic Raab, who's already there chairing most of the meetings anyway, as his kind of de facto number two. And then also Dominic Cummings is also suffering from coronavirus. We know that he really pulls a lot of the strings as well, and as far as we're aware, he's still in operation for the moment. So Yeah, he's in hospital, uh, apparently it's because he's had persistent virus symptoms, not that it's got any worse, uh, and he's not at this point incapable of doing his job either. Uh, so even if that headline did come out and he wasn't able to lead, I'm not so sure that would be, uh, a massive market mover to, to, to be honest. Although obviously the national media would make a massive splash about that if that was to be the case. Um, With the UK, so I've said even though it does look a little bit more promising in New York and New Jersey at the moment according to the data and number of deaths at the weekend on Sunday, actually the US have warned the hardest weeks to come for coronavirus, but the UK as well according to government advisors and scientists have said that the, the kind of peak of the outbreak is likely to hit in the next 7 to 10 days. So with that being said, probably going to be quite a tough spot as well politically for the UK politicians this week. Um, just before we, we move on, there was one thing I did want to mention just quickly on my Twitter account. I know some of you have already seen this already, but I do release the macro menu on a Sunday, which is my kind of view on the week ahead. So rather than waiting for markets to reopen in this briefing on a Monday, if you didn't want to get ahead of the game and you know, you're kind of marking up technically your charts, but you need a bit of a fundamental view on what's going on. This is the report that I release, uh, and obviously includes a lot of my, my thoughts, particularly on coronavirus and oil for this week. So remember to check that out. It does also have the calendar of highlights of events, which can be quite useful as well for planning your week accordingly in terms of where the potential pivot points could come. And on that point, the kind of main thing then that we're looking at is oil prices. Now I'm just going to bring up the— let's just have a, uh, well, this is the oil. I'm just going to make sure I've transitioned my screens correctly here. So this was that on Twitter. This is my account here. If you just search for my name, you can click on the macro menu, and the macro menu is here with all the, the kind of debrief that I give, or the preview I should say, for the week ahead. Now oil prices is the one that a lot of people are looking at And this is because we had such a monumental rally last week. It was quite incredible. You remember on Thursday, Trump came out with a tweet and he was saying basically he's going to get involved, he's going to get Saudi and Russia to sort this mess out. He was speaking to big industry companies on Friday and he started putting numbers on the table of a global coordinated cut to the magnitude of 10 million. Then he followed up with another tweet of 15 million. That really fired up oil prices. But over the weekend, basically what's happened is it's all come crumbling down a little bit because Russia and Saudi still are not seeing eye to eye at this point in time. And the meeting that was tentatively scheduled today has now been pushed back to Thursday. And so when markets did reopen last night— let's just have a quick look at the oil chart— what we did have was quite a significant gap down in prices. You can see here now That doesn't look that big, but that's actually about a 10% move. Um, now a couple of things here to be aware of. Um, some progress was said to have been made, um, over Sunday according to diplomats, but a lack of participation from the United States, uh, the world's largest producer, could prove to be a stumbling block because despite originally calling for the deal, President Obama gave a speech on Saturday I'm not sure if you saw that speech, but he described OPEC as a cartel and he threatened tariffs on foreign oil. And he basically saying, well, look, we're pumping, we're not gonna change anything, you need to change stuff. And this is the problem that I saw kind of last week with the aggressiveness of the rally that we had is that markets, if you think about it, is that the, the price that we trade is the price that we think about our forward-looking expectations. And Trump really has set out a very high bar now that needs to be hit. You know, the idea of us cutting drastically about 10% of global crude oil production, I'm just not sure whether or not that's going to happen in terms of if the US aren't taking part, then obviously Saudi and Russia need to take the bulk of that, that load. And on that point, here's a look at quite an interesting graphic to give you a bit of perspective if you never really looked at these things. I'll just transition my screen. This is looking at the January 2020 oil production for OPEC and OPEC+. And what the different colors signify, the blue and the gray, the blue is their cutback has reached target. So with the way that this deal works is that every, every country or oil producer has an allotted quota or target. so you can ascertain whether or not they're being compliant, or even in some cases overly compliant like Saudi Arabia. So you can see here Saudi, Kuwait, Angola, Algeria, Congo, and so on are all, uh, have cut back their production to reach their pre-agreed target. Whereas you can see for Russia, that's not the case. And if anything, in terms of a compliancy level, Russia has only ever really been more recently in around the 70% margin, whereas Saudi Arabia have been going well over and above doing what's necessary in order to really carry and shoulder the burden. So it has a, you know, an actual implication for the move in crude oil, which is, you would say, fairly unsustainable for them. Now, one of the other things is that, you know, when we talk about oil prices right now, we're not just talking about supply. All of the news at the weekend was about supply. How much are we going to cut? When are we going to cut? Is there an emergency meeting? When is it going to happen, what's the size, all these types of things. But if you think about it, it's not just a supply situation here. There's also a demand one. And if anything, the demand one is even more worrying, I would say, than what supply can be done in kind of in terms of manufacturing or maneuvering in a way to try and prop prices up. Because if you think about it, the International Energy Agency, the IEA, said on Friday that basically even if OPEC+ were to cut by 10 million, that still wouldn't be enough to offset the huge loss of demand on the back of the quarantining and locking down of basically the whole entire globe on this pandemic of coronavirus. To give you a bit of context in numbers, Goldman Sachs said that the actual hit— I think this is either 24 or 26 million barrels per day— is going to be the demand impact that we're going to see we see off the back of coronavirus. So if you've got a demand impact of, say, 24 million, but you've got a supply cut of 10, it's still not an equilibrium. So prices are not ultimately— are still going to come further south, you would think, by logic in that definition. So although prices are up at the moment, yeah, longer term, uh, how sustainable is this rally? Are we going to go to 30, 35, 40, 50? I'm not so sure. I guess in the end, much like when we're looking at the other things, the overall virus trajectory will determine and decide the outcome in a sense on that demand side, because that will be a factor of how the economy is performing overall. Interestingly, another point I'm watching this week, I saw this morning Saudi Aramco is delaying the release of some of their pricing monthly oil pricing list. Now if you remember, they said when oil prices tanked about 2.5, 3 weeks ago, they said that they were going to undercut the market for new customers by 20%, and that's what caused that big rout in prices right after that inability to find an agreement at the OPEC meeting. So it's quite interesting that I think it could be quite a trigger point because let's say, well, one, you know, this meeting has been tentatively scheduled for Thursday now. Could it be delayed Absolutely, it could. The more it gets delayed, the more negative that is for price because people will assume that no deal will ever come forward. Two, if Saudi Aramco do come out on this closely watched monthly oil pricing list, if it comes out early and they are massively discounting prices, well then all the more reason why they're not going to have an agreement with Russia. And then again, the rally's off, we start coming back down again. Coronavirus updates, again dependent on that trajectory whether or not France, Spain, Italy start to pick up again, whether the US and UK start to accelerate even further. Again, this is going to be very important as well for oil prices. But the latest that we've had is this, this morning. This was Moscow and Riyadh are very, very close to an oil deal according to Russia's sovereign wealth fund chief. And that's what explains that little bit of a bump up in price that we've had here since I kind of got to the desk this morning around 6 o'clock through $27 up to around $28 where we trade at the moment. Just to have a look at a few things, I'm just gonna make this a bit bigger and I'm gonna remove my video feed in a second so you can see everything. But so let me just see if I can move my camera like that. So here I'm looking at WTI crude. So this was that big gap down when Saudi started that price war on that fallout from the OPEC scheduled meeting. But now we've got some real key levels to keep an eye on, both on the up and downside. Here I've marked up with the ellipses on the right-hand side. So that was the gap down, the rally that we've had to where we are at the moment. So if we continue to move higher, then obviously you've got the Friday closing high print that was up just above 29, 29.13 type level. Any move above there, then we'll be keeping an eye on the 17th of March, that would come in at 29.70. And then the— probably the, uh, a big level here, you can see I've got these rectangles where the— there's been some key areas really here around 28.49 and then also 30.50 where it's acted as decent support and resistance. Resistance on both those occasions through most of March. So really where we are at the moment is quite a key area. And then if we continue to move up, then 3050 I think would be quite important. If we did get a bullish kind of outcome and all signs look good they're going to get a deal, then I'd be looking up for a further push then over the coming days. And by the end of the week, could we be up through 3420? Uh, possibly. I do think though the risks lie to the downside particularly given the fact that now these kind of big numbers like 10 million barrels per day cut have been put on the table. I think, A, the likelihood of delivering that, I think, is relatively low at those levels. And B, even if they did, I'm not sure that really offsets the demand impact from coronavirus. So yeah, I don't know. I think the market's got a little, a little bit ahead of itself in that regard. While we're on the charts, I'm not going to go over anything other than just oil and the S&P. I'll leave Sam to tweet a couple of things that he's looking at from a technical side and some of the setups he's got for the week ahead. But this puts into context a little bit, I guess, about the, the ramp-up we've had in the overnight session. No Chinese trade, it was the holiday there, and obviously this is a holiday-shortened week. Don't forget you got Good Friday coming up, so it's only 4 trading days. So we've managed to come back up to the levels we were trading right at the end of March Anything north of here, you've got the 2600 level, which was the March 31st, uh, kind of high that we saw at that point in time in the late Asian or the late Wall Street session that I'll also be keeping an eye on intraday. Any further pullbacks then back to the consolidation that we saw in the early Asia part of the session. So first of all, you've got the R2 and then those levels down at the 2950 mark. All right, to finish things off, a quick look at the, the calendar for the, for the week ahead. Um, today is relatively quiet. You've had the German factory orders come out, or industrial orders I should say, come out this morning. Uh, they've printed at -1.4%, just a little bit better actually than expected. Expected was for a -2.4% reading, but today pretty quiet overall. So I would say very much a focus on the virus updates, I'm sure. That's how the US will be looking at things. And then the oil price as well needs to be observed quite closely. And then on Tuesday, you've got the RBA interest rate decision. Obviously, they've already slashed rates now to the effective lower bound, so it's all about commentary and what else are they going to be doing with their unconventional monetary policy tools to support the economy going forward. You've also got a Eurogroup meeting, could be quite interesting just given the current state of play overall economically in the eurozone. Then going further forward into the week, on Wednesday you've got the FOMC meeting minutes. Thursday, quite a busy day because if you think about it, everything starts to get squashed into Thursday given the lack of trade on Friday for Good Friday. So the main highlights there, you've got some UK data, industrial manufacturing production, the monthly GDP, trade balance, construction output, all coming up for the UK. Uh, weekly jobless claims continues to be a massive thing. Of course, you know, if you did read my Macro Menu, you know, that what we had last week, of course, was this monumental, um, rise in jobless claims. Uh, 10 million now the last 2 weeks. So would be anticipating a number again, multiple mid kind of millions this time around. Which means that it's pretty much all but inevitable that, um, the severity of the Q2 GDP fall is going to be significant. And unemployment in America, although it's just around the low 4% numbers at the moment, is most likely, as we can see here, 4.4%. That number is going to go well into the mid-teens, in my opinion, over the coming weeks and months, as we'll see in the further payroll reports to come in April and May. That would far exceed the 10% peak that we saw in around 2009 in the depths of the financial crisis. So economically, this is going to be way worse than the global financial crisis ever was. Really, I'd say it's a lot of a byproduct of the immediacy, given it's a health issue and it's required an immediate lockdown and stopping of many, most businesses, is why it's been so magnified in terms of such an immediate and large-scale impact on the economy. But, you know, payroll numbers are going to be into the multiple millions, I think, come the next report we'll see in about 4 weeks' time. All right, that is it from me. So any questions, just let me know, leave them in the video comment section. I'll get back to you throughout the day, and then I will wish you a good week ahead. Thanks very much, guys.