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

Okay, very good morning, Monday, 12th of July, and congratulations to Italy for winning, beating England on penalties last night at the Euros. And for England, a good run, uh, of course, best performance we've had reaching a major tournament final in 55 years, and much to be proud of. And if anything, through that failure comes all the more greater motivation, determination to just get the job done and move that next step up come the World Cup, obviously in literally just a year's time or so. So enough said on that. And I hope everyone is, is managing to get back to business this morning. And actually looking at markets, there's plenty going on this week. In terms of the weekend news flow, though, It was very quiet. There's a couple of things to get up to speed on from ECB President Christine Lagarde, some interesting comments that she made. There's also updates on, on COVID, both the UK lockdown strategy as well as COVID updates elsewhere in mainland Europe and Australia. And also going to talk a little bit about geopolitics, particularly that between the US and China, still kind of simmering in the background, although not a major, major market influence in terms of moving price right now definitely warrants just being vigilant and watching that situation. And then for this week, there's a lot going on. We've got US inflation data, retail sales, industrial production. Jerome Powell gives his semiannual testimony, and US earnings season kicks off this week with the big US banks. So plenty for us to, to talk about. But looking at the charts this morning, um, Asia-Pac stocks generally beginning the week on the on the front foot. Nothing spectacular overnight, but mildly positive, conformed to the positive mood generally seen in Chinese markets following the PBOC surprise reserve requirement ratio cut, the RRR cut we had on Friday. Now, just a quick look at the S&P 500. We have then, as we saw late last week after that really nice recovery going into Friday session initiated from the overnight Asia-Pac trading session, and we have actually hit fresh all-time highs in the overnight, uh, trade, which came literally at the recommencement of trade. We've drifted a little bit south from there, finding a little bit of support from the previous all-time highs that we were seeing around Tuesday of last week, but still remaining very elevated. And that comes, of course, amid some of the slide that we did see in equities through a brief period at the beginning of last week, as we saw Yields as well seeing quite distinctive movement to the downside. But Friday was actually the first day in several that the yield appreciation, if you like, did buck the trend. And T-notes at the moment, bottom right as you can see here, are trading basically flat going into this European market open. So you can see here the 10-year is well off those highs that were seen in the middle of last week when we were trading up above 134 handle. We're now back down to 133 12 as far as the overnight session is, is concerned. Currency-wise, the Dixie's a touch firmer this morning, nothing massive, up about 0.1%. Just from a technical short-term perspective in EURUSD, just been keeping an eye on this trend line here going back to price movement from the 30th of June, had a retest on the 6th of July and back to where we were from late in futures trade on Friday, and the overnight Asia-Pac high was around a similar price point. We've just drifted off a little bit as the dollar's just picked up pace, um, through the back end of that session into the European open. So nothing really too dramatic here I'm looking at from a technical perspective at the moment. And likewise could really be said for cable. Cable again forming a short-term double top from that Friday overnight price activity and just forming a bit of a base here through that range of APAC from 139.13 down to 138.85 for the moment. On a daily chart for cable, we're in the kind of bottom side of that inflection point around 140 in sterling futures. So sitting pretty mid that range for the time being. We'll have a look at some of the UK things that are coming out when we start looking at the calendar for the rest of the week, but also looking for another update from PM Johnson, of course, later on tonight to confirm the final unlocking looking for the UK economy on the 19th. And then elsewhere in the commodity space, in terms of gold, just from a technical perspective, I was just marking up a few things this morning and was just looking at this trend line going back to mid-June, and then more short-term from really last week that we've been respecting, and just having a little test down towards the S1 here more recently in, in gold, which is around that $1,800 price point. Any further decrease beyond that level, I'll be looking at $17.95 as an area of more stronger support, which would encapsulate, as you can see here, some of these previous areas of resistance turned support as well. And then for crude oil, no real major or any OPEC headlines to speak of. So after a lot of that toing and froing of what would happen with that supply agreement deal, things have gone a little bit more quiet on that front. As far as oil is concerned, we just ran into a bit of a, a short-term top at the recommencement of trade, which coincided with around that high that we had printed back on last Tuesday. We've just drifted down amid some of the renewed dollar strength as Europe has come in. So both oil and oil, gold, and the major currency pairs all just reacting a little bit to the marginal strength of the dollar coming in. Pivot seen just below around the 74 handle today. But again, nothing really technically to jump out interesting in terms of where we're trading at the moment in oil. So let's get straight to it and start talking about the news because there's plenty to digest for the week ahead as well. Starting off with a piece that came out late last night citing commentary from ECB President Christine Lagarde. And days after the ECB have raised its inflation goal to 2% and acknowledged it might overshoot that target, Lagarde said that the July 22nd Governing Council session, so 10 days from now, previously expected to be a fairly uneventful, uninteresting event, will have some, quote, she said, some interesting variations and changes. Now she expects the ECB's current €1.85 trillion bond buying plan to run till, quote, at least until March 2022. and then that could be followed by a transition into a new format, she said, without elaborating though. The other comments of note, she said, we would need to be very flexible and not start creating the anticipation that the exit is needed in the next few weeks and months. So overall, you know, this is it with central bank commentary. It's a little bit cryptic in a way. The headline Bloomberg are running is a little bit sensational, I think, trying to extract out some sort of hawkish element to what she was saying. I don't really see it quite like that. The bond buying ending in that way, I don't think it's unsurprising. She's talked about as well not starting to create any anticipation of tightening too rapidly. So it's fairly balanced. And the 2% target, we already know, having had the confirmation on those details last week. So I just wanted to cover it. It's definitely not a factor I think that's influencing the euro this morning. But she did appear on Bloomberg TV, and Bloomberg themselves then having exclusivity over that interview, I think, are just trying to squeeze the content of her speech to make the most of it. This would be my interpretation. Otherwise, moving over to the COVID side, in a news conference due later today, the PM is widely expected to confirm that mandatory curbs will be ending as planned on July 19th, including the legal requirement to wear masks. In indoor settings. He'll also warn that unlocking will drive a new surge in cases. He's already kind of started to drip feed that into the messaging from last week, as you remember, as has the newly appointed Health Secretary Sajid Javid, talking about case races going— case rate— case rates going up as high as 100,000 in the summer. And so he's said that it will People must take all responsibility in the coming weeks to help keep infections at manageable levels. The UK reportedly is to reduce the gap between taking the first and second doses of COVID-19 vaccines as well to 4 weeks from 8. You remember originally these were 12, so as they look to accelerate that program, those time frames are getting increasingly shorter. They're also reportedly planning to require COVID-19 passports for customers to enter bars, restaurants, and nightclubs, according to some of the UK media at the weekend. So does come, of course, a continued uptick in infections per day in the UK. I definitely will be continuing to monitor this number. Also the, the kind of tail effects of the Euro Championships having, uh, happening in Wembley, as you've seen, with fully occupied kind of stadiums back to, back to normal. Be interested to see how those numbers start to play out as we go further forward over the coming week or two. But this number, as already mentioned, is expected to triple basically in the, in the weeks and kind of next 2 months to come. So I don't think it would be all that surprising, and hence the reason why the pound's relatively controlled. But one thing is, the higher this number goes, then although those— the rate given the demographic is much more proportionally lower than previous for hospitalizations and subsequent deaths, hospitalizations are going up at this point, so it's definitely worth keeping an eye on. While the UK goes into kind of full unlocking mode, so to speak, on the flip side, the Dutch PM came out over the weekend and announced that COVID-19 curbs would be partially reimposed in the Netherlands from Saturday morning due to a surge in infections, and they're going to remain— those restrictions in place until the 14th of August. And then jumping elsewhere globally, Sydney is bracing for a longer and stricter lockdown, having already seen it extended after continued increases in COVID-19 cases as well. So yeah, just interesting to see then the difference in, in government strategy here. The UK kind of pushing ahead with this kind of self-coined Freedom Day, whereas in other pockets around the world with the Delta variant still causing noticeable upticks in case rates, they're opting for a more cautious approach for the time being. Now, from a geopolitical point of view, um, there was a few comments that, that were fairly interesting over the weekend, and one was that China said on Sunday it resolutely opposes the addition of 23 Chinese entities to the U.S. economic blacklist over issues alleged over human rights. Abuses and military ties. Beijing went on to say that it will, quote, take necessary measures to safeguard China's legitimate rights and interests. And at the same time, we had, um, other news that came out, which was, which was basically this. And it was talking about the idea that, um, China, their military apparently drove a US warship that illegally entered Chinese waters near the Paracel Islands on Monday Um, and so again, not that this is particularly new, and I wouldn't see this as like a step towards closer towards engagement in any type of way. It just goes to show though that tensions and friction between these two countries remains, um, pretty tense at this point in time. Um, otherwise, let's just take a look at the week ahead. And got a calendar here, but I can talk you through some of the main things. And as you can see on Monday's pretty quiet overall. Um, and so Tuesday is really where things start to pick up pace a little bit. And first off that you can see here is the US inflation data. Big week for US data, in fact. And for inflation, um, on Tuesday, it's expected to come in headline reading at 4.9%. Remember, we had that very high 5% reading in May. Um, the core reading is expected to see an uptick to 4%. Business executives have continued reporting brisk price increases according to the closely watched surveys we had in the last few weeks from the Institute of Supply Management and those PMI numbers. Prices paid by manufacturing firms are rising faster than at any point since the late '70s, 1979 at the moment, with those paid by services companies rising at levels not seen since 2008. Also reading a few other bank commentary pieces apparently used car vehicles that continue or set to continue to really elevate inflation prices. So continues to play somewhat into one of those transitory components of the way of which CPI is composed. But, you know, how sticky and how high was inflation is still going to be key things to, to watch at the moment. But given some of the yield movement we've had over the course of the last week or so, the CPI kind of sting has probably been neutralized a little bit, albeit it's still a very important number. Markets will likely still remain quite sensitive to it. Also as well, going through into Tuesday night into Wednesday— I think it's probably Tuesday night you'll get the prepared text, and then he speaks on a Wednesday for the House, and then for the Senate on Thursday— is Fed Chair Powell delivering his semi-annual testimony. So you can see that here. Top one on Wednesday. And analysts at ING make a couple of good points. They said the Fed made it clear that by moving to an average inflation target, they are prepared to allow the economy to run somewhat hotter with inflation temporarily running above target, as we've just discussed, and is likely to continue to do so this week. Um, and that's to ensure then that more people feel the benefits of growth. Um, so however, given the supply-side strains in the economy, the likely timing of policy tightening is being brought forward, as we know, and he may offer— Powell, this is— clearer hints that a tapering of QE asset purchases will start this year. So is this meeting a little bit too soon? A lot of people had obviously penciled in the Jackson Hole Symposium, which isn't coming for another 5 weeks or so until we get a little bit more definitive hints. So I'm a little bit on the fence with that. I don't think we're going to get too much from Powell on the giveaway with tapering, to be honest with you, this week. And I think he's more likely to just wait, see how the market develops between now and Jackson Hole in 5 weeks' time, both from an actually meaningful yield movement like what we saw yesterday to see how markets' perceptions are, and then also equipped with more economic data points that would have come in by that point. About different pockets of the economy and how we're performing to make that assessment. So Powell's important. I don't think it's going to be a real dead giveaway with more clear hints on tapering personally, but definitely the more specific on that, then the more sensitive markets will be, obviously in a negative way towards more faster acceleration to tightening and tapering. And then the opposite, vice versa, if he starts to push back against the idea of that discussion developing anytime soon. The other thing is that we're going to get— you can see here you've got UK inflation metrics as well coming out on Wednesday, expected to show an uptick to 2.2% year on year for June from the 2.1% in May for the headline. Do remember though, I think when it comes to UK inflation, the Bank of England has said in its most recent policy meeting last month that while inflation was likely to exceed 3%, it would later fall back and should not affect monetary policy. And as such, I think that, you know, unless it's spectacularly out of line to the upside, I think just inline readings, 0.1 or 0.2 higher, I don't think necessarily is going to create too much of a destabilizing effect for market participants, uh, kind of view around what the Bank of England are going to do with policy. They've already kind of bought themselves the wiggle room saying then in, in the period ahead it's likely to go much higher than what it currently is expected to on this week's print. Otherwise, on, on Wednesday as well, you've got the RBNZ meeting going in overnight into, into that day. The statement will be published alongside the decision. No changes expected at this meeting, but the statement will be assessed carefully for any hints of a potential hike this year. And then you've got the Bank of Canada as well, as you can see here in gray. They're set to announce another tapering of their QE asset purchases, reducing it to $2 billion per week from $3 billion, having already kind of staggered it down from $5 billion where it started. So definitely going to be one to watch there from Canada. Then going into Thursday, you get the initial jobless claims. Of course, we'll be tracking those as per usual. Worth noting that overnight in Asian trade I think we've got trade data on Tuesday, we've got GDP, retail sales, and the like on Thursday from China. In the first quarter of 2021, the Chinese economy expanded by an incredible 18.3%, but the unusually high rise, of course, has been driven predominantly by those low base effects at the start of 2020 due to the pandemic. And in quarter-on-quarter terms, GDP rose just 0.6% for China, which was far below expectations. So data released on Thursday from, from China is expected to show retail sales as well growth of 12% on the year. And this data, of course, in focus just given the surprise cut to the RRR that we had at the end of last week, which often historically kind of precedes then lower data points. So the Chinese government in preparation looking to get ahead of the game and add some liquidity to the system. and that certainly has helped stabilize things a little bit as far as the overnight session to start this week has been concerned in, in the Far East. Um, elsewhere then, going further forward, um, beyond that point into Friday, you can see here you've got US retail sales. So, you know, lots of key data coming out the States this week. The consensus view currently expects US retail sales to have been unchanged in June versus the, the 1.3% decline in May. Auto sales are likely to be the culprit of the lackluster report. Analysts at Credit Suisse make some interesting observations. They said that, citing high-frequency data, that the restaurant spending will continue to pick up in June as the economy continues to reopen, and leisure and hospitality are the biggest benefactors of that in America. But goods consumption is likely to have declined, and of course this comes after those stimulus check effects start to fade. Fade, having had those more show up in retail sales figures in both the beginning of the year and in March as well. One potential upside surprise, though, could come from non-store retailers. Do remember that Amazon Prime Day, which obviously a big shopping day, was in June instead of the usual July event. So something to be aware of. And then on Friday, you've also got the BOJ rate decision. but, um, not expecting any fireworks there. They're expected to refrain from any policy adjustments, and so keeping rates at -0.1%, and their QQE with yield curve control likely to be maintained, uh, the 10-year JGB yield rate of 0%. And then the final thing to mention, if I just jump on my Twitter account because I was sharing some of this over the weekend. Is here. As you can see, US earnings season starts kicking off this week. And so what are we expecting? Well, from a top-level point of view, US earnings season, uh, the S&P 500 is likely to report the highest earnings growth in more than 10 years in Q2. Remember, US GDP is expected to accelerate into the high single-digit teens, so that in itself the kind of further unlocking of the economy should see, with yields having moved as well higher in those points. To be interested to see how banks have performed over that period. During the upcoming week, 26 S&P 500 companies reporting. That includes 4 of the major Dow components. And as you can see on this, this graphic, the key ones we're looking out for in very much a traditional fashion is nothing really today, and then you get JP Morgan, um, on Tuesday before market, and then you get Bank of America, Wells Fargo, Citi coming out pre-market Wednesday, Morgan Stanley Thursday. So as I said, in typical fashion, the US big banks will kick things off, and JP and GS first on that list on Tuesday to be aware of. And that's pretty much it, so I'm going to leave it there, let you guys get on with the day. Um, more technical charts and chat will be shared by Tim on the live stream in the Amplify Live community, so do remember to check that out. Otherwise, if you're watching this on YouTube, just remember to hit the like and subscribe button. Really appreciate it, and have a great week ahead. Thanks very much.