This Week In Markets: 21st - 25th September 2020

Okay, very good morning to you. Before I begin, don't forget as per usual to subscribe to the YouTube channel. New content coming every day of the week from myself and the rest of the team. I'm going to focus on, as per usual, the kind of macro top-level fundamentals of what we're looking out for, not just today but this week. But if you want the technical setup video that was issued by Sam yesterday, you can find it on the channel by just finding his category. So let's just have a look at the, the charts this morning and what have we got in store. So yeah, a little bit of risk-off, I guess, in terms of the equity index futures seen negative at the moment. Does follow a little bit of a downside session seen in Asia, some significant individual single stock news seeing HSBC, Standard Chartered shares in the Asia Pacific time zone coming under some pressure. So keeping an eye on them at the open of FTSE trade. I'll get into that in a little bit more detail shortly. Otherwise, in the FX market, the dollar was weaker overnight, albeit has just bumped up a little as Europe has come in. But that does see then EURUSD in slight positive territory. Also cable just sitting above its pivot in the futures. EURUSD, you can see here, just running into some resistance and around the highs that we're seeing towards the back end of last week. also during the Asia-Pacific session. Noting as well that Japan was out overnight, they're on market holiday, uh, not returning, um, until Wednesday. So elsewhere, fixed income pretty quiet, gold as well, relatively range-bound, uh, oil a little bit negative, a bit of a break of a trend line in the short-term technicals this morning, and on that $41 handle here, just with those previous lows that we've seen at the opening of electronic trade, maybe just acting now as a little resistance on that last run low we've had more recently. But moves relatively contained at this point in time, right? So let's get, let's get stuck into some headlines. Quite a few things starting off with HSBC shares fall to a 25-year low. So why has this happened? Well, their shares were down in excess of 4% at one point. Standard Chartered down a similar margin in their Hong Kong shares, and they dropped after media reports that they and other banks moved large sums of alleged illicit funds over nearly two decades. Um, in addition to this, HSBC is a possible candidate for China's, quote, unreliable entity list that aims to punish firms, organizations, or individuals that damage national security, according to the Global Times, which is the kind of state-run media newspaper in China, in the mainland. That came out over the weekend. China have issued rules regarding its proposed unreliable entities list. While it reportedly did not have a timetable or preset names of companies, they warned that foreign firms, if they violate nation's laws or commit illegal acts, it could be included in this list and face measures. Now, although over the the overnight session. China have denied this. Those media reports do hint that US firms are potential targets from that list, could include the likes of Qualcomm, Cisco, Apple, and FedEx as well. So worth keeping an eye on those guys at the market reopen in a few hours' time on the NYSE. But yeah, HSBC getting pretty pounded overnight does come after, you know, just in that, that local region, whether it be trade war whether it be the disruptions that have been seen in Hong Kong on the National Security Law or the ongoing protesting that's been happening. You know, their shares now, I think they're down roughly 50% on the year. So incredibly difficult times there. And not only those two banks, but Deutsche Bank as well appears to have facilitated more than half of the leaked $2 trillion of suspicious transactions that were flagged to the US government over nearly 2 decades is part of the same story, uh, that was weighing on those other banks. And DB shares, ahead of the cash equity open, are called down around 7% at the market open. Well, let's get the latest, uh, we're seeing down around 6.8% at the moment. So that was some of the overnight stuff. Otherwise, elsewhere, a lot of the weekend press has been filled with COVID updates. I'm not sure if you were out and about over the weekend, but again, managed to go for a bit of a walk on Sunday and it was super busy. I did say this before, the lockdown from the group gatherings from 30 to 6, and I was commenting, I remember this time last week about, I had a walk along South Bank and it was absolutely heaving. Well, this time I went to Battersea Park, anyone familiar with London, and I have never seen it that busy in my life. Enough that I felt uncomfortable and wore my mask all day rather than just generally when it's necessary when going into shops. So I've said this last week and I'll kind of repeat it, I think that, and it's already being seen, but I think it's going to get a lot worse, just the general lack of, I guess, adhering to just general sensibility of realization that we are still in the middle of a pandemic, just by the broad mass. I think that these rates are going to get far worse than what they are at the moment, and hence the reason why I think you're starting to get a lot of these noises this morning. The government knows this is the case. So what have, what have we got here? Well, Britain is said to be at a critical point now in the coronavirus pandemic. Boris Johnson is set to say today, as concerns mount of a second lockdown that might be needed to stop the renewed spread of the disease. So daily cases now, as we were seeing towards the end of last week, are at their highest level since May. Hospitalizations in England are doubling every 8 days, and the R number, the reproductive rate, uh, for the virus now stands at between 1.1 to 1.4 as of Friday. So anticipation is that that number will, will be rising. The warning comes as well amid expectations that local restrictions could be extended to London Mayor Sadiq Khan was speaking in the Telegraph over the weekend, will recommend tightened rules on the capital later today is the expectation. This will include then the potential for pushing people back to working from home if possible rather than going into the office. And separately, one of the other things that's come out is Rishi Sunak has indicated further support is needed to prevent large-scale business collapsing, uh, plus job losses. He is preparing to extend 4 loan programs that have already issued some £53 billion of credit for companies through state guarantees, according to the FT. It still isn't thought to believe that Sunak will extend the furlough program, but he's preparing these other measures according to those close to the situation. Also, as well, it was just last Tuesday, I think, the Chancellor gave a speech where he was saying that extending furlough is not the right situation. One of the things that they fear here is that they're basically propping up, I guess what you could call zombie jobs, that are only there because companies are getting backstopped by the government paying for a large proportion of people's salaries, and that if that was to be removed, then they would just fire them anyway. So here, I guess what the approach would appear to be is that there's a wave of job losses, set to come then at the expiration of furlough at the end of October. And so what he's looking to do then is provide extra credit facilities to a number of, of companies so that they can still function and operate. So yeah, there's seemingly then something to, to keep an eye on, not just in the UK but Europe as well. Mainland Europe is experiencing equal size rises at the moment in COVID-19 cases. Similar news, I guess, in regard to the virus. AstraZeneca stated its vaccine trial in the US still remains on hold. Remember, that was thought to have come back in last Wednesday after we saw that previous weekend disruption due to the halt in that trial. Still don't think that that's the real major thing at this point. It's still relatively normal practice and procedure to see these types of halts. To investigate as per what happens to that particular individual in question in the UK as response to those clinical trials. But, um, yeah, the COVID situation is worsening in important economic areas, mainland Europe and the UK. And depending on the severity, of course, of the types of rollback of them moving back in towards more tighter, more stringent lockdown, obviously it's going to have repercussions then on the economic recovery of these countries in question. So yeah, this will be a recurring, a big theme, I'm sure, throughout the week. Um, sticking with the UK, one of the other things that a lot of people are looking at on the calendar this week is this chap. This is the governor of the Bank of England, Andrew Bailey, of course, and he's going to be speaking a couple times this week. But before that, we did have the chief economist. He spoke at the weekend Andy Haldane, and he actually said that the UK is recovering faster than anyone expected. Um, yeah, probably a little bit ill-timed just given the situation, what's going on with COVID but that's beside the point. That I think what Haldane is being used for here, which is a tactical approach by the Bank of England to manage and tame runaway expectations, the Bank of England will immediately adopt negative interest rates Now the way that financial markets tend to react is we over-interpret what central banks say. This is just general human psychology. We take one little morsel of information and we, we run with it. And obviously after the kind of the revealing of the progressive talks that they've been having with regulators about the mechanics of how the negative interest rates work, it's about as close as we've got got without enacting negative rates, that we're definitely heading toward that direction potentially in the future. So for me, this is kind of, uh, Central Banking 101 communication tactics. You send out arguably the most hawkish member of your monetary policy committee, which is well known, is Andy Haldane. He comes out, talks the other side of the book just to make sure that investors are kept honest and it doesn't get to a point where the Bank of England has to deliver that policy response. That's definitely what they don't want to do. They want to assure markets, but they don't want markets to be priced so certain for a rate cut into negative territory that they then have to deliver it at fear of disappointing markets and causing, you know, a loss of confidence. So I think I wouldn't read too much and over-interpret Haldane's comments. And what can we expect from Andrew Bailey. He's going to be speaking— he's giving two separate speeches on Tuesday and Thursday this week. I would expect him to not really give away too much. I would say that don't look for anything too explicit. The appropriate hints that he wanted to convey, I guess, from the Bank of England meeting have now been deployed. So I won't be looking for too much additional guidance, but it will be something that will need to be watched quite closely and obviously would carry the propensity to move the sterling currency quite sharply. Um, looking at the US, this is one of the other things, um, that has come up as a bit of a talking point and probably will do so stateside, uh, because you might not have heard of Ginsburg, but the death of Supreme Court Associate Justice Ginsburg has opened another front in the election battle with President Trump intending to make a nomination in the week ahead. So this is about then the potential to have a more, let's say, Trump conservative political alignment in terms of the positioning and nomination of the candidate he would want to put forward, which could then have a knock-on repercussion of being more beneficial for him should, as we expect then, the mail-in ballot process of going into a US election. The result is unlikely to be known for a number of weeks. There's probably lots— going to be lots of legal action about contesting over certain results over certain states. And so having a Supreme Court Associate Justice in his favor is going to be much more beneficial for the prospect of him potentially winning the US election. So he's very much going to be on it, and it's already been a dominant theme over the weekend And one of the things that I think this could be then is, is it going to detract from what was looking like some slight progress in stimulus talks in America, where you would, you know, you've got this kind of ongoing debate and we've seen some movement, but the likes of Pelosi, for example, still standing pat at $2.2 trillion, and that being too much what the Republicans want at this point in time. But are they going to be now distracted given the legal consequence and the repercussion this could have on the overall outcome of the election over this particular, uh, vacancy now in this role. Um, to give you a bit of idea, Lisa Murkowski and Susan Collins have come out against pre-election confirmation of a nominee, and they are two Republican senators. Opposition from two more GOP senators would put brakes on the process So just in terms of what to look out for and how to interpret the news, I'll be aware of that. I'm just having a quick look at the US equities at the moment. I did see technically, I was looking on some daily charts this morning, and we have got beneath what I thought was quite a key area, which is this trend line going back to April. We've had a test a couple times in May, in June, and then some of the recent price activity through the early part of the step and a failed break on the 17th, last Thursday. So we've gapped below there, and that does— that trend line kind of map the 50 DMA very closely, which have been a key level of near-term technical relevance. So here now it does look quite interesting from a potential for a little bit of a short-term push on the downside. Here, 32.84 and a half would be that high point um, from the peak before the intensification of trade tensions with China. Anything below there on the week, if we did push lower down, 3231.25 would bring in that previous recovery high we had in mid-June. That was an area of resistance as well. You can see in mid-July as well would be a target, and then down to 3200 and 3192 if that were to continue as a trend. The NASDAQ similarly has come to quite an interesting point on the chart from a daily continuation point of view. And I was looking here at really this rectangle that I've colored, which was an area of previous resistance and support which the market has respected really on a number of occasions through July, August, and September. It's kind of been like this area of which the market either fails to get above, or if it breaks, it really does start to move then to the upside. And interestingly, we at the reopening of trade opened just below what had been a key area of support. You can see even more recently in the month of September on 3 previous occasions. So be interested to see how we perform here. I mean, technically then it does mean that the NASDAQ could be susceptible to some deeper moves to the downside. I'd probably be then looking at around 10,514, then 10,296, which starts to bring in those previous highs that we've seen in June, which also comes up to that EU COVID fear low that we saw on the progressive developments that we saw at the, um, in Spain and the likes at the end of July. So definitely I'd say equity is a little bit susceptible here potentially for some downside. Not so much North American COVID-related, but if stimulus is— there's a lack of stimulus still coming at the moment. If people just losing a little bit of confidence, let's say, on the global level because UK and Europe COVID situation is worsening, it certainly could be quite interesting to keep an eye on those, those levels. And if the trade war starts to ratchet up a few notches again, it certainly could act as a bit of a catalyst. A few other headlines just to be aware of. This one I don't think is really major, but definitely something perhaps to be aware of. And this is the ECB is to review its flagship bond buying tool in fighting COVID crisis. Basically debate on the length of the, the PEPP program and on transferring its flexibility to other asset purchase schemes. So this, this could have, I guess more dovish connotations about transferring it to other asset purchase schemes. I— if you think about the Asset Purchase Programme, could it be as flexible as this kind of pandemic response PEP process? But it's probably too early to say. This is just a review stage, but something to just be aware of. It's not really having any meaningful impact this morning. A few other things on the weather front. We continue to see a particularly busy hurricane period at the moment. And the one we're focusing on here is a new one in the Gulf, Tropical Storm Beta. And if we actually look at the, the details here, you can see it's right in quite a key and sensitive area as far as the energy markets are concerned. Um, so the slow expected— the expected slow motion of Beta will produce a long-duration rainfall event from the middle of the Texan coast to southern Louisiana There is the danger of life-threatening storm surge near times of high tide through Tuesday along portions of the Texas-Louisiana coast within the storm surge warning areas. So by the looks of it at the moment, doesn't look quite to the intensity of some of the others that we've had of late, but certainly just warrants keeping half an eye on at the moment. And then just quickly looking and reviewing the overall calendar for the week, there are a few other things to be aware of. So today is particularly quiet overall, uh, there really is not a great deal on the docket coming out as per usual really on a Monday. And then as far as weekend headlines were concerned, although I've covered quite a lot, I wouldn't say there was one singular smoking gun that's going to mean the market's going to go in either direction at this point. There's just a lot of more kind of nuanced, sensitive news flow coming out. But Tuesday then, we get Bank of England Bailey speaking at the British Chamber of Commerce webinar. So that'll be the first of his speeches. And then we've got Fed Chair Powell testifying to the House Financial Services Panel. So this is quite an interesting one. Jerome Powell is going to sit alongside the Treasury Secretary Steven Mnuchin, and they will brief a congressional committee on the effectiveness of policies enacted to combat combat economic effects of COVID-19. Now, markets may look for hints as to whether further fiscal stimulus measures are likely in the near term, uh, and if not, then how the Fed might react, uh, in that type of situation. So definitely that'll be one that warrants watching as well. That's going to be at 3:30 London time, uh, when we get around to Tuesday. So again, you've got Bailey and Powell. Interestingly, if you actually look, just a quick glance across the calendar for the week. You've got Fed's Evans on Tuesday, Powell on Wednesday. You've got Evans and Rosengren on Wednesday, Powell then to the House panel on Wednesday as well. You've got Fed's Evans discussing the economy and monetary policy again on Thursday. So there's a lot of Fed speak. This isn't uncommon. They have just obviously unveiled a new policy tweak in the form of average inflation targeting, and so it's they generally like to shoe that in and smooth it over in terms of its market's delivery or interpretation of that new tool. So I wouldn't be looking for too much from them, but it's something to be mindful of. And I guess that point of, look, if stimulus doesn't come, what are you going to do about it? Is there going to be anything else that you can do to support the economy as far as these politicians will be concerned? Moving on elsewhere, Tuesday The other, other highlights, you've got existing home sales coming out, the Fed, Richmond Fed Manufacturing. But then moving on to Wednesday, arguably then the most important as far as Europe is concerned, because then we start getting into the key focus, which will be an update on the September confidence readings. You get the flash PMIs. You've also this week got the German IFO reading. So these will be particularly meaningful when we get to early Wednesday morning trade, manufacturing service PMIs. These are the flash readings, of course. We also get the same out of the UK and the US later on. Going into Thursday then, you get that German IFO reading. And then if we skip further into that afternoon, we then get Bailey's next speech, and then Powell and Mnuchin testifying to what the Senate Banking Committee they're really going to be a main feature throughout the week. And then Friday is relatively quiet. The only thing looking out for is durable goods orders. One of the other things I'd say just to be aware of on Tuesday— I know it generates a lot of media attention— but Tesla have their annual shareholder meeting on Tuesday, followed by their Battery Technology Day. So I am absolutely certain that Elon Musk will come out as with a new dance move or a new something that will see their shares go through an extreme period, probably of volatility. So it's worth just keeping an eye out for that if you're monitoring that type of stock. And then finally, on a calendar point of view, for Brexit, gone but not forgotten, I'm afraid. Informal talks between the UK and EU negotiators will continue this week, but next formal round of talks is not until next week. The UK government's internal market bill, of course, will remain in the detailed committee early next week in terms of getting its approvals. Another vote in the House of Commons lays ahead. However, media reports suggest the PM now has done a deal with the rebel MPs, so should ensure its passage at this point in time. And that's it. So Yeah, any questions at all, feel free to, to just drop me a line in the comments section. Obviously always happy to help. More videos coming, of course, tomorrow, so I'll see you then. Good luck for today and this week. All the best.