This Week In Markets: 28th Sep - 2nd Oct 2020

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to everyone, hope you had a fantastic weekend. It is Monday the 28th of September Um, usual routine for a Monday. I'm going to give you an update as toward the major news that's come out over the weekend. Then we're going to look at the calendar, as you can see here, and I'll try and highlight a couple of the key fundamental events on the docket for the week ahead and a few things you need to be aware of in terms of what could promote then market direction as we go through the next couple of trading sessions. As per usual, if you go to YouTube channel, you can access Sam's technical setup for the week ahead. He issued that at the weekend, so I'll leave the charts to him. I'm going to go over the news. There's obviously plenty for me to get you up to speed on, um, starting with the calendar. Just a very top-level overview here. Um, it's really interesting week. I was looking at things Sunday night, doing my usual kind of week ahead preparation, and we've got a couple things. Lots of Fed speakers throughout the week, particularly Tuesday here. As you can see, got a whole batch Williams, Harker, Carida, Williams again, and, and so on. And they, they reappear throughout the week. And so just given general sensitivity to things at the moment with forward guidance from the Fed, uh, more clarity over since they adopted average inflation targeting and so on, that would be particularly interesting to watch. And then this week in terms of your major US economic data, um, we've got of course non-farm payrolls on Friday, which means we get the likes of ADP coming out this week We've got the ISM manufacturing data coming out the US as well, so some major economic data from the States. And then if we jump back to here, you've got this week, and actually commencing on Tuesday, lasting for 3 days, the final round of UK-EU trade negotiations for Brexit will recommence. And this comes with the House of Commons internal market bill legislation final reading as well happening in the in the comments, of course, on Tuesday. And then you've got ECB speakers. So just for today's session, note that Lagarde is speaking in European Parliament, and also Christine Lagarde speaks again at ECB and its watchers conference on Wednesday morning. Will be something key to watch given some comments I'm going to go over shortly from weekend's press and from ECB's Visco. And then we've got Chinese PMIs, and of course we've got the US presidential debate going on, and there's been plenty of, uh, political headlines coming out of the States at the weekend which we can cover. So that's the overall main things we're looking out for this week. But looking at the charts to get the, the week underway, and it's a relatively positive open actually. The DAX future, you can see here, up sharply, a gain of around 200 points already on the left. The NASDAQ's up 70, the S&P's up 23 points. As a consequence then, gold's down about $7, having just drifted off its pivot in the futures during the overnight Asian session where it was hugging that kind of level. Europe's come in and we've just broken it a little, little lower. In the currency markets, the Dixie's a little softer, down about 1/10, so that's helping elevate some of the major pairs. Sterling, a little bit of outperformance here. Some noises in the press about potential for breakthroughs in Brexit talks perhaps getting a little bit of airplay and attention. And then elsewhere, crude oil just edging down in the overnight session, below $40 again. A little bit of attention there on Libya. There's been some headlines about them recommencing the level of production in which they're currently pumping. And then for T-notes, pretty sideways price action and broadly flat in the overnight session. So that's how the land lies as we start things. So overall though, equity index futures, pretty positive start to proceedings. And so just running through some of the headlines for the reasoning and rationale behind that. Let me just move my camera into shot. And so this is one of the main things. Stocks in Asia were also up overnight. Industrial profits in China rose 19% in August after July's 19.6% increase, an increase due to factors including the continued recovery of production and demand as well as falling costs and fees for companies. The continued growth in profits was accompanied by a recovery in industrial output and slower producer price deflation. So taking a little bit of positivity away from that, there's always some question marks, of course, when it comes to full interpretation and I'd say accuracy of which markets in the Western world believe from Chinese economic data. But nonetheless, Chinese industrial enterprises growing for a fourth consecutive month, and that goes some way to help alleviate tensions about the continued economic recovery globally. Of course, the other thing is about the, the hopes of US fiscal stimulus. So this, of course, is Nancy Pelosi, the House Speaker, and essentially there's been some optimism because on Sunday she said she thinks a deal can be reached with with the White House on a coronavirus relief package and that talks were going to continue. And this is, of course, after many weeks of an impasse now. And what was adding to some of the negativity in the sell-off in equities last week in the US was about the, the passing of Ginsburg, the focus on Capitol Hill on the replacement for the Supreme Court nominee, and how that was detracting from the more important, from market point of view in the near term, which was a further development and passage of talks on, on the fiscal stimulus side. So we were kind of reverting a little bit back to that main topic, and that is a key component, of course, to keep market, uh, kind of risk appetite high would be coming towards some kind of compromise. Reading between the lines though, unsure here whether or not we're going to see much progression this week, quite honestly. It still seems that they're still quite far apart from 2.2, 2.3 on the Democrat side to more toward 1 on the Republican side. But again, this would be something to keep an eye on throughout the, throughout the week. Otherwise, elsewhere in the overnight session, probably worth just mentioning that Aussie was a little bit firmer in the overnight session. Obviously a little bit of read across in sympathy with the, the Chinese economic data will always help. The Aussie often acting as a bit of a proxy for people's kind of playing out of the Chinese perception of their economy. But also, an influential economist walked back his call for an interest rate cut to November from October in the overnight session. And also, to be aware of on the equity front, HSBC shares advanced the most in Hong Kong trading since 2009 after the bank's biggest shareholder added to its stake. Given the fact that they've been beaten down so much this this coming as a little bit of a kind of a, almost like a rescue act for market confidence in HSBC shares having been pounded in the last week or so. So that coming as a bit of a relief as well. But the main thing, one of the main things that markets are awaiting this week, of course, are these guys, Donald Trump, Joe Biden. Obviously it's starting to heat up. The countdown really is on now for the US election. Just a little over a month away. And this week is meaningful because on Tuesday is the first of 3 direct televised debates that the 2 candidates will be having. There's in fact 4 in total. The vice presidents will also go head-to-head after this one, but these guys— the first one is often seen as the real kind of most significant one because it really sets the scene then for how the rest are likely to go. Trump and Biden will field questions for 90 minutes. There's no commercial breaks, so it's just a, it's a pretty tough slog for these guys. The topics that the candidates are going to be discussing will include the Supreme Court, the coronavirus pandemic, the economy, race and violence in US cities, the integrity of the election, according to the Commission on Presidential Debates. All of the main hot topics are going to be covered. Um, with this in mind then, as you would imagine, there's lots of mudslinging politically that's gone on over the weekend. This is very typical of the general election cycle as we come into the real kind of main part of the campaign period. And so one of the first ones, of course, was this. You probably would have read in the New York Times at the weekend and they're leading with the main shot and headline that Trump's taxes show chronic losses and years of tax avoidance. So basically saying that the Times had obtained tax return data for Trump extending over more than two decades, and it tells a story fundamentally different from the one he sold to the public, talking that his finances are under stress. He paid $750 in federal income taxes in 2016 and nothing at all for 10 of the prior 15 years, largely because he lost so much money, according to the paper. How has Trump responded to this? Fake news, of course, his usual response for framing these types of situations. But the point being here is that, you know, how politically harming is this? Well, you can see quite evidently the strategy from the Democrats, which is to try and tear down one of the main ways of which Trump has framed himself to his base, which is that he's a successful businessman, he knows how to manage things like the economy because he's got such great business acumen, for example. Whereas this would kind of try to break down that perception. And so with anything, when you read this type of news, you've got to think about what is the source. And obviously the New York Times is always going to be anti-Trump in terms of the type of reporting that it will cover. So is this going to really have too much of an impact? I honestly don't think so. So as sensational as it is, and as, as much as it's caused a bit of a storm on social media, I don't actually think it's going to have that big a deal in terms of its implications on polling or public perception. Trump though, you know, not lying down, he did fire back over the weekend, and he tweeted this. I'm not sure if you caught it. But he basically said, "I'd strongly demand a drug test of Sleepy Joe Biden prior to or after the debate on Tuesday night, and naturally I will also take one. His debate performances have been record-setting uneven, to put it mildly. Only drugs could have caused this disparity." So, so basically what Trump is suggesting here is that when he was when Biden's been doing previous debates, that he, he has used drugs in order so that he can perform better, given the fact that his mental agility, given his age, of which Trump has been trying to push, has been impeded. And so he takes drugs in order to just perform better at these debates. So of course, this type of thing is completely unfounded, has no evidence or substance behind it. But again, it's just that whole kind of perception of the, of the mudslinging that goes on ahead of these big political events. So I don't think it's really— I mean, as, as almost laughable as this type of commentary is, I don't think it's really going to have too much of an impact. The one thing I thought was most interesting about this situation is that Donald Trump has been pretty clear to, to really be strong-arming the idea that he's going to absolutely walk these debates. And the fact that he deals with the press often and regularly, and the fact that Biden's kind of been bunkered down for so long, and there's also question marks about his ability to deal with this type of pressure and thinking on the spot, you know, expectations are high that Trump should dominate this particular, um, you know, these face-to-face rounds. And so what's happened recently actually is the Trump team have flipped that and started talking about the fact that Biden's been a senator for many years, multiple decades. He's a highly experienced debater. And what they're trying to do here is that they've somewhat miscalculated it in a way that perception is now so low for Biden going into these. I think as long as he doesn't get absolutely crucified it might be that he doesn't actually need to come out even best for the debate. He just needs to not get walked all over. And actually he might come out more triumphant from, again, a public perception point of view. So the Trump team are aware of this and they've tried to flip it. It's almost like the bar's now so high for Trump to win, if he doesn't deliver it, a resounding and romping victory where he just walks all over Biden, then actually it's his to lose at this point. So quite an interesting way of, uh, of looking at how this might play out. But this will be out Tuesday, and certainly Wednesday will be one of the main talking points of the week for sure. The other thing as well that's happened at the weekend is Trump picked Amy Coney Barrett for nomination to the Supreme Court and suggested that confirmation hearings on her nomination begin on October 12th. Obviously this is super important because it's to replace the liberal Ruth Bader Ginsburg. and it would change the ideological complexion of the Supreme Court, which is particularly important going into what's going to be a highly contested US election with the mail-in ballot system, which is likely to delay the entire results for the event in itself. So she could be lining herself in to like ride into the deep end in her first few weeks in office if, if that does so materialize. She is of course As you probably know, a faithful Catholic, deeply conservative lawyer. Rolling back Obamacare would also be another key target if she was to come into power. So tilting firmly to the right from the political spectrum if she was to get appointed, comparative to Ginsburg for sure. Moving elsewhere, a couple of words about the UK, starting off with the Bank of England. A lot of talk obviously from this chap, recent weeks. This is Governor Andrew Bailey, you know, are they or are they not heading towards the adoption of negative interest rates? We had some commentary in a Telegraph exclusive from an NPC member, Tenreyro, and she basically said discussions on negative interest rates have been, quote, encouraging, she said. And this was talking about cuts in interest rates below zero had been almost fully reflected in reductions in interest rates charged to borrowers in other countries. So again, remember in that last Bank of England meeting, what caused a bit of a surprise to markets was the fact that they'd kind of been talking to regulators about the process and adoption of negative rates. And actually then what Tenreyro was indicating towards was this overall assessment that, you know, it's kind of the, the benefits of doing it have been encouraging for other areas in terms of as a policy tool. So a little bit more noise towards that side of things, but I don't think it's overly new in that sense. They just want to continue, I think, from a communication point of view, stress to the market that it's an option, particularly with the economic disruptions that are probably going to come the way of the UK in the coming weeks, whether it be COVID or the unwinding of fiscal policy from the government, so on and so forth, and Brexit of course. The other thing is, talking about COVID There's been some significant headlines as well at the weekend. Apparently the British government is planning to enforce a total social lockdown across a majority of northern Britain and potentially London to combat this second wave of coronavirus. And all pubs, restaurants, and bars would be ordered to shut for 2 weeks initially, and households would also be banned indefinitely from meeting each other in an indoor location. So I was reading some things earlier, I'm pretty sure the stat was it's almost two-thirds of the country is in localized lockdown at the moment. This would talk about a lockdown pretty much the same as what we had in the height of the initial Phase 1 of the first wave of coronavirus. So pubs, restaurants, bars all being closed for 2 weeks, households cannot mix with one another And this London and Northern Britain is what's being talked about at the moment. So definitely this will need to be monitored. Um, again, I'd probably say that an enforcement of this obviously is going to have an immediate consequence on people's perception about the economic recovery in the UK, and, and as such could have a negative headwind for, for sterling if it does get indeed implemented. The other thing then is Brexit. This is probably though what's overshadowing that for a certain respect this morning, because cable is a little bit more positive and just trading a little higher, about 50 pips in cable at the moment in the futures. And this comes as the Brexit final scheduled talks commence this week. So on Tuesday they're going to be meeting for 3 days. EU diplomats told the FT that what was at stake this week was whether enough headway could be made to justify both sides entering into intensive tunnel talks for senior advisors. And tunnel talks then could run from the week of October 4th all the way to the EU summit on the 15th and 16th of October, which of course is that self-imposed kind of soft deadline that Boris Johnson has been talking about for a while. So what do I expect from the, the final round of talks here? Well, I definitely don't expect anything conclusive But some of the noises from the negotiators have indicated towards an appetite to try and get some kind of deal done. And I think that's what the kind of more favorable move this morning is for sterling. What will they get done this week? I think ultimately it will just be a commitment to keep talking. So rather than a conclusive wrap-up of talks and compromises being made just yet, I think that then it just means that they're going to buy themselves more time to continue the dialogue for another 2 weeks. And if there's any type of deal making to come, it will come in 2 weeks' time. So definitely a fluid situation. As I said, from Tuesday, Wednesday, Thursday, they'll be meeting. So you do need to be mindful of Brexit updates at that point in time. Elsewhere, I just wanted to quickly mention this chap. You might not recognize him from appearance, but this is ECB's Visco, and he was quoted in a Reuters article at the weekend talking about the euro exchange rate. And we know for sure, following the chief economist comment a few weeks ago, Philip Lane, how sensitive the euro can be to this type of rhetoric. And he said a recent strengthening in the euro's exchange rate is a worry and will warrant a reaction from the ECB if it drags inflation further away from their goal. Visco also denied ECB policymakers were divided on the matter and said his views echoed those of the executive board. So quite an interesting comment there, very forthright in terms of, again, the worry over the recent strength of the euro, so them looking to tame it and around those recent levels that we have traded in recent weeks. And for a bit of context, preliminary September eurozone inflation data is coming out on Wednesday this week. And that's going to be very closely watched. And then Christine Lagarde, as I said, speaks today and Wednesday. And so just given the likes of this type of commentary from her team, I'll be very interested to see what Lagarde has to say to kind of give the more definitive top-level president view on what the status is exactly with this type of commentary. Typically, from my experience, you get these kind of other executive board members come out and say this type of thing or perhaps the head of a central bank on a national level, in the ECB. But the president tends to toe a much more vanilla line, and so that then allows the official communication to be fairly neutral and even. But they can shape their market perception by using these other members around Christine Lagarde, which then doesn't mean that they have to pre-commit, if that makes sense. So yeah, interesting to see what she's got to say. Finally, the other things I'm watching are oil. Oil's a little bit softer this morning. It's not a massive move by any stretch of the imagination, but we are back below a $40 handle. But bear in mind, we were trading below there for large parts of last week. A couple things that people are looking at with this oil move, in particular Libya. Libya's output has almost tripled to 250,000 barrels per day according to Bloomberg. With production set to expand further as ships dock and load crude from storage tanks, allowing fields to pump more, according to people familiar with the matter. And Libya is one of those where, you know, due to the internal civil unrest, their production levels can fluctuate wildly from sub-100,000 to north of a million when there is no issues being experienced. And so definitely worth keeping an eye on. Because a fluctuation of, say, 500,000 of new supply coming on the market certainly does start to impede, uh, the effectiveness of the OPEC+ deal that's in place, of course, at the moment. The other thing that you've had, there was a G20 energy ministerial meetings happening on Sunday and is happening today. Interesting comment, of course, from this chap. He said that the recovery is set to be long and gradual. This is the Russian energy minister, Alexander Novak. He said that on Sunday, estimating global oil demand in 2020 will decline by as much as 10% from a year earlier. As such, then, he urged all global energy market players to combine efforts to combat the fallout from the coronavirus. So, um, yeah, a little bit apprehension on the demand side from a very key player, but importantly, I think, for the longevity of, uh, and a kind of success of this OPEC+ deal seemingly talking the book that would appease Saudi, which is that, you know, they need to continue to take urgent action to control this situation. But yeah, definitely worth keeping an eye on Libya at the moment. Any further increase in that number could be, could be significant for price. Going back to the calendar then, as I said, Fed speakers throughout the week and Christine Lagarde speaking today. Otherwise, today pretty quiet on the, on the actual data front. We then get the likes of the German CPI preliminary September reading on Tuesday morning, the House of Commons Internal Market Bill legislation final reading happening as well that afternoon with all those Fed speakers. Wednesday you get the Chinese manufacturing, non-manufacturing PMIs coming out, which are always quite important for the market open going into Wednesday. You then also get Christine Lagarde speaking again on that morning with ADP employment change, then the real main precursor for the payroll report from the Labor Department on Friday happening that afternoon. Thursday, these are final, but the European and UK manufacturing PMIs. You get the core PCE number coming out of the US that afternoon with ISM Manufacturing. Then Friday, of course, we wrap things up not only with the eurozone flash harmonized CPI figure for September, but you get the employment report, non-farm payrolls from the US. Now expectations for that, for payrolls, um, it's going to be quite interesting actually because it's the final payroll report before the US election. Remember, the US election is happening right at the beginning of November, so this is the final one we'll see. So quite important obviously from a narrative point of view for Trump. He's been talking about the recovery of jobs and so on Expectations are for the headline number to be around 875,000 to 900,000 jobs being created, which is a slowdown, of course, from what we have seen, which is an average of more kind of north of 2 million of late, albeit has been decelerating, of course. Um, but with a lack of fiscal stimulus forthcoming, at least for the time being, definitely to be watched given those comments out of Pelosi on Sunday. But a weak payrolls print with a lack of fiscal stimulus could well add to some of the angst we've seen in markets that was, that was kind of prominent in last week's trade. So definitely worth keeping a close eye on. So that's pretty much it. I don't think I need to go any further than that. As I said, I haven't looked at the charts at all from a technical perspective, but what I'd encourage you to do is go on the YouTube channel and just check out Sam North, our senior trader and head of Trader Development section, and he put out a video looking explicitly at technical levels, and he had some, some good setups as well as looking at across different asset classes. So check that out. But again, don't forget to subscribe to the channel if you haven't already done so. Really appreciate it, and I will see you same time tomorrow. Okay guys, good luck for the, for the session and week ahead.