This Week In Markets: 28th June - 2nd July 2021

Okay, very good morning. I hope you all had an excellent weekend. It is Monday, 28th of June, so usual routine. I'm going to summarize some of the major headlines to be aware of from the weekend and take a look at what's in store for the week ahead, and obviously culminating in the latest release of US nonfarm payrolls on Friday, which is set to be quite an important one, in fact, given it's been the relative soft spot in economic data coming out of the US, irrespective of the economic kind of reopening fueling growth and also inflation bottleneck pressures keeping that elevated. And the soft jobs data has been the one metric to keep Powell in a slightly more cautious approach, irrespective of the hawkish comments we've had of late. So that's coming at the end of the week, and obviously that means we get lots of US data this week and keeping an eye on those job components, which we'll, we'll have a look at the whole calendar in a moment. But otherwise, just kicking things off and looking at the charts overall. And what I'll do is I'm going to keep this briefing focused on the fundamentals, and then Tim, one of our senior traders, will run through on the live feed for the Amplify Live community the charts technically in more detail. But giving you a flavor of sentiment this morning, pretty flat overall. The DXY is trading unchanged, major pairs pretty much reflecting that, not too made major moves. Cable, if anything, slightly higher, reclaiming the 139 handle on the futures, up around 24 pips. And so despite Matt Hancock's wandering hands, things still moving as per normal, no real reaction to that as you'd expect. And then looking elsewhere, stock index futures pretty much unchanged, albeit minor positive territory. The DAX future here in the center left just finding a bit of resistance up at the futures closing high that we saw towards the back end of last week. In terms of the S&P, did print a fresh all-time high during the Asia-Pac session, just following those trends that we saw at the end of last week. We trade up and around those levels at the moment, all-time high in the futures now at 4278.5. Otherwise, the 10-year, very tight range overnight, the Asia-Pac region up around 3 ticks going into the European open. And gold has seen a fairly nice recovery after the initial dip that was seen in Asian trade. And we're trading up about $6 at the moment at $17.84. And crude oil, bottom here, is trading flat at the moment at the $74 handle. So let's get straight to it. As I said, going to focus on the news and starting off with Asia, where over the weekend we did have China industrial profits rise 36.4% year on year in May, which sounds like an awfully large figure. But in context, it's quite a bit weaker than we saw in the prior month in April, 57%. Surging raw material prices squeezing margins and weighed on factory activity was the reason there for the slight drop-off in terms of the, the pace of that rise. We have had in recent weeks lots of headlines pertaining to the fact that China are going to actively intervene and try and flood the market and supply of certain types of metals in order to offset those squeezes that we are seeing. We have seen a number of these, particularly base metals, coming off that initial peak that we had just a few months ago. And so at this point in time, I don't really see too much to fret about with that type of data point for the market open this morning or the week ahead. Um, China's official manufacturing data is due this week. That's going to come out on Wednesday. It is expected— analysts are already looking for it to show weakening growth and activity in June, likely due to disruptions caused by COVID-19 flare-ups that we're seeing now in some other major countries around the globe at the moment, you know, from the UK over to mainland Europe as well, particularly the Delta variant, which is now very present, of course. Otherwise, the main thing you probably would have read about in, in just the news in general was this chap here, now the former Health Secretary in the UK, Matt Hancock, who resigned after admitting he had breached the government and his own social distancing rules by kissing his advisor in May. His replacement— not going to dwell too much on him, but talk about his replacement, who is this familiar face you'll probably recognize, who is Sajid Javid. So he's been kind of brought back into the mix after he quit government after Boris was, remember, back in February putting a lot of pressure on him to basically fire some of his special advisors, of which he refused to do so. And he kind of walked away. He's been brought back into the fold. Um, he is believed to be more closely aligned with Rishi Sunak, the current chancellor. Previously, it used to be kind of the flip role reverse, and Sunak was, um, Sajid's number 2 at the Treasury, uh, in previous roles. And now, obviously, the new health secretary, he's going to be taking that role. With Rishi Sunak still remaining in the Treasury as the Chancellor. Couple of things here, reading between the lines in terms of away from policies of what their individual role titles would suggest is one is about reopening and the kind of senior government cabinet officials. And Rishi Sunak's been pretty clear now that he wants to get the economy back reopening, dropping some of these social distancing rules and so forth. And basically exercising that final step down out of lockdown, which got rolled over and delayed on June 21st. And apparently, um, Sajid Javid has a similar type of mindset. So today the government is expected to confirm that the spike in infections means it won't be possible to lift social restrictions earlier. And so they're basically sticking to that July 19th commitment. And again, Sajid Javid is said to be aiming for the same full reopening date in mid-July. Otherwise, elsewhere on the vaccine front, I thought this was fairly interesting, particularly probably more prevalent for the US than anywhere else, but infectious disease experts at the weekend are weighing up the need for booster shots, easy, either using the Pfizer-BioNTech or the Moderna mRNA-based vaccines as regards to Americans who have received Johnson Johnson's one-dose vaccine. Due to an increasing prevalence of the more contagious Delta variant of the coronavirus. J&J have said it is testing whether immune response from its vaccine is capable of neutralizing the Delta variant in laboratory settings, but there's no data available as yet. And the reason why this has, has become a talking point is because both mRNA vaccines show efficacy rates of around 95% in large US-based studies whereas the single-shot J&J vaccine was only around 66% effective. So the idea here being, given the greater transmissibility of the Delta variant, you know, we've even talked about Delta Plus as well having greater immune evasiveness, well then, is the J&J single shot enough to give adequate protection against what is now an increasing Delta variant that we're seeing in North America? And so something to just be aware of as we, we go through the week. Separately on the COVID front, mainland Europe— Germany is to ramp up their vaccines. They will soon be so many doses available of COVID-19 vaccines on hand in Germany that will be able to offer shots to passersby in city centers, in places of worship, and so on, as it seeks to vaccinate at least 80% of the population as soon as possible, according to health officials at the weekend. And of course, this also comes at a time where we are seeing a pickup in Germany as well as other European nations of that COVID Delta variant. Geopolitical news. This is something which came out this morning, and it comes after President Joe Biden has ordered strikes on, quote, operational weapons storage facilities at two locations in Syria and one location in Iraq, Iraq on Sunday evening, Washington time. Washington time, to deter future attacks on US interests in Iraq. The strikes then could mark as a bit of an early first test for the new president-elect in Iran, Ibrahim Raisi, and he's due not to take office until August, but he is seen a bit of a more hardliner than his departing president in Iran, Hassan Rouhani. And so the fact is here that the US has hit Iranian proxies outside the country. So it could give both sides plausible deniability to avoid escalating and increasing tensions between the two nations. However, of course, it is kind of a subtle move going in, in a situation where they are at the moment adjourned on nuclear talks. But the US obviously want to keep the pressure on, show their seriousness at this point in time, particularly to a new incoming administration. Iran has missed already a deadline to renew its temporary atomic monitoring pact with the international inspectors, and something which they've done before. Again, this is all very tactical, part of this broader negotiation that's going on. They probably will end up signing up to that, and in the end, we are still of the opinion that they will end up signing up to the nuclear accord. It's just a matter of really timing. So it's something to just be aware of later on this week. So just keep an eye on any comments. Again, I know this sounds quite sensational, these types of headlines, but in reality, it's all part of this bigger political context and not something that's really going to move oil markets as far as right here, right now. The other thing as well, talking about oil, is OPEC. OPEC have got a meeting, their monthly meetings, as they do, and that's happening on Thursday of this week. Sources have suggested the group is mulling a further easing of curbs, although specifics have not yet been ironed out. Reports suggested a curb easing of 500,000 barrels per day. So two things really. One, going into that meeting on Thursday, I'd definitely be vigilant for more source comments. It's almost inevitable that that will happen and give further clarity even before that meeting takes place of what the eventual outcome will likely be. So looking out for greater sensitivity in oil as we go through really probably Wednesday. We'll get more color on that. And then secondly, you know, the reason for this kind of potential and hinting towards further easing of the supply curbs, given the fact that oil is now trading up at multi-year highs— we're trading at $74 handle at the moment— the COVID situation is, well, this is probably the deal breaker of why the likes of Saudi Arabia at least will be very much more siding on the, on the cautious and keeping the supply pact as it is. And this is where the relationship needs to be balanced, is that the Russians, for example, will look at the price, they'll look at the overall global, global COVID situation, like in North America, where yes, there's more Delta variant, but overall case rates and hospitalizations and so on are very low. The economy is reopening, demand generally is picking up. So they don't want to have too much supply constraints when there's ability to be able to sell more oil. It's the Russians' view. Saudi Arabia will take the other side of that, looking at the same variable and say, look, there's too much risk still associated to the fact that there's a real big dislocation between developed and non-developed world COVID handling. And so therefore, there's still a risk on the demand side. And so we should keep our supply pact in place. So, yeah, still a bit to play for whether or not that will materialize and certainly could be a factor for crude oil as well. As well later on this week. Otherwise, jumping back to something else, two other areas I wanted to quickly talk about. One was crypto. So for any crypto enthusiasts, I'm sure you've probably read about this already, but the UK's financial watchdog, the FCA, has ordered Binance to stop all regulated activities in Britain and impose stringent requirements on one of the largest crypto exchanges. And the reasons for this is the usual regulatory actions. So concerns related to potential role in illicit activities and fraud and weak general consumer protection practices and so forth. So the exchange has until Wednesday evening to confirm it has complied with the watchdog's demands. So something to be aware of because we have seen some ongoing volatility in some of the crypto space. A lot of the recent downside generally over, over the last couple of weeks has been very much tied to this whole kind of regulatory reaction, as much as many other news, particularly coming out of China as well. The other thing was gold and Basel III. Now Basel III is probably something you would have heard about many, many years ago, and it is really a byproduct of a result of looking to shore up the banking system from the fallout of the global financial crisis, which of course was well over a decade ago. But here we are. New banking rules under Basel III will set to come into force today for Europe. There's a bit of a different rollout geographically, but let me just give you a very brief summary. And I have tweeted this article which has all the details, so I won't, I won't go into it too much. But overall, there's basically this thing called Net Stable Funding Ratio, NSFR, and what that is is a multi-year regime change aims to prevent another global banking crisis by requiring banks to hold more stable assets and reduce then more riskier assets on their, their kind of balance sheet. So the NSFR regulations are going to be introduced to banks in the European Union as of today, the US on the 1st of July, and the UK on the 1st of January of 2022. So it kind of comes into effect over a slightly graduated period. Essentially what it is, is allocated gold intangible form will essentially be classified as zero risk under the new rules, so being the same equivalent of cash. But unallocated or paper gold, which banks typically deal with most, won't. And what that means then essentially is that banks holding paper gold must also hold extra reserves against it. And so therefore, some people have said it could have then this kind of boost to gold prices in terms of on the demand side as the banks look to recalibrate to this new regulation. Reading even this article, completely split opinion about how market impactful this is going to be. Some people saying not at all, some people are saying it's going to be absolute mayhem. So I would encourage you to just have— take a look at this article. It really does have some more of the underlying details, but something to just bring to your attention certainly if you're, if you're a gold trader, to be aware of today and this week and the period of going ahead as the new regulation gets adopted. Looking at the week ahead, as I said, payrolls really is the main feature, and of course, as ever, that comes on Friday. What does that mean? Well, it means we get the various manufacturing PMIs coming out the US, of which we'll keep an eye on the employment constituent. Wednesday then we get the ADP national employment figure. We've also got Chicago PMI coming out as well on Wednesday. So very much a US-centric week. And let's talk about payrolls first. So the headline change in non-farm payrolls expected to come in at 675,000. That would be up from the previous 559,000. So seeing over a 3-month period, given the down low side surprises that we have, is a figure that's heading in the kind of right direction and improvement in that sense. The unemployment rate is projected to have dipped slightly to 5.7% from 5.8%. Now, labor shortages caused by worries about catching COVID in the workplace, childcare limitations— so a lot of schools are still being working remotely, meaning that parents then need to be at home in order to look after their kids— early retirements, particularly those of an older age, because a lot of them have been seeing surging equity markets and saying, well, hey, it's— this has boosted my pension pot, and so I might as well just call, call it a day and take early retirement. And then also federal unemployment benefits have all been factors that have kind of led to this fairly lackluster return to the labor market, even though there's been a large degree, as we know, reported of job availability. In North America. A couple of things though: low COVID transmission, rising vaccination rates, the reopening of major centers like we've seen last week or two in the likes of New York, California, have set the stage for a rebound in hiring. So the fact that this number is going to be moving back up, I don't think it's too much of a surprise at this point in time. As I said earlier when I started the briefing, the jobs data has really been a bit of a soft spot in what otherwise, if you'd imagine if this number was up at the 1 million, 1.5 million figure of the last couple of months, I would have thought that probably then there'd be a much more focus on Jerome Powell and real pressure on him to start following the more hawkish tone that some of those other more hawkish-minded officials have been expressing just last week. But the jobs data gives reason then to be taking a more steady, cautious, measured hand at this point in time. Time. But as that jobs data starts to pick up, and depending on how strong, consistent it is over the coming weeks, I think just generally it keeps it true to that general Wall Street consensus timeline view that Jackson Hole Symposium, which is going to take place at the end of August, is really giving it enough ample time, kind of 10 weeks or so, in order to see further economic data consistency see where we're at, and probably will signal then talking about tapering to be formalized then in the September meeting. So the jobs data this week for sure is going to be, is going to be important, particularly then, you know, for this idea about how hawkish or not and how quickly they need to start moving that way. It's going to be quite a key factor. As I said, you've got the other figures, so ISM report Thursday, you've got US consumer confidence as well on Tuesday. Both, both should hold firm levels, with the former again highlighting supply chain constraints that are putting up costs and boosting the chances that inflation could be here to stay for longer, according to analysts at ING. Otherwise, yeah, you've got the OPEC meeting on the Thursday. President Xi Jinping in China will deliver a speech at the nation's— marking their 100th anniversary of the founding of the Chinese Communist Party. That's also happening Thursday as well. And then the other notable point, you've also got some eurozone inflation figures as well coming out this week. So that will be on Wednesday. And that's pretty much it. So hopefully that gets you up to speed. I know definitely you focus more on the news and the fundamentals, but as I said, check out AmplifyLive.com. There's a free access section there and there's some more information that you can obtain in terms of technical charts and so on. But I wish you guys a good week ahead and catch you later on. Thanks very much.