This Week In Markets: 14th - 18th June 2021

Okay, very good morning to you, Monday 14th of June. Hope you enjoyed the sunshine this weekend. Well done to the England football team for getting things underway at the Euros with a win, Novak Djokovic for winning the French Open, and happy birthday to the Queen who celebrated at the weekend her unofficial birthday given the fact of course she has two birthdays, her real one being in April. But the summer celebrations happening at this weekend. So getting things underway then, I'm going to talk about more on the news and the fundamental kind of outlook for the week rather than going to the charts in greater detail. I'll save that for the Amplify Live community on Discord to go through and share a few levels and so on. If you're not part of that community, don't forget, just go to AmplifyLive.com. There is an absolutely free level of subscription. Don't need to put in any card details or anything like that. So do check it out. And if you're watching this on YouTube, don't forget to like subscribe to the channel. Really appreciate it. But look, let's get straight into it and talk about the— this photo shoot. It's not a new album cover or anything like that. It is in fact the G7 and the heads of state adhering to social distancing rules still, of course, at least for the time being, and likely to be rolled over in the case of the UK, as we were expecting that announcement to come out of Boris Johnson later on tonight. But what has happened at the G7? Well, I really like the summary, um, title that Bloomberg went with this morning, and they said, America isn't quite back, Europe isn't that united, and Brexit still isn't done. It feels like we haven't really progressed a great deal in recent times. But over the key subjects, I guess first thing is anything that came out of the G7 really is not important for how markets are opening this morning. This is very much more top-level, more longer-term conversations they're having than anything immediate it for market prices trading for Monday morning. But on the, the kind of thorny issue of China, of which Biden's mission was to kind of go in and collectively unite among a number of these nations to have a strong, clear, defined front against China. They called on the country to respect human rights in its Xinjiang region and allow Hong Kong a high degree of autonomy and refrain from any unilateral action that would destabilize the East and South China Sea. China and their embassy, though, have come out this morning in response to that kind of headline G7 statement and said that the G7 has a gross interference in the country's internal affairs and urged the group to stop slandering China. So pretty much status quo for the time being then at this point. So I guess if that was Biden's agenda, he's kind of loosely achieved that at the moment. But As Piers and I were talking about in the podcast on Friday, it's kind of a delicate balance because all of these countries obviously have their own individual relationships with China but do also want to be aligned with the US. And so there comes the, the kind of tricky balance. So I don't think anything too surprising on that front. On the COVID side, they promised to deliver at least 1 billion extra doses of vaccines over the next year. Again, I don't really see that as too much of a market-moving event, and that was fairly telegraphed from what we had going into the event anyway. And Russia, they reiterate interest in a stable, predictable relationship with Russia and will continue to engage where there are areas of mutual interest. Because as you'll see, there's, there's no Putin here, but Biden of course is meeting Putin later on this week, and we'll have a look at that calendar of main events in a moment. Um, otherwise then, in terms of the Asia-Pacific session Things were very quiet. So I'll give you a quick skin or scan of the charts, I should say. Asian equity markets, it's lighter because of the fact we've had holiday-thin conditions with the absence of areas like Australia where they're in observance of the Queen's birthday, as I mentioned. Mainland China, Hong Kong, Taiwan, extended weekends for the Dragon Boat Festival. So we initially hit fresh record high in the S&P 500 again in the overnight session, so just adding to the generally higher close we saw at the end of last week in the US indices. C's. We've just faded a little bit there, but basically unchanged in the futures market. Elsewhere, WTI crude up $0.37, so still tracking higher for the time being. And obviously on the multi-year chart, we continue to trade up to the highest level since, uh, well into 2018. The next area of upside resistance for not just the session but this week, be looking at $72.43 and then higher up at the $75 handle. As overall targets if we continue to see a decent progressive move to the upside on further reopening and demand side, um, more positive catalysts happening there. Elsewhere in the FX markets, dollar index is actually flat at the moment, but just generally holding on to gains that we see at the end of last week. And so both major pairs are unchanged. In the top left-hand corner, EURUSD and Cable, but lower from where we were trading obviously at the end of last week. And then gold has seen a fairly meaningful move. No real new catalyst here. We're down about $15 going into the open, just a continuation of the trend that we saw from Friday's session and a breakthrough of some of those lower bound levels that we were seeing back on Thursday. But let's get straight into a couple of the headline stories. First of all, talking about the UK lockdown. Well telegraphed and talked about. Mike and I were looking at these numbers 2 weeks ago and we felt fairly confident on the fact that it seemed most sensible for the UK government to delay the planned final of the 4-step reopening roadmap on June 21st. And we're expecting the Prime Minister to come out and give a speech later on this evening to confirm what is the Times Monday edition said that Johnson's senior ministers including Rishi Sunak, which the Chancellor have signed off a 4-week delay, and that's going to be reviewed in 2 weeks' time and will be data-dependent. Again, in summary, the idea being to get all of the over-50s vaccinated, some of which are still awaiting their second dose, and then to give them time for then the general effectiveness of that vaccine to really kick in as it enhances over time, and then also to coincide with the summer term for, for school kids in order to lower the transmission given the fact that younger people are still— are not inoculated at this point in time. So I don't think it's a surprise. I don't necessarily think it's a particular significant headwind for the, for the pound overall. But there is a lot of UK data coming out this week, and we'll talk about that in a moment. On the Brexit side of things, as the G7— this was kind of a side point of things that were going on. So as anticipated, ahead of the grace period expiration I was talking about last week of that initial agreement to smooth over the transition into Brexit that we had in the new year over the issue of Northern Ireland and trade. The kind of war of words continues. So the Prime Minister Boris Johnson said EU leaders are acting in a draconian way over trade checks on goods and will not hesitate to suspend the Northern Ireland Protocol. So again, I don't really read too much into this. It's, it's as to be expected. And if anything, I'd expect the rhetoric to get even more intense probably over the coming weeks before inevitably they, they kind of roll this over as they continue to focus all sides on their continued reopening vaccination programs. Oil markets, I briefly showed you, are trading up at a multi-year high, so 32-month high in fact, as Bloomberg is suggesting. A couple of different things from the weekend. Iraq, which is OPEC's second largest oil-producing country, did say at the weekend that crude prices will be in a range of $68 to $75 a barrel in the second half of the year. And they say that's because of the commitment that OPEC+ has in order to keep output cuts in place to support the ongoing recovery in the economy at the moment post-pandemic. Still tracking at the moment the US-Iran nuclear talks. They are due to recommence in the coming days. However, Iran's deputy foreign minister has said at the weekend, uh, and basically comments that cast doubt on any type of agreement ahead of the new election they're having to elect a new president on June 18th, so in a few days' time in Iran. So again, not expecting any type of breakthrough ahead of that kind of more transition phase that they're going to go through within their own government at this point in time. Interesting thing, I know some people look at the, the CFTC data, just general market positioning, and according to weekly data, money managers now have boosted their WTI bets to the most bullish in 3 years now for WTI crude futures. And I think I've got a chart here. Yeah, you can see it here. This is looking at WTI net long positions, and as you can see, it's the highest in almost 3 years. And again, underpinning this is just further reopenings. I was looking at some data points talking about the traffic volumes of air flights for citizens and movement around the US being the highest it's been so far. And further reopening, as that continues to happen both here and other places from around the world, it continues to support demand, with OPEC, as Iraq was suggesting, continue to support the market on the supply side. Other things to be aware of— Bitcoin. Can't go without mentioning it, of course. And it did feel like it's got a bit quiet from Elon Musk after he had kind of string of market-moving tweets for different assets, whether his own company or crypto-related, over the last 2 or 3 weeks. But he's back with a vengeance, and this time in a more positive fashion. Bitcoin actually trading higher over the weekend in reaction to his latest comments. Seemingly he's back on board with Bitcoin after being, um, obviously saying that he could potentially look to exit that market given the fact of the environmental impact. He's now saying he was in response to a conversation from a, from an article that came out, and he was talking about that when there's confirmation of reasonable, i.e., circa 50% of clean energy usage by miners with positive future trends, and Tesla would resume allowing Bitcoin transactions. And Bitcoin futures are back up in close proximity to $40,000 overnight, up around $2,000 at last count. In terms of the schedule for this week, I'm going to run through a couple of different things. As you can see here, you've got an EU-US summit taking place in Brussels on Tuesday. So the conversation kind of continues, if you like, on the back of the G7. Not that I'm expecting too much of a great deal of specifics that are going to come out of these conversations. Otherwise, then going to turn my head to something that doesn't actually appear on here on Bloomberg, which is UK data. You've got UK jobs on Tuesday, you've got US CPI on Wednesday, you've got US retail sales on Friday. So it's quite a big week for data points. The headline year-on-year CPI is expected to rise to 1.8% in May from the prior 1.5%, and that would put us back at— as far as that reading on a year-on-year basis— to pre-pandemic levels of inflation in terms of the UK. So 1.8%, obviously getting close to that 2%, um, hypothetical threshold that they have, albeit we know that they'll probably allow it to run a little hotter, um, in a variance through that given the transitory view that central banks in developed Western world hold. On the other side of things, though, in terms of retail sales, potentially you've moderated month on month if you think that this data is actually for the month of May. And so cold and wet weather— I know we've just had an amazing weekend of weather here in the UK, and actually we've had a good kind of 1, 2 weeks now of hot weather, but May was a bit of a washout. And so that's probably going to offset the positive forces underpinning them in the data from general reopening of non-essential shops that we're seeing. So going to be kind of growth in the area, but perhaps some moderation in regards to what we've seen before. Otherwise, away from that, going to focus then on the Fed. So Wednesday we get the latest FOMC meeting. And a few months ago, this was kind of coined as a big one. Where tapering was going to be a real tangible prospect, given the fact that they've got the new Summary of Economic Projections. And we thought this might be the time then that they'll pick to start, start really saying we're going to start the process of thinking of tapering. And that was going to be the commencement of the sequence then to that eventuality happening. But things have changed. We're definitely not there yet, going off a combination of what the Fed officials have been saying, where the economic data sides at the moment. Whether it be the market's ability to read through inflation because of the areas seen as temporary factors that are guiding it higher, in combination with the slightly lackluster job return that we've seen in the last two payrolls reports in particular as well. So, um, the actual Fed meeting probably not quite as exciting as it was being queued up for a few weeks ago, but a couple of things to be aware of. For one, there's going to be no changes in policy at all, but we do get the latest Summary of Economic Projections, and that's going to be quite key, of course, because people are going to be looking out for these dot plots. Now, a couple things about the dot plots, which is the Fed's forward-looking rate expectations. So at least 2 more 2023 dots would need to rise for the medium dot plot to begin pricing in basically a hike for 2023 at the earliest. So this is what I'm talking about. This is the dot plot here, forms part of that summary of economic projections, and we need 2 more to come off the low here that would move this green line to a slightly steeper trajectory, i.e., bringing forward the interest rate rise from through 2023 into 2023. Now, Fed officials could project interest rate liftoff then in 2023 amid faster economic growth and inflation but they won't signal scaling back purchases until August or September, according to the latest Economist survey from those spoken to by Bloomberg that's just been out this morning. Fed officials, they say more than half— or in terms of economists, more than half predict the dot plot will show the median of 18 officials penciling in at least one 2023 increase. So more than half of the economists on the street think that that's actually going to materially change, and we'll see the median pick up a little bit here. Most investors still don't think the Fed will begin tapering until early 2022, with guidance on the exact approach delivered in more detail around September this year at the latest. And a lot of people, of course, looking at the Jackson Hole Symposium late August as the kind of precursor for embedding that in to be discussed more officially in a format to be conveyed then in the next Summary of Economic Projections, which comes due in another quarter's time in September. And then that queues us up then for tapering to commence in the new year of next year. It's the kind of time frames we're looking at at the moment. So yeah, that'll be the Fed. We'll cover that in full. Um, so maybe check that out. And I've, I've got a masterclass guest coming to join the Amplify Live community as well. on Wednesday just before the Fed comes out. So for the guys in the community, uh, got a really great speaker, used to be a bond trader, started back in '87. In fact, what a year to begin your career. Traded at Lehman's, Merrill Lynch, Credit Suisse, and then went on to prop trade as well. So I'm sure he's going to have some valuable insights to share, and that'll be on Wednesday. Otherwise, back to the calendar of the other things we're looking out for. So as I said earlier, Joe Biden is going to meet Vladimir Putin and they're going to meet on Wednesday. I guess the main point to look out for here is it's not about what details that they come out of as real results from these conversations. It's more about the atmosphere of the dialogue between the two and whether or not that there is a joint statement at the end, which is typically seen as a more positive outcome. Rather than the two, you know, hitting heads and then going their separate ways. So it's more going to be based on how successful that meeting is on that kind of outcome on that level. So it's very much more broad. It's more about do they get on, is there a joint statement at the end, and do they commit to then continue dialogue to meet again in future? It's about the best you could hope for from that situation. Janet Yellen testifies before the House panel on Thursday on the federal budget. And then the Bank of Japan have their policy decision at the end of the week. Um, and we're not expecting any policy changes there, but source reports recently have noted the bank is to consider a 6-month extension to its September deadline for the pandemic relief program as soon as this upcoming rate meeting. Could be something to look for. So overall, a much more busy week than what we had last week, which I know was sightly frustrating how quiet it was if you're a day trader. This week completely different, pretty slow start as far as today is concerned, uh, taking the baton from a very quiet holiday-impacted Asia session. But you just need to hold tight, things really kick off from Tuesday. Fed on Wednesday. Tuesday as well you do also get US data, um, in the form of the industrial production and producer prices, retail Sales, all coming out. So a couple things definitely to, to look out for there as well. All right, that's it guys, gonna leave you to it, and I will see you in the chat room. Take care, have a great week. Thanks very much.