Stocks Slump & Oil Crashes On Virus Jitters & Geopolitical Risks

Okay, hi guys, Anthony here. It's just gone 10:30 PM on Monday the 19th of July. I'm actually off today and tomorrow, but obviously I am aware of what's happened in the markets, and I thought that calendar-wise it was going to be quite quiet on Monday and Tuesday, but looks like I missed a lot of the fun and the action today. So I'm actually traveling tomorrow, so what I thought I'd do is jump on, just give you a quick 15-minute update update as to what's happened, why have we seen a global kind of sell-off and a risk to flight to quality kind of risk-off trade across the asset classes. Then we'll have a look as well for what to expect from Tuesday's session ahead. So first off, here's a look at the close. So we finished down around 1.6% in the S&P 500, 2.1% in the Dow. The NASDAQ 100 outperforming a little bit and just narrowing losses to just 0. 0.9% on the session. And in fact, though, in terms of what we're going to look at across the asset classes, some of the worst days we've seen in a number of months across the board. So from an equity perspective, you can see here the last time some of the major indices were down this much, if we have to go back towards a kind of May time of earlier this year. Long-term Treasury yields fell to their lowest level since February, dragging the yield curve flatter. 10-year yields tumbled as much as 12 basis points. To as little as 1.17%. The VIX, so the volatility index, jumped the most since February, and crude oil fell almost 8%. Obviously we had that news over the weekend, and as I showed you, not a lot of movement at the reopening of Globex trade, but as soon as we got into the swing of the European morning and then the Americans came in, really weighed on the price. But overall, the same thing moving oil really is the same thing within global markets. Focus on COVID and the kind of growing situation that we're seeing with case rates here in the UK, in respect to the fact that we are reopening, but case rates really globally everywhere picking up as the Delta variant really takes hold. We've seen lockdown rollovers in the likes of Australia, in some of the key areas like Sydney and Melbourne, which is going to weigh on their growth going forward. And that kind of sentiment is just feeding into investor psyche about the growth potential of the second half of this year, which we thought we would be kind of hitting the boom kind of period, if you like, prior to the Fed starting to tighten. And now things are kind of backing off. So, um, a quick look across the charts. Obviously you can see here equities finishing the day pretty heavy, but there was a little bit of a late ramp on Wall Street which did see us move off the worst levels. And actually, just a quick look at the S&P 500 first, and we'll rotate across a couple of charts to put in a bit perspective. So we already started to move lower here in some of these US indices, off record territories towards the end of last week after we hit that double top peak in midweek last week. Friday we moved lower and we just added to that in the overnight. On the daily chart, perhaps then some key levels here to watch going forward. I've just got a trend line here from the mid kind of March price action, got retested back in 21st of June, close to it today, and the market's just kind of sprung back up towards the final half an hour of trade on Wall Street. But we did close beneath horizontally quite a key level of 4269.25, which does kind of set us up in a fairly bearish fashion here. So I'll be keeping on that downside trend line and horizontal inflection point for price and resistance and support around 4205.75 going forward. For the NASDAQ 100, yeah, mega-cap tech tends to fare a bit better. So the reopening kind of trade on the sector rotation in equities plays more negatively in the likes of the Dow and the Russell, as we've been discussing last week, but does then mean that those stay-at-home names tend to favor better. And that does help tech a little bit, albeit they did move lower on the day. On a daily chart for the NASDAQ, We've had a bit of a pullback. Importantly though, we managed to close above quite a key area. You can see here, if I just highlight at 14,471 in the NASDAQ 100 futures, had a brief excursion below there but saw a firm close above that level. So still holding up for the time being. And as I said, the tech names would probably behave more favorable if people are becoming a little bit more spooked about the global spread of COVID Elsewhere, a quick look in the FX markets generally. A flight to quality, quality observed in the currency space. And generally dollar strength had weighed on some of the major pairs. I wanted to look at cable really on a daily chart. You can see cable fairly one-dimensional in terms of its direction of travel over the last two sessions. We have of course gone through this reopening now in the UK, and case rates are expected to materially worsen over time. I would say, as I said in the briefing this morning, I still don't see too much yet on the numbers from the mathematical modeling to suggest a severe repricing. But as we were discussing in the broader context, seeing a bit of a flip and a reversal back into the dollar, which has weighed just generally on some currency pairs. But on a, on a daily continuation, really important level here for Cable. As you can see here, we go back to really where we were on that double bottom quite clearly on the end of March. And the 9th and 10th of April, which held. And we again briefly tested below there but closed pretty much at the level. So this is really make or break for sterling here. And, and certainly with the Fed had been talking, um, pivoting a little bit more hawkish of late with some of the rhetoric. But obviously the more spooked the market gets on COVID, the more delayed then some of that conversation might be on tapering and so forth. Bit early to tell us yet. And I would say the timeline still remains intact for the time being about the timings around not the July Fed meeting, but more Jackson Hole end of August and then September, more formal signaling towards tapering then for the beginning of next year. I don't think today's move really detracts from that point too much. I think today with a very lack of calendar events, very much a kind of sentiment-led kind of self-perpetuating fears start to manifest, and then you get quite distinct risk-off trade when we start breaching some key levels, and momentum specs come in and start hitting the market. So as you saw in the final half an hour of trade, there were still buyers down at the bottom in US equities to see a bit of a ramp into the close. But this is a key level for Tuesday. I'd definitely be keeping an eye on for sterling currency here going forward. Remember, we've got the likes of the UK um, flash PMI data on Friday alongside UK retail sales as well. So as much as we're looking for the dollar to dictate a little bit of proceedings on the sentiment-based side, and we're navigating fundamentals on the COVID developments in the UK and how the trajectory looks on case and subsequent then lift in hospitalization rates, you're keeping an eye on that technically as well for sure. The other thing then is oil markets. And yeah, got absolutely hammered today, multi-dollar loss, and that meant we fell in New York around 7.5% for Monday's session. On a daily continuation, I've got marked up here quite an interesting trend line on the pullback coinciding with a support level going back to where we were trading kind of late May, 6547. You can see going back from that trend line initiated on 12th of April tested on 21st of May, and that with that horizontal level pretty much coinciding at that same point. So got down through there, through 66 momentarily, and then bounced back up to close pretty much on that level of what was previous resistance and going back through late April, May. So definitely for crude, a kind of a combination of things really. I mean, if I just flip over my screen here, so we had crude dropped the most in 10 months. The virus surge spurring concerns— I think that was definitely more a focal point because that moved global markets across asset rather than just the variable of OPEC said to add 400,000 barrels per day each from August, which was in terms of magnitude pretty much expected. And as I said in the briefing this morning, I think that it was only a matter of time before the UAE's got some kind of compromise out of Saudi. So I don't think really that came as a surprise. So I definitely think it was more of a demand impact that really weighed on oil rather than that of supply-side dynamics in that, that respect. The other thing, of course, though, that really drove sentiment today was, um, on the COVID side, and then we're going to talk about geopolitics as well. So on the COVID side, US has raised UK travel alert as COVID surge mars obviously Freedom Day, which marked today with final reopening. Airline shares dropped amid a worldwide slump in equities. Americans should avoid traveling to the UK, according to US government and health officials, given the spread that we're currently seeing of COVID-19. On the geopolitical front, what was quite interesting was the US, UK, and their allies— their allies being Australia, Canada, New Zealand, Japan, and NATO— formally attributed the Microsoft Exchange hack to actors affiliated with the Chinese government and accused Beijing's leadership for a broad array of malicious cyber activities. And it's just the latest escalation that we've seen between the White House and China. So yeah, really, um, it's kind of going up a few notches. This is one of the things that we were talking about in the briefings going all the way back to prior to the US election that we had before Biden came in. And what we were saying is how China— and it sounded quite odd at the time when Trump was president— that China might have wanted actually Trump to remain as president. And the reason for that is, although the US were initiating a protectionist policy and that was leading for a tit-for-tat trade war, which is negative for both nations and definitely weighing on the Chinese economy, the point being is, is that the fear was that Biden could unite then allied forces of the West and world powers against a united front against China. And certainly this would be a step in that type of direction, in a unified approach against China, which does kind of ratchet up the geopolitical tensions against the nation. So, um, as far as I've read tonight, and I, as I said, I've not been at the desk today at all, so I'm just playing catch-up a little bit, but I haven't seen any official rebuttal yet from China. But I'm pretty sure one will come from Beijing overnight. So something to be aware of if you're trading the Aussie in the overnight session. So yeah, definitely a combination today. The reason for the risk-off trade— COVID first and foremost, bit of a reevaluation of that situation on a global sense. And you know, in America, the vaccination rates, they're still encountering a lot of take-up, particularly among young people with the appetite to take the vaccine. So that trajectory has shallowed a lot, and we've still got the Far East tackling to a large degree outbreaks of the Delta variant at the moment, and then the geopolitical risk overlaid with that as well. Other things that have happened after the closing bell, we've got one of the bigger earnings reports. IBM came out, reported its biggest increase in revenue in 3 years on the back of strong cloud computing demand, $18.7 billion US dollars above the expected $18.3 billion. Their shares were up about 3% aftermarket. Let's have a latest check. Still pretty much the same. So IBM, you know, after really struggling for a long time with their revenues, putting in a big number led by cloud computing. It's a decent report by them. The other thing I thought was quite interesting that came out really after the FX fix this afternoon was a comment out of the newly incoming MPC member coming when August comes around. Catherine Mann. I think she was a previous economist at the OECD and also she was tied to Citigroup. But as you'll know, the chief economist Andy Haldane, who was the outlying hawk, has now left the MPC. Catherine Mann is coming in, and what's quite interesting is she said the bank, i.e., the BoE, should not cut back on stimulus too early, echoing comments that were made earlier today on Monday by MPC member Jonathan Haskel, who said reducing stimulus was not the right option for the foreseeable future. And if you remember, we had both deputy governors last week, Ramsden and Michael Saunders, both talking quite a hawkish game last week. So quite the reversal from some of these other members compared to where we were. So another contributing factor amongst the other things I've already mentioned for why there's been a bit of weight more prevalent in sterling in cable rather than in EURUSD, for example. Looking at the day ahead, So overnight session, if you are trading it, as I said, look out for any rebuttal from Beijing on the latest headlines pertaining to attributing then the cyber activities to Beijing on the Western world, and particularly the tech firm Microsoft in the US. We've also got Japanese CPI overnight, and the RBA minutes are coming out at 2:30 AM London time. Otherwise, really quiet in the UK European economic calendar. You've got US housing starts, building permits at 1:30. API crude oil inventories as per normal tomorrow night, um, or yeah, tomorrow night I should say. I'm getting a bit confused delivering this briefing at nearly 11 PM. And then earnings tomorrow morning, look out for UBS if you're monitoring the bank stocks. Otherwise, pre-market US, Philip Morris, Halliburton, you've also got United Airlines. And then aftermarket, you have Netflix, one of the headline names closely followed in the retail space and the tech stocks and sentiment-based as well. A couple of things that people are looking out for there: Netflix will be closely watched for details around both their video game strategy, which we heard announced just the other day, and its financial performance. Um, so here are some of the numbers: the number of global paid streaming subscribers is expected to rise year on year at the slowest pace in the last 14 quarters, and that's because revenue growth is expected to decelerate given how saturated the marketplace has begun, and hence that move then announcement into the gaming space. So definitely keeping an eye out for, for this one. Analysts estimate EPS of $3.14 versus $1.59 in Q2 full year of 2020. And then that is it. So yeah, just really wanted to just jump on. As I said, I'm not around tomorrow, but hopefully that's Useful. Quite a big day in the market with generally not a lot going on the calendar as the general investment community starts to reevaluate what the second half of this year looks like as COVID Delta variant continues to spread at this point in time. And again, although the vaccines are proving fairly effective, vaccination rates are continuing to pick up. It's the whole point that, um, in the end different national strategies will adopt likely a slower reopening or reimplementation of restrictions. And that, of course, is going to have then an impact on what the shape of the recovery looks like for the second half of this year. That's kind of the bottom line. So again, hope that was useful. Enjoy the session tomorrow, and I'll catch you guys on Wednesday. Take care.