This Week In Markets: 14th - 18th September 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 guys, it is Monday the 14th of September. Hope everyone had a fantastic weekend. I'm just gonna delve straight in then to what's happened overnight in the weekend's news flow, and then some expectations over the fundamentals that are in focus this week. Don't forget, I'm going to be covering the FOMC live this Wednesday. All you need to do is subscribe to the YouTube channel, and we'll be broadcasting from there from 6:30 London time ahead of the event for the full briefing and full coverage. But looking at this morning, as you can see to the side of me Couple of updates then on the drug front, but before I go into that in more detail, just looking at the overall tone to markets, the recommencement of trade for the fresh week, and equity index futures back on their ascent. The DAX gapping up quite aggressively in the overnight session, up around 84 at the moment in the DAX future. The NASDAQ 100 futures already up 185 points. And the S&P up 43 at the moment. So some decent moves seen in overnight electronic trade, and a lot of this coming on the back of what I'll discuss in a moment, which is some updates on the vaccine front, some positive news coming out in reversal from what we had from AstraZeneca last week, in addition to some big top-tier M&A news flow as well, just helping bolster general risk appetite in what has been a fairly depressed stock market, uh, over the course of the last couple of sessions. Of of course, um, following some of the selling pressure that we had seen in the rotation out of tech. So elsewhere, just having a look in the FX markets, fairly quiet. The, the DXY is down a touch, about 0.1%. Not too much movement thus far in the major FX currency pairs. In the top left here, in EURUSD and Cable, both hugging around their pivot. In fact, just given some of the slight DXY weakness, both are up around 13 to 25 pips respectively. Sterling, a little bit of a focal point this week. Talk about that more, just more details in regard to the fallout for Boris Johnson in the wake of the internal market bill which was issued last week and the increased risk then of a no-deal Brexit. Uh, we can have a look at that in a moment. Elsewhere in the commodity markets, uh, gold again trading close proximity to its pivot, kind of locked technically in a bit of a tight range here between pivot on the downside, which does encapsulate some of the highs that we've seen in the overnight Asia-Pacific session at the initial flurry of activity at the reopening of trade. And then to the upside, the R1, which was also the overnight Asia high. So looking at around the 51 to 60.5 on the upside as a near-term range in gold. And then oil, likewise, overnight session and pivot locking some of that price activity in a period of consolidation yet until really market volumes start to pick up. 37.30, worth keeping an eye on the downside. And this comes irrespective of the fact we've got a monthly OPEC report coming later on, we've got a JMMC meeting happening this week, and also we've got a developing weather system to keep an eye on as well near the Gulf Coast in America, which I can show you some graphics in a moment. So that's the overall general summary of things, a little bit kind of minor risk positive, I'd say, definitely from an equity perspective. The other asset classes perhaps a little bit more quiet in that respect. Uh, but let's jump into some of the headlines then of what's moving things. And Oxford University to resume trial of AstraZeneca vaccine. You'll remember this was when we hit that, that kind of low point following some of the selling that we saw, uh, not last week, the week before that, and then at the beginning of last week. Uh, this news kind of really marked the low when Astra halted that particular trial. However, they have now restarted according to press over the weekend. And does come in combination as well with the Pfizer CEO coming out last night and saying it's likely the US will deploy a COVID-19 vaccine to the public before year end. So that in combination with a few other things from an M&A perspective, SoftBank Group surged after NVIDIA Corp agreed to buy the Japanese firm's chip division Arm Limited for $40 billion US dollars. Uh, Gilead Sciences will acquire Immunomedics Inc. for $21 billion. And then something else to keep an eye on as well, in particular reference to Microsoft and Oracle shares at the open on Wall Street later on today. A couple of conflicting headlines. The overall lead story is that TikTok has abandoned its talks with Microsoft to sell its music video app in the US, favoring instead a partnership with Oracle. According to people familiar with the talks. However, just a few minutes ago, ByteDance came out and said they will not sell TikTok US operations to Microsoft or Oracle. Now, we start citing Chinese state TV sources this morning. So worth keeping an eye on those respective shares, particularly Microsoft, of course, being of a larger market cap nature and influence for the overall index in the, in the tech space. So yeah, overall, between the drug news and quite a lot of these large-scale M&A deals on the table this morning, we've got a bit of a positive start to proceedings, at least for the time being. Moving on, we've also had some commentary out of some major banks this morning. Just thought I'd give you a bit of an overview. Basically, Goldman Sachs and Deutsche Bank being cited in Bloomberg as kind of calling an end towards the recent rout in which we've had in the equity space. GS saying that the magnitude in terms of the pullback has matched a typical sell-off in the S&P 500 since the financial crisis, albeit that it's happened at a faster pace. So basically back-testing, looking at previous patterns, it's been quite an accelerated sell-off but would now start to match in terms of the depth and size of the pullback. And so therefore remaining a little bit more of the mindset now that we will start to recover from here on out. Deutsche Bank They're looking more on options, and obviously there's been quite a lot of focus on that given the kind of retail hordes and their favoritism for, for option trading in combination with that SoftBank apparent position in some of the large tech names of late. It's been a bit of a fad of market participants of a way of trading in terms of capturing some of that upside as equity markets continue to be dragged up or have been in recent months. And DB note that options positioning has normalized. Uh, historically, corrections in the put-call ratio have tended to have sharp but short-lived market impacts. So obviously it was highly tilted towards people looking for big payoffs for potential further large spikes in, uh, to the upside, a number of these particularly big mega-cap tech names. However, a normalization of that would, would generally suggest then that it's kind of shaken out a little bit of that, that activity. And so perhaps then can restore some general calm to proceedings. And do we then start to just claw ourselves all the way back in reversal of some of the recent losses, which underpinned, of course, is things like the existing and supportive depth of Federal Reserve support. And we're going to get more from the FOMC, of course, later this week. Moving elsewhere, just quick, quick conversation about Brexit, what is going on. Plenty of news flow over the weekend. Johnson sends Brexit proposal to Parliament as rebellion grows. So what's happening here is that UK Parliament agenda this week is dominated by the UK Internal Markets Bill, with a second reading debate and two committee stages— days in the Commons. There's already been controversy on modifications to the rules put into law months ago that formed the EU withdrawal agreement on the movement of goods from Northern Ireland to Great Britain and rules relating to state aid. And what's happened over the weekend is that senior Tories are refusing to back down on their revolt against Johnson's— European Parliament leader's draft statement noted that MEPs will also veto any future trade deal with the UK unless that internal market bill is pulled so that the withdrawal agreement can be implemented in full. Now, a couple of things here then. One is, if you don't already follow him, there's been a bit of, uh, open dialogue following the 8th round and conclusion of those Brexit negotiations that happened last week between Michel Barnier he tweeted over the weekend, and that has prompted a response in the last 24 hours from David Frost, who is the chief lead negotiator on behalf of Great Britain. And so worth keeping an eye on these tweets, just generally speaking, because they are using now this, this medium to communicate. We're definitely living in the modern world in terms of using Twitter for that platform. But yeah, quite a long thread here, response we had yesterday from David Frost. Doesn't really add too much to what's happening at the moment. The one thing is the Internal Market Bill. I was doing a bit of reading on that and it is actually fairly complicated, complicated in terms of what the UK government needs to do in order of making decisions about— on behalf really of these devolved governments that form the United Kingdom. Um, the one thing I can say is that I've probably mentioned it before, this YouTube channel, uh, TL;DR News. I'd say these guys are an absolute must to follow in the coming weeks, particularly as Brexit talks will likely intensify. Because when it starts coming down to what they're going to be discussing in the lower house this week, it does get awfully complicated in terms of the legal, um, aspects of what they're trying to change within the deal and so on and so forth. And so actually, these, these videos, they're only 10 minutes long, typically in an animated format, and, you know, what— explaining what is the Internal Market Bill, how could it destroy Brexit and the Union, you know, why is Johnson aiming to do this with the withdrawal agreement, all of these types of questions, uh, this channel answers way more eloquently and concisely than I could ever attempt to do. And so I, I watch this every night pretty much. They're putting out content daily, particularly in the environment when I know Brexit is going to become an overall really dominant theme. I like to be best on top of it. As much as you can read around it, I think this is just the easiest format to digest and consume that type of content, so you've got the appropriate awareness of where we're at and what these legal points really constitute. Shoot in terms of an actual market-moving potential, I think, for sterling currency. But having a look at the sterling currency, um, we've obviously seen a very sharp pullback here. I've still got this annotated chart from last week when Johnson's threat to leave the EU, uh, before that was then going into last week's talks, which of course had midweek the release of that internal market bill, which jeopardizes now the entire integrity of the actual deal in itself and the withdrawal agreement. So big sell-off that we've had. It's almost a 5% correction from the highs where we were trading just the beginning of the month. So in the last 2 weeks, some support near term, and I think quite a key technical level to keep an eye on is the 200 DMA. I'm looking at sterling futures here. You can see that 200 DMA has been respected a number of times really throughout this year. I was reading a couple of bank comments, and ING, the Dutch bank, They were saying that pressure they anticipate on sterling to continue to build. They are looking for a break of that 200 DMA, and if that were to happen, then it opens up the door for a potential deeper move down to 1.25, which could happen this week. And despite the fact that there are some UK economic data points coming out, including a Bank of England interest rate decision, they're actually suggesting that it's actually the Brexit-related news that will act as the main dominant force force and headwind for sterling as we go through the next couple of sessions. So I think to see a move deeper down towards that 1.25 type area, which would bring us back down to where we were trading around mid-July, I think for sure we've got to break the 200 DMA. Any move beyond that point, I'd be looking at 1.2674, which was that resistance and support that we had in mid to late July. I need to see those two levels taken out for us to see then a further continuation of that move. But certainly fundamentally, I think markets, as I've said before last week, have still got some way to go before really pricing in the full risk of a no deal. Reading some of the ING analysis, they were generally looking back, testing over the previous periods, both earlier this year, in 2019, periods of when no deal was a real credible risk on the table. And they, they're actually suggesting that the risk premium at the moment, it needs to build in another 2% or so to equate towards the type of levels of which we've seen on prior occasions. So hence the reason why they're, they're quite bearish on their call. We do have the Bank of England meeting, I did briefly mention, they're happening this week. To be quite honest with you, I think it's, uh, not that big a deal. And that's because I think really the November meeting for the Bank of England is going to be much more important because the market will be in a position where we'll know at least at that point whether or not the UK has managed to strike this accord by mid-October for a kind of a light-touch free trade agreement with the EU in the Brexit situation. So really we'll have a bit more of definitive detail of where we are at that point in time. And let's just say for instance, that they, they continue to remain at this point far apart and actually that October soft deadline comes and goes without a deal being struck, well then all the more reason I'd say that it's more likely the Bank of England will probably look to extend their quantitative easing program further. And this is what this graphic is reflecting. And so not only that, of course, we've got the expiration of various different fiscal measures, reports out in the FT this morning talking about various different industry bodies, about a number of jobs that could potentially be lost in regards to the wrapping up of the furlough scheme at the end of next month, and whether or not Rishi Sunak, the Chancellor, will be pressured into extending specific sectors' furloughing is, is yet to be seen. So here, this was a poll of over 20 economists surveyed by Reuters last week It was issued and released over the weekend, and it basically asked the question quite simply of, do you think the Bank of England are going to increase QE further? And 88% said yes. In terms of when, the majority said November, so 82% seeing it, um, in November of this year, 9% 2020, and then 9% in Q1. In terms of the median forecast is for an increase again of $100 billion, which seems to be now the kind of, uh, the increment of change of which the Bank of England seem happy and content with at the moment, if we've looked back to what they've done previously. So in terms of this meeting this week, I don't really expect too much. I think they'll hold fire. I don't think there'll be too much given away. And so, as I said, kind of agree with what the assumptions are from ING, that perhaps then some of the noises and developments around Brexit will be— will probably be the focal point for sterling. Elsewhere, quick look at oil. Oil's obviously staged a bit of a pullback if you put it in the context of recent weeks, having dropped through back $40. We're now trading fairly steady at around $37.50, so a bit of stabilization, and if anything, just moved a little higher overnight. A couple things happening this week. You've got the OPEC monthly report due later today. You've got the JMMC, the Joint Ministerial Monitoring Committee, their meeting on Thursday, and compliance with OPEC+ output cuts may be an issue during these talks after new signs of exporters reneging on the deal, while a widening contango in Brent crude is indicating rising concerns about oversupply. Remember, people have become a little bit apprehensive, although we've had some positive drug news this morning about the timelines and when that can actually be reached conclusion in the clinical trial stages and then get to the point of being implemented and distributed. Anything, any concerns over that being longer than expected might impede then people's risk appetite for the overall global recovery kind of view, and consequently then for demand in the crude oil, and hence their misalignment then with the amount of supply that's on offer at the moment, irrespective of of the cuts that are being enforced. Iraq has now cut pricing for all of its crude grades to Asia and the US for October. This follows obviously similar curves from Saudi Arabia and other Gulf producers that we've seen last week, indicative then of demand also stalling to a certain degree. The other thing is to keep an eye on weather systems. The hurricane season continues to be pretty active, as you can see here, a lot out further in the Atlantic at the moment, which Location-wise, they're not so much of an issue, but Tropical Storm Sally is one to watch just given the sensitivity of the proximity to the Gulf Coast. BP have evacuated non-essential workers from its Nakika and Thunder Horse platforms in the Gulf of Mexico, and Chevron have shut its Blind Faith and Protronius platforms as well in preparation for that. If you actually click on Sally, it's a bit early to really determine where Sally's center will move onshore given the uncertainty in the timing and location of Sally's northward turn near the central Gulf Coast. But it's definitely something to keep an eye on because it's deemed as an extremely dangerous and life-threatening storm surge is expected for areas outside of southeastern Louisiana, uh, Hurricane and Storm Damage Reduction System. in those areas have all been flagged to be watched. Hurricane conditions are expected by late Monday in terms of timing, so worth keeping an eye on that as well. And finally, just wanted to mention Japan. We've had some news out this morning, so pretty much ratifies then what markets were expecting. And this was that today LDP member parties voted on the Lü leader to become Japan's next prime minister. Suga is widely expected to be elected and deliver continuation, continuity to PM Abe's Abenomics. Suga was on track to win over 70% of MPs' votes and was leading among local chapters, according to NHK News earlier this morning. Speculation is that Suga will call a snap election for parliament's lower house as soon as next month to boost his chances of winning a full 3-year term as LDP chief next year. What's the yen done? Well, very little in response to this. He was the highly tipped favorite for this, so it's not really causing too much in the way of reaction at this point in time. The Bank of Japan do also have an interest rate meeting this week. However, I would say out of the major central banks, this is probably going to be the the most dull out of the bunch. So no changes expected to their broad array of support policies. It should just be the status quo for the time being. Just seen a headline flash actually, and thought I'd bring it to you. Goldman Sachs have just come out and say they note the current sterling levels now look attractive due to meaningfully lower odds of no-deal Brexit. Than the market implies. Okay, so yeah, a little bit of a different view to what we've just been discussing with, uh, ING at the moment. All right, so let's just have a look at the calendar for this week. And today starts off pretty quiet, so definitely be marking up some, some key levels from a technical perspective given the lack of real fundamental catalysts on offer from a scheduled basis at least. Going into Tuesday, as I mentioned, you do get some UK data coming out in the form of jobs data and wage numbers on Tuesday. However, I would say irrespective of that and the Bank of England announcement happening on, on Thursday, it's overall going to be much more a market that's going to be focused on the Brexit side of things. So you've got the wage data, jobs data today. You've got UK retail sales happening on Friday, Bank of England on Thursday. In terms of the landscape for sterling, otherwise on Tuesday you get the German ZEW numbers for September coming out of Europe, Germany. Wednesday you get UK CPI and you also get US retail sales. And then this leads us up into the FOMC meeting. So quick word on the, the Fed. I have done a separate video which I released yesterday. You can access via the Amplify YouTube channel if you wanted more detailed rundown. But from a top level, the market is seeking to see whether or not the Fed operationalize, if you want to call it that, their new average inflation targeting approach with some additional forward guidance. They're very specific in terms of defining time periods, or is it going to be outcome contingent? These are the things we'll be looking for in the meeting and, and following press conference from Jerome Powell. There is, I would say, on, on a top level, a chance of disappointment. Markets seem quite forthcoming in their, their want for more clarity on forward guidance, but whether or not the Fed offer that will determine largely the type of market reaction we're going to see. The dot plot matrix will extend out now into 2023. Just given the, the time periods of which that reflects. So these new projections will be quite interesting to see of where, what the interest rate path looks like. But ultimately, I don't think it's going to give away too much because interest rates are anticipated to remain low for a number of years now going out in America. And then, yeah, from a US perspective, from a data side of things, don't forget that you've got the August retail sales report on Wednesday, and you get September consumer confidence confidence on Friday as well. So a few things to keep an eye on going into Thursday. In— when we come in in the morning, we've already seen the Bank of Japan rate decision, but again, not expecting any surprises there. Then you get the Bank of England rate decision at midday following on from that. Friday then, the US— UK retail sales report, excuse me, comes out, and then that pretty much wraps things up. So quite a busy week from a US-UK perspective. Both data and central bank decisions forthcoming is really the focal point. All right, well, that is it. I'm not going to go into any more detail than that, but if you have any questions at all, please feel free to just leave a comment on the video. Absolutely happy to help in any way that I can. And my Twitter handle's there, feel free to follow me. I'll be tweeting throughout the day and this week. Okay guys, that's it. Have a good, great week ahead. Take care.