This Week In Markets: 1st - 5th March 2021

Okay, very good morning. Welcome to a brand new month, 1st of March. Hope everyone's doing well, had a great weekend. Uh, going to get you up to speed of some of the major things that were in the news sphere over the weekend, and also going to look at the week ahead because quite a lot to look forward to, ranging from in the US, and we've obviously got Nonfarm Payrolls on Friday, so we get the usual kind of pre- Labor report buildup with the ISM numbers, your ADP, jobless claims, and so on. We also have the UK budget coming on Wednesday. You've got eurozone CPI this week, which is going to capture a little bit of focus. You've also got the OPEC meeting as well, where we are expecting an increase to production. So all of these things I can update you on. Going to have a— also a brief glance across the charts on a very top-level side of things. If you want more technical detail, then just check out the subsequent section on Discord channel for Amplify Live users. But let's get straight into it and look at what's happening this morning. And looking here across asset class, clear case of a bit of risk-on appetite, albeit needs to be put into perspective because comes after quite a nervous week that we saw obviously just passed, given the acceleration sharply in yields. And the downside pressure that was putting on things like equities and also some of the precious metal prices. But a recovery has been seen, and there's nothing like, I think, sleeping on it. Such is life lessons. I think when there's an ability, and particularly with markets, the weekend gives a good kind of circuit breaker where markets can't trade, and so therefore it gives participants a bit of a chance to just digest some of the moves that have been occurring. I think that was important for the case of where we are at the moment, given I think last week largely was a lot of behavioral aspects that were fueling some of the move. Can't disagree with the directional kind of play of things, just given the overall improvements in growth perception going forward because of the vaccinations, because of forthcoming stimulus, and so on and so forth. But I think it did get quite behavioral last week where the move was almost exacerbated to that degree. And so now we've had the weekend to just kind of bookmark that previous week. We've had a strong reversal in yields, and that has meant then that T-notes are up around 22 ticks or so, just rallying throughout the overnight Asia-Pacific session. and the recommencement of overnight electronic trade. Equity index futures are positive. Asia was positive across the board, so some of the areas in isolation were seeing gains around 2% in the likes of China, for example. The NASDAQ 100 futures already up about 210 points here, and gold prices have seen a very sharp reversal from where we were at the bottom of the selling pressure we got down to around the kind of 1715 type level on Friday amid that sell-off. So we'll have a— let's have a look at some of these charts then. And I want to start with the S&P and the, the NASDAQ because I think those two, there's some bigger levels on a daily continuation given we're looking at the week as a whole, um, that are fairly interesting. And that is these kind of rectangle boxes that I've got marked up. And you can see here we had that quite volatile session back on the 23rd. We had the push down that we saw at the end of last week as people were almost kind of capitulating over what high yields meant for, for just generally equity markets at these elevated levels. And we were seeing quite strong rotation out of certain areas like big tech, for example. But we've come back down and 38.04 and 3/4 in the daily on the future was a key level we were looking for. We failed to close below there, which as we were saying at the time was going to be a key closing print for the week of where we were going to either finish in with a bullish or bearish mindset for the forthcoming week. And we finished above that point. And as you can see, we've started to pick up a bit of traction here on the upside. The S&P is already up about 40 points or so. And as we do move higher, uh, just be keeping an eye on the reversal of some of that price initial break. So we're trading at 47s at the moment. 62.25 would bring in some of those previous, uh, kind of double top at the all-time previous high and previous support resistance here, what we had from the quite wide ranging price activity from Friday. So definitely worth keeping an eye there on the upside. Similar case as well to the NASDAQ, albeit slightly more extreme just given the more pronounced movement the tech sector was seeing last week, some of that rotational play. So on the daily here Similar type of thing though. A key level that we were looking at was 17727, and we've had a brief flirt below there at the end of last week, but again, we failed to close that below that key level, and we've just kind of sprung back higher this morning. So these would still be the same levels I'd be looking at throughout the week if we were to see the recommencement of kind of weight in the global equity picture. What would initiate that? We would need to see a reacceleration in yields in a similar fashion to last week, I think, to make people again a little bit more nervous in the equity space. But for the time being, this morning is more about an overall— I would say not that there's been one singular comment that's created a turnaround. I think it's just the weekend given the market pause for breath just to kind of gather itself. And just reverse some of this overall move that we've been seeing. And gold obviously was getting hammered at the end of last week. We did see, if we flip over to a daily, you know, a break of a key level, which was that end of November low print that was holding up price back on the kind of 18th, 19th of February. Broke through there, and, you know, we ran down to these kind of technical targets we were looking at, 17, which was those previous low on the 18th of June, and we bounced quite aggressively off that now. And on the upside recovery, uh, definitely that support will now turn resistance in the short term at least. So worth keeping an eye on $63, kind of $64 area as a potential then cap on, on some of this price recovery. We're already trading up, you know, $27 for this time in the morning in the European session. And that's a pretty decent move seen already. So could get a little bit of congestion as we start to move further up, which would be on this chart here if we go back on the 30-minute, kind of around that type of area, which would also bring in around the R1 that would need to be watched today. All right, well, let's get stuck into a few of the news stories. And, and firstly, in those charts there, I didn't mention the the currency space, but that definitely does warrant a mention. Both major pairs are up this morning, and one of the things that we've constantly been looking at here is, is really a lot of this FX movement has been dollar-led of late, although obviously sterling has seen a pretty decent outperformance in broader terms if you're looking at the last few weeks. But the DXY has broken, you know, this is that long-term trend line that we keep up on the charts from the main November test. But if we look at what's happened in the recommencement of trade here, we have jumped back above it and moved above. And we're at a fairly interesting near-term technical point here. If I just run my cursor over 91, you'll remember 91 we were mentioning last week, and— or the, the prior week, I should say. And that was an area where the market did respond here, as you can see, because we gapped up and then it then it sold off and actually moved back below the trend line. So 91 is quite a, a decent level if we were looking at the last 2 months, 2 and a half months of price action. So it will be interesting to see how the Dixie can perform, um, at these levels. And, and as we've seen with the general risk-return appetite fading, some of that move and that rally obviously seen to finish last week, the price has responded again for the time being. So 91 is quite a big level for the week. Overall for, for the Dixie and holding for the time being. But we are above there at the moment, so here does give room for a bit of scope for, for dollar weakness if these general prevailing themes from this morning can persist. And obviously that will help support some of the major dollar-based pairs if that is the case. Running you through a few of the things that have happened overnight, and we did have some Chinese data to be aware of. This really hasn't been a market mover um, the general theme in markets in this overall reversal trade so far has been more dominant. But over the weekend, you had the official Chinese manufacturing, um, PMI, and you've had the Caixin number released overnight. So the official one expanded in February at a slower pace than the month earlier, came in at 50.6 from the previous 51.3, was below expectations of 51.1. and it was the lowest level since May. Um, the Caixin number came in at 50.9, which is also the lowest number since May. So still the expansionary territory above the key level of 50, but is slowing a little bit. But is this room for concern? If anything, it perhaps could be a quite a healthy thing at the moment, because if you remember just around a week or so ago, there was that one day when Chinese equities did come under some quite heavy selling pressure. On the similar notion to what we're seeing in the Western world, which is this idea of central banks just kind of taking the foot off the stimulus easing gas. And that prompted around a biggest downfall in Chinese equities at the time for around 6 months. And so perhaps this kind of slowdown is enough then to hit the sweet spot where it's not going to make policymakers, you know, feeling optimistic about the future, but not enough to change policy. So I wouldn't really look too much to this to guide market direction this morning. And if anything, probably it's more healthy over the medium-term view, um, just to sit at around that borderline expansionary mark. The other thing we've had overnight, um, obviously we've had this yield decline in the Asia-Pac session just more broadly. Worth noting though, the RBA has announced plans to buy more than $3 billion of longer-dated securities following up on a surprise boost to purchases of shorter-dated maturity debt at the end of last week, and that did spur the biggest drop in yields in a year in Australia. This comes ahead of the RBA meeting, which is actually going to be tonight going into tomorrow. So to be aware of an interesting comment I did see with all of this kind of obsession with yields at the moment was a note that came out on Friday from Citigroup Uh, if you didn't, uh, see it, then basically they're speculating the Fed might not intervene to stem disruptions in the market until investors see more pain, with the 10-year potentially hitting 2% before alarm bells start ringing, which would bring real yields closer to zero. And that latter bit, seeing as this kind of threshold overall that a lot of people would be looking at, so perhaps the move got a little more to run if it does indeed at all, before the Fed would feel any kind of necessity to start stepping in with their kind of verbal rhetoric in that respect. On that note, it's worth being aware that Jerome Powell, the Fed chair, is speaking with a keynote kind of US economy outlook speech. I think it's in association with Wall Street Journal on Thursday, so that will be a key event for the week, particularly because by then we'll be able to see how this week's played out on the back of last week. Have we started to see a repeat of kind of market instability and almost kind of nervousness building up, or have we restored a degree of calm? Will probably dictate the type of language he's going to use at that speech. So overall, not expecting too much from him, at least for now, other than to reiterate what he did at the semiannual testimony. Not unless then we start to see a big shakeout in markets again. So check out the Market Watch podcast I did with head of trading Piers on Friday. If you just go on to Spotify or Apple and just search Market Watch Amplify Live, Piers and I had a really great chat about this very subject. It's pretty worth having a listen to if you get the chance. Otherwise, just going through the kind of other stories that are in play and things to be aware of. I'm going to talk briefly about the UK budget. You probably read a lot about this if you're based in the UK from the press over the weekend. If you're new to trading, you know, the budget's a bit of a funny one. It sounds like it's a big meaningful event, it gets a lot of airtime. Traditionally it's, it's very much not too much of a market-moving event. Now a few reasons for that is that, you know, fiscal policy implementation tends to take take a bit of time. Also, the budget is very well telegraphed. I mean, as we can see from this screenshot, I can pretty much tell you exactly what Rishi Sunak, the Chancellor, is going to say now, and we've still got 3 days until he actually makes the announcement. So it's all very much leaked and speculated, uh, and kind of gone over with a fine-tooth comb from the national newspapers. But the general summary here is that the government basically remains in support mode. You know, Rishi Sunak was kind of, kind of dual-fold approach when he was doing the kind of media rounds at the weekend. It's kind of like, look, I said I would help the people, that's what I'm doing, but I've also got a level with you and be honest that, you know, we got to pay for this at the end of the day. And so here I think this kind of sums it up, summarizes it quite well in The Telegraph. I did retweet this if you want to have a look at the details, but you've got kind of got phase 1, which are the support mechanisms. So we are anticipating an increase in time pushed out for things like furlough and also the stamp duty holiday for properties, for example. That's all going to be pushed out to June. Then you've got the kind of reviving the economy because we've got the roadmap in place in this 4-step process, and then by the 21st of June looking for a more full reopening. But in order to get that going, there was lots of talk about restart fund for grants for certain size, for some of the hardest-hit sectors like hospitality and these types of areas. And then you've got phase 3, which is the inevitable, which is the slightly more negative twist to this, which is the tax options. And that's the one which quite a few people were looking at the weekend. The Sunday Times saying the Chancellor is under pressure to bring tax rises and will freeze the income threshold for people paying income tax currently at £12,500 for 3 years, and government officials expect a rise in corporation tax to 19— from 19% to perhaps around 25%. However, that latter point, interestingly, would— the amount of extra funds that they would bring in as income as a country from increasing corporation tax by that kind of margin would be immediately offset if yields were continuing to rise, which obviously makes the servicing of the debt more expensive. So hence the reason why this yield move is very important at the moment, and particularly given the scope and, and size of the rally that we, we had seen so in such a short period of time last week. Overall, the OBR, so the Office of Budget Responsibility, they're going to issue their latest economic outlook and growth forecast is expected to be revised up, chiefly helped and underpinned by the impact of the successful vaccine rollout so far. So all in all, this is something which we'll, we'll cover in full, of course, on Amplify Live, but I'm not expecting a great deal of it or from it, and I wouldn't anticipate it to be the real definitive marker that's going to move sterling. For cable, if you're a forex trader, I'd still be keeping half an eye on the vaccine rollout program, but predominantly I'd still be more just mindful of tracking the dollar's movements, particularly on the coat sales, what we had last week, as being more definitive marker for cable direction, at least for the time being. Particularly now that cables kind of shook out some of that extreme nature of the outperformance it was seeing, I think it's kind of more leveled up now and would be more fair reflection with the dollar. Otherwise, a few other things. OPEC, I did briefly mention. They've got a meeting on Thursday with the need for more supply evident. Traders expect OPEC+ coalition led by Saudi and Russia will agree to increase production when they meet. The decision will be on whether they revive 500,000 barrel per day tranche in April. In addition, the Saudis will confirm whether an extra 1 million barrels they've recently taken offline will return as scheduled. I don't see any reason why those two things should not go ahead. Obviously, the growth outlook has improved materially, just given good reason with all of the economic data we've been seeing just generally. And then with the stimulus, which at the weekend did pass through the House in the US and now goes to the Senate, which is something we'll look out for with more details and timing. And so the demand picture is becoming ever more kind of constructive. Over the few months ahead. And so they will need to start bringing more in, in order to avoid kind of a sharp squeeze in prices going, going forward. So yeah, definitely this has been fairly well prepared for, I would say. I guess the, the shock would come of them not doing this, or in fact doing even a further increase in production beyond what we've just discussed. So if they were to do a million plus the Saudis' million, that would be— that would create potentially a negative price reaction in the short term, given that that's more supply coming on than people are anticipating at this point in time. The other thing, talking of that region, let's say in the Persian Gulf, this is Iran. On Sunday, they ruled out holding a formal— an informal meeting with the US and European powers in regards to reinitiating the 2015 nuclear deal. They basically said that Washington must lift all of its unilateral sanctions first. So I don't actually think that that's particularly surprising. I don't think it's a big deal. I don't think it's really something for the oil market at the moment. You know, this kind of standoff that we're seeing is because of how, I guess, damaged the relationship Iran has become with the US, given what happened with the Trump administration. So trying to rekindle this is of course going to take many weeks, if not months. And so this type of headline doesn't really worry me too much or make me particularly overtly bullish on oil price. The two are not getting on at this point in time, and that would cause any type of conflict. All right, quick run-through then, the calendar. And as far as today's session is concerned, you've got the various manufacturing PMI numbers coming out of Europe, but these are final readings, so not likely to be market moving. We then push on into the afternoon where probably the highlight of the day will be the US ISM manufacturing number. Still expecting that to be, you know, in, in strong expansionary territory, all things considered. At the moment, 58.6, a holding steady really from last month. Um, we also get a couple of Fed speakers, uh, Fed's Williams, uh, Fed's Bostic as well speaking today. Tuesday then, and we've got the eurozone flash CPI numbers. Now just given the fact that inflation is a real talking point, uh, underpinning a lot of the, the yield movement as well, uh, the, the breakdown would suggest that energy is expected to drive headline inflation higher in the coming months for for the eurozone. So we are anticipating inflation pressures to increase, but the overall, I guess, mechanism is what does the ECB have to say? And they will probably insist that temporary increases do not constitute a sustained return to its goal of below but close to 2% inflation. So I don't anticipate that this is really going to spook the market, so to speak. And again, it's the same with inflation all over the world. It's the, the fact that central bankers for the moment see this as more temporary than something more persistent. And ECB, I don't think would be any different. One thing, just briefly on the COVID front, I was just having a quick check and I did see over the weekend that Italy, who has seen a pretty consistent rise in COVID cases, probably the one standout of mainland European countries because generally speaking, Germany has upticked a little bit, Spain's pretty much plateauing, and France has declined. But Italy has been tracking higher pretty consecutively for around 5 or 6 days, and they have come out and tightened restrictions in Milan, Turin, and some other areas in 3 other regions across Italy as well. So just worth bearing in mind that, you know, despite this dramatic drop we've seen in the UK, which is still in a nationwide lockdown, which has had pretty dramatic effect on the speed of bringing down case rates and subsequently hospitalizations and deaths. Mainland Europe is still in some spots struggling, and that then overlaid with the fact that their vaccination rollout has been particularly slow in comparative terms to the UK, for example. So just worth bearing in mind, and all the more reason why I think the, the ECB in particular can't really go anywhere other than just follow their, their policy path at the moment. Um, Fed's Brainard speaks on economic outlook, should be speaking on, on Tuesday, Fed's Daily as well. Then we're going to Wednesday, start to get the indication service PMIs overnight in regards to Japan and China. We then get the final readings for Europe in that morning, so final readings again not that important. We got the budget coming out of the Chancellor Later on that day on Wednesday around midday, you've got ADP and then ISM Non-Manufacturing, which of course we'll be keeping an eye on, that employment constituent ahead of the labor report on Friday. Fed's 10— BOE's Tenreyro, Fed's Evans all speaking as well on Wednesday. Thursday, US factory orders and Fed Chair Powell discussing the US economy are probably the standout events. They come— or his speech comes after the European close into the US afternoon. Then we move over to Friday, uh, and then we bookmark the week with the change in non-farm payrolls report. So that's pretty much it, that's everything. Any other questions at all you have for me, please let me know. I'll see everyone in the Discord room on Amplify Live, but if you're watching this on YouTube, then feel free to drop me a comment. I'll be happy to help, and have a great week ahead. Alright guys, take care.