This Week In Markets: 1st - 4th June 2021

Very good morning to you, 1st of June. Hope you're doing well, and if you're based in the UK and US, I hope you had a lovely long weekend. But getting you back up to speed on what's been going on and a bit of a view for the, the week ahead. And we'll also talk not only about the news but look at the charts from a technical perspective as well. Going to talk a little bit about inflation in Germany, some data we saw yesterday latest COVID situation, OPEC meeting happening today. Of course, the pound traded at a 3-year high overnight in the Asia-Pac session. We had the RBA rate decision where actually the Aussie dollar sold off irrespective of them holding policy, and then also a few other bits to, to look at on the calendar for today. So looking at the charts, firstly, let's just give an overview of where we stand from a technical perspective, and I'll try to layer in a couple of the news articles as well. So as I mentioned, um, the pound did touch on a multi-year high in the overnight session. Dollar index is generally weaker this morning, it is down about 0.2%, albeit we're starting to see a slight fade from those initial highs that were seen in the overnight session. For the time being as Europe come into the market. A couple of things then here looking from a technical perspective with the pound. You know, for one, why is the pound— which if we put this onto a daily chart, so everything from here, this encapsulates the last 1.5 years or so's worth of price action. So we're starting to encapsulate here the downturn, what we saw on the onset of the global pandemic, and then the recovery that we've seen that thereafter. And in— on the daily chart, we're at a really key point here because we're retesting up and around the February year-to-date high, of which we've just traded above, hence the 3-year high we printed overnight. So we're trading at the moment here. If we start to just push this chart a little bit further over to the left, you can see right over here to the right-hand side would be the 2018 high. So if we did continue to push on above this week, then the next target would be 1.44. Now, from a sterling point of view, what, you know, what's the deal here? Why are we seeing such a resurgence in pound? And it really is to do with the vaccination program. Um, you know, the UK was arguably very slow to adopt restrictions right at the beginning of the pandemic, but they've been very quick to deploy and administer vaccines, as we know, on the rollout program. And at this point in time that continues to move on at pace. Three-quarters of the UK population will be covered with a two-dose vaccine within a month based on the current pace of inoculations and data from Bloomberg and the Johns Hopkins University. We've got some meaningful milestones obviously coming up this month, which is the 21st of June for the ultimate kind of ending of lockdown that we've been in for several months. Whether or not that, that happens on the 21st of June is a bit debatable because of the gradual uptick that we're seeing in COVID numbers in the UK, albeit in context still quite low on the back of the Indian variant. And that really is still probably yet to peak at this point and feed through into hospitalizations and death rates. But the point being is that now with more people immunized, the wave, if you like, which was anticipated around this time of year shouldn't be as bad as we've had before. Again, touch wood. And so therefore, that lends its hand to whether 21st of June or not, the economy is going to reopen in time. And with that being the case, then there's a lot of kind of chitter chatter around the fact that the Bank of England could arguably follow suit of what we've heard from the Bank of Canada, from the RBNZ, and start leaning on the more hawkish side of policy in the period ahead and bringing forward rate increases into 2022. And so that more kind of progression, if you like, on the normalizing out of the post-pandemic, comparative to the Fed being fairly, um, standing pat at the moment, not wanting to move, then that plays favorably upside for further gains in the British pound going forward. So definitely, having a medium-term perspective, still remain, even though we've moved a fair distance, uh, even in the last month or so. Technically now we're at quite a key point. If we can break above here and close above, uh, on the daily charts this week, then it might lend its hand to then a continuation up to 144 eventually, amid the ongoing weakness that we've been seeing in the US dollar as the Fed want to just be gradual and cautious. And obviously this week, of course, we do have the nonfarm payroll report. We'll talk about that a little bit more, but we Remember last month, that was a shocker. And if that comes in weak again, then it's only going to probably further cement then the fact that the Fed are going to hold off until they see something more materially consistent in economic data to warrant then any hint towards tapering and tightening policy with their view of inflation being purely transitory at this point. On a shorter timeframe for cable, just having a look here, there's a trend line I've got on, as you can see. That goes back to the end of last week. So starting from the 27th, we had a test on 28th, and we've come up to test it, um, in yesterday's holiday quiet session. Markets were to a certain degree in futures open, and we did see a nice progressive move higher thereafter. So any pullback here, you can see we found a little bit of rough support at the European open around that previous high on the 27th. Any further pullback would be eyeing down around the 142 handle, so this area here as an area of support with the trend trendline then below should we move any lower on the pullback. But overall, I'm looking for a continuation of, of price to be supported lower down if we were to see that, that move lower to pare back some of the overnight gains. In the euro, um, not too interesting here right now on the shorter time frame, on the half an hour. On the daily chart, certainly, um, we did see a false break back on the 28th where we ran through that trend line going back to April. And again, the European story has been pretty positive. I mean, let me just quickly show you. You'll remember there's that age-old saying, sell in May and go away. Well, you wouldn't have done very well if you sold in May and went on holiday. A, the weather was atrocious and you wouldn't have had a very good holiday, but B Also, European stocks recorded their 4th consecutive month of gains, and in fact Italy and Spain, I think, were putting in kind of 5, 6 percentage points in a month alone. And as you can see here, you've had a really nice progressive move higher across all of the major indices. On that point, you know, why is that happening? Well, actually, if you look at the vaccine situation, much like I was talking about the UK being very good with their initial rollout program to get ahead in that process. Europe were very slow, if, if you remember a few months ago, but they've really started to get their act together in the recent months. And as you can see here, the steepness of their, um, people receiving at least one vaccine has continued to increase at a fairly decent pace, whereas the UK and US just leveling off a little bit. But we could anticipate those to start picking up some more of those vaccines supply starts to come back online over the coming weeks. But positive signs here, positive signs for the global economy, you could argue. But equally so, at the moment, the equity space liking it for the idea that these— this is all positive, the economy's gonna reopen, but it's not yet positive enough that it's really filtering out to all central banks to start talking in a more hawkish manner, because that definitely is just a minority at this point. But that's definitely something to watch over the weeks to to come. Just while we're, while we're here talking of Europe, just having a look at Germany then. And there's a couple of German things to be aware of, one on the COVID restriction side and one on this inflation CPI side. We had some data yesterday. Starting off with Germany has gradually been easing restrictions as infections have fallen and vaccinations have have accelerated. So here you can see COVID-19 infections per 100,000 people over 7 days, and you can see it's been continuing to decrease to one of the lowest levels we've had certainly year to date, and below that kind of threshold, um, 100K figure that they had, which had led to more recently a lockdown law passing in the Bundestag. And what Merkel said yesterday was that effectively Given now that the current case rate is at its lowest level since mid-October of last year, and as of Sunday, 43% of the population has received at least one inoculation, Merkel confirmed that those Bundestag laws for mandatory restrictions and curfews, which were set to expire in June, that is set to be the case unless there is a further mutation of which they will take action. So Again, another positive in that sense for the European economic prospects, given how important Germany is. On the inflation front, how's that looking at the moment? Well, a couple things I wanted to point out here. I mean, the headline would suggest here, German inflation climbs to highest since 2018 as lockdown eases, as local authorities start to lift coronavirus restrictions on restaurants, shops Cultural venue CPI came in at 2.4% versus expected 2.3%. Um, I always find it hard sometimes reading Bloomberg, hard in a sense of quite grating, because they put out this type of headline and factually of course they are right, inflation has climbed as high as since 2018, but this is absolutely sensational and not applying one drop of context at all. And as we know, inflation is, has, will be rising sharply going forward because of those effects that we know of, um, multiple, but also mainly the base effects. And the other thing here, as I said, it's always, you know, whenever you see these types of headlines and data, always kind of question it and look for any other rationale behind why is the number so high. And this doesn't just go for inflation, this goes for reading, interpreting, interpreting economic data, full stop. And a couple of things here. The Bundesbank, for one, the Bundesbank themselves have said inflation in the country could climb as high as 4% this year. 4%. So the fact that we're at 2.4%, against normal measurements, you could deem in a non-contextual way is quite high. It's also 0.1 higher than expected. But the Bundesbank have already prepped the market that we're going to double that effectively. So this shouldn't really spook the market. Secondly, prices are being boosted by several special factors, uh, reversal of last year's sales tax cut, changes to the basket of goods and services and how that is measured as well. These are all having a meaningful impact to make the number higher as well. So a couple of things there, just wanted to cover that because I want people to get spooked. In, in that respect by thinking all of a sudden we should start panicking about inflation or anything like that. All right, next thing I want to talk about is OPEC. And let's talk about the news first, and then we'll bring up the oil chart because we have some really nice gains in the overnight session. And starting off with, ministers are expected to press ahead with a gradual increase that had already been penciled in for July, completing return of 2 million barrels since May. Theory, according to the deal that was brokered, um, in the middle of the pandemic when they really had to support prices last year, the group committed to hold at that level until early 2022. But a tight market may call for that agreement to be revised. And so here what they're talking about, tight market, meaning that demand is picking up with parts of global economy reopening. but it gets tight in terms of the supply side because there's just not enough oil coming out to market. So the natural thing then is they could revisit that plan and start to actually just water down how stringent their, their cuts currently are to offer more supply to the market. Delegates have said initial discussions would begin today. The OPEC meeting is today, and the alliance's moves— well, they'll talk about the alliance's moves after July. It's a key thing to look out for. Apparently though, according to delegates, no decision has been made as yet. However, we have had sources yesterday afternoon who said OPEC+ is not expected to discuss the output beyond July. They want to wait and see what happens with Iran, and that really is why we've moved higher in the overnight session. And if we just have a look over at oil, this is a 30-minute chart for oil, and you can see here we've had a nice move during the Asia— this is the APAC session. We've really just started to rally and move up. We did have the Caixin Manufacturing PMI overnight in China, 52 against 51.9, but really this is a reaction effect to more participants coming in reacting to that overnight news. We have found a bit of a short-term platform now for price support from that previous high we had at the end of last week. We came down to test that close as Europe have come in and we just bumped back higher. But on the session, look, We're up $1.40, $67.72. And on the daily chart, you know, if you start looking at oil here, we are at very important levels because if you take that previous high that we had in March and then we're up at those previous highs at the end of April of 2019, we're getting up to trading at multi-year highs here. And, you know, one would think that, you know, if we get our heads above that, that year-to-date peak, then really can't see why we can't get up to $70 psychologically here now, uh, over a medium-term perspective, which would put us back up to October 2018 highs. So, you know, Tim and I have remained fairly bullish oil for some time, and, and even through that period of pullback we had through mid-late May, and it's, it's, it's proving to be the right call for the time being. But on the, on the intraday Again, I'll be looking at 6751 on any pullback. That would be an area of support now, followed by R1, which was also the high that was seen during yesterday afternoon's US session and the futures market. Any further pullback, then I'd be keeping on this trend line initiated from the 21st, tested on the 27th, 28th, and the pivot coinciding with around the pivot level or the 67 handle, depending on timing, as an areas of support. Um, but oil generally trading firmly higher this morning and looking out for any of those OPEC comments. The other thing is, not only then did I say that sources are saying they're not expected to discuss output beyond July, and if they stay put, that keeps the market tight. And that was as per some of the reports that were coming out from third parties about the tightness of supply at this present point in time. As you can see from here. Um, but one of the other things is Iran, and Iran is a real source of focus for energy traders at the moment because obviously they've been in dialogue with world powers, and namely the US, and whether or not they can rekindle that relationship and go back to that 2015 nuclear accord which got kind of torn up by President Trump. Now, a couple things on that point. The Iranian deputy Foreign Minister said negotiations are complex. Uh, looks like a deal is not likely to happen in this latest round of talks. Secondly, Iran has failed to explain traces of processed uranium discovered at some undeclared sites according to the latest IAEA report that was seen overnight. So to me, given the comment from the Iranian Foreign Minister, Given what I've been saying all last week about the complexity of these talks, and then therefore we should be a lot more pessimistic on the timeline for structuring a deal and getting it agreed. And then thirdly, the fact that this IEA report has come out, you know, there's no deal coming imminently in my mind. And so therefore this whole kind of fear of a flush of Iranian crude coming back online, I really don't think is going to materialize. Materialize anytime soon. So for me, again, further, um, kind of just tracking of economic data akin then to the reopening in, in key geographic regions, um, in the Western developed world as well as globally, particularly in China as well, allied to the fact that the Iran situation and an OPEC to stand pat, hence the reason why we're up. Already up around $1.50 this morning. Sticking with commodities, let's just have a quick look at gold. Gold has had a nice little breakout as well, um, early— well, two-part Asia PAC session. We had a little blip higher, and then as Europe is coming, we've just bumped higher again. We've just printed a high at $1,918 spot, up around $13. Short term, got a bit of a trend line going on from the end of last week. Had a retest yesterday, and then around that 1909 was the final bounce. So any further pullbacks, probably keeping an eye around this level, 1912, and then around that trend line as well. On the upside, on the daily, these are the kind of same chart we were looking at last week, which was the progressive kind of areas to focus on, on any progressive move higher. And the next stop here is what we were looking at last week, would be that high that we had printed back on the 8th of Jan. That would be around 19.184 here on a daily continuation, and we're not far from there at the, at the current present point in time. Uh, probably beyond that point, I'd keep an eye on then 7th of Jan high, 19.30. That also starts to encapsulate here. I just put an ellipse, so this high here, but then also these price points going back to where we were trading, you October kind of peak as well from last year would be the next target. So this thing's still leaning— looking good for any of the gold bugs out there. Um, quick look at the Aussie dollar, uh, just gonna bring that into shot. The Aussie dollar has had a bit of a seesaw performance in the overnight session. Uh, it, it was moving higher, generally speaking, under the premise of the weaker dollar, but then has— excuse me, it was moving higher to the— yeah, on the back of the weaker dollar overnight, but then weakened, out-weakened the greenback and declined all of them, reversed all of that move on the back of the RBA rate decision. So what exactly did they say? Why did that move happen? So the RBA kept their cash rate and 3-year target rate unchanged at 0.5%, while it also maintained parameters of its QE program. All pretty much as expected. But if you think about it, uh, in the region, the RBNZ just last week were talking in a much more hawkish fashion. They— was their forecast talking about their rate, what they see for interest rates going forward, which really promoted strength in the Kiwi dollar last week. And there was some thinking that the RBA could follow suit. I guess at the moment they're still trying to tackle COVID. Australia's second most populous state of Victoria, if you remember, is currently still in lockdown after they reported their first locally transmitted coronavirus cases in, in nearly 3 months. And so at the moment, I think until they get the real all clear on that regard, perhaps then that will continue to shackle the hands of the, the RBA at the moment, irrespective of what the RBNZ decisions were the week before. Um, one other story just I wanted to mention before we looked at calendar for the whole week was, was Tesla. It's never a normal weekend without some kind of Elon Musk tweet, and he didn't let us down. Uh, he came out this time, instead of talking about Bitcoin or Doge, he was talking about Tesla. Tesla, and the price of Tesla vehicles is increasing due to supply chain pressures across the auto industry, particularly for raw materials. That was actually Elon Musk replying to, to a tweet that someone has said in a string of commentary. Um, I mentioned this because obviously Tesla is a big company. It can influence the global, um, not global, but the US stock indices of which it trades. Because it's one of the larger index-weighted components. But one thing is how much it will move, not too sure. It'll be easy to watch the pre-market because this marks the 5th incremental price increase of which Tesla has done in just a matter of a few months. So perhaps it's not that surprising in that, in that regard. Um, a quick look at the indices before we just talk about the calendar. Um, so gonna have a look at the S&P firstly. I'm gonna put it on a daily continuation, same drills last week, still kind of watching this area of an inflection point around 4180 level. You remember last week at the beginning of the week, I think it was on Monday, we broke out above it and it's just acted as previous resistance now turned solid support. And so even though we're— we've come off and faded a little bit from the highs that were seen last week, you know, if you think about things, we still are up within close proximity to record highs at this point in time. So for now, I think I'd just be looking at that as a, as a range. Last week's high at 42.17 to that inflection point and strong support area at 41.80 is quite key now going forward for the S&P. In a similar vein, it's not too dissimilar for the NASDAQ 100. For the NASDAQ 100, at the time being, I mean, I was just looking at this chart this morning, I feel fairly— it doesn't look too compelling right now. But obviously we had that big jump up at the beginning of the start of last week, and this range low I think was— is quite key for, for price going forward. So you've got those lows that were seen yesterday afternoon in the futures market, which line up nicely with the low on last Thursday. Pivot at the moment finding a bit of resistance, which was also the— this time yesterday's morning high in the futures market. But don't see that as being too much of an obstacle, uh, any further above than those highs that we're seeing, the recommencement of electronic trade, um, on Sunday night and then in just playing the kind of range, I guess, for the moment. I mean, overall, from a daily perspective, looking on a much more higher time frame, this is going back to June of 2020. So this is a, a year-long trend line for the NASDAQ 100 future on the daily chart, and it's been such a nice response to that, that, that area as we've continued this progressive move higher. So at the moment, you can see here The NASDAQ is at a fairly challenging point from a technical resistance point of view. You can see here, if I just put this ellipse on, let's just zone in a little bit. So really, it has failed to break above this, uh, last week, and that will be the key level that I'd want to be keeping an eye on. So if we translate that to the, to the daily, I'd still prefer range um, kind of trades at the moment over then. Not unless we get a breakthrough and we get a daily close above this level, then it will be much more bullish to take us right up to the higher, higher levels. But this week is going to be really key. Of course, we've got payrolls on Friday. Payrolls was a meaningful development if you remember, um, from the prior month. And certainly I reckon It's a bad number that takes us up to record highs, as weird as that sounds, because it's just going to mean that the Fed aren't going to move anytime soon. And by default, then it's almost like the perfect storm for equities and further gradual global reopening. Uh, and the Fed, they're willing to read through inflation as pure transitory. And so a lower for longer policy adjustment to normalize means that that's generally a good environment for equities, and that could well be the case again. So let's just have a quick wrap of the calendar, just conscious of time. So as far as today is concerned, and we've already had the overnight stuff, and then later on this morning we do get the German latest unemployment rate and change. The rate expected 6%, the change -5,000. You do have the fair— the various different PMIs coming out, but these are final readings. Interesting though for the euro and European assets will be the HICP flash. So eurozone CPI expected to year-on-year to rise to 1.9% from 1.6%. Um, and then you've got the unemployment rate expected to remain unchanged at 8.1%. Into the afternoon, one of the main highlights is going to be the ISM Manufacturing PMI. According to analysts at ING, these are expected to stay strong. As you can see, a fairly unaltered number, but well above 50, in expansionary territory at 60.8. Um, news that General Motors reopened 5 plants, having seemingly overcome chip shortages, is likely going to be welcome news on the manufacturing front, and also further reopening, of course, on a state level, uh, it's likely to help on the services side of things as well. These will obviously be quite key on the employment— employment constituent will be watched closely, of course, to give us a little bit of a reference point as to formulate expectations around the, the payrolls number on Friday. So that's coming out this afternoon, 3 PM. That'll be key. I'll keep you guys updated as and when I hear any further updates on OPEC Plus, but of course be keeping an eye on Amina Baker on Twitter who works for Energy Intel. She's like the most informed go-to person for breaking news well before Bloomberg, Reuters can ever dream of getting it out there. She's got the ear of all the officials and she normally breaks all the, the stuff that moves the market first. But I'll keep the community informed. Otherwise, speakers today, um, couple— you do— it does include the Bank of England Governor Bailey, but is talking more climate change. So not really expecting too much there in terms of an actual comment on the economy or policy. Kual and Brainard are both, both voters and speaking, the latter on the economy and monetary policy. And she's been quite vocal of late, but definitely much more on the kind of neutral to dovish side of things, I would say. So keep an eye on that, 7 PM. Otherwise, let's jump to Wednesday. Um, what have we got? So Wednesday, really want to focus more on the, the afternoon, uh, kind of session. Um, let's have a look in the US. Yeah, fairly quiet actually, uh, because the US obviously was Memorial Day on Monday, so a lot of that data has been bumped actually until Thursday. So on Wednesday, mainly it's just speakers you need to keep an eye out for. It does include Christine Lagarde. She's just at a prize award ceremony. Money, but nonetheless worth noting. Then you've got Feds Harker, Evans, Harker again, Kaplan, Kashkari, Bostic. Loads of Fed speakers coming on Wednesday. Otherwise, what is quite quiet on the economic data calendar front. And then on Thursday, you get the overnight Chinese services PMI, get the final services data out of Europe and the UK, and then you get ADP national employment, obviously seen as a main precursor Payrolls expected at 545,000, so a decrease from what was 742 last time out. Initial jobless claims last week, remember, hit a new pandemic low at 406,000, so we'll be keeping an eye out for the latest estimates there. And then we'll get the ISM non-manufacturing PMI, again expected to be a fairly strong number and that will act as the final piece of information then going into the Friday payrolls figure. DOE oil inventories, any oil traders, going to come out Thursday, not Wednesday, and at 4 PM London time, not 3:30, because of the holiday. Always is that way on a bank holiday. And then more Fed speakers plus Bank of England Bailey. And then going into Friday, of course, then we have non-farm payrolls. One of the things, and one of the things you might have seen here to remember, is lots of Fed speakers. This is Thursday going to Friday. Got Fed's Powell speaking on Friday, but again at this climate change conference. But the point being is there's a lot of Fed speakers this week, and the reason for that is the Fed meeting. They hold their next meeting on the 16th of June, and this week is the last week for them to communicate before, of course, they go into that blackout period where they can't speak. And so this is their last chance to really try and guide the market. And remember, this is quite important. And, and I think the rationale why there's so many speakers is that everyone's been looking at June, because June 16th meeting we get the latest summary of economic projections. And so therefore we're looking for clarity about this idea about when the tapering discussions might emerge, any alteration in the dot plot matrix to become a little bit more steeper for rate rises more sooner rather than later. And at the moment, the Fed, the Fed are stuck in a bit of a catch-22. The economy continues to progress, obviously we've got inflation starting to emerge, and the jobs data this week could be quite, quite a key component. And it's quite interesting that you've got all of these speakers speaking at their last chance to really communicate thoroughly to the market before that blackout period does commence. But that is it. I'm going to leave you at that, let you get on with things. Remember, if you're not part of the community, then you can join us for absolutely free at AmplifyLive.com for the guys already in there on the pro service, then we'll see you on the live feed shortly. And have a good day and week ahead. All right, take care.