This Week In Markets: 15th - 19th March 2021

Good morning to you. I hope you had a fantastic weekend. It's Monday the 15th of March, brand new week. So just going to encapsulate some of the major headlines over the weekend, of which it was relatively quiet, but we're also going to take a look for the week ahead. And this week, of course, we've got the FOMC, the Bank of England, and the BOJ rate decisions. Some US data like retail sales, and we've got updates around the vaccine, AstraZeneca, and also Chinese data overnight that I want to go through. So quick look at the charts this morning, and we were a little bit positive initially in the overnight session. Asia was a little bit mixed, if anything a little bit negative overall. The S&P 500 future actually did come up to test and retest up in close proximity to the all-time highs, of which of course we saw the end of last week. And just looking at this chart on a daily, we did see that retest of course, um, of an area where we were up around mid-February, so the 16th. So again, finding a bit of a barrier here in the spoos at 3959 here on the daily continuation. Uh, on the pullback then, we've just fallen back toward pivot here, going into the European open. any breakthrough there, support area, uh, good level seen around 3,900 today intraday on the S&P in the futures, that encapsulating the 1st of March high, some of the previous areas of resistance and support on that period. So any breakdown of price, that would be a key area to keep a look or an eye on. WTI crude, pretty similar fashion really, a little bit positive initially, breaking out of a very short-term range of price activity. You can see here that we traded through kind of Thursday, Friday of last week. Breakout above that, we ran up to around $66.40 before just fading back, uh, that move. Still up there around 42 cents there in oil. There has been some headlines, um, just, just to make the point about some further drone attacks from Houthi Yemen militants, uh, in the kind of southwest corner of Saudi Arabia targeting specific airports and so on. However, that's not having any real meaningful impact on price. In terms of the actual infrastructure of gas and oil in Saudi Arabia, very much more situated in the northeast, kind of around them, close proximity to the Persian Gulf in itself, and this in the other opposite far corner of the country. So still ongoing, that activity to be aware of. Obviously any supply shocks and infrastructure would be significant, but this isn't one of those. Otherwise, elsewhere, gold pretty flat overall, up around $3. In the FX space, the DXY is a touch stronger, up around 0.2%. Major pairs down, but only very moderately. The US 10-year yields, of course, continue to be quite a focal point in terms of indicators to watch for potential subsequent price activity across other asset classes. And this is looking at the 10-year T-note future here. And that low that we printed back on the 5th, retested at the end of last week's session, that was also tested again in the late Asia PAC session. So holding for now, that will be a key area to watch, around 131.23. On the daily chart here, then you can see around that area that's been holding, um, is technically quite important because any breakdown of this could easily see another point lower before we come back down towards these areas that were in play towards October of 2019 and the retest we had beginning of 2020 before really the pandemic really started to kick off. So this lower rectangle here would be quite key. Um, obviously any further breakout in yield to the upside constituting this breakdown could well then lend its hand to dollar strength, equity weakness in that pattern that we've been seeing of late. With the markets very sensitive to yield fluctuation for the time being. That's pretty much the overall general sentiment this morning. So tiny bit negative, nothing outright. I'd say weekend news, as I said, was pretty quiet overall. But let me get you up to speed fully, starting off with the Chinese situation. In China, we had some data points overnight, and that was industrial output came in at 35.1% above expectations of 30%. And their retail sales figure came in at 33.8% above expectations of 32%. So these numbers are incredibly high, but just remember, this is because of base effects from this time last year. Um, if you think about industrial output, it collapsed to a 3-decade low as a comparable figure. So hence the reason why those numbers are so strong. Had a slight relief in the domestic market overnight in in China. However, that faded pretty quickly. The other thing, of course, to be very mindful of and not get caught this week is that US clocks have changed. They've gone from EST to EDT, daylight savings. So that does mean then that the time differential between London and New York is 4 hours instead of the typical 5 for the next 2 weeks. So any major US data, for example, will be coming out at 12:30 London time. 2 o'clock, the NYSE open at 1:30, and that will be in play for 2 weeks. So the day's kind of squeezed in a little bit if you're based in the UK or mainland Europe. So don't get caught blindsided by anything. So the FOMC on Wednesday will be at 6 PM London time, not the usual time of 7. Um, moving on then, some of the other headlines to, to have a look at. Quite a lot of press coverage over the weekend to do with vaccine news. Now talking about Europe firstly, where Italy's northern, one of Italy's northern regions said that it would stop using a batch of the Astra coronavirus shots after a teacher died following the vaccination on Saturday. Ireland separately has temporarily suspended AstraZeneca vaccine out of an abundance of caution, they said, citing reports from the Norwegian Medicines Agency regarding a cluster of serious blood blood clotting in some recipients. Now, this is something we were discussing on the Amplify Live stream on Friday because some of those headlines were already in circulation. And the important thing to note here is that the EMA, the kind of main body in Europe, have said that there's no indication that the events were caused by the vaccination, a view that was echoed by the World Health Organization as well on Friday. So you've got the EMA and the WHO AstraZeneca themselves have also said they found no evidence of increased risk of deep vein thrombosis, and in fact, actually, when you look at the numbers, then the number of people who have died from this blood clotting would be no different from what they would see in any other standard vaccine or drug. So I would say a lot of this has political connotations. There's obviously an underlying tension brewing at the moment between Europe and Britain due to do with vaccine manufacturing and supply, particularly of the AstraZeneca drug, which we were talking about last week, which has gone from 100 million promise of delivery to 40 million to not even hitting that target. And then the complexity is even further layered by the unresolved issues that still remain around Brexit, which still exist. Absolutely. But definitely there's other forces confronting markets for now. And so that's very much not too much of a talking point. However, it does underlying a lot of the tension in that relationship of, of presidents. So I'm not sure how much to read into that. I mean, ultimately, I don't think it's a major thing for market prices as far as right now. I think the fact that you've got the EMA, the WHO, and the company coming out with the stats as well, I think puts some more of a political twist to those headlines more than anything. One thing to bear in mind, though, as I've said last week, this is the kind of vaccine distributions that we're seeing in Europe. And as we know, AstraZeneca is the, the blue color, does make up just one of a basket of different vaccines that Europe has gone after to be deployed over the course of the next 18 months or so. At the moment, obviously, Astra would play a strategic part. You can see that deliveries were supposed to be kicking in from really now and then ramping up to then stay constant from Q3 onwards of this year. Through to Q2 of 2022. But as you can see here, Pfizer-BioNTech makes up the largest proportion, which is the kind of gray color here, and then they're spread across the others. But noting, you know, companies like J&J still yet to come to market, and they've obviously faced a lot of different barriers, whether through manufacturing and so forth, then they don't really kick in until at this point what is an estimated Q2. However, you know, it could even take longer, of course. And, and Sanofi and GSK's drugs also being delayed. And you can see here that's not going to be kicking in till Q1 of 2022. So, yeah, a bit of context there. The other thing from a news perspective, just before we get into the calendar for the week ahead, is Germany. Exit polls have pointed to defeats for Merkel's center-right party in two state elections which took place on Sunday, Baden-Württemberg and Rheinland-Pfalz. Palästinat. It's a litmus test for the federal elections which are taking place in September in Germany, and the Green Party performed particularly well, which does leave the prospect then potentially of an alliance between the Conservatives and Greens as quite a likely outcome of those September federal elections. Or the Greens could instead lead a coalition that includes the SPD, the FDP, or even the far-left Die Linke party. So definitely the popularity for Merkel as she kind of departs continues the pattern we've seen for a number of years now, which is diminishing for the CDU. Again, for European politics, as it kind of says here, the CDU leader under fire amid anger over virus strategy. This is very much echoed pretty much Globally, really, if you think about Donald Trump, if you think about what's happening in the UK and Boris Johnson and the opposition he's had, thankfully he's been— for him, he's been kind of mainly managed to get over the initial very slow adoption of stringent measures to lockdown 12 months ago by a very fast rollout of the vaccine program, which has kind of taken some of the heat off the strategy that the UK government was deploying at the time when death rates were particularly high. But if you look at then Germany or Macron in France, with French elections literally about 12 months away in April of 2022, and then you've got Italy where we had complete political blow-up that's led to now Mario Draghi as a technocrat caretaker kind of government in place. So the incumbents have been under pressure here because ultimately, whether they've had successful or not strategies, generally speaking, it gives opposition parties a real main key focal point to focus on, where tangible risk of loss of life then is a very emotive subject matter to, to talk about. So yeah, it's just, if anything, accelerated the decline of the popularity of the CDU party. But we have been seeing similar for the likes of the leading parties in, as I say, France, Italy, and so on and so forth. So it's, uh, the aftermath of such a humanitarian, the economic consequence of that does tend to lead to significant political change, you could say, from historical precedence. Looking at the week ahead then, a few things I want to talk about, starting off with today is pretty quiet, but then Tuesday things start to pick up a little bit. That's then you do get the German ZEW figures coming out. And then you get the US retail sales report. Now, the US retail sales report last month, you remember, came in at 5.3%, was the best number we've had since basically kind of June, May-June of 2020, when we reopened the US economy after the main lockdown on the initial onset of the pandemic. We had those phenomenal numbers, so that number was particularly strong. 5.3% was above 1.1% at the time. But do keep in mind that was chiefly supported because of the stimulus checks that were kicking in that time round. I think it was electronic— electronics and appliances really underpinned then the spending that lifted that figure. Piers and I talked about this a little bit in the Market Watch podcast on Friday, if you haven't checked that out yet. But this figure, this retail sales figure coming out on Tuesday should actually, in addition and alongside the industrial production numbers that we'll see later on in the week, should actually be a little bit softer than what we saw in that previous reading. The retail sales figure artificially buoyed then by that stimulus check, this one should fade. The stimmy checks, the new ones, the $1,400 have hit this weekend, so they'll show up in the following month's data. So I don't actually think the retail sales number is that big a deal, in honesty. Um, that being that a lower number is only going to be followed by a pretty explosive number next time around, given that this stimulus check being issued this time around by the latest $1.9 trillion Biden package is even bigger than the previous check. So it's hard to then see through the noise that ultimately is supported by these kind of one-time effects of those stimulus checks. A couple things here then that ING were noting as well to be aware of that they said that February winter storms will have deterred people from venturing out, and with many left without power, that will add to downside risks in terms of both of those figures— retail sales, sales and IP. Industrial activity could also be impacted then by bad weather and associated disruptions. Uh, so remember we had the cold freeze, of course, over that period. Um, okay, next thing then is you got the bank decisions, FOMC Bank of England, BOJ. So the big three following on from the ECB last week. And overall, I would say you're probably going to get something fairly similar to what we had from the ECB in the sake of the market still very hungry for any type of more explicit nature referring to the, the yield move we've had of late. But I'd say all three will push back against— or I should say not push back, but say nothing really directly on it. And so therefore does have the propensity to disappoint some if yields continue to move higher over the course of the next, uh, 2 or 3 days into the meetings in themselves. So I actually think overall it's the old movement and its positioning going into the meeting that will subsequently then lead to a potential reaction, given the fact that the Fed will probably just roll out the continuation of what what Powell has said before. Remember back in the Wall Street Journal speech he gave on the 4th of March, he said it'll take a substantial time to achieve the Fed's goals of full employment and 2% sustained inflation. So as such then, not expecting much in the way of real policy change, nothing at all really, uh, and very small if nothing at all in language. It's more about then how does the markets perceive that based on the, the market's positioning at that point in time. So Next couple of days will be quite key. Few things to be aware of though. Economists surveyed by Bloomberg see a 2-quarter point hikes happening in 2023, but they also expect the Fed's own forecast released at the same time as the policy statement on Wednesday will show the median Fed official projecting rates staying on hold near zero throughout that year. Remember, the Fed see rates basically on their dot plot projections, which we are getting an update of Remember, every calendar quarter, March, June, Sep, Dec. So there will be probably little alteration, if not none, in rates is what the general consensus is, irrespective of the fact that economists actually see a little bit more hawkish, that they will conduct 2 rate hikes of 25 basis points in 2023. I think the Fed forecast, though, will continue to remain underpinned that rates will remain low through that year, i.e., at zero. The committee, making its first quarterly economic forecasts of the year, are anticipated to raise their estimates for 2021 growth. Obviously we've got the stimulus package now coming through and so on, and edge up the inflation call. That was the view of 41 economists who were surveyed on, on the 5th to the 10th of March. In terms of that survey, some interesting stats here: 66% expect no change in guidance or conditions, with only 22% expecting a highlight on financial conditions. So talking about what's been going on in markets. I think that's— I'm on the camp with the other 80-odd percent thinking he's not going to comment directly on that. And then 12% are looking for strengthened forward guidance, which would be the next step of really counteracting this yield move. I definitely don't think that that's going to happen, but again, 12% of those economists are expecting that as potential reaction. For the Bank of England, uh, very, very dull. Not expecting much here at all really. Just a lot of people will be looking of course about any yield commentary. There's a little bit to read into that from comments from Bailey last week, but I think of the three, this is probably the least interesting. And then you've got the BOJ happening on Thursday night going into Friday morning, and perhaps this actually is, is interesting because because the BOJ are going to present the review of their policy tools on Friday. And this has sparked a bit of interest because there's a few different things here that they could do. And this was an article I've shared it. I'll share it in the community on Amplify Live. I did also tweet it from the Amplify Live Twitter account. And it's a really good one because it runs through some of these in terms of probability and what it is. So here, tweak of guidance on their ETF purchases, fine-tuning operation of yield curve control, modifying their tiered reserve system. So I'm not going to go through all of these now, but this is a really short— you know, obviously it's just a short few paragraphs for each individual one, but definitely worth a read. There's a widening tolerance basically around the band of 0% on the 10-year rate target at the BOJ. is possible. So widening of that tolerance, but Governor Kuroda has spoken against it, and thus, um, quite a few banks said they're not expecting any changes for now at least. But these are the different things we'll be looking out for. We'll talk more about as we get into the latter half of this week. Um, so that, that is it for, for the rundown. Um, Sam's going to go over all the charts from a technical perspective in the Discord room, so do check that out, magnifylive.com. Otherwise Gonna wish you guys a great day ahead and take care. Thanks very much.