This Week In Markets: 18th - 22nd January 2021

Okay, very good morning to you. Hope you're well, had a great weekend. Just a quick heads up then before I start the briefing, look ahead for the week, that if you haven't already joined us on Amplify Live, check out the link below if you're watching this on YouTube. And not only do we have things like the live stream, daily research put out, but we also have our masterclass happening this coming Wednesday. And this is our guest speaker from Industry This Week. We've got Hany Reda, who's a portfolio manager at PineBridge Investments, and he's part of the team responsible for around $15 billion of assets under management. So he chairs their team's multi-asset strategy process. So can't wait to have him on board. He's going to be in a kind of interactive Q&A with the community. So, yeah, be great to have everyone on board and get your questions ready. But otherwise, look, let's get stuck into it and what exactly is happening to kick off this week. And first of all, don't forget it is Martin Luther King Jr. Day in the US, which means that most of the major markets in the US are closed, and we have reduced electronic trade on Globex as well. So no trade, uh, on the NYSE or the CME today in terms of cash markets. But just looking across the major asset classes It's relatively quiet, a few things going on. So overall, from a kind of sentiment point of view, perhaps slightly dampened. There's a few things I'm going to talk about, obviously, to get you up to speed on the weekend's news before we talk about the week ahead. But we've got slightly lower index futures. DAX down about 64 here in early European trade. US indices also seen marginally lower elsewhere in the FX market. The dollar index is basically flat, but don't forget It's coming off a pretty resurgent performance that we saw at the end of last week, and consequently then in the major pairs, EURUSD and Cable trading a little lower. Minor underperformance seen in Cable at the moment. We'll talk about what the latest situation is there with COVID and the lockdown, with the latter looking more likely to be extended beyond the government's current target of the middle of February for loosening of restrictions. Otherwise elsewhere, the US 10-year then with some of the slight softness seen in the equity space, up about 3 ticks. And gold did see a little bit of volatility here in the initial reopening of trade overnight. You can see here this quite extreme red wick or candlestick here, looking at 30-minute candlesticks, not triggered by one specific headline, but if you put it on a daily continuation, you can see here just move that ellipse. Um, support points that were seen on the 7th, the 14th, again on the 11th of Jan, and then the 15th of Jan last week. And a breakthrough there just in some fairly illiquid, uh, markets, some quite extreme selling. We got down to pretty much to the tick, the $1,800 level, before we've seen then a strong $35 reversal on that now. So more, I would say, a byproduct of technical breaches reflection of the market conditions at that time, and then target down $1,800 before a bit of a bounce back. Um, you know, with gold still remaining a little heavy of late, albeit it's now up about $5 on the session, you know, this idea that real yields will start rising, inflation expectations picking up under the Biden kind of stimulus view, and that reflation trade, and therefore as well just adding to some of that allure back to yields rather than just typically looking at gold, which was helping support prices just a number of months ago. All right, well, look, in terms of a technical perspective, the guys as ever will go through that in full, uh, and, and the kind of setups on each chart. But I'm just going to get you up to speed on the news and what we're looking out for this week. So starting with the overnight session, we did have some Chinese figures, and we had the Chinese economy show that they've now exceeded its pre-pandemic growth levels. The number for fourth quarter— this is to the end of last year— came in at 6.5% above the expected 6.2%. Uh, IP came in year on year at 7.3% against 6.9%, and retail sales 4.6%, so a touch softer than expected 5.5%. But all in all, a faster than expected rebound seen at the end of last year. I think most analysts are of the view that Throughout the rest of this year, we're going to see growth rates in excess of 8% for, for the country as it continues to outperform that of the larger kind of global picture. How much of an influence has this had in terms of the market open here in Europe? None at all, I would say. So it's kind of a point just to be aware of. Otherwise, one of the things I thought was quite interesting that came out late last night eminating from the Wall Street Journal was this. Obviously a very familiar character to you, I'm sure, Janet Yellen. She's expected to affirm the US's commitment to market-determined dollar value and give assurances that the US will not seek a weaker dollar for competitive trade advantages. This is according to the Wall Street Journal, citing Biden transition officials familiar with her preparation for her confirmation hearing, which is happening on Tuesday. Obviously, she's the incoming new Treasury Secretary. So I thought that was quite an interesting one, particularly with the idea then that, you know, Trump administration obviously was very much talking down the dollar, talking about other foreign governments manipulating their currency, which was an unfair trade advantage to them. Trump was pretty well known for that. And so what this does mean then is that, you know, just given how short the dollar market had been, we've seen a bit of a bounce back. The Dixie's trading close proximity back to 91 now. So pretty, pretty strong reversal that we have had on some of this reflation trade since the, the blue wave confirmation. What it does mean then is that Yellen's not indicating that she would want to step in even if we did see that pickup. So I thought it was quite a meaningful comment to be aware of, even though I guess largely expected because she's much more, I guess, less assertive in that policy approach than obviously someone like Donald Trump and his administration would have been. The other thing then is looking at COVID. So this is the latest situation looking at coronavirus in the UK. The UK PM said on Friday that they're seeing some tentative early signs that the pressure may be slightly easing on London hospitals. Our Chief Medical Officer Chris Whitty said he hopes peak infections have passed in London but noted the death peak is in the future and peaks are approaching in the next week or 10 days regarding new hospital admissions. Um, so you can see here, if I go down the— there's early signs that daily cases may be falling. You can see that here, the 7-day average has dropped now to around the 46 thousand level, having got peaked up at around 60,000. However, if you have a look at daily deaths, they continue to increase at quite an alarming rate for the time being, and hospital admissions on the 7-day average are still up pretty much at their peak. So still another week or two to go according to, to Whitty on that front. Now what this has led to then, this is looking now at lockdown Covid-19 restrictions will not start to ease until March, only if Britain's vaccination program stays on track. That was according to the Foreign Secretary Dominic Raab, who obviously has been fairly well aligned with Boris Johnson. That, of course, is a different timeline to what the government's self-imposed dates are, which is for the middle of February, where they'll look to have vaccinated 14 million people by essentially the 15th of February. That's looking very unlikely then, given the fact that this seed now has been planted by the Foreign Secretary. So as we've been anticipating here on the channel for some time, you know, kind of the end of March or perhaps even Easter in early April is when we could see some loosening of those restrictions. But again, depends very much on the vaccination rates. The UK government is also said to be considering all possibilities to enforce COVID-19 rules for travelers and won't rule out setting up quarantine hotels and using GPS trackers in order to fight the spread. So what's being spoken about at the moment, um, on the actual vaccine side of things, The Telegraph newspaper reported the government aims to vaccinate 4 to 5 million people a week within months, with shots from Moderna and J&J helping it inoculate all 54 million adults by the end of June. That's what the government is saying. However, again, Rab sounded more cautious, stating that the government aims to vaccinate the adult population of the UK by September, and thus then lifting England's lockdown will not be a big bang event but will see the reintroduction of the tiering system. To give you context as well, at the moment vaccinations have now exceeded around 3.8 million. So again, the government officially saying X, but senior cabinet officials saying Y, definitely I think the Y is probably more sensible to follow. So perhaps late March then for the current restrictions of the national lockdown, which is a little bit longer, a couple of weeks beyond what we— they've currently tabled so far. And then in terms of the full more adult population being inoculated, they're saying end of June. We're probably looking more towards September, October time, all things remaining equal at this point in time on targets being met. In the US, Biden having unveiled his, his kind of fiscal policies last week, he's also now unveiled his COVID-19 plan, which includes increasing vaccine availability at pharmacies and would use the Defense Production Act in order to boost supplies as well as launching mobile clinics. Now his target is to deliver 100 million doses of COVID-19 vaccine within the first 100 days of his presidency, something which the health advisor Anthony Fauci has said is more than, more than doable. So that, that's the target. So it'd be interesting to see then, continue to track these US numbers as well as in the UK and elsewhere to see how the things are going. An interesting read this morning was talking about the divergence that is happening at the moment, basically built upon the affluency of the country in question, where the developed world has access to these more expensive products or vaccines that we've had from Moderna in particular, but also Pfizer. AstraZeneca is a little bit more affordable in that respect. But the idea being that actually this is a global-led problem, because without the entire world having some kind of coordinated solution, then we could see a prolonged period of mutation of this virus if there are other countries who have less ability to be able to purchase these more expensive drugs, which is fine for the likes of the UK and the US, but what about these other nations in Africa, for example? so yeah, quite an interesting point on the bigger picture. Otherwise, just moving on, the other headlines to get you up to speed on European politics. Italy, the Italian Prime Minister Giuseppe Conte faces a confidence vote in the lower house of parliament today. He is likely to win that, but then he could face a similar vote on the Senate in Italy on Tuesday, where he has less room for maneuver after the former ally Matteo Renzi, the former premier withdrew his backing, what we saw last week. Uh, Conte needs about a dozen more votes in the Senate to restore an outright majority in the 321-strong upper chamber after the defection of Renzi's parties. So BTPs this morning, um, a slight uptick in Italian yields once again. So still a degree of uncertainty, as we were talking about last week. Snap elections still seem unlikely, but it could be that, um, this— one of the scenarios here is that Conte actually resigns. That doesn't mean necessarily he leaves, he just gets given the mandate from the president Mattarella to go ahead and try to form a new government, which might buy him another few weeks. But again, that just increases the longevity of the political instability being witnessed at the moment, and that could be reflective in some marginal sensitivity to Italian yields. I would say. Meanwhile, in Germany, just very quickly, Armin Laschet, PM of the German state of North Rhine-Westphalia, has been elected leader of the governing CDU on a promise of continuity with the centrist course of Angela Merkel. I guess that's the most important point because this victory now puts him in the pole position to succeed Merkel as chancellor after the September elections to take place in the Bundestag. On the oil front, I did think it was worth noting that, um, we continue to get fairly aggressive rhetoric coming out of— and behavior coming out of Iran at the moment, ahead of the inauguration, of course, of Biden and the new US administration coming in. The Iranian Revolutionary Guards, as you can see here, test tested a long-range missile and drones against land-to-sea targets in their fourth large-scale military show of force in just two weeks, uh, at this present point in time. Does this constitute something to be worried about? I'd say no. It's more a flexing of muscle from a political point, coming into quite sensitive timing with the Biden administration coming in, as I said. However, you know, one mistake here or there on a test, or a drone going into different disputed areas, for example, geographically, uh, could be met with a response from military, which is obviously quite a crowded space at that particular area in the Middle East around the Straits of Hormuz. So any supply shock, of course, would be very meaningful for price. Separately, elsewhere, Libya's oil output has dropped by about 200,000 barrels per day after a closure of a leaking pipeline something to be aware of that happened at the weekend on Saturday. Output has fallen to around 1 million barrels per day in the wake of the Waha Oil Company's decision to shut the pipeline taking crude to the eastern oil port of Es Saida, which is the largest of course in, in Libya. At the moment though, I mean, is that Libyan news that important for oil? I would say no, not particularly. I'd say the oil dynamic still very much being driven by the kind of demand implications from tracking things like the virus, from the developments of, of cases, restrictions, and then also vaccines. Okay, quick look elsewhere. This is something I thought I'd mention, not so much because of Trump but more so because of Intel perhaps, that the market opened later. Not today, but I guess we're looking ahead to Tuesday given the, the market holiday today. But the Trump administration have notified Huawei suppliers including chipmaker Intel that it is revoking certain licenses to sell the Chinese company, um, and intends to reject dozens of other applications to supply the telecommunications firm, according to people familiar with the matter that told Reuters. So yeah, be interested to see how Intel fare when they do reopen later on this week. From an earnings perspective then, talking about single stocks, it does pick up pace a little bit. There are 40 S&P 500 companies reporting, uh, this week. Here's a look at some of the highlights. There are 6 of the Dow 30 components as well due. So just giving you a bit of a flavor, again, we continue to get a number of the big bank stocks in pre-market. So Tuesday, Bank of America and Goldman Sachs. You've also got Netflix, which is always a keen one to watch, um, after market on Tuesday. Pre-market Wednesday, Procter Gamble, Morgan Stanley, kind of some of the standouts some of the airline firms, United, after the close on Wednesday. Thursday aftermarket, you've got Intel and IBM. And then on Friday, probably Schlumberger is the most notable in terms of market cap perspective there. So no one particularly huge, I would say, but certainly earnings season is starting to pick up a bit of pace before we get into the full swing and the big multi-hundred kind of number drop then for next week. Looking at the calendar, it is a fairly kind of back-ended week, I would say. Not only do we have the Martin Luther King Jr. Day holiday today, but tomorrow is pretty spare of any major macroeconomic data releases. So really, we look ahead to Wednesday. And just to give you a bit of a flavor then, starting with the the US first. Obviously, we've got Janet Yellen having her, her confirmation hearing on Tuesday as a Treasury Secretary. We've then got Biden's inauguration, of course, happening on Wednesday. A lot of talk over the weekend in mainstream media about the potential for violent protests happening on Capitol Hill anytime really from now up until that event. I would say that as much as that would generate a lot of media attention, and there could well be some trouble that might emanate from that event in itself, I don't think it's going to be particularly market moving from a market perspective. Nonetheless though, where are we at with the whole execution of the Biden fiscal plan? Well, interesting commentary coming out of Fox's Charlie Gasparino. Now anyone who was around during the financial crisis will recognize his name, Charlie Gasparino. Back then I think he was with CNBC CNBC, but he was particularly hot with a lot of the good scoops that were coming out for the whole subprime crisis. So he's now at Fox, and what he was saying at the weekend was Wall Street Democrat sources believe that Biden will be forced to scale back spending plans and increases the minimum wage because of divided government and opposition from more moderate Democrats. So again, this is one of those things that we were discussing last week about the blue ripple. Rather than the blue wave, given the kind of mathematics that define the Senate being particularly close-run. And certain proposals require 60 Senate seats to vote in favor of certain policies, which is probably a bit of a big ask. So, you know, just worth bearing that in mind. Otherwise, US data-wise, it is pretty quiet. You get the flash PMI on Friday, but other than that, that's pretty much it. So flipping over to what we've got from mainland Europe and the UK. So starting with Europe, Thursday, you can see you've got the ECB policy decision. So extended COVID-19 lockdowns, the pace of vaccinations, the impact that prolonged restrictions in terms of lockdowns are having in various European economies on the overall eurozone, and then Italian politics. These are all going to be probably the 4 key subjects that we'll be discussing with Christine Lagarde in the press conference. Not expecting anything, any policy changes at all here, but there's obviously quite a few updates. It'll be interesting to hear what she has to say when she goes into that Q&A event. So that's on Thursday for the ECB. You've also got, from a central bank perspective, the Bank of Canada on Wednesday, and you've got the BOJ policy decision coming— that I think it's Thursday night into Friday morning as well, but not expecting anything really from the latter two. Central banks. You will see here though on Friday, again sticking with the eurozone but also relevant for the UK as well as the US, the flash PMIs. So these are always the, the most interesting, of course. They'll be important to see the impact of rising COVID cases has had on general sentiment, particularly in the likes of Germany and the Netherlands in mainland Europe. For example, restrictions now are even more onerous than what they were back in the spring. So how is that impacting those harsher restrictions, the overall general sentiment? The German Central Bank's Weekly Economic Activity Index— this is something I was reading about the weekend— is an experimental measure that draws on high-frequency indicators. Remember, through this whole pandemic, this has been a, a kind of buzzword that people have looked at for data readings to get a bit more of a real-time sentiment of rather than looking at slow traditional macroeconomic indicators, what's actually happening right here, right now, measuring things like mobility, because that gives you a good idea of what is then the overall activity happening and the overall economic impact from a lockdown. And basically, this German Central Bank Activity Index was showing that having drawn upon indicators such as pollution, Google searches, consumer confidence, It fell last week for the first time since the summer. So definitely starting to bite, this ongoing kind of continuous rollover of lockdowns like what we've seen in Germany. So yeah, be interesting to see the read across for the PMIs. And going back then to the UK, you can see here we've got inflation data on Wednesday, uh, you've got UK retail sales happening on Friday. Um, so the UK PMIs on Friday will reveal the impact of post-Brexit trade disruptions on sentiment and activity since the country left the European Union's custom arrangements at the start of the month. It will also reflect the impacts, uh, to what degree from the continuation of ongoing lockdowns. Again, public finance data and inflation data also due out this week. So that's pretty much everything. So as far as the market open this morning, perhaps a little bit, um, slightly risk-off equity index futures, a touch heavy gold after that slight overnight technical move has started, has rebounded. T-notes a little higher. I guess overall, um, there's a little bit of, I guess kind of the fanfare around the Biden pump kind of just fading a little bit, as it did at the end of last week, as kind of the, the attention turns more to the practicalities of, of what he can achieve and how fast he can achieve it. The COVID situation is still resulting in the talk of, of pretty much then ongoing lockdowns, irrespective of the fact that vaccine programs are starting to pick up a bit of pace. So generally speaking, then, equity's a little lower, all Oil a little lower would be a reflection of that. US 10-year a touch higher, and then Italian yields also moving up, pressuring BTPs on the ongoing political uncertainty there. So that is your, your wrap for the, for the week ahead. Any questions at all, just feel free to drop me a comment. Absolutely happy to help as always. Thanks very much, guys.