Tech Suffers As Inflation Fears Linger While UK PM Johnson Confirms Lockdown Easing

Good morning, Tuesday the 11th of May. Hope you're doing well. And quite a few things for me to get you up to speed on, starting off with the lower close on Wall Street last night. And as we saw, some heavy selling pressure in the tech space once again, which saw the NASDAQ 100 close down around 2.6% comparative to losses of just 0.1% in in the Dow and 1% in the S&P 500. So we'll have a look at that. We'll also then have a look at oil prices, an update on the Colonial Pipeline. We've got vaccine updates over Novavax and also a quick look at the confirmation of the lockdown roadmap as outlined by UK Prime Minister Boris Johnson. That came after sterling currency saw a really strong performance yesterday. And then we'll have a look across the charts and talk about what's coming out for the day ahead as well. So Just going straight into how the charts look this morning and following on from the, from the losses from yesterday, um, index futures saw some additional selling pressure in the late overnight session. However, we'll look over the likes of the NASDAQ, some quite nice technical support areas coming in here at the lower bound, and certainly the NASDAQ has acted as a bit of a front runner for some of the consequent movement in these US indices. Um, but before I get into the charts, just kind of summarizing a few things, uh, of what contributed to yesterday's sell-off. And in actuality, there wasn't too much of a great deal of follow-through movement in other assets like yields, gold, and to a certain extent FX. It was quite a concentrated move in equities when the market started to break down yesterday. And certainly whenever you start to see tech stocks weaken, it typically in this current environment is being tied to rising inflation expectations. And a lot of that is coming with commodity prices rising, which we've seen of course over recent weeks and months. And copper jumped to a record yesterday while iron ore futures surged more than 10%. Again, the kind of buildup of the reopening, particularly coming out of the Far East as well, is just bolstering some of those base metal prices. The New York FANG+ index So this is when you start talking about the bigger kind of tech names in, in America, uh, all as well, including like the likes of Baidu and Netflix, guys like that. That was actually down as much as 3.4% yesterday. So really did see some selling pressure there. Inflation expectations as measured by Treasury inflation-protected securities over the coming 5 years. So this is something that markets look at in terms of this monitoring of forward-looking inflation expectations. That actually rose to 2.73% on Monday, uh, and that is a 10-year high. And it was a contributing factor, I guess, why some people are getting a little bit apprehensive about inflation again. And of course, timings-wise, this comes ahead of tomorrow's midweek US CPI report, which is expected to see a really sharp, meaningful uptick. I think the market will have to look through the year-on-year, which could be as high as 4%, given the fact that that's because of the base effects, particularly how low we were back in April of 2020. You remember just coming into the midst of the negative oil price we had at the time 12 months ago. The other thing, of course, of why I think equities are seeing a bit of a rotational effect, but T-notes are relatively sanguine in terms of reaction, is the idea that the Fed are kind of holding true to the, to the line at the moment. And, you know, if you're just looking at some of the commentary that was coming out last night, and there were a number of Fed speakers, but I'm only going to focus on the voters because that's really the ones that matter. And this is Charlie Evans, and he said last night that the Federal Reserve officials would like to see higher inflation, more wage growth, and several months, several months of strong employment gains averaging 1 million jobs added, before they would consider adjusting monetary policy. In addition, you also had Mary Daly, another Fed voter, spoke last night, reiterated that we are a long way from home and there's not yet time to talk nor think about tapering. So once again, I think the Fed continue to reinforce that stance, and they almost solidify that with these speeches at the time when the market, like yesterday, the equity sees a little bit of weight come in on some of the renewed focus on inflation expectations rising as measured by TIPS, as we saw over the, over the coming 5 years. So for me, I do not see the Fed reacting to some of the market's kind of reaction effect to the, to inflation at this point. I think it's more down to the emphasis because of the inflation reading we're going to get this week has kind of brought it back into the forefront. And as we saw last week I think equity markets at the moment, at these elevated record levels, are just finding a little bit tough to make a decision at the moment on where we need to go next. And of course, the S&P, we did have that bump after payrolls. Obviously, that poor figure reinforcing the Fed stance did knock us up to record high territory, and so there was room for as well, I think, for a little bit of a profit taking on those short-term longs. Let's look at a couple of charts then on that matter, because yesterday Obviously we saw some, some decent downside. And I'm going to start off with the NASDAQ 100 because there's quite a nice technical setup here on the NASDAQ. I'll just adjust my chart. Excuse me, just move it down to here. I'm going to start off with— let me just shrink this chart. I'm looking at a 120-minute candlestick here. I know it's a little messy to see, but there's a couple of indicators I can talk you through here. And so this is the ramp up that we've had in the NASDAQ since the 25th of March up to the record high on the 29th. In looking at NASDAQ 100 futures here that we saw on the 29th of April, taking a fib retracement of that move, the 618 retracement, and on the daily pivots, the S1 and that rectangle horizontal from the resistance through the 22nd, 23rd of March, and then the 31st before the eventual breakout on the 1st of April, all coalesced on this same area at 13,158, looking on the 120 chart here. And you can see the market, given the Asia PAC follow-through— Asia was also negative overnight, a little bit of added weight more evident in the Nikkei after Japanese governors warned that a nationwide state of emergency cannot be ruled out uh, amid a lot of Japanese earnings as well. But we bounced quite nicely at that technical point, and that technical point is also further validated by the 100 DMA line here that a lot of people are looking at on the higher time frame. And that in itself, again, just covering that same technical area of what was resistance through mid to late February, also held up in mid-March and turned support in early April before then the push back up to record high territory. So where we close here on the daily is really important. We've had a little flurry of price activity to try and move below there, but it's failed to sustain, and 100 DMA holding up at the moment. So that level with these technical areas here on that fib retracement from that low to high with the daily S1 and that previous area of support resistance, this will be a key area to watch today. And be interested to see whether or not, given quite an aggressive down day do we get some buyers come in and this market starts to lift from this point, point on. Another chart just briefly to have a look at, um, because when you look at the heat map yesterday, um, you can see just how concentrated the sell-off was in the major tech names. So your likes of Amazon down 3%, Facebook down 4%, Apple down 2.5%. You see here Tesla was down 6.44%, and there's a couple of charts I was sharing with the community about Tesla yesterday I think on a few different time frames, Tesla looks a little bit interesting here if you are looking at that single stock. And so if I just bring over the chart of Tesla, um, not, not too much fuss about here. Cathie Wood's ARK Invest fund starts to sell. That pretty much defined the peak on the 14th of April, but that 14th of April level was pretty good from a technical standpoint anyway. Just encapsulating some of that price movement seen at the beginning of the year. And for one, Cathie's not having too much of a good time at the moment whilst equities, particularly the sell-off, is focused on the tech space. But going back to Tesla, if you go back to the trendline starting from the summer, August 11th, 2020, this trendline has been really nicely respected as we've gone through October, November, and also early March. And we just closed proximity to testing that at the close yesterday. So that's something I'm keeping an eye on at the moment as well. Now if you look at the— on the shorter term chart yesterday, it did break down in price, and so that would be a key area also to watch. And, you know, if we— if it coincides with a bit of a NASDAQ bounce on those levels, be interested to see whether we get a corresponding move there after a significant down day for Tesla shares as well. Okay, a few other things to, to speak of. For one, as a headline, uh, this is something to be aware of and just getting up to speed. RBOB gasoline futures pretty much reversed the entire move seen on Sunday night, and this comes after Colonial Pipeline sees that coming back up in the coming days. So they see services mostly restored by the end of this week. And so if we just look at the chart here of WTI crude, there's a few things I just wanted to show you as well. Um, first of all, let's have a look at RBOB gasoline. You can see this was the gap up that we had on Sunday night, the recommencement of trade, and you can see we'd already really taken back that move on confirmation of that Colonial situation here. And we trade pretty much scratch if you take the current price from where we closed on Friday. So that, that kind of ship has sailed, so to speak, on, on that issue or potential issue Um, and on a technical point of view, something I'm watching here, again on a trend line going back to, um, April— March, excuse me, April 27th— retest at the beginning of May. Again, last week on Friday had a brief momentary break of that, but it's held up really nicely. And this morning, and that also coincides with quite a nice technical area here. You can see despite that extension on the wick and the breakout the price closing and holding above this key level. And you can see here, going back to late April, the response and support going on the early hours of, um, on Tuesday last week, and then also on that end of last week. And so that's been quite a nice respect of that level. So also here, the, the trend line working quite nicely this morning. Any further push back up, uh, probably be looking up to target. You've got pivot seen just above, and then the $65 handle really marked that that kind of upside area of resistance, as you can see here in yesterday evening session, and also was a double bottom from Monday's trade in the overnight Asia PAC session and the European morning on the test, as you can see over here. The other thing was sterling. While we're looking at the chart, sterling obviously was just phenomenal ride yesterday. Bit of a short-term breakout here. Just quite zoomed in on the price activity from— this is the overnight Asia-Pac session. Things are just kind of squeezing in. We've just broken out there, hence the little rundown here to the range low, retesting the overnight Asia-Pac low. But obviously on, on the 90-minute, a bit more evident to see just a breakout and strength that we had in sterling yesterday. And even more so on the daily, you can see that colored rectangle there on the break up that we printed. And on the daily chart, we got as high as 1.4159, and obviously multi-month highs here. Well, I should say multi-month, I should say we're going back to where we were, um, in beginning of Feb, but also any test on the upside of that levels would put us back to levels not seen since 2018 there. So really strong day for the pound, uh, and obviously the, the whole thing about Scotland's main independence party and outright failing to get really an outright majority, strengthening the grip of the Conservatives as well, in addition to the local elections, and also confirmation of the roadmap, of course, from Boris Johnson yesterday. So thankfully, touch wood, everything remains on track for the time being. So further loosening now before the bigger one then comes towards mid to late June. So what can you do if you did want to check out this, just for your personal sake as well as uh, for what's going on more, more specifically, then you can just go on my Twitter account. You can see this graphic, but people can meet outdoors in groups of up to 30 now. 6 people or 2 households can meet indoors. Holidays abroad allowed within traffic light systems, overnight stays with people outside your household, indoor dining, these sorts of things. So quite a significant loosening of the restrictions now has been confirmed. And of course, then in step, the COVID alert level now decreasing to level 3, so gradual relaxation of restrictions and social distancing measures. And all coming amid as well not only a fairly suppressed COVID situation, but vaccine rollout still kind of tracking along at this point in time. Obviously, the, the color combination here, the blue or the teal color, is the first dose The orange color is second doses. So given that supply bottleneck that we've had from AstraZeneca over the last several weeks, it's been much more concentrated, as we know, in getting the second doses underway. And so we've had quite a nice steep pickup in people getting fully vaccinated, but that should start to shift as we get towards the latter part of May and June, and we should start to see further pickups then in first doses as well as as further inoculation of the population continues. And obviously the UK, one of the front runners in that regard, and above 50% at this point in time. So just a quick run through some other points to be aware of. China, overnight we did have the CPI and PPI numbers. The PPI, probably the more the focus point, year on year 6.8% against expected 6.5%. In fact, was the fastest pickup pace since 2017. Yeah, the CPI 0.9% below the expected 1%. So definitely still reflective of these kind of price pressures coming at the, the speed of trying to keep up with demand at the moment. And this, this is again, is an infla— an interesting one from inflation perspective, because then the pass-on cost down the line, um, to the purchaser and then onto the consumer, which is what's fuelling some of these inflation fears at the moment. The domestic consumer side, though, is much weaker in China. And yesterday, one of the things that we saw because of the weakness in the dollar post-payrolls was a multi-month high in the Chinese yuan, which does get people a little bit nervous about state intervention to weaken their currency and what they might do with policy. But you would think then, from an overall policy perspective, The, the Central Bank of China likely to stand put at this point given the disconnect that we're seeing, I guess, with the PPI pressure. Is it going to be transitory to that respect? But I mean, unless you saw something much more encouraging on the consumer price level, then there's no need to really be adjusting policy at this point of view. It's probably the most appropriate stance. Um, talking of, um vaccines and, and COVID, there's a few things to cover here. Um, first of all, a quick look at the— this is looking at the US and the UK, Israel. Just looking at the US one here, you can see we've had a little dip here. This is 7-day rolling average of new cases in the States, and new coronavirus infections in the US have fallen to the lowest level, which you can see here, in 11 months. But vaccination rates also continue to wane from their quickest pace from a month ago. To give you context of numbers Um, the US reported daily average of 2.1 million new doses administered in the last 7 days. That was from a peak of around 3.4 million in mid-April. So that is something I'd just be keeping a half an eye on at the moment. But again, this situation, knowing COVID cases means that the further the reopening will continue. And although the jobs report was pretty dire on Friday, the point being is that job situation is going to pick up most likely going forward. Um, the other thing from a vaccine point of view, um, was a couple things. Pfizer and BioNTech COVID-19 vaccine was being cleared now for use in younger teens, so we're talking about the ages of 12 to 15 in the US, and that paves the way for mass vaccination of middle and high school students before the start of summer camps and the next school year. And then separately, another drug is Novavax. They've pushed its timeline and will apply for authorization of its vaccine in UK, US, and Europe in Q3, when they were previously looking at Q2. And the reason is because the company is struggling to quickly collate the data required for that submission process to take place. Now, what is the impact of a delay in Novavax? Does it have any implications? Well, the US and UK are not relying on the Novavax jab for immunizing their populations because orders are being fulfilled from those other drug makers like AstraZeneca and Pfizer and Moderna, for example, and that pretty much meets their needs. But if authorized, Novavax's drug, the protein-based vaccine, would boost the global supply of jabs and benefit developing countries, especially because of the fact of its storage— can be easily stored in a refrigerator. It doesn't need these ultra-cool temperatures. Like the likes of Pfizer and Moderna and so on. And so for the global situation and solution to COVID on that mass level, particularly in those emerging markets which have been the ones struggling, such as like in India, the Novavax one is quite a key player. So not so much for the Western world, so probably not going to have too much of a net effect in the near term as far as global financial markets are concerned, but As we know, there is a kind of timing disconnect between what we're experiencing in emerging markets to get that latter group back on track. Now, in fact, it's quite key. Excuse me. All right, a few other final points then, just to go over. And just on the calendar, what have we got for the day ahead? Pretty quiet actually for today, not a great deal going on. We've got the German ZEW coming out at 10 AM this morning London time, expected to uptick to 72. from 70.7. Don't really see that as too much of a big game changer, to be quite frank, but worth keeping an eye out for. And then nothing really coming out of the States. So definitely I think it's going to be a day of, you know, do we get a rerun and repeat of yesterday in the equity space, or do we find a bit of a floor? And given it was one of the biggest down days that we've had in the NASDAQ, uh, going back, um, a couple of weeks, do we get a bit of a bounce back now given those technical levels we've just discussed in the briefing today? You got the API inventory numbers coming out later on tonight. There are a lot of speakers on the docket, um, and more concentrated in the afternoons during US hours and with the Fed. Um, Fed's Williams, Fed's Brainard, and Fed's Daly— they're the three. They are all voting members. And just given the context of what market kind of led the equity move yesterday, be interested to see, do they stick to their, their kind of party line on the inflation front too early to talk about tapering type mantra. I absolutely think that they will continue to recycle those phrases, as per Evans and Daly last night. So Williams at 3:30, Brainard at 5, Daly at 6. You've also got Bank of England Governor Bailey speaking alongside Williams at 3:30 this afternoon. Supply coming out the UK, and you've got $58 billion in a 3-year note auction out the US at 6 o'clock this evening. And with that, I'm I'll wrap it up. So, um, don't forget if you're watching this on YouTube to like and subscribe, it would be much appreciated. Don't forget to check out AmplifyLife.com if you're not already part of the community and have a great day ahead. Thanks very much.