Stocks Rally On Easing Virus Toll

Okay, a very good morning to you. Hope you are well. It is Tuesday the 7th of April. Before I begin, I just have to have a quick kind of announcement, I guess. The Prime Minister, as I'm sure you're fully aware of now, Boris Johnson, has been taken into intensive care in the UK. So Before we begin the briefing, obviously our thoughts and prayers go out to the Prime Minister. Hopefully he recovers quickly. The understanding is that he is receiving oxygen at this point to help with his breathing at St Thomas' Hospital in London, but he's not on a ventilator and he's still conscious for the moment. So wishing him a speedy recovery and just opening that out to everyone and anyone who's been affected by the coronavirus. Of course, we hope you all get well. Soon. But yeah, just taking a look at things then this morning and really just kicking things off from a market's perspective. We will talk about the pound. I'll circle back and, and have a look. I was sat here and I just happened to be sat on my screens last night when the news broke, so I did see, you know, majority of the move as it unfolded. So we'll talk about the pound, but otherwise what I wanted to talk about was the broader market, and that is that equity index futures continue to rally. And this comes after one of the biggest two rallies we've had in two weeks, actually, yesterday. So if I look at the Dow, it closed up about 1,600 points. And you can see this morning it's already up just over the overnight Asia-Pacific highs. And we're up about 300 again. The DAX printing session highs as I speak, coming in toward R1. Up about 282, the S&P up 33. So kind of naturally, if you like, from a correlation point of view, fixed income T-notes continued a downward trend from yesterday, down 11 ticks. But gold bucking the trend, and we're going to talk about gold because it did see a sharp rally yesterday of the best part of $100 and a fairly uniform rise actually for the yellow metal. So we'll have a look at that chart as well. And then oil down here at the bottom had about a 6.5-7% lower close from where we finished on Friday. So overall, again, question marks on whether or not this tentative meeting that they're going to hold via teleconference on Thursday will yield any type of result is what everyone's kind of looking at this point in time. So yeah, let's go through a few things then. Starting off with this, let me transition my screen. So Here we are back at the coronavirus COVID-19 update from, update from Johns Hopkins, and you can see total confirmed cases now coming up to 1.35 million. The US now at 368,000 overall. In terms of total death tolls, still Italy, Spain, France, now the UK, followed by Iran and New York City for the moment. But underpinning this general risk-on kind of, kind of short-term positivity, if you like, at the moment is still what we were looking at yesterday. It's the idea that around the world we are seeing some of the key hotspots globally are starting to see a general decrease in the death toll. Now, China overnight reported no new coronavirus deaths for the first time since the initial outbreak. That's looking at China down here at the bottom. And then you've got Italy had the lowest number of coronavirus infections in nearly 3 weeks. France reported a continuing leveling off of cases. So you can see here now this kind of, this blue line plateauing. New York Governor Andrew Cuomo, and this has been obviously right in the epicenter of the US outbreak, has said earlier today that deaths, or yesterday, deaths were showing signs of hitting a plateau as well. The US is still expected to peak, uh, not for another couple of days, anticipated about 9 days' time, the 16th of April is what people are saying. The cumulative number of Americans likely to die from COVID-19 though has been revised down to 82,000 from around 94,000 that they were hypothesizing about a week ago. So these things are being seen. Remember what I've been saying in the briefings for the last week or so has been about identifying the steepness or shallowness of the trajectory as it changes day by day. And at the moment, globally, if you're looking at Italy, Spain, France, even in the US, New York, what we're starting to see is it's becoming ever so slightly more shallow. Now, obviously it's too soon to start making grand conclusions about, you know, where this is it now, we've hit a peak and it's all about recovery. I don't think we're quite there yet. As I said, get worse before it gets better. In the case of the US, over the next pretty much 9 days, UK is still somewhat accelerating as well. So this, this is the type of thing though, there's a trigger point that will or could spark the intraday shift in sentiments. If we start to see those numbers creep back up, then we need to probably see a bit of reversal. We're fairly correlated at the moment. So a great graphic from JP Morgan last night, I don't quite have it to hand right now, but it was on my phone on Twitter. And basically it was, it was mapping out the coronavirus cases and the volatility index, and basically it just moves absolutely in sync. So if you're trying to determine volatility, well, really you need to be tracking these virus numbers as we've been doing. But coming back then to the UK, this was obviously the, the news that broke last night. And let me just show you the pound, and as I said, I was actually kind of sitting here just doing a bit of prep work for, for today, and I caught the news when it came out. So this is what it looked like. I'm looking at a 5-minute candlestick here in cable, and Boris admitted to the ICU. We saw an immediate downward move, fairly, fairly sharp actually. However, there was, you know, given the time of day, I mean, I think it was about 8 o'clock, yeah, just after 8 o'clock, so It did take a bit of time for the pound to really move. I mean, you're looking at 5, 10, 15, 20— it was about half an hour move before we actually got to a level of, you know, some support, which was down at the low that we printed back in the prior day's session, in the overnight Asia-Pacific session. You can see here, hopefully it's just above my camera feed, in these areas. And the market responded there first, but then as soon as the Asia-Pacific session got underway, obviously fairly illiquid is the cable future, which I'm looking at here during the Asian session. They just popped down lower, came back up to that same level again, so quite volatile overnight. However, we have kind of etched out a bit of recovery. You can see the two points of real turning that we've had from a technical perspective have come with that low point that was seen yesterday afternoon session. That again has provided quite a nice platform or floor, if you like, for price then we've got this fairly short-term trend channel that's now in play that I'm just quite keen to watch this morning to see how it plays out. You can see just coming up to the upper bound of that channel with the R1 sitting here just testing at the moment. Back to flat now for cable despite then all of the variance in price that's been seen on the back of the Johnson news. If you actually look where we are, if I just draw that horizontal line, just drop it right there, we're exactly to the tick of where we were for that news came out. So despite a shift and a move down to kind of 121.75, we've come all the way back up to trading, uh, up into a 123 handle at the moment. So strong reversals being seen since that point. Now, one of the things is who's going to take over? Well, Foreign Secretary, a member of the cabinet already, Dominic Raab, is going to take over. And I think for any of those who are not based in the UK, Dominic Raab has been around for a while in terms of the Boris inner circle. He's been fairly trusted. He's a Eurosceptic. He's a former lawyer. I think he's pretty well equipped to take over in a fairly— with a degree of continuity at this point. I don't think it really creates too much disruption to the ongoing policies in which the government in terms of tackling of coronavirus. He's a fairly assertive, astute character. In that sense. He was one of the, the candidates who was running for Prime Minister only, you know, several months ago. So yeah, I don't really think I would get of that mindset of, you know, it's going to weaken the pound just because Rabs come in. I think he'll do a decent job in the replacement until the Prime Minister gets better, of course. But yeah, technically any move above here, then obviously I'd just be keeping an eye from the range from yesterday's session, um, the kind of range high being a kind of a band looking at 1.2328 up to the initial high that was seen around midday yesterday if we continue to move any higher here with that trend line also in play. So, so that was the British pound. We are going to cycle through a few different charts as I go through the news because there are some interesting levels. The next thing I wanted to have a look at was this. Let me just transition my screen. Uh, this is gold. Gold rallies, uh, the spread balloons as investors charge into bullion, uh, and gold futures surged far above $1,700 an ounce to the highest since 2012. You know, it's quite an incredible move because you remember people, I think, are a little bit hesitant to, to jump into gold, uh, or have been, just given the nature of these kind of margin calls when equities were getting hammered, that was leading to then the kind of exiting of these profitable positions in these more medium-long-term gold bets. And we're seeing these big flushes in gold. But the big difference between now and then is equities are rising. And if you actually look at the volatility index, generally it is decreasing at this point in time. So that gives them further confidence to reassert some of these, these long positions in in the price of, of gold. Looking technically, I guess this down makes a bit more sense then, looking at the near-term price action. This starts to encapsulate the last 2 months, and you can see at around that, you know, this is this top level here where I've put these ellipses on the test around the 24th, again from the 9th, and again on the 25th before the break that eventually came late yesterday evening into the back end of the US session. This is the psychological 1700 handle. So you can see here, long-term multi-year level and how the market has respected that thus far. But the fourth real extreme test of that, we saw an explosion through it then coming through into the, uh, kind of Asian hours, which saw an eventual high point at 1742 overnight. But you can see the importance of the break, getting it firmly above there, uh, just help it accelerating some of the price action. And then, you know, just broadening out the time frames, just because some of you might not have been in the market back 9, 10 years ago, this is where we're looking at in context of really the all-time highs that was printed back in September of 2011. And that was when we were trading at $19.20 in the futures. You can see now though, we've got to a respective point of, I guess, quite natural resistance here. From where we printed. This is looking on now on a monthly candlestick, um, up around the December 2012 high. Any break above here though, it does open up the door to a push really towards more 1,800. And 1,800 then being that November 11th, Feb, October 12th highs that you can see, that kind of cluster here of resistance. And then the next level then is not really up till here. So if you're looking at 3 longer-term, uh, targets on the upside, really this is what you're looking for— more concrete break of that Dec '12 high. That'll push us back up to then around $1,800 and those end of 2011, 2012 highs. And then you've got the eventual time high just above there. But yeah, why, why is this happening? Well, a couple different things, of course. I mean, yes, coronavirus numbers we've discussed, um, have been plateauing in some places, or in fact decreasing, or no new deaths reported for the first time in the case of China. So that's a net positive for equity index futures at this point. But at the end of the day, the economic impact is still going to be incredibly severe, way more immediate beyond that of what we saw from the global financial crisis. So seeing a non-farm payrolls number next month in the multiple millions would definitely not be surprising. I remember the peak in the global financial crisis was for 800,000. It was a much more graduated move. This is a much more immediate and sharp impact given the fact that it's complete shutdown because of a health issue, uh, being the pandemic. So people want a little bit of exposure for this and getting their hands on some, on some bullion essentially. The prospect for more stimulus as well, you know, I find it a bit of a watered-down argument. Does this in the end create, you know, inflation concerns and people want to hedge that perhaps? And then further signs of dislocation in the physical bullion market as well. There's something that people been talking about. What this is basically saying is that 2 weeks ago— I've got some notes here— supply channels essentially If I just switch over, supply channels were strangled as refineries shut down, flights were halted, curbing sellers' capacity to meet commitments to deliver the metal. So if you think about it, then there is an underlying demand at the moment to get your hands on some of it, given those supply constraints. So all of these factors just helping, just, you know, support the price from a fundamental point of view, and then from technical point of view, of course, just getting a little extra kick as we've broken more firmly through that, that longer-term level at around 1,700. And again, counterintuitive almost because there's, you know, looking at those factors, whereas the equity market seemingly is still focused on this more short-term responsiveness of the numbers on the pandemic as they evolve. Okay, the other big story of course is oil. Global oil powers stumble their way toward a historic deal. Well, let's just have a look at the price of oil here. This was the gap down that we saw, uh, the recommencement of trade. We were looking at this, this time yesterday. Why did that happen? This is about a 10% drop from where we rallied to the closing point on Friday. Well, A lot of people skeptical, of course, about whether or not a deal can get done on the tentatively scheduled meeting on Thursday. That, remember, it already got bumped from Monday to the end of the week, and that was why we gapped lower. Markets then rallied, people still feeling a little bit optimistic. However, we ended up settling on the day still quite sharply lower from where we finished at the end of last week. Now, A couple things to be aware of here. Here is a kind of checklist, if you like, of points that I put out on Twitter, and these were what I classified as key risks to look out for in the crude market in the coming days. The first one, of course, is the trajectory of the virus. We've talked about that already. The next is the potential for further delays. Now, some of the latest comments that I've seen so far are that Saudi Russia and Saudi are set to curb their production significantly, according to people familiar with the negotiation. The US is more likely to offer up the kind of gradual output reductions. Trump said Monday OPEC has not asked him for oil production cut. And remember, Trump is very much not willing to be bullied by what he calls the cartel at this point. Remember, it was only about probably 12 months ago that there were some murmurings on Capitol Hill about putting forward a piece of kind of old legislation back on the table called NOPEC, which is basically America trying to sue OPEC for manipulating and monopolizing the, the price of oil. So, you know, will the US get on board, I think, is very pivotal at this point. And this is where we get to the next which is Trump tariffs, a lack of participation in the deal. Will Russia and Saudi really want to cut a deal if the US and Trump are not going to be involved? And given how Trump tends to be quite volatile, of course, trying to assert his dominance in these types of situations on the global platform, again, big risks to whether or not— given the sharpness of depreciation of oil, there's plenty of space to come back down again if these things don't follow through. Um, there's then been talk about Aramco, of course, Saudi's kind of state-owned oil firm. Uh, they've been holding back on issuing their monthly pricing lists, uh, apparently just waiting to see what happens first. If you think about it, it's kind of like keeping a gun on the table. They've threatened before, remember when we saw that steep, uh, sharp decline in prices, that they could discount heavily against their competitors for any new customers by as much as 20%. So I guess they're holding that back to see what the outcome of the meeting is, but it all could get messy quite quickly. And then there's this idea of the depth of cuts. You know, I, as I was suggesting yesterday, you know, Goldman's talking about the mid-20 million, uh, barrel per day impact that the demand implications of the pandemic, you know, if you're going to cut 10 million If that is the case, well, you know, how sustainable is that to really underpin or support in prices that sees oil going from $30 to $40 to $50? It's slightly questionable at that point if you're thinking about that equilibrium of supply and demand. So the video teleconference is scheduled to happen at 4 PM local time. So I guess this is talking, I assume, Vienna time. Um, on Thursday, followed by talks then that's now going to happen is energy ministers from the G20 are then meeting at the end of the week on Friday. Good Friday is my understanding. So that's slightly a positive sign, I would say. So they're going to have their teleconference call on Thursday. The energy minister of the G20, what they will attempt to do then is broaden out the net beyond that of OPEC+ and the US, because if you start bringing the G20, you start to bring countries like Canada and Brazil. And so what they're trying to hope for here is a complete unprecedented overall oil producers across the globe coordinate to take some kind of, uh, considered action here to address this, this relative low price in a historical sense. So yeah, definite risks, but there's definite some other points to monitor. What I would say is that we're all, you know, you know, still here watching the situation developing. There's a lot of tweets, a lot of rumors, excuse me, coming out yesterday. So I think you need to be quite agile if you are trading the crude price at the moment. Okay, finally, just a quick word to the RBA. They kept rates on hold, quarter percent overnight, unchanged after their emergency meeting. That doesn't— no real surprise really, not much movement in Aussie, Aussie trading a little higher, but I'd say that's just mimicking general sentiment seen across the broader market and the Asian indices overnight, with China reporting no new coronavirus deaths for the first time since the pandemic emerged. Canada-wise, what have we got? Well, we've had some data already this morning. German industrial production came in at +0.3%, expectations were for -0.9%. Has that really moved things? No. I don't think it's particularly that important. I know that's market beating, but the variance of this data set tends to be quite wide, and I think there's just other bigger things at play, to be quite honest. The DXY is down in the currency market about a third of a percent, so that's helping underpin the recovery in cable, but also EUR/USD trading up and around its R1, up 38 pips for the moment. And then Just going through the, the actual day in terms of things of more importance, not too much to be quite frank. You got IDB TIP Economic Optimism, jobs, job openings this afternoon. Of course, any job-related data could be quite interesting just given the context in America at the moment. And then you've got the 3-year note auction, the weekly API crude oil inventories as well coming from the US later this evening. All right, well, look, that's pretty much it. I'm going to let you get on with things. Again, if you have made it this far and watching the briefing and you do not subscribe to the channel, please do hit that button, subscribe. Updates coming every day. With that, I wish you a good day ahead. Thanks very much, guys.