This Week In Markets: 12th -16th April 2021

Okay, very good morning. It is Monday the 12th of April, brand new week. So as per usual with this briefing, going to wrap up any of the major headlines that came out of the weekend, of which there was very little to be quite honest, and then going to look at what's in store for the week ahead. And it is quite a busy week in terms of the calendar's perspective. But starting off then, if you are not already subscribed to the, to the channel and you're watching us on YouTube, don't don't forget to hit that subscribe button for daily briefings every weekday morning. But looking at the charts here, relatively quiet. A couple things to be aware of from a kind of cross-asset class mix. The, the Dixie trading a touch firmer, up about 0.14%. So both major pairs seem just a little heavy, albeit just off their worst levels. EURUSD down about 12 pips. Cable marginal underperformance. That's been a familiar pattern of late over the last week or so as cables come quite sharply off those initial highs that we saw at the beginning of the month of April, which were up around the 139 handle. Looking at cable futures here, we've had a retest and bounce off that low that we saw on Friday's session so far this morning, which was around the low toward the back end of March. Again, nothing really too new here from a news perspective. I think it's a little bit trying to curve fit news to think about anything about the vaccination kind of slowdown that we've had with the difficulties of getting the AstraZeneca supply and the drug in issues that that particular vaccine has encountered. I think sterling just a little bit weaker here, worth keeping an eye on though technically. Obviously here at quite an interesting support point as we trade at the Monday morning open. And looking on the daily chart, the 100 DMA in Cable has been an interesting level, as too is the horizontal kind of area here of support, as I said, from that mid to late March support area, as you can see from this rectangle. And we haven't really traded at these levels since early Feb. So keeping on that 100 DMA, it was acting as a nice bounce of support with that support horizontally on Friday's session, but we're kind of in close proximity of that again, and any further dollar strength that we see could well open up the prospect of some more weight to come in here into, to the cable currency. Otherwise, in terms of the stock index futures, Not too much change overall, perhaps just slightly negative. I mean, keeping in mind that, you know, US equity futures did see a late bid to finish off last week, really broke out some of the price activity into the final hour of trade on Wall Street on Friday if you were looking at the charts. And actually the all-time high now in the futures sits at 4121.5. So a bit of mild profit taking on the back of that kind of breakout that we saw toward the back end of last week, which I think is absolutely fine. I don't think that should be construed as anything particularly negative, albeit the general tone in Asia was kind of mildly lower in that respect. A little bit of outperformance in China and India in particular being one of the weakest domestic markets given their ongoing worsening COVID situation. But so far here in the S&P, just finding a little bit of near-term support around the pivot here in the Asia-Pac session. Um, on the daily chart, obviously it's continued one-way traffic really as we continue to move just higher and higher. And definitely on any pullbacks, there will be strategic points which I think will be watched throughout this week. So here, just looking on the dailies, the original push up on the breakthrough 4,000 would then see kind of a resting spot around 47,250 on any pullbacks. And then the, the more stronger level, of course, being at that 4,000, which should provide a pretty solid floor for price now. And any price reversal we see, if we did get any profit taking up at these, these, these higher levels on the weekly perspective. Uh, for gold, pretty range-bound for the moment, um, kind of locked in this, this trading band here I've got marked up with these rectangles. So for the moment, not looking great deal of interest right here, right now. Prefer to look at it on the, the kind of either end of the spectrum of $47 and $31 from the high and the low respectively. That low point being the low we had on Friday, which also lines up with the S1 on the daily pivots for gold futures. And then in oil, kind of similar story, just, just monitoring the range-bound play at the moment. We've had that triple bottom test that we had on Thursday, Friday last week just taken out. We had a break, come back up to that same level, and now just having a bit of extension on the push down. Nothing to get too overly excited about, I'd say, in the oil market. It's still relatively within that range as well. Uh, we've got that low that we printed back on last Thursday afternoon just below where we're trading at the moment, sitting at the $59 handle for the time being. Excuse me. But let's get into some of the news stories and talk about what's going on. It definitely is not so much what's going on right now, it's about what's going to go on throughout the week as we got a very busy week, in fact, in store. So starting off then with this, we did have the Fed Chair Jerome Powell speak. He actually was a recorded televised interview with CBS 60 Minutes that took place on Wednesday, but part of that interview didn't get released until Sunday. And what Powell basically said was the US economy was at an inflection point with stronger growth and hiring ahead thanks to rising vaccinations and powerful policy support. But that COVID-19 does remain an ongoing threat. So at the moment, I don't think there's anything too much to say that this was particularly new information here from Powell. Just a re-emphasis and kind of paying heed to the fact that things are improving, uh, but there's still risks, uh, on the horizon. I think just keeps the Fed in check and remains in a fairly accommodative dovish stance for the time being. Um, on the COVID situation, just briefly, a quick update of what's going on there before we really run through the calendar and the individual things to be aware of. The US on Saturday added almost 67,000 cases. That was broadly in line with the 7-day average. However, daily vaccinations across the US hit another record, 4.6 million. Um, so quite positive in that regard. In Germany, fatalities fell on Sunday for a fourth consecutive decline. Which is positive. However, though, if you think about generally the incubation period and the, the phases of the COVID virus, um, that is right at the tail end. At the beginning, which is slightly more worrying for Germany at this point, is that the R, the reproductive rate, is currently at 1.07 and has been going higher, which would be indicative then of future infection case rises and subsequently could see a downturn in ultimately the fatality count. And then the other one is, is India at the moment. And India is not something I typically look at a great deal, but just noting that on a global COVID perspective, um, India now has surpassed Brazil as the second highest global COVID-19 cases at this point in time. It has prompted over the weekend, um, states to impose various curbs. Such as night curfews, sealing of borders with neighboring provinces, limiting capacity at bars, eateries, buses. And yeah, things, things not looking great, as you can tell from some of these charts here looking at cases in India and then subsequent death counts as well. And that has led to the Sensex trading down almost 3% overnight, which is underperforming the broader Asia-Pacific region quite substantially. And again, it does— does just one final point on this. It does go some way to show as well that obviously the, the AstraZeneca drug is quite pivotal on a global level because of its, its generally lower cost and its, and its ease of manufacturing, particularly with its connection to Indian facilities. And so, you know, trying to deal with COVID on a global level definitely requires these, um, kind of areas, I guess, like India and other emerging markets that have still got a long way to go before we could see really the general control to a level on a global scale of COVID-19, uh, despite what's happening more positively in some of the other areas like the US, for example. But let's look at the calendar and talk about what's going on this week. And Monday, typically Monday is generally quite quiet. Today is no different really. And just looking at what's in store moving on from Monday— well, actually, no, let's start with Monday and let's quickly and briefly talk about the UK. We'll kick things off there. And obviously looking at the key lockdown roadmap dates for the UK, we're now at kind of stage 2 of a 4-step process that the government had outlined out lined a few weeks ago. And so today, non-essential shops open, as do pubs and restaurants. And so that's to be, to be aware of. It's kind of the, the next meaningful phase, if you like, of reopening for the UK economy. But looking at the UK and what's coming out specifically, on Tuesday we do get the latest GDP numbers, which should show a modest improvement after January's near 3% fall in activity, which had coincided with the initial rollout of those more stricter lockdowns that we had, and also with the new UK-EU trade ties post-Brexit at the time. So looking out for a partial rebound here, but I don't think it's anything that's really going to fire up sterling from that perspective. But that's pretty much it from the UK's perspective. We're sticking with the— let's stick with the UK and Europe overall. Um, so Tuesday we do also get the German ZEW numbers. We are actually looking for a slight improvement here, despite what I just said about the German economy, from analysts looking for a slight uptick in, in the general ZEW number to 79.1. And then also, if you scroll through this overall week, there are a number of ECB policymakers who basically get their final chance to, to kind of air their views before a quiet period begins preceding their April 22nd policy meeting. Christine Lagarde will be among the top speakers. She's scheduled in the coming days. Focusing though on the US really, because that's where the real focus will come this week in terms of the scheduled events. And starting off with Tuesday, you can see here you get the US CPI release. So CPI is expected to see a significant increase in the US, um, and it's going to jump potentially year on year from a consensus estimate to 2.4% from 1.7%. Fuel prices though are continuing to be the contributing factor to that sharp rise in inflation. And if you look at the core readings, we're expecting a much more modest 1.3% move up to 1.5%. So As much as people are semi-conscious of future inflationary pressures, I don't think necessarily that the CPI number we're going to get this week is going to be the kind of match that lights the fire. However, it could well be interesting because this morning— or this morning, later on in the US session— we're actually going to get a double, kind of a dual header from the US Treasury in terms of issuance. We're going to get the sale of $58 billion in 3-year notes and $38 billion in 10-year securities happening today. This will be at 6 PM London time. If you remember, markets are a little bit tentative given the volume of issuance coming out of the US at the moment, and, and lower bids— a lack of demand for these issues can create a bit of a spike in yields. And if that was to come in and around a time when then inflation, let's say CPI, does come out on the high side. Could be quite interesting for the yield play, and yields could well come back into focus as a spotlight feature for the week, which then dictates then whether or not equities can continue to push up where we are, or if, if we do start to see yields push back higher up through 1.75, up to 1.8 again, do we see equity start to soften and the dollar has a bit of a rebound pressuring those major pairs again and the likes of gold, uh, and elsewhere. So definitely could be interesting, uh, not just that there's a 3-year and 10-year auction, uh, today, you also get a $24 billion in a 30-year auction tomorrow. And the FT talk about this, and I do think this is something which is getting a little bit underplayed, but I do think is very important because beyond this week, which is the 3 auctions I've just mentioned, 2 today one tomorrow. You also get a new wave of $120 billion in supply next week, um, $24 billion to sell a 20-year debt. And the week after that, strategists forecast the Treasury will sell another $183 billion of securities, $60 billion coming in 2 years, $61 billion in the 5-year, and $62 billion in the kind of dreaded 7-year. So yeah, we're bracing for $370 billion in Treasury sales. And is there just enough demand to sufficiently put these through without causing much in the way of further disruption. And the potential risk here being that lackluster demand might then create a further upside yield risk for markets. And we've seen what that could do consequently across just general short-term sentiment, but across other asset classes as well. As I said, particularly with equities quite elevated, could be susceptible to sensitivity to any upside yield movement this week. Going back to the calendar, excuse me, I, I can say I have had my COVID test results back after a week after they had some issues on their side, and, and I am negative. So if I am coughing, thankfully it's just a cough. I know it's been a bit persistent, but hopefully it's not been too disruptive for these briefings. Going back then, looking at the the US session. I'm going to scroll through. Wednesday you get Fed Powell speaking at the Economic Club of Washington, and then we've got lots of other Fed speakers as well throughout the week. And Wednesday being one, Williams, Clarida, Bostic all speaking. Then we go into Thursday, you do get the retail sales report coming out of the US on Thursday, expected to rise to 5.5% is the general Bloomberg consensus. If you think about it, these are March figures for US retail sales. And we did have a weather-depressed February reading. And so we've got a couple of things here. We've got improvements in weather in March. You've got further reopening that's been happening in the US through that period as well. And you've got the stimulus checks that will, well, feed into these March numbers. So we're looking for quite a sharp about-turn in the positive fashion. The consensus estimate, as I said, is for a 5.5% increase. In retail sales in the US. However, I have seen the top end of analyst ranges, Bank of America going for as high as 11.5% on the back of that. How important is this type of thing for, for the Fed? I think, well, short term, sure, it could cause a degree of fluctuation in prices when the actual data comes out. 11.5% obviously is very sharp and it's going to increase demand side pressures, obviously, in the economy emerging But the Fed's not going to really react, I don't think, to these inflated numbers as well, namely being because of the stimulus checks. And they'll want to see this wash out and get more clarity on the underlying true sense of demand as we go through the further months when we get the April-May data, I'm sure. Thursday as well, we do see the likes of Empire Manufacturing, Industrial Production, Manufacturing Production all come coming out from the US, Philly Fed, um, generally industrial production, nation's factories, mines, utilities is projected to rebound strongly as well, led by robust manufacturing coming out of the US. And then again, as you can see, further Fed speakers as well coming throughout the day. Um, then the other thing I just wanted to mention was a few other points moving on to here, which is US earnings season. Earnings season did actually unofficially begin last week. There was a few companies that came out, but this week's the kind of real commencement of it because we get the three big banks that come out to traditionally kick things off, that being Wells Fargo, JP Morgan. They're coming out on Wednesday. You also get the likes of Goldman Sachs, Bank of America Citi on Thursday, Morgan Stanley on Friday. Um, so it's very much a financials focus. Um, overall S&P 500 earnings are expected to have jumped 25% in the first quarter from a year ago. That would be the biggest jump that we've seen since the beginning of 2018, which if you remember, it came on the coattails of the corporation tax cut that was in action from Trump at the time. Um, financials are expected to be one of the biggest earnings gains up approximately 75.6% year on year according to analysts' expectations. Um, so yeah, earnings kicking off as per usual. How to interpret this? Well, the first few banks are normally the ones which the broader macro environment is a little bit more sensitive to. So Wednesday is going to be probably more important than perhaps then looking at from a macro perspective than Thursday and Friday when we get the others, because these big— these first ones will act as the kind of litmus test for how the overall sector has performed. But I would be expecting these numbers to be, to be pretty stellar at this point, and if anything, just gives further rationale for what's underpinned the already rising equity markets that we've been seeing. From a single stock perspective, just wanted to mention, because it's a fairly large potential deal, Microsoft MSFT are in advanced talks to buy the AI and speech technology company Nuance Communications. Uh, could be valued at $56 a share, which works out at around $16 billion US dollars. So we'll keep an eye on Microsoft shares. The agreement could be announced as soon as this week. Um, and then finally on the calendar side of things, just although my calendar here doesn't reflect, um, well, it does, it has got Chinese data here, so It was really just Friday I wanted to mention a couple of things. So Tuesday, this time tomorrow, we do have and we'll have— we'll be armed with the latest information from the Chinese trade data side. We are looking for another surge in both exports and imports in March from a year earlier. COVID restrictions were still curbing commerce at the time. And then on Friday, we're looking out for further Chinese data, GDP, retail sales, fixed asset investment, industrial production. So we get a kind of data dump from China as well there, um, that we'll be looking out for, for more information on, on the kind of latest health check of the Chinese economy. Um, but that is it. So overall then, uh, quite a few things to look out for this week. Um, in the Discord room, there's the full kind of rundown if you want to have a look at it, or check out my Twitter account for the morning note that I issue every morning. Uh, but that is it. Gonna leave you guys to it. Uh, any questions at all, just let me know. Leave a comment, um, whether in Discord or on the YouTube channel. I'll do my best to respond, but wish you a great week ahead. Thanks very much, guys.