Stocks Weaken As Brakes Put On Reopening Plans

A record high in a number of the key hotspots. The main focus in America as the market's nervous then in regard to political and business leaders potentially putting the brakes on the gradual reopening of the economy. That's the main focus of the briefing for this morning. I'm Anthony Cheung and and this is your market briefing for today, the Wednesday 24th of June. Quickly then, just before I begin, just wanted to say I'm going to be speaking with Dale Pinkert in the US ahead of the NYSE open today, so 2 PM London. Him and I are just going to be talking about everything in markets at the moment, but predominantly focused on the kind of macro fundamental side of things, given that's my specialist area. So I will drop this webinar registration link in various chats and on the video on YouTube. So if you want to join us live, that'll be in the 30 minutes before the opening bell on NYSE. So let's just go back to the charts then and look at what's going on today. And evident— well, clearly evident— is the risk-off nature of yesterday's move. We had California, Florida, Texas each hit records for new cases on Wednesday, while Arizona is at its peak in terms of hospitalizations. Um, in short, before I get to all of those stats, US political and business leaders looking at potentially then just pulling back on that gradual planned and phased reopening of the economy, which is obviously pivotal in order to get the US economy back firing again. And this comes then after not just those areas that I mentioned in California, Florida, and Texas, but New York, New Jersey, Connecticut They're all requiring now visitors from, from other country hotspots to self-quarantine for a period of 14 days, which is obviously also going to have repercussions then on the ability of the economy to get back to some degree of normality. Um, there are other states at the moment that have this already in play, that being Alabama, Arizona, Arkansas, Florida, North and South Carolina, Utah, and Texas already have those quarantine measures in place. Given specifically the fact that they're the ones who are seeing quite a rapid increase in cases over the last 2 weeks or so. Um, one of the main areas here, North Carolina, they've said they're going to freeze any reopenings for 3 weeks. So this is one of the main things we were talking about when the markets kind of spilled over, um, what, last Friday, Friday before, when Apple came out and they were talking about then closing some of their stores. And although that was just one company, it was kind of indicative then of one of the greatest fears given a market that's fairly ever elevated at the moment on the back of stimulus measures from both the government and also the central bank, meaning that as the market sees it at the moment, there's enough stimulus coming to offset then the fact that yes, there's a negative economic situation happening right now, but that will help support the strength of the recovery going forward. The biggest problem here is then obviously the, the development of the virus in a second wave, and it being significant in some of these areas, or looking so, is meaning then that some of that optimism continues to fade. And, and yesterday I think was the first day that we started to see other more kind of real reality kicking in, that perhaps this reopening plan cannot be implemented to quite the speed that some may have first considered. So yeah, yesterday equities really came under some pressure, so finished lower across the board. As you would imagine then, the dollar strengthened. And what we have been seeing is that more kind of flight to quality move to the greenback, and the dollar again up in the overnight session. The DXY is trading up about 0.15%. So just looking at these major currency pairs and the top left. EURUSD just teetering around, testing its overnight Asia-Pacific low at the moment, down about 19-20 pips. As to his cable, at a similar price point at the moment, so worth keeping an eye on those, those downside Asia-Pac lows. As we come into the market here in the UK, mainland Europe, T-notes have moved higher overnight, albeit fairly flat in the last few hours, about 2 ticks in gold after actually seeing a kind of counterintuitive move of sorts, just being rejected from a quite important level on the higher time frames. If we go on to a monthly, you can see we're really testing up here as we go into the $1,800 handle, uh, so some real key historical levels that would go back several years. And just a bit of a pullback, quite aggressive yesterday from that point, but again this morning just looking to squeeze a little higher once again, coming up to that pivot level in the futures, which in itself could be quite an interesting level. You can see here from some of the price activity that was capping some of the price movement in the US trading hours last night, but also was previous high as well back on the 22nd. Oil lower, came under some pressure yesterday and remains somewhat suppressed for the moment. Worth keeping an eye on that 18th and 16th low. That was what we tested in yesterday at the bottom of that route that we had when we moved from around a $39.50 kind of dollar price level down to $37.50. So pretty decent move in oil yesterday, just tracking that overall implications then that slowing down the reopening of the economy would have on the demand for, for crude. And then equities, I just wanted to have a look at, um, some of the guys had a really excellent trade on the S&P yesterday as one we were talking about going into the US Open, which was yesterday. So just focusing here, we had the break quite early at the pivot level, which was the overnight Asia low, and that promoted a bit of a push down, albeit then fairly short-lived. You know, trading US stock indices very early in the European morning doesn't generally have too much in the way of real momentum behind it, given the real volume doesn't kick in until obviously North American trading hours. So unsurprising to see then a fairly short-lived move, but the overall sentiment I think was really just waiting for the US to come in. And obviously there wasn't one singular headline, but these latest developments on COVID making people a bit nervous. And then at that normal time, which typically comes around half an hour, 45 minutes after the open on Wall Street, you start getting those COVID updates. And that, of course, then those numbers being so elevated, started to see then the push down. But around the open, there was a great entry point that I know a few of you took at the time, and that was that initial technical break, which was also that Asia low and yesterday's pivot. Which provided a nice point to get into that move. And then obviously some opportunities as well to, to scale out of that trade, i.e., the targets being formed from the prior or the morning's low. So target 1, and then target 2 was that Navarro spike low. So, and then target 3 for those who— I know there's one or two that did hold it all the way down. So kind of 1, 2, and 3 on that exit. So absolutely fantastic yesterday on that, on that trade. I was just looking at actually on the S&P on a, on a daily continuation chart, uh, fairly interesting here. I was just drawing up this trend channel going back to the recovery that really we've had since March, and also the blue line being the 200 DMA. And you can see the two kind of technical signals both coordinating this morning. You've got that 200 DMA, uh, which was supportive of the price action yesterday. We did bounce off that exact level, and we have already done so as well this morning. But that does coincide with the bottom end of that trend channel, which you can see was last respected going back to kind of mid-June. I know it's quite rough, but I think it's definitely valid. On these higher time frames. So yeah, definitely it's getting interesting. And, and yeah, more signs, I guess, of— it's kind of a domino effect. Increased cases leads to more, I guess, safety measures from a health perspective, meaning there's quarantines taking in various different areas. And you know, when you talk about areas like New York and New Jersey, which are highly dense, uh, density pop— you in terms of its population, putting a 14-day quarantine is certainly going to be a little bit problematic in terms of this, this push to try and get these, these key states performing once again. And then likewise in the likes of California, Florida, and Texas, which are, which are seeing those, those record high levels at the moment. So yeah, definitely still very much sensitive to COVID numbers going forward in today's session. For sure. And here's just a, a quick run-through of some of those things we've just discussed. So yeah, the headlines being then that stocks fall, several states post the highest one-day increase, and nationwide totals rise. So the nationwide total here, not quite yet the highest that we have seen in the peak of the main acceleration phase that we had during, um, April, which is when we peaked out just slightly above where we are at the moment. But certainly you know, this is a wave in that sense, and it is coming. And you can see quite a consistent pickup that we've had over the last couple of days here. And on the actual state-by-state level, you know, these are kind of the hot spots that have been in focus in the South and West in particular. And as you can see, New York, quite the opposite. You remember New York was really the focal point of the outbreak or episode of it in North America. On the Northeast Coast was where it was most felt in terms of cases and consequent deaths. However, they've done a pretty good job at just getting it under control, and that, that curve has remained fairly flat at the moment. It's these other areas that have been generally under quite a lot of pressure from, from the president and on the state level to try and reopen and to get the economy firing again, which you could argue has led to this next considerable phase of a, of an increase. So yeah, I mean, that, that's really it for me to talk about. There's not a great deal else, um, going on. A couple of other things to, to probably mention, a few other facts that I saw just reading through the articles this morning was what's interesting here is, uh, The public is not psychologically immune to COVID-19. That's another thing that people are looking at in terms of when they're talking about the speed of the recovery. There's obviously more immediate things like if you're self-quarantined, whether obviously you can't get out and about and you can't travel and so on. That's obviously a problem in terms of reopening an economy. But psychologically, um, especially old people— so baby boomers account for something like 30 to 35% of consumer spending in the US. And those people are the ones that are more self-conscious of the fact that they're older and that the virus in itself, as what we've been led to believe and I guess the data has suggested, it can affect just given age and underlying medical conditions, these other things, older people. And so, you know, can you expect then kind of consumer spending just to bounce back? Well, You know, there are many different variables to consider here, and I think that's quite an interesting one that I haven't really seen mentioned too much before— this kind of psychological immunity that, that probably doesn't exist for certain pockets of certain types of demographics. And baby boomers do contribute to quite a large amount of consumer spending within North America. Um, weak demand is also forcing U.S. employers to lay off workers. Keeping new applications for unemployment benefits high. The initial jobless claims, of course, is expected this afternoon. It's expected to come in at 1.3 million, so slightly lower than the prior week's 1.5 million. But the point being here, as well as we go forward, is, you know, all of these other measures that have taken place, like stimulus checks or furloughing staff, you know, these things typically can't last forever. And so yeah, it's definitely going to be interesting in the period ahead to see. But we've already heard, of course, from Steven Mnuchin, the Treasury Secretary, a few days ago that they're looking to get kind of more stimulus into the system. And that is going to be needed just going on the back of what's happening here. So again, we go into this counterbalance of how bad the virus is to how much can they throw at it to try and rectify that situation to get people to remain confident that their jobs will be secured, that they will have an income, that the virus will go in the end, and then, you know, people can, can return to some degree of normality. So that's the trade-off at the moment. And what happened yesterday, in my mind, was that one side overtook the other in that respect. And particularly the trigger point, as I've said in the last couple of briefings, is monitoring the virus numbers, yes, but as soon as we start seeing companies states individually in America start rolling back, putting the brakes on the reopening of the economy, that's problematic then to the shape of the recovery. That's got to be reflected on prices. Does also come, of course, with trade tensions resurfacing between the EU and the US. Not exactly great timing for what is unfolding at the moment for all parties concerned. The EU is also debating whether to keep the door shut to American travelers coming to Europe this summer. So it's kind of the worst time at the moment for this kind of protectionist kind of mentality on a global level when you're facing what is an equally so a pandemic that will affect everyone, whatever color, creed, shape, or form. So that also just making the markets a little bit tentative at this time. On an actual calendar basis, what have we got today? Uh, pretty quiet actually in the morning, and not until we get to around midday. You've got the ECB minutes for the June meeting, uh, this coming— if I remember correctly, when they over-delivered on the $100 billion more on the PEPP. So it could be quite interesting to see what comes out of the actual minutes there. Then in the afternoon, you've got US Durable Goods, the 1:30. This is the final GDP, uh, for Q1, so very backward looking now. And remember, you know, the expectation for Q2 is going to be, um, you know, 25% north of that perhaps, um, for Q2 for US GDP. And that's going to be a really key one that we'll see in the coming weeks for sure, uh, to see the depths economically of— you know, we've already seen all the bits come in, all the economic data points in various parts of the economy through recent weeks. But actually seeing that advanced GDP for Q2 is going to be obviously particularly interesting. Um, then you've got the jobless claims, as I mentioned, um, and you've got US bank stress tests as well coming out at 9:30. Usually generates a few headlines but doesn't often then lead to, um, a great deal of market movement. And definitely in the context of the broader picture at the moment, I don't think it's really going to get a look in when, when everyone's so kind of COVID aware at the moment. Speaker-wise, ECB's Schnabel speaking at 1:30, Mersch at 2:40. Bank of England's chief economist and also the one sold to center for the decision to increase quantitative easing at last week's Bank of England interest rate decision, Andy Haldane, he's going to be speaking at 6 PM. The topic is what is the future of society, so it's not exactly on topic of policy, but given the nature of the fact that he dissented against the group and he was the only one to have done so on QE last time out, I'd be quite interested to see what he has to say as well. So yeah, that's it. So remember to fill in the webinar registration if you would like to join before the NYSE open. Otherwise, anything I've covered here or any questions that you do have, just feel free to leave a comment. Absolutely happy to help, and wish you guys a good day. All right, see you tomorrow.