The Return Of COVID Fears - How Are Markets Reacting?

Okay, very good morning to you. It is Wednesday, 24th of March. I hope you're doing well. And yeah, quite a lengthy briefing for me to go through, both from a fundamental and a technical perspective, so I'll try to keep it as on point as possible. Don't forget as well, if you are not already subscribed to the YouTube channel and you're watching this there, don't forget to hit the subscribe button. That'd be really appreciated. But going straight into things then, it definitely is the kind of return of COVID uh, that had dominated market themes from yesterday and has kind of spilled over into today. That layered in with the ongoing vaccine situation, with some emphasis on AstraZeneca, and then with some important flash PMI data coming out this morning. Quite a busy session and probably in store for today. But as we've been commenting on the briefings over the last kind of week or two, we have been tracking the emergence of COVID-19 cases that have been happening particularly in mainland Europe, firstly out of the likes of France and Italy, but now seeing that slightly more widespread, and ultimately that leading down to further extension of lockdowns in the likes of those aforementioned countries and including the likes of Netherlands as well now yesterday, and obviously Germany as well over that Easter period. We even had England's Chief Medical Officer Chris Whitty, where UK COVID cases at the moment by comparative terms have been still in a better position, i.e., much lower. He did warn on the anniversary of the first lockdown yesterday that they will definitely be, quote, definitely another surge in infections going forward in the period ahead. And of course, this coming as I would say general, as you've probably witnessed if you're based in the UK, adherence to the lockdown rules continues to be somewhat questionable by just generally the broader public, whether that's somewhat complacency because of the vaccines distribution that's been going out and almost half of the adult population now being inoculated, or whether it's just fatigued from lockdown rules with the end in sight, June 21st. But certainly I think the UK is certainly at risk in numbers. I would anticipate to start going up in the period ahead. And obviously the risk then being about then a more globalized issue, and that definitely is what the markets were reflecting yesterday. So we had a lower close on Wall Street, the S&P down 0.75%, the Dow down about 1%, the NASDAQ 100 slightly better as we saw a general reversal, if you like, back into some of those pandemic plays out of the more kind of cyclical and value shares that had been dominating the kind of reopening trade. So it's almost a reversal of that. As you would anticipate, an index of airline shares fell the most since October of last year. Oil prices also backed off yesterday, albeit found a bit of a floor. But if you consider the move that we had post the Fed and some of the dollar recent strength then oil is down a good kind of $7 now from where we were trading there. We're trading at $58 handle at the moment. Um, that did mean then that yields continue to move lower, and that does, you know, the, the market focus I think has definitely shifted now. And yesterday was a, was a clear reflection of that in the sense that the market's been very yield sensitive to yields moving higher. And And a lot of that's been based on the notion of the reopening trade. And that generally has been based on a controlled COVID situation. But as we've seen, not just mainland Europe and the threat of rising cases in the UK, but the US last week saw a 5% increase nationwide, and that being the first increase in 9 weeks. So this is a global COVID potential wave that the market has to contend with now. And so yields have continued to move lower. And I'd say we've gone back to a focus on those COVID case numbers again. That narrative kind of moved on over the last probably 8 weeks or so as people were just more looking at the big pop in economic data that we're seeing to the upside and this positivity and then the yield increase. But I would say probably that's going to pivot now, as I said, to COVID cases and that situation. And that is also compounded by the issues being confronted at the moment, of course, by ongoing vaccine wars, manufacturing supply constraints, um, and so on and so forth, which we'll talk about in a moment. But looking at the 10-year here, then we did break above yesterday morning quite a key technical level. This is that, um, kind of orange rectangle which had been a key area of support and resistance to the price in the US 10-year. We broke through that, came back down for a perfect kind of classic test before then the, uh, quite a directional move higher throughout the entirety of the US session, all the way up. And the R1 tested in the overnight Asia-Pac session is also the high that we saw in initial volatility post the Fed going back to the middle of, of the prior week. And so quite a key technical test here, to the tick in fact, at 132.09 before we've had a bit of a pullback here as Europe has come into the market. So key area of resistance to keep an eye on throughout the day. Any further pullback here, probably be keeping an eye back on that previous area of resistance going to the US close last night, and that would be at 3203, and then the 132 handle on any further retracement here on that move. Continuation elsewhere though in, in that trend of dollar strength, the DXY is trading up again this morning, up about 0.1%, but holding on to a decent move higher yesterday. I did want to look at these major currency pairs then because this is on a 30-minute and you can see the breakdown in cable that we had. We had a technical break here through the low point on the 16th, that double bottom on the 19th and 22nd. So Friday, Monday's price activity, and that led to quite aggressive selling pressure at the open yesterday amid that resurgent dollar. And then we've kind of got good technical kind of breaches, pullbacks, and then further directional moves here. That have been occurring. And yesterday evening we broke through the initial, uh, kind of flush low we had the European morning, came back up to a similar area for again that kind of classic short strategy, and then eventual further push down. And then the same again this morning, broke through the Asia-Pac session, the previous low that was seen late in the US session, come back up to test it this morning, and then drifted back south again with the dollar still holding firm for the time being. I think on a daily chart, this is really quite meaningful for sterling and why the selling pressure has been, uh, fairly high over the course of the last 24 hours. In Monday's session, we did respect the 50 DMA, and you can see the 50 DMA in cable looking on the daily sterling futures chart here. It's been really well respected going back to December on two occasions on 2020. We respected it as well on Monday, but yesterday it broke through with a horizontal support area and psychologically at 138, and the price just degraded from there onward. And then in the overnight session on the daily here, quite a nice setup in a bearish kind of fashion because those previous highs as well that we printed back in late Jan, the market's come back up to test around 137.62 before then the continuation on the move lower. So here beyond the 137 handle, be looking down at those lows we printed on the 8th of February, and then kind of scaling the move back down lower to 136.33, encapsulating these highs and, and lows from December, January price action. You then got the low print that we saw momentarily on the 4th at 35.68, and then again just following the move down at these key technical obstacles. Um, not— definitely not saying we're going to fall that deep today, but I'd say this area here, for those aforementioned reasons, does put then a cap to any recovery in price and probably more bearish price action, uh, going forward, given the, the fundamental rationale behind a lot of these moves that are occurring in these currency markets at the moment. Okay, well, let's get into a couple of news stories and talk about a few other things. First off, I mean, yesterday, if you were talking about a reversal of the reopening trade Nothing more apparent than in looking at some of the more smaller kind of domestic-related US stocks. And again, value and cyclicals really struggling, and that very evident here in the Russell 2000, where the Russell 2000 has actually outperformed. I think, you know, if you were looking on that anniversary of the initial stock market low in US equities from March 23rd to where we are, where we are, the likes of the S&P rallied about 80, 84%, but the Russell has been up more like 140, 150%. Um, so definitely over the beginning and year-to-date price activity of the last 3 months or so, the Russell was outperformed on the reopening trade. So subject to a more deeper correction given the COVID concerns emanating yesterday. So the Russell was actually down about 3.6%. Now remember, those other major 3 US indices were down around 0.5% to 1% in comparative terms. Overnight in Asia, we had a pretty similar continuation, stocks roughly falling the most in around, uh, 2 weeks. In fact, Hong Kong was actually one of the biggest casualties. They were down about 2.4%. Um, or that came amid ongoing US-China tensions, which we're going to touch upon with North Korea in a moment, but also BioNTech vaccination Suspension has been seen in Hong Kong, Macau overnight due to a defective viral cap in a delivery consignment that they've experienced. So Hong Kong was down quite deep, uh, and Nikkei was also suffering as well, uh, with some of the yen, uh, just general broader currency inflows that are weighing on some of the export names. Um, but having a look then at a few news stories Again, you'll have to excuse my voice, um, if I'm sounding a little bit Barry White. I do sound— I do feel fine, it's just a bit of a cough. It's non-COVID, I'm hoping. So, um, vaccine wars is, is another key thing here to be aware of. And a couple of things I want to touch upon. I want to talk about the EU and its confrontation about enacting potential legal changes in regards to the exploitation of vaccines and ingredients. And then I want to talk a little bit about— excuse me, I shoot this stuff live, so there's no chance of me hitting the re-record button. Should be fine now. So again, going to have a look at a couple of things here. So from a vaccine point of view, we're going to talk about the potential rule changes that Europe could do, this particularly with confrontation with the UK. Separately, we're going to talk about AstraZeneca and what happened there yesterday and what it means going forward. So first off then, the European Commission today will extend EU powers to potentially block COVID-19 vaccine exports to Britain and other areas with much higher vaccination rates to cover instances of companies backloading contracted supplies, according to EU officials. One of the kind of devil in the details of what I was reading last night though was that with no numerical targets the change is unlikely to trigger mass export bans of EU-made vaccines. And for me, reading between the lines, then this is the next kind of evolution of the EU legally turning the screw, if you like, on some of the confrontation, particularly the likes of the UK, to show, look, we are serious with this and we can invoke these changes, which is going to cause difficulties all round. What what we're asking for here is a kind of relationship that would benefit both. And so the movement of the ingredients to make and construct these vaccines to be an open-door kind of policy and so on. So for me, I don't actually think— I hope we don't get to the point of outright exportation bans on vaccines. I don't think any politician really wants that, and particularly when you think about the underlying COVID situation in Europe in itself, I don't think they can really afford to go down that route. Don't forget, beyond the ideology of inoculating the euro area, a lot of these individual politicians are under increasing pressure, particularly in the likes of France and Emmanuel Macron with the looming, uh, kind of French elections just over a year away. And likewise with the incumbents for many of these European nations their handling of the COVID strategy and deployment of vaccinations is going to be this singular biggest kind of factor that will determine their longevity as a politician. So I can't really see them— as much as there's this kind of national situation of this view about AstraZeneca or the drug, I think at the end of the day, loss of life, prolonged nature of then lockdown And again, the impact that has economically then on the individuals and their families, I think they can't afford to run that risk. So I think this is, again, it's a lot of posturing and positioning in that, that respect. Furthermore, separately in a different article, the EU is also only prepared to let the UK take a small proportion of output from a new Astra facility due to come on stream in the next few weeks. The EU is insisting that it should get the lion's share because it has a far bigger population and because its vaccination program is running behind us. So their rationale definitely based on the fact that, look, countries like the UK are so far ahead of where they're at that they deserve then the right to be able to put forward in the queue in order to catch up in that respect. So that's on the vaccine side. On the other side is this emerging kind of crisis for AstraZeneca at the moment, and AstraZeneca has been you know, kind of the, the real key outperformer, uh, and the, the kind of— for the UK, this has been the, the reason why we've been able to kind of really roll out this program of vaccinations in a really fast and effective format. And any issues pertaining to AstraZeneca would be particularly troubling on a worldwide scale, given the cost basis as well of AstraZeneca's drug. It's been much more favorable on a global level, particularly those, um, outside of the developed kind of world economies. So particularly important for those coming from the emerging markets kind of space. But what's happened here is the company AstraZeneca have said they'll release up-to-date results from a final stage trial of its vaccine within the next 48 hours. And this has come about because of essentially a dispute with independent scientists overseeing a US trial. Now, what these US trial scientists were trying to do was help the situation for AstraZeneca by unveiling latest results in order to counteract some of the question marks that have arisen because of blood clots from that Norwegian Medical Council, and that Europe have been saying that momentarily resulted in the suspension of the Astra drug that we saw last week. Now, US were trying to help here. What they've actually uncovered is something a little bit more disturbing about AstraZeneca and their kind of usage of data and how they've been presenting their facts. And essentially what's happened is it's come as the AstraZeneca submitted up to February 17th data that showed, um, that showed vaccine was 79% effective stopping symptomatic COVID-19, but broader analysis including up-to-date results show a lower efficacy rate of around 69 to 74%. And generally what this has led to then is Astra shares were down close to 2% yesterday. They did underperform the broader market. Investors who do not stand to profit from the vaccine during the pandemic, um, fretted that the company's broader reputation could be hurt by the handling of this situation, because this isn't the first incident that AstraZeneca has confronted with the way in which they've reported their results from their trials and their data. So, so definitely quite a lot going on here, and all obviously almost capitulating at the same time, whether it's underlying real COVID cases on the increase, whether it's manufacturing supply constraints and distribution issues or whether it's underlying belief and confidence, which is integral then to the success of vaccinations, is people actually wanting to take them, which we're already seeing according to a YouGov poll that I issued on Monday. And on that fact, look, let's just be really thorough with this and cover off that and give it some clarity of why I'm saying this is, you know, here it is. This is what Europeans now see as AstraZeneca's vaccine as unsafe. Now, this is one of the things that's been promoted by eurozone officials by suspending their drugs on that blood clot, which ultimately seems like a bit of a red herring. The European Medical Agency, the EMA, have come out and said, look, the benefits outweigh the risks, and actually proportionate then, if you're looking at actual numbers compared to the amount vaccinated, it's incredibly small amount. Nonetheless, The confidence in that drug has already decreased substantially, and now we start to see questionable kind of ethics around the usage of their data in regards to the efficacy rate of the drug. This is problematic overall for the rollout of successful vaccinations. And as you can see here, Britain still remains much higher than anywhere elsewhere in mainland Europe. But you can see here, of the three main drugs AstraZeneca, the confidence within it has dropped spectacularly across mainland Europe over the course of the last few weeks. So yeah, really definitely quite problematic then for the timings of the reopening, obviously in the post-COVID environment. All right, I want to get you up to speed of a few other things because there's definitely other things on the agenda. This was one thing that was reported last night, and I did tweet about this, so you can follow me on Twitter here. If you are on that platform. But just to recap, basically last night it was reported that North Korea test-fired two short-range missiles over the weekend, according to US officials last night, in what one expert suggested was effectively a mild move by Pyongyang lobbying for a relaxation of sanctions over its nuclear missile programs. Almost feels reminiscent of where we were really in the earlier part of the Trump a kind of tendency in the White House where I think very much a tactical way of negotiating between the US and China is this kind of proxy use of North Korea as a, as a weapon that the Chinese really ultimately have probably the most control geopolitically to really keep peace on the Korean Peninsula. Given their geographic ties to that particular land and the amount of trade that the two nations do with one another, there's very little the US can really do in that region without flaring up tensions with China when talking of North Korea specifically. Not forgetting as well that the US has sensitive relationships in that region with Japan, South Korea, and so on to maintain, uh, with them. Strategic maritime routes going through the contested kind of South China Sea, East China Sea, and so on. So main point here is that this type of headline sounds pretty, pretty sensational if you're not used to looking at markets or not aware of the kind of, the kind of politics in that region. But it is quite common behavior and particularly comes, you know, it's no coincidence, I feel, that given the sour start to the first top-level tier talks that we saw in Alaska just around a week and a half ago between the US and China, and the first being with the Biden administration, I think it comes as absolutely no surprise to see North Korea kind of warming up the missile capability just to put a little bit more pressure on the US as they kind of position for leverage as these two superpowers go into the negotiating table at the moment. So that's all I'll say on the issue at the moment. I don't think this is cause for concern, as strange as that might sound, given actually what is happening here and what North Korea are doing. For the market short term, it's definitely a COVID issue, not a North Korea-China issue. China will become an issue in my mind post the kind of actual point where with COVID the large majority of the globe have been inoculated with an effective vaccine. And at that point, then the narrative will shift and no longer will we be so focused as the top dominant macro theme on COVID. And I'm talking here probably 9, 12, 18 months down the line, China will be a really big thing, uh, again, just, just not right now. So I expect this type of activity activity to probably simmer on at a seemingly somewhat alarming headline rate, uh, probably going forward. A look ahead to what's coming, we have had the UK CPI come out already, um, and in fact the year-on-year came in at 4— or 0.4%, a little bit weaker. The core reading though came in at 0.9% against expectations of 1.4%, so quite soft actually. From the UK inflation data. And I wasn't really anticipating an upside move. I'm more looking for that to come in the future. But obviously, everyone's been quite obsessive about rising inflation expectations and higher yields, and that has failed to materialize in this data. In fact, it's a lot softer than expected. And so already in the face of a resurgent dollar, it just acts as more catalyst to fuel the flames for the directional sell-off that we're seeing in the these, these, uh, dollar-based currency pairs. So you can see here, you know, just helping add more firepower to the downward move. We've broken through the S1 here in this, the, the cable future, and through the initial low we had in the Asian session to bust that 1.38 handle. So back on those dailies again, we're coming up to that next strategic support area at around 1.3681. Seemingly, or similarly, the euro also under pressure through this dollar move. And I know I'll put the chart here just briefly. This is the low that we had back on the 9th, and you can see that was providing a support area here, um, through the morning's trade. But that kind of sterling weakness just triggering another round of dollar movement, and then subsequently euro also under pressure again. And on a daily chart for the euro, it's again getting quite interesting as well from a major pair perspective because we've got those lows that we were seeing on the bounce back on 8th, 9th of March coming into play. And any further breakdown of that, again, would be looking for a move deeper down to around the 1.18 handle, which was that low we printed going back to really, um, kind of mid to late November time. So a multi-month low there, that would be. Um, back to the calendar though, and a few other things beyond that. We've got the Eurozone PMIs coming out as well, soon. And these are going to be also very important. They always are. These are the flash readings, not final. And will we see as well a little bit of contrast between the performance of the UK and the US for the period it reflects, which is March when these were conducted? Because we've probably missed a little bit of this latest panic on COVID when these particular surveys were conducted. And is there a contrast between kind of underperformance in Europe, really, with everything that's been going on, which is a steady progressive uptick in COVID cases and rolled-over lockdowns. So generally lower there, but slightly higher numbers in other regions. So again, remember, it comes out staggered fashion— France at 8:15, Germany at 8:30— and these will be important. If they come out weak in the context of what's been going on this morning, we could get another further push-up in the dollar. Both pairs weighed— I would be looking for that to also weigh down on the commodity space So looking for weight in precious metals, in gold and silver, and also probably in oil as well, to give another strategic cap to price, just given the fact that it's already got some question marks on the demand side with the potential new COVID wave forthcoming. And then you've got the Wall Street later, usual time 3:30. Speaker-wise, you do have Powell and Yellen go at it again. Not expecting anything new there, just given they just roll this out in front of the Senate Banking Committee this time. What they said yesterday— Christine Lagarde does speak later on this afternoon, but you must bear in mind it's about climate change. I wouldn't anticipate any major comments there either, given the close proximity to the recent ECB meeting we've had. Um, two Fed voters, Williams and Daly, do speak later, and one of them is speaking on the central New York economy. It's a very focused and the other one. So they're kind of mildly on topic. Again, given what we've just had from the Fed, I won't be looking for too much here, but perhaps any real-time commentary on what's happening COVID-wise would be of particular interest for, for the market. And then you've got the 5-year note auction out of the US later on this evening. And again, it's the 7-year tomorrow that's going to be key for sentiment for, for broader markets. All right. That is it. Gonna leave it there, let you guys get on with the day. Some important economic data, the PMI is coming up shortly. Quite a busy market open, quite a lot going on. Any questions at all, feel free to drop me a comment on the video. Otherwise, Flamify Live community, I'll see you in the Discord room. Thanks very much.