Stocks Rally On Fiscal & Monetary Support

Okay, very good morning, Thursday, 5th of March. Just gonna have a talk through then some of the main reasons why Wall Street printed the Dow Jones. The stat I saw this morning was the 6th— second biggest rally in the Dow in history. And actually, the past 7 sessions have seen the, the kind of wildest price swings that we've had in the last 7 sessions since the inception of the S&P 500 in 1982. So a couple of stats for you. So yeah, if you are new to markets, quite an unprecedented time to have, to have been involved, and certainly a fantastic learning situation Perhaps a difficult one though to expect upon yourself a real performance. And I think that's quite a key thing. I think anyone who has been trading over the last few weeks, you know, obviously the benefit of experience is quite a telling thing. But if that's not the case for you, then, you know, don't be too hard on yourself. I mean, the type of volatility that we've seen, as I said, has never been seen before in the entirety of the existence of the S&P 500. So, you know, if you're finding it quite tricky, it's unsurprising if it's all kind of brand new and fresh to you. So things will revert back to normality at some point, but certainly the severity of yesterday's rally, I think, caught me certainly a little bit by surprise. I mean, we're talking to a couple of the guys about this, this kind of range of consolidation the S&P was in, but then As you probably saw, there was a big headline development overnight where basically the US have come out and pledged 3 times more than what Trump was asking for in proposed spending for the economy in order to counteract specifically coronavirus. And that helping to fire things up in combination with the kind of big switch we've seen in the Democratic nomination with Joe Biden now the firm favorite. The IMF have come out and they're pledging also monetary funds to those being hit by the virus. And this of course comes in the context of the Bank of Canada, the RBA, the Fed have all been cutting, and markets now are 100% priced for a Bank of England rate cut— or sorry, an ECB rate cut— and also is priced for a Bank of England rate cut. So, you know, this is the, uh, the the kind of nature of what I guess markets were looking for from a more positive response was, you know, the disappointment and the sell-off from the Fed that we saw 2 days ago. You know, it's quite different now because now you're getting a real coordinated and larger fiscal response, and other central banks are starting to follow suit now, as what we've seen from the RBA and the BoC, and what markets are anticipating, as I said, for those other major Western central banks. So as things stand at the moment though, I think probably yesterday might— like what we've seen in other occasions, but on the flip side, you know, when the market does sell off a great deal, you know, the period thereafter you see a little bit of a bounce of normal, just short-term profit taking on those speculative shorts. It's kind of the opposite this time around. So these US index futures have just come off a little albeit still higher than where we were this time yesterday. Gold's pretty quiet, T-notes are pretty quiet overall, but both are down, so would be reflective of that general risk appetite from the Wall Street close. So gold's down about $5, T-notes down about $8, but it's been pretty sideways price action in the overnight session. And the currency market, the dollar's pretty flat. I mean, in terms of the euro-dollar pair and cable, Sam obviously will in a moment we'll talk about that more technically. But yesterday, obviously, a good test and bounce off that quite key level down in the futures at around the 111 handle, uh, that was being the previous high that we had right at the beginning of this month, and also the test that we saw at the beginning of the week and a rejection of that failed to break, and it bounced back up quite meaningfully. And we're back to just test yesterday evening or I guess afternoon US price action low that we had. Cable, a little bit of outperformance comes despite, you know, still a lot of kind of negative press, I guess, you're getting at the moment in respect to the upcoming UK budget that's coming out. That's obviously got to be pivoted more now to counteracting the potential implications that any type of quarantine in areas of the UK to contain the virus outbreak, if that does materialize, the impact that might have on the economy. and, and so on. So banks like Goldman Sachs, for example, are now expecting— I think I read a 50 basis point rate cut coming up in the next meeting, which is on the 26th of March. But irrespective of that, I guess a great deal of it is priced into some respects at the moment. So a little bit of a break higher for the time being. You can see there a relatively nice, nice footing that you've got technically, I'd say, for cable. From some of the previous price action that we can see over the last kind of 2 weeks. You got that low here late Feb, retest again and again, third time of asking really on a more, more firm test. And we had a big sell-off on the break of that, and now that key level has now turned support. You can see it, it reacted to that level really nicely in the Asia-Pacific level. It's used it as a bit of a springboard to move back higher again. So perhaps then a strong level of, of support for the time being. But let's get into some of the headlines. I'll leave the charts more for Sam to have a look at. And this was that headline that really was the predominant factor that drove markets higher yesterday, and that was that the House of Representatives approved an $8 billion spending package intended on combating the coronavirus, including funds for protective equipment, testing, surveillance, and so on. To put that into some context, obviously market moves against expectations. Last week Trump was asking for basically one-third of that amount and he's got 3 times more, so great stuff for him in that respect. That all politicians are kind of gathering around with a coordinated effort to counteract what is— I'm still anticipating a multi-thousand type level of cases in America over the coming week or or so. And I think that's, you know, this is why I think Trump has done a pretty good job. Remember, he held that press conference about a week ago when there wasn't really much in the way of cases at all, and you might have thought, well, is he going to spook people? But I think by just putting this coronavirus seed in people's head early and allowing then him to come out, get this job done on Capitol Hill for the spending programs, As long as you can control the human, both the markets and consumer, their psyche, then you can counteract then this whole big sell-off and fear trade that we had last week. And you know, this is what Trump is good at, I think, in this respect. So is it enough? And you know, do we continue to recover? I don't know. Yesterday was such a big move, just like we had last week, you know, down days. You know, one thing that's very common in markets markets generally move much more violently going down than they do going up. So after a 1,000-plus point, second biggest rally ever in the Dow, I wouldn't be— my statistics would show that you're probably not going to get another sizable day like that again. But plan for the different scenarios, as we normally say. So here, Democrats also counted $500 million in Medicare funds. So the actual total amount that they've passed in Washington is $8.3 billion. The other thing, of course, of which was getting attention was the— in the briefing this time yesterday was Joe Biden obviously taking a real significant boost. And not only did he perform particularly well, but Michael Bloomberg pulling out of the race has now thrown his support against Biden. It's kind of the the stop-Bernie-Sanders job by the more center Democrats. The prospect of a Biden-Trump showdown— I mean, if you actually think about those two candidates, it's the elimination of Sanders, which is very important. A Biden-Trump showdown, whoever wins, even though we're still firmly on the side that Trump will become the victor in the end, is a clear positive for markets. And probably a small plus for the economy as well. If you think about Biden in himself, has proposed tax rises, but they are relatively modest. He's got a light touch on regulation, probably a softer line on tariffs on the global protectionist front that Trump's been doing. And also, he's probably going to have to go slightly left in order to capture some of that vote as well, to appease as he then fends off any attempt from Sanders going forward in the next couple of weeks. So all in all, you know, whoever wins, it's kind of a net positive in a sense. And I guess that explains as well partial of why we rallied yesterday. And then the other thing that's probably gone a little bit unnoticed was the IMF. The IMF have actually unveiled a $50 billion package of emergency financing specifically for countries stricken by coronavirus. So, so again, it's just another fiscal— and this is what's so key to support markets when they're in freefall like last week. You cannot, you cannot expect just the Fed to prop up the entire global market. That's unrealistic, and hence the reason why it sold off on that day of the emergency cut. But now we're starting to see more evidence come through of real commitment to counteract it, and hence the reason why we had a day like yesterday. As I said, the ECB. Bloomberg running the headlines talking about some of, I guess, yesterday's price movement, snapping a bit of a 4-day winning streak. But markets now very much priced for the ECB to deliver on the fact that they're going to cut the deposit rate further once again. And here was a crib sheet. I did actually tweet this last night. It's probably quite a useful way of just consolidating quite a lot of information into a nice, easy, digestible graphic. And it's looking at the major central banks. So the key things are, when are the dates? So you can see still quite a lot to come for March. You've got the ECB on the 12th, you've got the Bank of England on the 26th, you've got the PBOC in China on the 20th, the SNB in Switzerland on the 19th, as well as Norway and so on. So still quite a lot to come. As far as the ECB are concerned, this is from ING, the Dutch bank. They're saying the ECB opted against a coordinated move with the Fed suggesting policymakers will wait and see until next week's meeting and then try to steer markets with words rather than action. However, don't rule out some measures if conditions deteriorate. Now that's what ING is saying. So ING going for a little bit more of a neutral wait-and-see approach to just see how these numbers develop. And that was the kind of common thinking which caught a little bit of people by surprise when the Fed took such preemptive action, just given how low the numbers are in actuality in the US at the moment, but markets are very much priced on the side of easing. In terms of the Bank of England, uh, what ING are saying, and they're meeting towards the end of the month, arguably less sensitive to market moves from the Fed and has signaled it will take a little more time to judge the impact. But ultimately, ING anticipating a 25 basis point rate cut coupled perhaps with some credit easing is likely at the March meeting, possibly before, which is quite, quite interesting, a statement to make as well. But I'll leave you with that graphic. It's on my, my Twitter handle here. If you want to have a look, you can do in more detail. Um, with the Fed, obviously there is still a Fed meeting happening this month, um, and it's going to be interesting to see how that plays out. That's not for another, uh, just under 2 weeks on the 18th. And this is looking at market implied probability in the short end. So at the moment, markets have priced 73.5% that the Fed are going to cut another 25, and there's a 26.5% that they're going to cut another 50. So, so markets are still definitely expecting, uh, much more to come. But, you know, definitely on that last— if they went 50 again, they repeat what they did earlier this week, I mean, that pretty much exhausts then that avenue of interest rates going forward. So they'd be banking on the fact that that's enough and over the coming weeks you get the peak and then decline of the virus and subsequent impact, and that they, by doing now, gets ahead to promote then the real interest rate lowering effect into the economy, which is kind of a lagged effect. I guess the problem is, is that what if the virus picks up more aggressively than what we've seen, like in Italy for example, uh, that could be a real problem then for the Fed given the, the limited ammunition they've got on the interest rate side. The final thing I wanted to mention was this: we've got the OPEC meeting in Vienna. So, um, yesterday basically Saudi and Russia, the two main people to monitor as we go through today and tomorrow in this meeting, they are far apart according to reports on Bloomberg. This was at the kind of prelude to today's meeting, the OPEC Plus. It's called the JMMC, the Joint Ministerial Monitoring Committee. This typically is more of a meeting just to see if they're adhering to their, their compliance of their quotas. So the biggest point here is that there still seems to be a big disagreement, and without Russia being on board and Russia being obviously the second largest oil-producing country in the world behind the United States, of which is a country, the US, which is producing oil at the moment at record high levels, really putting the pressure on people like Saudi, obviously, who are really under pressure to diversify their economy. So these sub-$50 oil prices are hurting them at the moment. Talk of the town is that Basically, Saudis want a reduction as big as 1.5 million, whereas Russia basically don't want to cut at all. So, you know, this is what we're looking out for at the moment. And I do think actually this could be quite a meaningful moment then for crude oil, because I think the risk, the risk for me is to the downside, and that is they don't get a deal done and Russia doesn't agree. And therefore, I think oil is quite susceptible to some downside price action. If that happens, then I don't think it's unrealistic to see oil come back through, well, definitely this near-term area or zone of support. And a breakthrough down there opens up the prospects of $45 again. And you've seen how oil tends to move in these types of situations. I wouldn't discount either by the end of the week you might get down to these levels at 4334. You saw, you know, not that Flybe is a big issue for the global economy, but Flybe, one of the biggest national carriers in the airline space in the UK, has basically gone into administration last night. And that's a, that's a sign of the times really. And that's why you heard yesterday's briefing, Goldman Sachs looking on the demand side for big implications that this virus is going to have on tourism and relatable industries in that sense. And fuel consumption is a big component of oil demand. And, you know, if Russia don't agree to act— and the problem you've had is now that numbers like 1.5 million have been thrown out there on the table, traders are hungry for deep cuts, and not delivering a deep cut is going to be negative for price. And So that's why I think on the balance there's risks to potentially a deep move on the downside of a multi-dollar nature. If they were to deliver a cut of 1.5 million, that obviously would be bullish. And if there's some upside levels here to monitor, but I would say the likelihood of a deep cut like that I think is minimal. The consensus on Wall Street is from economists that the cut, if they do one, would be around 750. But this is the problem when these oil ministers start opening their mouths, essentially, is that now markets, I think, would be disappointed with a 750 cut. Now you've mentioned 1.5. That's bad tactical management, in my opinion, from the Saudis if you were to apply a central banking kind of forward guidance, communicate strategy. And so, yeah, keep an eye on oil is all I'm saying. One thing to be aware of OPEC has taken unprecedented steps this specific meeting of blocking journalists from entering its headquarters and also have scrapped a final press conference. For those of you who've never seen it before, it's an absolute media scrum at the OPEC event. Why? Because these oil ministers love saying stuff. And basically what that means then is that this is the oil chart I was looking at here, and these, these deeper moves to keep an eye on at 45 and below. But what it means then, if journalists are not present, perhaps the ability to see leaks and rumors is diminished somewhat. But I would probably still remain pretty alert and vigilant for comments because usually it's unlikely you need to wait till Friday afternoon's press conference for definitive confirmation of what's going to happen. So, so keep an eye out for, from ensuing volatility to come over the next 48 hours. All right, quick look at the calendar and then we'll wrap things up with Sam. What have we got for this morning? Well, from a data point of view, nothing really. You've got a couple of UK numbers, but quite frankly they're not really market moving. And so we'll move to the US afternoon where things will start to heat up a little bit. Weekly jobless claims, factory orders in the US. Jobless claims, not interested in I don't anticipate that to move markets. Factory orders, normally I would be, but, you know, like we've seen yesterday, I think a little bit of context perhaps is quite key. One thing that probably was another supportive factor for yesterday's aggressive rally outside of this spending package to counter the virus, the IMF pledge, the Biden bump, is you had that ISM non-manufacturing, which was pretty spectacular yesterday in the US as well. So factory orders, let's see, um, it is a January reading, so it's quite backward-looking, and obviously the markets are quite forward-focused at the moment. So I don't think it's going to be too meaningful. With that being said, um, speakers though, there's quite a few to monitor. I guess the key ones will be Bank of England's chief economist Haldane, you know, what is the current insight, the Bank of England. He's talking off topic, um, so I wouldn't be expecting too much, but just given the context, probably worth monitoring if you're looking at the pound, just in case. The chief Brexit negotiator Michel Barnier speaks in the first round of EU trade talks at 3 PM. I would definitely not be expecting movement out of the pound on that. What you can expect from Michel Barnier today is he's going to say this and then the UK going to respond and say that. And exactly where we are at the moment, there's going to be absolutely zero movement from their origination of their statement of their red lines at this point. It's way too early in the negotiating round. First round talks, nothing happens. That's just usual practice. So yeah, maybe interesting to hear. He'll talk about, you know, what Europe want and how far apart they are and to put the pressure back on Britain, and that doesn't really, uh, that's not really meaningful in respect to anything out of the blue. So I won't be expecting too much from that. Bank of England outgoing Governor Mark Carney speaks later on this afternoon. You've got Bank of Canada's Governor Poloz and then Kaplan later. For any fixed income traders, you do have quite a lot of Spanish-French supply coming to market as well throughout the morning. All right, gonna leave it at that. Let's hear what Sam's got to say, and I will see you later on. Thanks very much.

Thanks, Anthony Cheung. I've just seen a tweet. China's CSI 300 index is closing at its levels not seen in 2 years, up at the highs, which is Incredible. Um, the Dow Jones yesterday, what a day. I mean, the range in this thing is, is insane. Um, God knows what's, what's gonna happen in the, in the coming, in the coming days. It's, it's a really, uh, you know, I think mark your levels up, identify where you could see a reaction, and have the patience then when we get there just to have a little wait and see. I was, you know, with the guys in the other office. We were talking about the Bank of Canada decision. We're just saying if they do 50, you know, stocks could get a little bit of a bounce, a little bit. I mean, they continue to push on and on and on. I guess the, the, you know, if you're, if you are bearish, you know, the fact that we didn't get above yesterday's high and had a little rejection could be, you know, in a way a bit of a small win just by it the big push. I think we're actually coming to levels now which are quite interesting in US equities. You can see here, if I just mark up 3074 and, uh, well, probably 3074.25, that and the pivot. You can see we had a bit of resistance initially in early trade there yesterday before breaking through, coming back to test it around 6. So you'd expect some sort of reaction here. So, you know, these lines in the sand, if you like, these are and then points where, you know, I'd just be looking for some sort of reaction before, uh, they're making a decision on these markets. Because we, you know, the range from, uh, Tuesday afternoon to Tuesday evening low, and then Monday, then Wednesday's early Asian session trade low to the higher, just incredible, uh, good V-shaped recovery, which of course has been in topic this year. But yeah, keep an eye on that pivot. I think that's a a pretty key level. Uh, obviously if that is to break through, then, you know, these moves can, can gather pace relatively quickly. It would be also keeping an eye on what the DAX is doing just to see if we can get a, you know, follow-through from European trade. And it's a similar kind of level here in the DAX. You can see we had some nice price action initially around 3 o'clock, around 4:30, just hitting this resistance point. We then broke through, came back to test it, and we're just on there now with the pivot So if I'm looking for an opportunity in US equities at any point today potentially to continue lower, these levels would have to go for, you know, there to be that continuation. Let's bring over the Dow and just say that this level here is just a bit above its pivot. So just be, you know, aware of that, those highs that we initially had yesterday before that, that push through. But yeah, strong moves in, uh, in US equities. Here. You've got that again, failed test of what would have been Tuesday's high. So your V-shaped recovery is there, but we're just coming down to a bit of support now, and down on the futures anyway, down 285, which 2 months ago would have been a big move. Now it's, uh, nothing incredible. Uh, moving on to oil, obviously, you know, now could start to see things pick up a bit. We're just actually pushing and drifting lower down to under 47. And there's going to be a bit of support around here. So it's, uh, worth just keeping an eye on around the S1. You've got the lows from yesterday just a bit above there as well. And, and what has been quite a good guide for the stocks in recent times is what oil has done. Um, I know it's, you know, got there— there absolutely still will be days where they do their own thing, but to keep an eye here, if oil does continue to push lower— and I must stress, there's a fair bit of support around this S1, and that might also help the, the case for stocks to go lower. But having a look here at oil, S1, this bit of a trend line that we're coming into play on a couple of smaller term levels in and around that pivot. We were in a bit of a range before that level broke through, and then of course R1 looks like a pretty key point where you can see the, the sellers really did defend that area around $48. I was still waiting yesterday wait patiently, uh, for 49 if it was to come, to then make a decision about, you know, do I see this market pushing higher? And for me, until it does, uh, I think it's going to be relatively contained. But yeah, keep an eye on that trend line, uh, and that S1. Have a quick look over at gold, which did, as I'm saying, just drop lower, uh, in early trade. We have just rebounded a touch, relatively small range to begin that day. Again, it's to mark up your key points of interest where you could expect to see a reaction. And, and these would be those points. I know, yes, fine little trendline breaks could happen from, from then until— from now until, uh, we get down to these points, of course. But really, just looking at the lows that we had from yesterday, quite good support around there, almost a double bottom. Okay, so 1633.8, I'm interested if comes to make some sort of decision below there, you know, the S1, you know, if that was to break, that could be the target. For example, 1645.5, good strong resistance really from 3 o'clock to, you know, after 6 PM. And then above there, we just couldn't quite confirm a break at all from 1648 up towards, uh, 1650. So very important resistance zone. And gold is just doing a bit of a range at the moment. You you can see not much really happened yesterday for, for gold. It was supported at the top— I'm at the bottom— and resisted at the top quite nicely. So keep a key eye on those range levels which have dictated play so far. Moving over to a couple of the currencies, uh, euro. Not many people can quite understand why we were so high. Is this now the opportunity to get short if you want to be late to the party with a bit more confirmation? A break of yesterday's lows, you know, there's no harm in sort of waiting for that to really go, for there to be a continuation to the downside. You can see strong support yesterday, also Tuesday, and was resistance on Monday. You've got the S1 there as well. So if that is to go, fantastic. Or if you're already in this trade, I think you've got quite a nice ceiling here where at 1.1150, along with the pivot, the high of the day, the high of yesterday afternoon which is also the morning support from yesterday as well, is, is a good enough area where as long as we stay below there, you'd be happy to be short. Of course, if you're intraday trading this, targeting down towards, I would say, 1.1117, and then the lows down at 1.1105, that would be how I'm looking at that. Above the pivot, I think we can start to, you know, push towards these key levels here, 1.1175, 4. And I'll just keep an eye on what was the high that we had on the 2nd. So what would that be, Monday? Yeah, Monday. Uh, and also yesterday's high around that R1. So like gold is doing now, relatively, relatively speaking, pretty range-bound up at these tops. I know these moves are obviously a lot bigger than what has previously happened for euro, but those would be the key levels that I'll be focusing on. Down at yesterday's lows, 1.1105, and then 111.50. In between there, you might have a bit of support literally where we're trading now, as we found some buyers late last night. But at the moment, those would be the key areas. Having a look over at the pound— oh, is this another one where you shoulda, coulda, woulda got in? That low we talked about on Monday, which was the, the high of the 11th of October. Since then, it's, it's up nearly 200 pips, which is a great move, really extending through here. And I know you know, a couple people I'm seeing on Twitter are liking the look now of a few pound longs against other, other pairs. And you can see here just extending through early trade resistance, however, coming up. So do be patient, don't go chasing, uh, this market just yet. You can see there's quite a lot of lows in the mix here and then highs once we have broken through. So all around 1.2910, that R1, just be a bit patient, you know, perhaps waiting for either price to breakthrough before getting in, or a little pullback down to 129. Key level as well, if you are medium term or even intraday long and you book profit, you've got a bit of a floor here at 128.50, strong area of resistance. We break through, get a clean break, and you know, that's going to be— you're happy to stay long as, as long as, uh, price remains above that. But yeah, the pound strong today across the board. Uh, the yen You can just see here, just fighting back a bit. So just keep an eye on the DAX, which is trying to— now if you see my middle left chart, uh, just trying to break through that pivot. If that was to continue, you're going to get probably the yen just having another go at trying to break through its high. And T-notes as well, which is just, you know, not doing too much in the morning. You know, always a bit risky trading in early trade, but you can see here a bit of a range that we're in. If stocks were to continue lower, obviously that getting a break of that. And similar for the Bund, above its pivot you can see is a bit of an area of resistance, and we're in therefore a bit of a range from those lows from yesterday as well. But early trade at the moment, uh, you know, not to say we're going to have a day like we had yesterday in terms of, you know, the point moves in the Dow Jones and NASDAQ and S&P, but I'd be surprised if we continue smash higher in similar fashion. So a little pullback in European trade wouldn't be the most unusual thing. Any questions, usual guys, please do let us know. We'll be obviously throwing that throughout the chat throughout the day. So yeah, I hope you all have a good one. And you know, markets are interesting at the moment, but it doesn't mean you need to be in a trade all the time. So be patient, wait for those levels, and Wait for that confirmation before looking to get in.