This Week In Markets: 12th - 16th October 2020

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to everyone. Hope you had a good weekend. It's Monday the 12th of October. So just going to have a look ahead for the week. I'm going to identify a couple of the key things we're looking out for, uh, discussing some of the major economic data, an update on things like Brexit, obviously coming into an important self-imposed deadline on Thursday ahead of the EU summit happening on Thursday and Friday this week. We've got US earnings starting, if you can believe it. We've also got a keynote speech with the new unveiling of the iPhone 12 coming out from Apple as well this week. We've got Updates on fiscal stimulus talks on the weekend, so plenty for me to get into. So I'm going to spend very little time talking over the charts from a technical perspective and more so talking about the major stories you've got to be aware of for the open today, and also the major things to give you a kind of a visualization of what could be some of the key things to monitor that could dictate market direction and sentiment for the, the kind of week ahead. So just having a look at how things are performing And equity index futures back onto the front foot in early trade. We've just gone through 7 AM here in London, and the S&P up about 12, the NASDAQ up 62 points, and the DAX futures up 87 at the moment. I just— I guess for a bit of context, let's just have a look at the S&P. And you'll have to forgive me for not having the latest annotated notes on the chart because I was off the desk for a couple of days at the end of last week. But The point here is I wanted to show you just the strength of the rise that we've seen in equity markets, particularly in the US, in the tail end of last week. And we've come up to quite a key level both in the S&P 500 and the NASDAQ. So I've just put a, a kind of colored rectangle here for you to see it, which was the previous push-up to what was then the all-time high, um, as we start to see that push in the mega-cap tech names towards the end of August. And that also provided a bit of a floor of support around that price action at the end of August, and also a point of resistance on the recovery after that big rotation selling day that we saw when the market peaked at its all-time high just short of 3600. We're right back at that, that mark again, and obviously that level of around 3484.25, which is quite technically key, sits just below the psychological 3500 level. So on the upside interested to see how the market closes today. You can see the run-up that we had on Friday, on the 9th. We did find resistance up and around that point. And then for the NASDAQ, it's kind of a similar story in some respects. If I just make that chart a little bit bigger as well and put it onto a daily continuation, you can see here we've broken up through what was quite technically an important level around 11,722.5, and now we're looking to push up to these two areas here. I'd be looking at on, on this higher time frame, which is— if I just put an ellipse here and also on that candle low there, and that level at 11,834, 35 type mark. And we're shy of that at the moment, but another 100 points or so on the upside and we'll be up there as far as the NASDAQ is concerned. And certainly that's achievable on intraday moves. So some key levels of resistance here. I think just given the, the strength of the rise, um, could be a decent upside cap for price action today, barring any unexpected breakthroughs in things like fiscal stimulus talks and so on and so forth, which again we'll talk about in a moment, uh, have not been progressing particularly well so far. Otherwise, in other asset classes, the dollar got really beaten down towards the end of last week, and so it did gap up a little bit and hence you can see this, these opening moves that we've had in the currency pairs here in EURUSD and Cable. There's been a bit of movement. However, the dollar has kind of weakened through the Asia-Pacific session, and that's just provided a bit of support, if you like, for these major currency pairs. Changes are fairly minimal. EURUSD is pretty flat. Cable, despite all the Brexit headlines that have dominated the UK national press at the weekend, is up about 11 pips and just looking to retest up and around the closing high. We had an electronic trade in the futures on Friday night, just finding some resistance, resistance at 1.3054 at the moment. Otherwise, elsewhere, T-notes very quiet, really. Overall, nothing's really happened overnight. Gold is positive, continues to hold on to some of the gains that were seen towards the back end of last week, just close proximity to the overnight Asia-Pacific high, which was seen at $19.39, trading about $5 short of that at the moment. And then in oil, we are lower. Certainly some stories I can update you on, particularly pertaining to Libya as they continue to bring more production online. We're down around 44 cents there at $40.17. So let's get straight into it and start talking about, um, not just here the calendar, but also the actual stories that were in play from overnight. And rather than talk about Canada straight away, I'm going to jump to this. And this is just to get you up to speed on what's happened in the overnight session. The headline reading then, the offshore yuan fell, it dropped about 0.7% in the overnight session after Chinese policymakers acted to restrain recent strength by making it easier to bet against their own currency. And why is this happening? Well, here's a look at the onshore yuan spot over the course of the last 2 years, and really drawing your attention to the last quarter's price activity here. We've seen the Chinese currency accelerate its gains quite dramatically, and obviously this is a big U-turn from where we were this most recent— or back in March, I'd say, when the initial epidemic started to take hold in mainland China, of course, before the full-blown global pandemic on COVID. And since that point, the yuan has continued to strengthen as their economy has, has stabilized. And effective as of today, now financial institutions no longer need to set aside cash when purchasing foreign exchange for clients through currency forwards. So with the yuan surging around 1.6% on Friday— remember, that was the first day of trade after they played catch-up It was the first actual day on Friday of trade for the entire month following those national day holidays. And that has come in the context of the yuan extending its best quarterly advance in some 12 years. And obviously, China is very mindful of the kind of reference point of where it fixes its daily currency, given the fact that it is an export-related nation. And so an overly strong currency is something that they generally tend to act against. And with as well another news story to be aware of with China overnight is that Chinese shares led some of the regional gains as investors mulled an expected visit by Xi Jinping to Shenzhen this week amid optimism he'll unveil plans to further open parts of the economy to foreign investment, which I thought was quite interesting because irrespective of this kind of superficial— I would kind of call it in certain respects kind of political rhetoric coming out of the administration in the US trying to have an anti-China stance. At the same time, China are actually opening up their, their economy for even further for foreign investment at this point, which obviously will include the USA. So that though, any idea of further strengthening of their currency, they need to act now in a type of soft in order to control any further appreciation, because that would be net negative for their, their economic recovery post-pandemic. So that was overnight, something worth being aware of. And obviously China now back fully into the market after being out for much of October so far. But let's have a look at the US. And first of all, I'm going to look at the calendar, because overall here there's not too much in the way of major UK European data. There's a couple of things I'll talk about in terms of jobs in the UK ZEW in Germany coming out on Tuesday. But overall, it's more focused on US economic data. On this perspective then, the things that we're looking out for, if we just quickly scroll through, you've got US CPI coming out on Tuesday. On Thursday, you then— it means a lot of Fed speakers coming out. Got initial jobless claims, of course, Empire Manufacturing, and then you've also got the US advanced retail sales report as well coming out at 1:30 on Friday. So overall, what are we to expect from these data points? Well, for inflation, it's expected to be modestly, uh, higher in September, but not enough to suggest that inflation is back close to the Fed's target. Remember, we're talking about the average inflation targeting at the moment, so it has taken a little bit of a sting out of that kind of more definitive 2% target that we've got for inflation metrics in the Western developed central banks, but overall should continue to, to, to move up a little bit higher, inconsistent with themes that we have seen of late. Otherwise, Friday sees the release of US retail sales, industrial production, consumer confidence. So quite a batch of data coming at the end of the week in the US. All three should pose decent increases given manufacturing business numbers, car sales, credit and debit card transaction numbers in combination with rising equity markets and the strengthening housing market, according to analysts at ING. They do note though that the labor market improvements are stalling and income support from government benefits are waning, suggesting the numbers may soften more as we head towards year-end. So at the moment, it's hard to really see too much market reaction to some of these data points because, as I've just described, we're kind of coming off an incredibly low base from from the impacts of the depths of the pandemic. So generally these data points have been pretty healthy. However, with a lack of forthcoming stimulus, with government benefits waning, then as such, it's more about people perhaps a little bit nervous about year-end, which means that it might offset any positivity now. So something to just bear in mind. The other thing, of course, that's happening is the second presidential debate was supposed to be taking place this week. However, the latest on that is that Trump has said he will not take part after organizers decided that it should be a virtual event for safety reasons. The third debate on 22nd of October would be the final encounter between the candidates before the actual election. And let's just have a look at how the polls are looking at the moment. The average RealClearPolitics poll, kind of the poll of polls, currently has Biden with an advantage of 9.8 percentage points at the moment. So you can still see here, uh, continued divergence between the two really since the very first presidential debate that happened, well, a week and a half or so ago now. Um, so that's not happening this week, but definitely worth keeping an eye on. Of course, as Trump, I think he got into a little bit of trouble with breaking Twitter rules by saying that he's now immune having had the virus and got rid of it, which obviously breaks their rules because scientifically he's got no proof of saying that. And misinformation now is being locked down by a lot of social media agencies. But nonetheless, keep an eye out. Trump's going to be banging the drum for sure this week as he continues to recover from that episode of contracting the virus. Um, on that note, one other thing I wanted to mention about the election was the latest research note coming out of Goldman Sachs. They've joined the likes of UBS and Invesco predicting a weaker dollar as Biden has extended his lead over Trump with only 3 weeks to go now until the actual election. Goldman said the dollar may tumble to its lowest levels of 2018 on the rising likelihood of Joe Biden winning the US election and progress on a coronavirus vaccine. So blue wave, so that being a full Democratic sweep, both chambers and the President Biden win, could see the Dixie test 2018 lows is what they're suggesting. And then the final thing is, of course, not just about election and Trump, it's also about fiscal stimulus, which has been a real, uh, kind of intraday headwind to be aware of when you're holding any position of risk. The latest on that side of things is here. The Trump administration on Sunday called on Congress to pass a stripped-down coronavirus relief bill using leftover funds from an expired small business loan program as negotiations on a broader package ran into resistance. And this came after the end of last week, you remember, Trump kind of gave the signal to his team to let's go big, to try and meet the Democrats and get stimulus underway. and they offered some $1.8 trillion, but that was rejected by various different Democrats over the weekend. Remember, their, their current, um, post sits at around $2.2 trillion, so still far away, short of some $400 billion there. So continue to be, uh, mindful and vigilant for any updates on this front. Market has been particularly sensitive to this, um, of late. The other thing then is, apart from the, the major data that we've got So CPI, retail sales, industrial production, consumer confidence coming out in the US this week. You've got to keep an eye on the fiscal side and the Trump side and the election. Uh, the other thing then is Fed speakers. So if I scroll down on the economic calendar here, you can see Wednesday is littered with Fed speakers, and many are talking about the US economic outlook, like Clarida, Fed's Kashkari. You can see whole lists of Fed speakers on Wednesday and Thursday predominantly. And then the other thing to mention is, of course, we've— it feels like no time at all, but we're right back there now into US earnings season, if you can believe it. And traditional way of which this thing starts to kick off, we get the big banks reporting this week. So to give you a quick run-through of what we have, we've got JPMorgan Chase, Johnson Johnson on Tuesday. So nothing today, it kicks off Tuesday. Wednesday, Bank of America, Goldman Sachs, and Wells Fargo. Thursday, MS. Friday, State Street. Schlumberger, perhaps another one to keep an eye out for as well. What are we expecting really from earnings season? Well, Wall Street is bracing for lower earnings. Analysts expecting some pretty deep declines here. I've got a bit of context here for you. So in this upcoming week, there are 30— 3-0— S&P 500 companies reporting 6 Dow 30 components for numbers for third quarter. Most sectors will again show steep drops in earnings, but it should be less dramatic than the previous quarter. Expectations are for an average of 21% decline versus the 31% contraction that was seen in Q2. That kind of captured the real hard part of the pandemic downfall. Energy companies are seen faring worst as you can see here right at the bottom, followed by industrials, consumer discretionary, communication services. But having a look at this one, this is a look at, um, WTI crude oil price in blue line and market value of energy sectors, a percentage of the S&P 500 in the pink line. And as I said, energy companies are seen faring by far the worst of all of the individual sectors, with earnings down 115% from a year ago. Energy stocks have continued to underperform the market this year, producers really struggling to break even, and investors remaining particularly tentative, of course, on the impact of what a Joe Biden presidency could mean. So the bigger his poll advantage becomes, the more likely a blue wave could materialize, the more impactful that could be on the energy sector in particular. And as you can see here the, the sector continues to weaken despite the broader recovery and stabilization overall that we've had in the price of crude oil of late. So yeah, earnings season kicking off. And then, um, don't forget as well, tomorrow you've got Apple, uh, obviously delaying a little bit their event to unveil their latest full iPhone 12 lineup. This is the latest leaks. A Chinese Weibo account named Anthony Cheung basically came out with all of the information that they're going to unveil on Tuesday. This is very normal of a major Apple event. You know, the, the various different blogging websites are so good at getting hold of all of the leaks, they're pretty much bang on nearly all of the time. And even though this is a Chinese Weibo account, I've read the article, it's been verified by a lot of the big hitter, more US-oriented blog sites. So It looks legit, but basically, you know, if you're interested, it goes through and outlines all the different price points, the pre-order launch dates, and more information about the new iPhone 12 that's coming out. It also talks about some of the other things to look out for as well. But overall, I mean, iPhone 12, I don't really think it's going to reinvent the wheel a great deal. As I said, I was off the desk at the end of last week, but Generally speaking, Apple shares tend to react not so well on the day of unveiling. It's more kind of a buy the rumor, sell the fact type price activity that can quite often occur. Um, although Apple's a big obviously market cap stock, I wouldn't anticipate this to be a real index mover on Tuesday night. Um, could it create a little bit of a, a percentage share price movement, uh, for the isolated stock? Sure. Would it be an index future mover? I doubt it, not with all the context of the other stuff that's just going on at the moment from a global macro perspective. All right, we're going to jump over and we're going to have a look at this small issue called Brexit, the never-ending saga. So let me get you up to speed of where we're at at the moment. The government, of course, in the UK has said it wants the outline of a Brexit deal by this Thursday, the 15th, and the EU leaders are meeting on Thursday and Friday, the 15th and 16th of October. Talks are resuming today. Remember, the prior week saw the recommitment to go out of the official round of talks, having not struck a deal, into more channeled tunnel talks. So that is happening from today. So there is still the prospect of headline risk for sterling. So keeping an eye on those Twitter accounts from the various journalists tweeting throughout the day. Um, personally, from a top level, I don't see any breakthroughs coming this week. There's obviously going to be lots of noise around it, particularly towards the end of the week, and I think we'll probably end up with a commitment to just continue on talking, but still no real backing down from these quite definitive lines that they're putting into place at the moment. Johnson has told Angela Merkel apparently yesterday that there's gaps that remain with the EU and time is running out, while France has warned that no Brexit deal is better than a bad one on fisheries. So Macron's stealing a little bit of the infamous phrase from Boris Johnson to throw back at him at the moment. So still fairly contentious at this point, although there were apparently some several calls over the weekend that only lasted 30 minutes each apparently, but they had been extended extensive back and back-channel contact in recent days between really the three main parties in play— London, Paris, and Berlin— indicating that all parties are still pushing despite the kind of saving of face. So it's an interesting one politically when I think about it from a strategic point of view. You know, whether you're Boris, Macron, or Merkel, you have a national public to kind of appease, and you've got to appear firm in the stance to represent your nation and the will of the people in regards to things like Brexit and in Europe mainland kind of unity. And so talking out quite harsh about, you know, we'll walk away, you know, warning of a no Brexit deal is better than a bad one on fisheries, to me a lot of that is just hot air. I do think that The fact that behind closed doors there's back-channel contacts being intensifying does show to me that, look, they do actually want to get a deal done. It's kind of like one of those things with the US and China. Trump says he hates China, and yet China are buying more goods than they ever have done, and China are reopening even further their economy to foreign investment, of which for sure America will be participating in. So it's kind of like political servicing on one side, the actuality on the other. And I do think that although Brexit deal I don't see coming this week, I do think that there will be a commitment probably by the end of the week that they'll continue talking. And I think the market is pretty comfortable with that point at the moment. So I wouldn't anticipate anything like a sterling collapse just because they don't strike a deal as soon as this week. Um, other things to be aware of though, there is UK employment data coming out on Tuesday. There's a little bit of focus on that, but I don't think you can really read too much into it. Obviously, the Chancellor's come out with a new kind of light furlough package for some of the hospitality sector. A lot of that, though, does take away some of the real true legitimacy of what is the underlying unemployment rate, which has been actually okay despite all things considered in the economy, given the furlough scheme that's been in play for the last couple of months. But I think that UK economic data definitely takes a backseat to Brexit and COVID at the moment in the UK. And talking COVID in the UK, this is another tangible risk to look out for, for sterling. Uh, the PM is expected to announce new measures, measures, excuse me, to tackle a growing coronavirus outbreak. Daily cases as of Sunday were just shy of 13,000, so still fairly elevated. Sky News, which I'm showing here, basically reported last night that it could mean shutting bars, gyms, casinos, casinos and bookmakers as part of a new 3-tier lockdown system. It's going to be predominantly focused in the north of England, a lot of focus as well on Liverpool as an actual city to go in a more stringent lockdown. The other thing as well on the calendar for the UK side, if you are looking at sterling today particularly, you've got Bank of England's Haskell speaking at 3 PM this afternoon. You've got Governor Bailey also speaking at 5 o'clock. Later on this week, actually, the Chief Economist Haldane speaks on Wednesday, and the Deputy Governor Cunliffe speaks on Thursday. So a lot of Bank of England speakers at the moment, and I do feel this is somewhat the fact that they're still not completely satisfied and content with the market's current expectation around the idea of negative rates. So perhaps then kind of littering in speakers throughout the week to try and just just realign market expectations on that particular point. So something to just bear in mind. Also, as of Monday, it is a national holiday in America. All markets are open as normal, but it is Columbus Day in America, so just be aware of that as well. Now, from a European side of things, I did want to mention— I think I've got an article here. This was the chief economist Philip Lane You'll probably recognize that chap's name because he's made some pretty punchy comments in recent weeks about his concerns about the strength of the euro, particularly when it was up at 1.20, when it was really threatening a bit of a technical breakout that could have opened up a run to 1.25 at the time. And with the dollar continuing to weaken as it has done recently, uh, and also like some of those big banks were saying, with the prospect growing of a Biden and a blue wave victory at the US election in 3 weeks, the potential for that to reweaken dollar by de facto might strengthen the euro further. And so it looks like the ECB are trying to get ahead of that once again. This came out in the Wall Street Journal at the weekend, Philip Lane saying the ECB isn't happy with the inflation outlook and will decide meeting by meeting whether more monetary stimulus will be needed. But he was also across other European press supplemented by Visco, who said the ECB must maintain its its expansive monetary policy for some time to counter deflation risks. And Casimir said the ECB will do all it can to bring inflation in eurozone to desired levels. So for me, this is all a bit of a coordinated effort that the ECB members are getting a little bit nervous about the recent acceleration of the euro-dollar currency pair. Now that we've moved back up into the kind of mid-118 handle, so not, not surprising. But something you can probably expect to, expect to continue to happen as we continue to move higher in euro if that does materialize. From a European perspective, as I said on Tuesday, you do get the German ZEW numbers. They'll provide the first indications of October economic trends. And keep an eye out for more European potential national lockdowns in a similar fashion to what we've seen in the UK. Obviously, more stringent restrictions have a more intense economic impact. And if COVID cases mimic anything like what we're seeing in the UK, this is something to be mindful of for trading European assets as we go through the week, particularly those more economically important areas like Germany, France, Spain, and so on. Also, the other thing is to look out for is we've got that European leaders meeting happening on Thursday and Friday. Although a lot of the topic will be dominated by Brexit, don't forget then that Europe's still still has to put the finer details together about their fiscal stimulus package. And so this is the one that they agreed back in— going back to May. And so here, this— the end of this week, it could just not just be a US fiscal stimulus story, it could be also European one. And if anything, really, with all the Fed speakers, probably the one thing you're likely to hear coordinated across all is about putting more pressure on governments to provide more supplementary stimulus to the system via fiscal measures, given that monetary is becoming fairly exhausted at this point in time. Um, let's just quickly round things off and look at oil. And this is Libya, and it's one I'll close on. So the National Oil Corp, Libya's state energy company, lifted force majeure on western deposits of the Sahara, and instructed its operator to resume production, according to a statement issued by the company on Sunday. The field will initially pump 40,000 barrels of crude a day before reaching its capacity of almost 300,000 barrels in 10 days' time, according to a person familiar with the matter. That would roughly double Libya's— well, this is— so the field will initially pump 40,000 barrels of crude a day before reaching its capacity capacity of almost 300,000 barrels in 10 days. And a person for— with knowledge of the situation said that would roughly double Libya's overall output to around 600,000 barrels a day. So at the moment, Libya's production has gone from 100 to 300. Now with this biggest field in Libya, which— Libya has Africa's largest oil deposits, by the way, they're going to double again from 300,000 to 600,000. So supply just keeps coming as far as Libya is concerned at the moment. And as I said, oil already finding a little bit of weight this morning despite the more optimistic equity, uh, kind of move higher that we've had. Oil is down about 50 cents for the time being. Um, so that is it really, uh, for, for my look ahead for the week. So as I said Quite a few things to look out for there. Also with the equity markets, I'm a little bit mindful of the fact that we've already started to turn a little bit. As I said, there's some key resistance levels, and just given the— how much we rallied towards the end of last week, I don't think it'd be too surprising to see a little bit of kind of soft profit taking up at around these levels. And then barring any shocks, particularly on the fiscal a stimulus breakthrough on talks would be required, I'd probably say, in order to see another push higher. You've got earnings season kicking off, you've got more probably Trump tweets to be mindful of, Brexit stuff's going to intensify from headlines. But again, not really foreseeing much in the way of any real definitive breakthrough. And then really, from economic data point of view, more US-focused, particularly on Friday. But that's pretty much it. So I'm going to leave it at that, let you guys get on with the week. Any questions at all, just let me know in the chat if you're watching this on YouTube. But obviously, good to be back, and, uh, have a good day ahead. Thanks very much.