This Week In Markets: 19th - 23rd 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're doing well, had a great weekend. It's Monday the 19th of October Just coming up to 7 AM here in London and giving you your regular look ahead for the week, as well as encapsulating all the weekend news. And certainly quite a few things for me to get you up to speed on, from stimulus talks to Chinese GDP overnight and things like earnings, COVID, Brexit. So what I'm going to— what my intention is to do is I'm just going to give you a brief overview of just general market sentiment here on the charts this morning and then go straight into the headlines. And get you ready for what you can expect from the session ahead. So overall risk appetite moderately high. US index futures, NASDAQ's up 100 already, S&P 24, the DAX up 27 points. This coming after generally a positive Asia-Pacific session in terms of the equity markets across that continent. A combination really of things, mainly the factors I'll describe a moment. Some progression, or at least commitment to continue dialogue on the US stimulus front between the US House Speaker Nancy Pelosi and the Treasury Secretary Steven Mnuchin, is underpinning general sentiment. But as I said, we'll go into the details in a moment. Otherwise, the COVID cases still definitely need to be tracked on a global level. There's a couple of charts I'm going to show you. Overall hospitalizations pretty much across the board going up, in particular in the US, albeit at a fairly gradual pace. But just given the nervousness that was apparent at the end of last week pertaining to the Midwest in the US, there was nothing kind of shocking that developed, I would say, over the weekend. But certainly it's going to be something to keep an eye on as we go through the rest of the, the week. So in terms of the other asset classes, in the currency markets, the dollar's just edged a little lower as UK European participants have come into the market. And so consequently, just this slight uplift seen in EURUSD and cable, both of which trade broadly flat at the moment. So despite all of the Brexit headlines that we've had at the end of last week about Boris Johnson being quite, let's say, assertive and walking away from the deal or looking for an Australian-style trade deal, None of that downside was really sustained as we were expecting at the time, and we were commenting on the fact that a lot of this seen as more political posturing than any real definitive end date, which we, as we know legally, is not seen till the end of the year when the end of transition. So a few things UK-wise as well that have been going on that I'll update you on. But otherwise, with some of that touch of dollar weakness as European participants have come in, gold's just seen a slight uptick. We've just broken out of the Asia-Pacific range, which was also capped by the pivot level in the futures market. So trading now at $19.12, up about $6. Elsewhere then, with the positive general tone in the equity index futures, T-notes down about 4 ticks, trading at 138.30. Similar loss seen in the Bund this morning with a slight moderate gap down and trading below its pivot in the futures. And WTI crude is pretty flat at the moment. However, there is an OPEC+ JMMC meeting happening today that you need to be aware of. All right, well, let's get into the, the nitty-gritty and get you up to speed. First off, before I go into the US stimulus talks, overnight you did have the release of Chinese GDP. Um, wasn't really too much of a market mover in all honesty in terms of the local assets and the Chinese yuan. Chinese GDP came in year on year 4.9%, was a touch softer than expected 5.2%. You also had Chinese retail sales come in almost double consensus at 3.3%, and industrial output was at 6.9% above the expected 5.8%. So perhaps a touch soft on the GDP, but quite a bit firm on retail sales and IP, um, in the overnight session. But again, overall reaction relatively tame, but certainly that data not enough to detract away from the more positive commitments that we've had on Capitol Hill in regards to pursuing talks on, on stimulus. And this then brings us to this article here. So what's the latest? Well, Nancy Pelosi has set a Tuesday deadline for more progress with the White House on fiscal stimulus before the US election, of course, on the 3rd of November. On Saturday, Trump said he would exceed the amounts floated so far and voiced confidence that he could quickly convince Republicans to back a good deal. So as we were talking about on the political side last week, Trump's quite forthcoming now, uh, in moving more towards the Democratic demands for a higher fiscal stimulus kind of bill amount. And this is strategically very important because when we look at the polls in a moment, it's particularly sensitive timing because of the fact that Florida ballot voting opens today, and that's one of the most important ones in terms of the size of electoral college seats, which at 29 is tied with New York for the third largest behind that of California and Texas. And Florida is always seen as the tipping point, as one of the most important battlegrounds that might determine the election. And so I would expect Trump to continue to be saying these types of comments because he needs to kind of get in the heads of those voters right now, not just waiting for the 3rd of November, of course, because it's going to be decisive from this point onwards. So the latest then, given this kind of commitment to try and get something done according to Pelosi in the coming days, both Pelosi and the Treasury Secretary Steven Mnuchin spoke at length apparently on Saturday night. I think the call was just over an hour and 15 minutes or so. Obviously, people in markets looking at the individual minutes of how long they speak as toward how progressive they are, because sometimes when there's an abrupt kind of end to a meeting, markets can take that quite negatively. But apparently the two were in dialogue, and this obviously is important in that sense that they're going to be speaking again today. So it's definitely something to be, to be on the watch out for. One would think that that's going to come stateside timing, so towards the latter part of the European afternoon, if you're looking out for that type of think. But yeah, the crescendo of those talks and general optimism or pessimism which might play out in negative, positive market movement might well come by tomorrow for that self-imposed deadline put forward by Nancy Pelosi. Um, yeah, as I mentioned, it really is quite key at the moment because the early voting in Florida has opened. As I mentioned, Florida is really quite a pivotal area, and looking at A couple of things. First of all, from a nationwide RCP national average polling, Biden still has a fairly commanding lead of about 8.9 points. In the battleground areas now, Biden leads by 4.3 points. Now these, these numbers still heavily in his favor, but actually they have narrowed ever so slightly, as you can see here by the convergence of these two blue and red lines here. Now in particular, we were just talking about the importance of Florida. Uh, that is probably of this list of key battlegrounds the singular most important, just given the size of those Electoral College votes. And that one, you'll notice, is the closest. Biden only leads— so even on the national front he's ahead by, you know, almost 9 points. In Florida, he's ahead by just over 1 point. So worth bearing this in mind because really the balance of power does reside with a lot of these key areas. And as far as Trump's movements are concerned, Trump will be visiting Arizona today, which we'll see is one of these key areas, and Biden currently ahead by 3.9. And that comes after he held a campaign rally in Nevada yesterday on Sunday. So still super busy on that front, trying to campaign to get as much in as possible before the deadline, which is only, of course, around 2 weeks or so now. Moving from there onto the COVID situation, first of all, I thought we'd have a look at the, the US. I know there's a couple of graphics on my screen here, but I guess the one I wanted to show you is this one here on the right-hand side. And this is looking at the contrasting experiences of the pandemic in the US, and these lines would indicate a 7-day rolling average of new deaths per 100,000. But the colors depict then the differences between this, this kind of deep red color, which is large inner cities, and the lighter blue colors are rural small towns or cities. And so obviously big US cities and their suburbs, particularly New York, they suffered— the tri-state area— the most back in kind of March, April time when the pandemic first hit, whereas now we what's happening in America is very much more so, COVID-19 deaths we're looking at here, have been occurring at a greater rate in small town and rural counties than in cities. So there has been a bit of a change in terms of the composition as well about how this virus has been acting as time has gone on. And overall national hospitalization rates in the US are gradually ticking up. At the moment. So again, from a market's point of view, those numbers definitely warrant monitoring and remaining quite vigilant for if that curve starts to become steeper on hospital— hospitalizations, and consequently deaths will start to move higher. And that could make markets a little bit more apprehensive. And then if this talk on Capitol Hill is just pure political gamesmanship to try and make it appear that each side's doing as much as they can without either side really coming to any real concession and compromise, then a lack of stimulus, if those numbers go up, could be something to look out for this week that could take hold in a negative fashion in asset classes as the, as the week goes on. Um, elsewhere then, talking about the broader global situation with COVID again focusing on this chart on the right-hand side. I know it's a bit small, so I'll walk you through it. But here what we're looking at is the likes of— you've got Austria. Well, if I go through it, you've got Austria, Belgium, Czech, Denmark, Finland, France, so on and so forth. Now what this is looking at here is patients in hospital with COVID-19 per 100,000, and of all of these nations, you've got Belgium, Czech Republic, Finland, France, Ireland, Italy, Portugal, and the UK are all seeing increases in the outbreak accelerating, resulting in patients in hospital at this present point in time. So herein then lies the, the issue about all of the restrictions that we saw being put in place across mainland Europe, predominantly in the UK last week, and certainly that's still quite a sensitive area that I would suggest to continue to monitor as we continue to go forward. On the front of the UK COVID side of things, still mounting pressure of course on Boris Johnson. Britain needs to impose a 3-week period of national lockdown restrictions immediately in order to stop cases of COVID-19 spiraling out of control, according to government scientific advisor Jeremy Farrar said at the weekend, adding that current regional measures would not be effective This is talking about that current regional focus tiering system that we, we have in place at the moment. That idea though of a kind of circuit breaker of 3 weeks was ruled out by senior minister Michael Gove, who was doing the kind of media rounds on Sunday. But again, timing-wise, definitely this has been around the mooted time before of when a circuit breaker could take place, and certainly What will dictate whether that course of action becomes a necessity for Johnson, where he would run out of wiggle room, would be if these COVID case numbers start translating into increased hospitalisations and deaths. And if that does happen this week, then certainly there is a tangible prospect of an increasing up the scale of tiering system to the point of nationwide lockdown. If that does occur, of course, that would be very much a negative for the British pound. I was looking at the numbers, I think last week. I think it's something like the impact of a week shutdown is something— I think I'm right in saying it's something like circa £20 billion for the UK economy. So obviously every week in which that happens compounds then the negative impact it would have. Consequently, the more weight it would create as a negative for the British pound. But we're not there yet. And obviously it's contingent very much on how the virus behaves. Going forward. Moving on then with the UK, let's stick with that and let's talk a little bit about Brexit. Yeah, last week I thought was very much politics playing out, and hopefully some of the, the kind of insight that we gave on the channel hopefully was useful to you guys last week, because even though there was a knee-jerk reaction, markets in the intraday do tend to be very sensitive positive. And so as some of these headlines were coming out, particularly from the UK side being quite aggressive of a tangible risk of walking away definitively from the deal, the pound did blip, but nearly every blip was counteracted by quite a steep, sharp, and quick recovery. And this week, what you're looking out for really is conversations on negotiations, obviously, to continue in earnest to try and get forward some sort of deal. This coming irrespective of the kind of fairly sour note that things ended last week. Now, one thing that a lot of the papers are looking at this morning, particularly Bloomberg here, you can see this article is the internal market bill, which really caused quite a— was the trigger point of one of the main points of turning south in cable in the currency pair about 2 or 3 weeks ago was when the UK introduced its internal market bill. Which was kind of like the planning if they don't actually go ahead and do a deal and so on. And that actual bill begins its progress through the House of Lords from today. Now, as you know, the way the structure works is that the Commons— this, this has already been done, but then it needs to go through the House of Lords to be ratified then into UK law. And the problem is, is that the Lords are inherently more sided with being kind of pro-Remain rather than Brexit in terms of their political disposition, even though that shouldn't really play too much of an issue. The idea here being that legislators are unlikely to reject the draft law entirely. I mean, that would be unconstitutional if you want to call it that, because that has been what's been passed in the lower house. But that does not mean that they cannot make amendments to the existing bill. And the point here being that they're almost certain to take out some of the most controversial parts of that bill in the weeks ahead, in a move then that could really, um, revive some of these fading talks with the EU, because the EU will see that as a more positive step if they water down that internal market bill, according to people familiar with the matter. That's a sign to just bear in mind. The other thing that we did have at the end of last week, you might have missed it, I don't think it's particularly important, but just so you're aware of it, Moody's, the rating agency, did downgrade the UK on Friday to AA3 to AA2. They cited a huge economic hit from the coronavirus, Brexit, and the lack of clear budget plans for Prime Minister Boris Johnson's government as the key metrics then for the reason why they've been downgraded. I think on equivalent country basis now we're level with the likes of the Czech Republic and Belgium. That's a reference point. I know a sovereign being downgraded might sound quite a scary headline, but with things like Brexit, coronavirus— yeah, agreed, I think Rishi Sunak has delayed and pushed back the budget, but I guess it's almost inevitable that was going to happen because of this such unclear uncertainty over the COVID I don't think that's too surprising either. So I think the market can take that downgrade in its stride, uh, and as you're seeing resulting in prices this morning, there's been no real reaction to that news. So context is super important when we're talking about these types of individual headlines. Um, then I'm going to move over to, to this chap from the Bank of England side of things, and this will bring us into a number of central bank speakers that are speaking this this week. But from the BoE side, it's going to be particularly busy. Now, Bailey, the governor, did speak at the weekend and he said there is significant risk of further disappointments to UK economic growth and that the country faced unprecedented uncertainty as coronavirus cases begin to climb again. So pretty pessimistic coming out from the, uh, the governor. Now, the pound hasn't really reacted to this, um, but What I would say is that the next Bank of England meeting is only just under 3 weeks away. So shortly after the US election and this week we've got Governor Bailey speaking again on Thursday. We've got other policymakers, Broadbent, Cunliffe, they're speaking later on today. You've got Sir Dave Ramsden speaking on Friday. So you've got all the deputy governors as well as the governor himself coming out speaking this week. And this is going to be one of the last opportunities opportunities really for members to flag whether the MPC is likely to announce more stimulus measures in November, including raising the level of asset purchases. If you remember a few weeks ago, it was really November that was penciled in as the key month which the Bank of England could look to accelerate their asset purchase program. Remember, even though there's been a lot of conversation about negative rates, if they were to even happen at all, which is— this case is still a low probability. Although it's been tabled, that's probably not going to happen till further out in the future. The next logical sequence is to rearm the, the kind of amount of available space on their asset purchase program. So at the moment, it's still a bit uncertain whether that's going to materialize or not. Obviously, with Brexit, it might be even we get to early parts of November and we're no— none the wiser as as far as where these discussions are. So at that point, it's a bit difficult for the Bank of England to make a judgment call on do they increase now, do they wait, if they increase, by how much. And then with things like coronavirus, obviously that we should be in a little bit of a more, uh, of a better idea about this latest kind of pickup and what this kind of trajectory of rates looks like then, as to, um, trying to understand as market participants the likelihood of the Bank of England taking action. So all of those things would be the, the specific ways in which I'd monitor those prospects. However, commentary, of course, from the MPC members, given the frequency that they're speaking and the importance of the individuals that are speaking, I think this could be quite a key thing to monitor as we go through the week. From a Bank of England speaker point of view, we also have economic data as well. CPI comes out in the UK on Wednesday. Price pressures in part will likely be a product of the curtailment of the government's Eat Out to Help Out scheme. So the removal of that, meaning prices are going to jump back up again, should see CPI move up just a touch, with less of a drag from clothing and footwear also set to bolster UK CPI. So when that comes out, if it does see an uptick, I don't think it's a massive surprise to, to markets. Okay, um, one of the other headlines I thought I'd share, and it's relevant for today, is to do with OPEC. And that's because OPEC+ are meeting today, the group meeting, to take stock amid an accelerating pandemic we're seeing globally at the moment. And a couple of things to be aware of: no supply decisions are expected formally from OPEC+ until December December 1st. However, reports at the weekend were suggesting that leading members Saudi Arabia and Russia are already stepping up diplomacy. Now, what people are speculating at the moment is Vladimir Putin and Mohammed bin Salman have spoken twice by phone in a week last week. Now, that doesn't sound like much, but actually it's the first time the two countries' leaders have spoken so frequently since the depths of the oil crisis that we experienced back in April. You remember April, May is when we had that period briefly of the negative price in the futures contracts, when we had complete demand kind of destruction on the back of the most stringent global lockdown measures. Last week, just to get up to speed, the OPEC Secretary-General, he said demand is, quote, anemic. And obviously This comes in the context of, uh, continued rising of COVID which is resulting in more restrictions, which of course is impeding demand very much so. And in OPEC's own internal report pointed to the risk of a new surplus in oil, and in private delegates admit they're open to delaying the increase when a formal decision is taken in 6 weeks' time. So we're already 6 weeks out from when they're going to make the the next kind of decrease in the stringency of these, these cuts. Remember, we've gone from around a supply cut of 9.6 million for a number of months. We've eased that to around 7.7 million. It was supposed to be a kind of staggered approach back to normal, normalization, as the demand curve continues to improve, as the economic recovery takes hold. But the problem is that shape of recovery continues to falter. And so therefore OPEC already looking, I feel, in almost like a central bank-esque way, trying to manipulate market thinking that they could well just keep things as they are. And in a sense then that would be kind of controlling the supply a little more so for a little longer in order to just keep an underlying hand of support in the marketplace. So they are meeting today. I definitely keep an eye out for any, any comments there. Oil's pretty quiet. As far as the overnight session is concerned, but could be something we'll get some headlines on a little bit later. And then looking at earnings, we had all the bank earnings of course, um, last week. We've got 96 of the S&P 500 reporting this week, so things start to step up a little bit. We've got 8 of the Dow 30 components also reporting. I'm just looking at the highlights here, not going to go into any real detail. As you can see, you've got IBM aftermarket today, one of the bigger market cap names. Tuesday highlights, you've got P&G pre-market, Netflix aftermarket. Um, before market open on Wednesday, you've got likes of Verizon, Thermo Fisher, Biogen. Aftermarket, Tesla of course, which will generate, I'm sure, lots of headlines. Thursday pre-market, Coca-Cola, AT&T, some of the airline Firms American Airlines, Southwest, and so on, of course, will be interesting. And then after market, you got Intel. Then at the end of the week on Friday, Amex, probably one of the bigger names to, to be aware of. Okay, quick look at the calendar then, and that will incorporate then the final few points I wanted to make. And first off is the just volume of central bank speakers this week, uh, continues to be pretty incredible, uh, from across the board. I've already talked about the Bank of England The Federal Reserve is exactly the same. We've got Christine Lagarde talking again today, as well as the chief economist Philip Lane. They're both speaking, not only Lagarde today, but both of those two individuals speaking on Wednesday also. So for me, why are central bankers speaking so much? Well, I just think there's a lot of— there's a lot to track on the global macro front at the moment. So there's a lot potentially that investors could become nervous about, particularly in a pandemic environment. So for me, this is a probably coordinated effort on behalf of all of the central banks to be as reassuring to markets as possible, hence the frequency and the volume of speakers that we're seeing at the moment. Today is, is a busy one. You've got Jerome Powell, the Fed chair, speaks at the IMF panel on a cross-border payment conference. Lagarde speaking at 1:30, Powell at 1:00. And then Lagarde giving more opening remarks at 1:45. You can see you've got the Bank of England Deputy Governor Broadbent, he'll be at 1:45, and then you've got a host of Fed speakers as well in the late afternoon, in early evening as well, to be aware of. But as you go through the week, you can see there's more Fed speakers on Tuesday, again afternoon-based. You've got Lagarde and Lane, the chief economist, speaking late, 5 PM on Wednesday London time. Bank of England Governor then comes again on Thursday morning, and then you've got the Deputy Governor Ramsden speaking in the afternoon on Friday as well. Just while we're here on the calendar, on the Friday, that's one of the most important days that we'll get from a data perspective because that's when we're going to get the Eurozone UK PMI numbers. These are the October preliminary figures. Expectations are that manufacturing will still outperform ever so slightly on a relative basis, but services take a bigger hit. Social distancing measures continuing to tighten is likely to impede that particular side of things. Also on Friday— I say it's Friday, really this is Thursday night in the US, but it's the early hours, 2 AM going into Friday morning if you're in London— we get the final, what should be, presidential debate debate in Nashville. So as far as I'm aware, that's still going ahead, but look out for any changes to that, just given, of course, some of the delays that we've had or cancellations given the COVID situation with the president. But if that does go ahead, that is the final opportunity then for them to go head-to-head in a televised format. The other thing on a data perspective I want to mention, just going into the beginning of the week, And I guess going into Wednesday, I mentioned the UK CPI already. You do have, if you're looking at the Australian dollar, the Antipodean currencies, uh, RBA Governor's low hint about an extension of bond purchase programs to longer maturities has prompted many to think that the RBA move will come at their 3rd of November policy meeting in terms of more easing. Remember, he talked about buying longer-dated maturities in their bond buying program, and even that there's room to lower rates further. And the reason why that's important is that this week we might get more clarity because we'll get the RBA minutes on Tuesday, and then a speech by Deputy Governor Di Belli is going to happen as well this week. Also, you remember last week, increase in heightened Australian-Chinese trade tensions, specifically around the idea of China banning Australian coal imports. And as I said at the time, the Aussie is particularly sensitive to that type of rhetoric given the trade dependency that they have on their largest trading partner, which is China. So keep an eye on that as well. That is pretty much everything, so I'm gonna leave it at that. So lots to think about for the week ahead from a fundamental perspective. Perspective. Overall, the key things to watch, I think, for today to just get things up and running is going to be a lot of key central bank speaking, predominantly based in the second half of the day. In the afternoon, you've got Jerome Powell and Christine Lagarde, as well as BOE and Fed members speaking. Any updates on Pelosi and Mnuchin, so keep an eye probably in the afternoon and early evening London time for any updates as for Pelosi, Mnuchin commentary. And then, yeah, the campaign trail continues in earnest, and particular eyes on some of the key battleground states. And I'm sure Trump will continue as ever to be as vocal with his tweets as we go through the day. But I'm gonna leave it at that. That's your rundown for the week ahead. Hope it was useful. Any commentary at all, or any comments I should say, feel free to drop a comment. And don't forget to like and subscribe to the channel. I'd really appreciate it, and I'll see you guys tomorrow. Alright, have a good day.