This Week In Markets: 23rd - 27th November 2020

Okay, very good morning to you. Hope you had a great weekend. It is Monday the 23rd of November, and I'm going to start things off by just reminding you, if you're watching this on YouTube, would really appreciate it if you subscribe to the channel. Lots of new content even coming out over the weekend. And just to remind you then, I'm going to give you a fundamental rundown now, both encapsulating the weekend's news flow, but also look ahead for the major events for this week. But from a technical perspective and kind of applying that into trading setups, then you can refer to our head of trader development, Sam North. He put out a video yesterday you can see here. And then we also had on Saturday the release of the third installment of one of our senior traders, Tim Duggan, who this time did a really great, um, and practical interview, if you like, of good tips that you can apply to your trading in regards to psychology. And he was speaking to a high-performance psychologist. So really fascinating discussion there and something I definitely encourage everyone, whether you're just starting out or experienced, to have a look at. But let's get straight into things and look at the charts. This morning there has been some breaking news just out on the tape a short while ago that has caused a little bit of a blip in price activity. You can see here the S&P had a little pop higher before just being rejected around its R1. Uh, very short-lived, in fact, some of the gains. Um, but overall another net positive. And what is it that I'm talking about? Well, it is this, which is AstraZeneca. Um, they've just come out with an update. The vaccine developed by the University of Oxford and Astra prevented the majority of people from getting the disease but fell short of the high bar that's been set by Pfizer and Moderna. So the actual average efficacy was 70.4% when combining data from two dosage regimes. But do note though that one of those did have an efficacy rate of 90% when the approach which commences with half a dose was followed by a full dose administered at least one month apart. So I actually think that's a little bit more positive than perhaps some of the suggesting breaking news that is coming out over Bloomberg at the moment. A couple of things to, to be aware of here. What does make the Astra drug a little bit different? It is a little bit cheaper. Those other two, Pfizer and Moderna, have been criticized because of their high price point, the latter Moderna being much smaller than, say, comparative to the Pfizer-Astra giants that are very mature companies that have been around a long time. So obviously Astra then has good ability to manufacture and distribute any drug, which would be a net positive for them. And then also temperature. So the vaccine, this one that's just come out for, um, for AstraZeneca has and can be stored and transported and handled at normal fridge temperatures. That would be 2 to 8 degrees and can be for at least up to a period of 6 months. So a couple of big positives there. And obviously this is the third big pharmaceutical company. It does come after we've also had over the weekend, which was this one, which is Regeneron. They've also come out, early promise, if you like, in, in studies keeping the infection in check, reducing medical visits in patients who get the drug early. So this is more in respect to not so much a vaccine, but some of the pre-treatment situation, and it has come to notoriety, of course, because this was part of what US President Donald Trump was given at the time which he contracted COVID-19. So a couple of things there to, to be aware of, and that has had a little bit of an impact this morning. So T-notes have just bumped down a little bit after being hugging around the pivot level. Oil was already in a fairly positive state at that point irrespective of the Astra news, and we're up around 46 cents, so trading close to a $43 handle there. Uh, the dollar is weaker, uh, not much in the way of any sustained impact coming on back of the Astra news. But if we look at both major pairs, they are trading in positive territory amid some of the dollar weakness. And of course, keeping a very firm eye on that dollar in the Dixie, we're right back down to that lower bound of that key long-term level of support which you've broken, as we talked about many times last week. Could have the propensity to see some quite extreme and rapid dollar weakness and an extension of that move. Um, otherwise elsewhere, sterling, a little bit of outperformance perhaps. A couple of updates I can go over in regards to what we can expect to hear from UK Prime Minister Boris Johnson later today as he unveils what the latest situation is, uh, what the intentions are for restrictions over the Christmas period. We've also got the Chancellor due to update on government spending later in the week, and obviously Brexit as well rolls on. Otherwise, in the gold market, things pretty quiet, very tight price action. We're currently trading flat, in fact, at $1,872.50. And one thing to remember, of course, in regard to the US session, not just for today but for this week as a whole, it is of course Thanksgiving happening on Thursday. And Thanksgiving means then that all US major markets are closed, and typically people take off the Friday. So in terms of a normal working week in volume, and also then from a North American point of view, from the calendar, it's all pretty much front-loaded. So worth bearing that in mind, a lot of the week's activity, barring anything unexpected, is likely to be kind of front-loaded in that respect. All right, well, let's, let's cycle through some of the news. And as I said, the Astra news has literally just come out, so it's definitely one to, to keep an eye on. I'm sure people will further digest that and be interested when the US come in as well to see how, how that goes down. But we've got a bit of a balancing act here at the moment between, uh, really what is, um, a worsening COVID situation against more positive vaccine developments as more companies start to progress through their trial periods. So let's get you up to speed on what the COVID situation is. I'm going to focus on, on the US And then we'll also look at the UK and Europe. But starting with the US, as you can see here, cases over a 2-week change up 54%, deaths up 64%, hospitalization rates up 50%. So the US recorded just over 177,000 new infections on Saturday, is now averaging almost 110,000 more daily cases than it was a month ago. And, and fatalities, excuse me, have doubled over that same period. Vaccinations against COVID-19 in the US will hopefully, quote, start in less than 3 weeks. That was according to the federal government's program to accelerate the vaccine. And obviously this AstraZeneca one is going to be the latest kind of new positive news that has materialized. The interesting thing here about the Astra news is, as positive as it seems on the surface, the market impact is becoming less and less. It's almost like the, the market is becoming desensitized now to some of these updates, and the impact value, if you like, on, on day trading environments is becoming more and more kind of built in, I guess, to price. Um, an interesting thing, uh, a comment that I saw out of JP Morgan actually at the weekend, they were saying that lockdown restrictions on the rise, as we know, and that's something definitely we need to keep an eye on given the impact that that can have on the national economy in the US. They also said that with restrictions on the rise, close to 10 million US workers are likely to lose their employment benefits at the start of next year. If you remember, this is because of the struggles that we've seen on Capitol Hill in order to get any sort of new form rolling over of, of certain elements of their stimulus package. And that amounts, according to JP calculations, to an income loss of around $170 billion annualized. And I think that's, that's what's going to be really key here, because at the moment the situation obviously is deteriorating. There's going to be a renewed amount of unemployed people, as we saw with the initial jobless claims taking a little bit of an uptick. What otherwise has been a decelerating jobless figure is likely to pick up and intensify and probably fairly sharply over the course of the coming weeks, all the way through into the new year. And that in itself then is definitely going to put pressure on not just the US government to come forward with some kind of idea about what they're going to do in timeliness of a fiscal stimulus, but also putting pressure on the Federal Reserve. And this then lies to that kind of fundamental view of why we are still fairly bearish on the US dollar, and then eventually we will break that level and further dollar weakness may ensue. And that's because as well, one of the main talking points we had last week was about the Treasury stepping in, looking to rotate some of the underutilized kind of facilities from the Fed over into then what the, the government are doing. And this came out on Friday, which is worth recapping. There's now growing expectation then that the Fed are going to have to unveil more monetary action when it meets in a few weeks' time in the middle of December. And that's after the Fed have come out and Powell has basically said that they will comply with the Treasury Department's request to return unused funds meant to backstop 5 emergency Federal Reserve programs, lending programs. So the expectation then is the Fed are going to have to do more. And as I just mentioned with the COVID situation, and the impact that that's going to have on unemployment and subsequently the economy, with then the increasing level of lockdowns that will be witnessed on a state level, then the interesting thing from the asset class mix is that, you know, is that necessarily, necessarily a negative for the equity markets? Perhaps not, because as we know, some of these pandemic kind of stay-at-home type names. And obviously the tech space, these are very large companies, it can be supportive of that. So this is what makes equity trading a little bit tricky right now. Obviously the, the AstraZeneca news comes in, the S&P and Dow, European index futures might get a boost, but the NASDAQ typically falls because of that, that play that we've seen then, a kind of rotational play into value, if you like, if a vaccine comes in, uh, is the initial kind of knee-jerk reaction. But then actually the other thing underlying at the moment is that COVID is getting worse, which is requiring more lockdowns, which then subsequently helps some of those tech stocks. So that's what makes that a bit of a tricky proposition at the moment to call the overall, uh, direction. There's, there's much to be bearish and bullish about at the moment for the equity market. And that leads me into quite an interesting thing in terms of something else to be aware of. Uh, JP Morgan again, uh, this coming late on Friday, uh, but worth noting for the period ahead as we're going towards year end. And this is that rebalancing flows may lead to an exodus, they say, of around $300 billion worth from the global stock indices by the end of the year as large multi-asset investors need to rotate money into bonds from stocks after a strong equity performance has been seen so far this month. They go on to say that they see vulnerabilities in equity markets in the near term for balanced mutual funds, which represent roughly around $7 trillion worth, having to sell around $160 billion of equities globally to revert back to the target of 60/40 allocation either by the end of November or by the end of December at the latest. You also, they say, need to contemplate that if the stock market continues to rally into December, there could be an additional $150 billion of equity selling into the end of the month. Pension funds that tend to rebalance on a quarterly basis. So yeah, a couple, couple of things worth bearing in mind there. And this isn't to do with anything to do so much with the news. If anything, it's a kind of a secondary, uh, factor off of that, because the news might inspire, say, vaccines, equity markets rally, let's say. But then these portfolio managers do need to rebalance at some point as they look to close out the year and revert them back to normal allocation kind of weightings. And that can then inadvertently, without any kind of bearish information result in quite a lot of extraction of capital out of the equity market, which in itself then can cause, can cause some severe downside risk. So worth bearing that in mind. It's coming out from JP Morgan on Friday. It doesn't mean necessarily stocks are going to sell off today or even this week, but something to keep in mind as we go further forward towards month end and then year end. Um, all right, a couple of other things then. Gonna have a look at, um, quickly this piece of news. Uh, this came out from a Reuters exclusive, uh, overnight. The US moves to ban technology exports to 89 Chinese firms. Uh, so Trump seems intent on making Biden's life as difficult as possible when he comes in. So some further escalation here on some of the tactical moves coming out of the US on various different exports. My overall interpretation of this is ultimately, as provoking as this can be, I don't think China really will retaliate to a high degree given the fact that they know that Trump is outgoing. More of a— just a formality, I think, now until it's— more conclusive, um, that that will take place in that interchange in the White House. So I don't think China will retaliate. So therefore, as a net consequence, I don't really see too much risk in this, this headline at this present point in time. The other thing then is about what's going on with COVID in the UK and Europe. Um, UK Prime Minister Boris Johnson is due to announce today— I think it was, I saw a headline, 3:30, so later on this afternoon what COVID restrictions may be in place over the festive period. Reports suggest several families could be allowed to join in one bubble and mix between the 28th— oh, excuse me, the 22nd to the 28th of December. The PM will also outline plans for a tougher three-tiered system for England to be introduced at the end of the current lockdown on the 2nd of December. An update from Sage their scientists apparently saying how ineffective the previous three-tiered system was and that this new one, of which we are awaiting details towards what that will mean, is going to come out later on today. Under some of the new restrictions though, has been some talk the government is likely to scrap the 10 PM curfew on pubs and restaurants, and obviously that hospitality sector has been one of the hardest hit since the onset of the pandemic, of course. Course. Interesting point though, in terms of the economic implications on sectors like that, um, so far the, the lockdown that we have been on is definitely going to have an impact, but nowhere near as close as to what we had back in March. Because if you think about those types of industries that were hardest hit back in the spring, they're the industries that largely have not yet recovered from the first blow of the initial phase of the pandemic. So they're already in a fairly depressed state to start with. So the economic impact is going to be less severe this time around. Otherwise, elsewhere in mainland Europe, things— a couple of hotspots of kind of general positivity and developments. France plans to ease lockdown measures in 3 steps as their infections continue to recede while keeping some restrictions in place to contain the virus. The first easing will take place around December 1st. Italy is considering temporary easing of soft lockdown in the run-up to Christmas. However, the German approach, according to the Vice Chancellor, being a little bit more stringent. They're saying restrictions in the country may have to continue for some time beyond the end of this month in November. Quick look then at the calendar. What have we got for this week? As I mentioned already, it's going to be quite front-loaded, and in fact there's some important economic data coming out first thing this morning. So coming up now in about an hour's time, we're going to get the flash manufacturing and service PMI data from the eurozone and the UK. And, and these do tend to be market-moving readings, so definitely keep your eyes out for that. We've got the Chicago Fed National Activity Index later on this afternoon. We get the US PMI numbers. And then Bank of England Governor Bailey, Haldane, Tenreyro, and Saunders, they all speak before the Treasury Select Committee. So this is one of their kind of regular events, if you like. They'll be quizzed on the assumptions that underpinned their latest monetary policy report that they issued with the last November interest rate meeting that they had from the MPC. As I mentioned before, the Chancellor Rishi Sunak will provide a 1-year spending review, uh, together with updated economic forecasts from the Office of Budget Responsibility, the OBR, on Wednesday. And as far as Brexit is concerned, there is no scheduled talks at the moment that I'm aware of, but obviously they're going to continue to be in dialogue. There hasn't been really major headlines that I can speak of that developed over the weekend. It's something of which every week we go into the press and the politicians are kind of posturing that they're going to get a deal by— done by the end of the week. I still find that incredibly hard to believe Personally, from a trading point of view, I guess some of the main things to be aware of here is that sterling, as far as sterling-dollar cable, is actually relatively high. We're trading above 1.33 handle at the moment this morning, and so the risk of course is to the downside, deterioration, because markets are priced for it, for a deal to happen at some point. So that's the way I kind of interpret any rumors or headlines as they, as they break. Otherwise then, having a look at the quick summary then of these PMI data that are coming out, they are going to be expected to be pretty dismal, in fact, because if you think about it, these are November readings, and so they, they're fully capturing then the depths of some of the renewed phase of lockdown that we have witnessed in Europe. But as I said, the one thing to bear in mind is that they're likely to have a much smaller impact than from the very severe implications of what we had the first time round, given that people are kind of more acclimatized now to what a lockdown entails. And also some of those areas like leisure and hospitality were only partly able to reopen in this latest kind of recovery that we've seen over the last few months. So the impact's going to be less to the downside, but nonetheless, I'll definitely keep an eye out for this. Moving over into Tuesday, you've got the German IFO number, normally fairly interesting, talking to kind of the companies on the ground in Germany about their feelings of the current economic situation and more importantly, forward-looking, what they feel and how confident they are about the 6-month horizon. Then you've got ECB's Christine Lagarde speaks at a virtual roundtable, obviously being a fairly frequent speaker. Obviously looking at this in two ways. One, given that she's speaking so regularly, it's unlikely there's going to be anything particularly new. However, we are mindful of the fact that come, come the end of the year, the ECB are expected to boost their pandemic emergency purchase program. So looking out for further confirmation that is indeed going to be the case. Going into Wednesday, that's when you get the OBR to publish their latest forecasts and, and the UK Chancellor unveils his latest one-year spending review. You also get the US second reading of third quarter GDP, looking to be unrevised at that sharp recovery rate of 33.1%. that we saw. You get your weekly jobless claims, and remember, because of the Thanksgiving holiday, they'll be coming out on Wednesday. So quite busy day data-wise there. You get your core PCE, personal income spending, and University of Michigan all then squeezed into that Wednesday. Some of those data points would have been normally later on in the week alongside also new home sales as well. Um, speaker-wise as well, during these periods, regional Fed presidents Thomas Barkin, Charles Evans speak on the economy today, while James Bullard discusses monetary policy on Tuesday as well. And one thing that actually has been left off this calendar really goes to show how unimportant it is, is you actually have the FOMC minutes coming out, of course, later on in the week, likely to be uneventful. Nothing material really came of that latest meeting out of the Fed. Federal Reserve. But we do remain kind of mindful of this dispute that's been ongoing between Mnuchin and Powell about preserving the emergency lending program. As we've seen, the Fed have kind of conceded then that they're likely to adhere to the request of the Treasury, but that friction could be something to just keep an eye on as we go further forward. The final thing on the US side is President-elect Biden. He will announce his cabinet picks on Tuesday, according to the press. Biden has also said last week that he'll decide who he will nominate for the Treasury Secretary and make that announcement around Thanksgiving. So this week, some of the people on the shortlist for that most important position as far as financial markets are concerned is actually the former Fed Chair Janet Yellen. She just can't go away and enjoy, enjoy her retirement, it seems. She's— she wants to get stuck in. So obviously a very familiar face, and we know of her disposition when it comes to monetary policy. It certainly would be an interesting situation if that was to materialize, given it was only not so long ago that she was at the helm of the central bank. And she does tend to have that more kind of dovish disposition. Then also the current Fed Governor, Lael Brainard, Sarah Bloom Raskin, a former Fed Governor, and Raphael Bostic, the president of the Reserve Bank of Atlanta, are all candidates in the running at the moment. Biden intends to name his long-term advisor Anthony Blinken as the Secretary of State, according to 3 people from delivered the matter. And Jake Sullivan, formerly one of Hillary Clinton's closest aides, is likely to be named Biden's national security advisor as well. Uh, then going into Thursday, obviously Thanksgiving, uh, and then Friday is Black Friday. And for any of those who are new to markets, it, it definitely is worth being vigilant on Friday for any updates that we tend to see in these more kind of real-time readings on how successful Black Friday is being from a retail sense. Given the fact that there's a pandemic and there's been increase of online activity for purchases, we are expecting actually some pretty decent numbers for Black Friday. So this will be closely tracked as to give us an insight and a hint of the resilience of the consumer during this pandemic, and those numbers will probably be coming out as we go through the session on Friday. But as I said, Thursday will be particularly quiet from an overall volume point of view. It'll— that'll probably spill over into Friday given that most, most Americans will, will, will take that as an extended long weekend. And so really it's going to be quite front-loaded for this week. All right, going to leave it at that. Wish you guys a good week ahead. Any questions at all, feel free to ask. Otherwise, I'll see you same time tomorrow. Thanks very much.