This Week In Markets: 2nd - 6th November 2020

Hi there, my name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. If you'd like to access our private chat room to exchange trade ideas with professional traders from around the world, then check out Amplify Live by following the link below. Okay, very good morning to everyone. Hope you are doing well and had a great weekend. It's Monday the 2nd of November, so let's just get straight into the charts and how things are shaping up to get the new week underway. And obviously a few things I'm going to cover in the briefing, from the new England-wide national lockdown that was confirmed by Boris Johnson, um, the implications for that, more my general views in terms of the economic implications and in the short term for things like sterling currency and the FX. We'll have a little touch on the US election. We've obviously commented a lot on that recently, and thank you very much for everyone who joined us for the US election preview event we hosted on Friday. I'll show you where you can access a bit of a segment recording of that in a moment. But otherwise, we've got central bank decisions as well coming this week. You've got the Fed, the Bank of England, the RBA. You've got all the major kind of US data as the prelude then to the US nonfarm payrolls report, which we're also going to get on Friday as well. So it's a— it's absolutely jam-packed week. Uh, really probably one of the main final things then as we go in towards the end of the year. But as we've discussed a lot, it could well be the case then that this US election could drag out for a couple of days, even a few weeks under certain scenarios. But dealing with the here and now, how are things this morning? And equity index futures, uh, quite quiet actually overall. I'd say the bulk of the main moves have come elsewhere, and a notable one being WTI crude futures, which at the recommence investment of electronic trade, uh, did gap down slightly, but then having broken through the low that we saw back on the 29th, we then saw a very quick run through that S1 in the futures down towards S2. Overnight, obviously, fairly illiquid conditions. Fundamentally, of course, further lockdowns, this time now in England, but obviously comes on the coattails of everywhere else in major developed countries. Which is impeding then the overall demand expectations for crude oil. And we continue to remain under pressure there. We have bounced back a little bit, still down a dollar and a half for WTI crude. Otherwise, um, elsewhere we've got fixed income markets are pretty flat in terms of the US 10-year. The Bund is up a touch, about 13 ticks. In the currency markets, the dollar's up about 0.1%, and so both major pairs on the back foot, perhaps then a little bit of underperformance seen in the sterling currency, which has just sat around the lows that we saw to finish out the end of last week on Friday. And then that comes off to see after the— excuse me— the news that we had from Boris Johnson last week. So let's get straight into it. Going to focus more so on wrap-up of the weekend news, preparation for the main events for this week. Rather than the charts themselves, which you can access— people like Sam, Tim, and so on— in Amplify Live. So starting off with this, Britain's government, they have said that they're going to extend furlough for 80% of workers for another month after UK Prime Minister Boris Johnson kind of conceded to what was growing and mounting pressure on him given the rapid increase that we've seen in COVID numbers and the movements we've seen elsewhere, obviously across mainland Europe. And he announced an England-wide lockdown. Now, what does that actually look like from a major overview of the major points? Non-essential shops, leisure, entertainment venues will all close. All pubs and restaurants will close. Takeaways, though, as normal. A big difference from the initial one in the spring is that schools, colleges, and universities will remain open, but people should only leave their homes now for work, exercise, and medical reasons, and to shop for food. And different households now are not allowed to mix, and travel abroad and within England is only allowed for work now. So by far and away the most strict of lockdown that we've seen since that, that was implemented back in kind of March-April time. The furlough scheme as well does roll on then for an additional month for the time being. But a couple of things to be aware of on the back of this. Michael Gove, who's obviously one of the senior politicians behind Boris Johnson, said that the virus lockdown may be extended beyond December if they failed to contain the spread of the virus. I think the PM is due to update the Commons today on the action that was taken, but he's likely to say that that's not going to be the case. They're just going to review on December 2nd, which is the date of when these measures would initially come up for kind of appraisal, if you like. That decision likely will just be taken at the time. I don't think what Gove said— it's been a little bit sensationalized, I think, in the press. I think that's pretty obvious, right? You're just going to review. If the situation is still pretty bad, then you're going to have to roll over the lockdown. The problem is, is about the economic implications that that could have on the economy, of course. Overall though, I think that the move that's happened from the UK was inevitable. We've been talking about it on the channel here for some time. It follows the likes of France and Germany we saw last week, so I don't really think it's too much of a market mover, hence the fairly tame reaction that's been seen not just in UK assets but elsewhere as well. A couple things to bear in mind, as I said, schools are open Businesses are better prepared. There's a little bit of a cleaner exit strategy than all the uncertainty that surrounded the spring lockdown. So the economic hit is expected to be much less severe than what we had from that kind of catastrophic drop that we saw from the initial lockdown. As of the weekend on Sunday, there were 23,254 new cases tested positive for COVID-19. That was up roughly about 1,300 or so from the prior day on Saturday. So that's the latest there. Sticking with the UK, Brexit is still ongoing. We're not really anticipating much in the way of a definitive kind of breakthrough that would contribute to any type of meaningful movement in the sterling currency really until mid-November, which is probably more realistic date. Some of the press, so over the weekend, was talking about this then a sign of an agreement could be struck by mid-November deadline set by both sides, as a compromise is emerging on the issue of what access EU boats would have to UK fishing waters, according to people close to the talks on the EU side of the discussion. However, sources did go on separately to caution the important disagreements between the two sides remain on other issues, notably on the level competitive playing field for businesses. So again, this is going completely the way of expectations in my mind. So it's kind of these tentative little steps as they address and kind of conclude matters on each point, meaning that come mid-November, perhaps even going to December, they have the ability then to strike some kind of accord to avert this kind of no-deal scenario going into the end of transition at the end of the year. So I don't really think this is a particularly big deal, to be honest, and at least in the initial Before that, in the here and now, people more focused on what's been happening with the new implementation of the lockdown in the UK, or in England I should say. The other thing for this week as well, we do have the Bank of England. It's one of three of the major central banks alongside the Fed and the RBA in Australia that will be announcing their latest measures. And this one is going to be particularly interesting because the last meeting the bank did say that they, they stood stood ready to act. Many indicators now have been slowing in terms of macroeconomic data. The UK has gone into heightened restrictions in order to try and contain COVID-19. So the most likely outcome here is that they're going to increase their actual asset purchase program by another £100 billion, I think is the consensus from the economists that have been surveyed. So it's very much an expectation now just given the current status quo. There is a risk some banks have said that they, they might go for a smaller amount. I think if that were the case, it'd probably disappoint markets just given the overall expectation of a £100 billion extension. Any talk of negative rates, which is likely to be featured in, in the press conference, for example, because this is the one of the final times where the Bank of England will be issuing their kind of outlook as part of their monetary policy report. Again, from a global level, very uncertain on the COVID side, very uncertain because we might not even on Thursday have conclusion on what the US political side of things looks like. So when we're talking about negative rates, I think they'll just repeat their stance in that it's an available tool but not the preferred option of choice, which at the moment is still to just increase QE for the time being. So that's going to be on Thursday. Otherwise, let's have a quick touch upon the US election. One of the things I saw at the, at the weekend was as of Saturday, over 90 million ballots have now already been cast in the election according to the US Elections Project. That's about 65% of all of the entire total votes that were cast in 2016. And so that is set to be the most in a century that we've had of kind of mail-in ballot votes. Obviously, this, this brings about an interesting proposition for the night in itself, which we, we discussed in that event on Friday, which was about every individual state has a slightly different procedure in terms of their tabulation of results. One of the interesting ones was, is Florida. You can see here in this graphic in the greens, which are the states which are more likely to be called on the night. Florida is one of the singular states where they actually started counting, um, votes by mail-in back in September. So once you put on the actual day of physical voting that occurs, it could be that Florida is, is a really key focus that could determine then a real big shift in market activity if you're trading the overnight session, because by benefit of having more time, they should have been already up to date with a pretty accurate number, with then just topping up the actual votes that come in on the day itself. And so that would be a very key one, and one of which of course is particularly large in terms of its representation of Electoral College votes of 29, and then also given its general ethnic diversity, its age category, a lot of retirees. So it's got a nice kind of litmus test for how those other demographics might perform on a nationwide basis. In terms of the top battlegrounds, RealClearPolitics currently shows further narrowing for Biden's lead on a national level. He's still quite far ahead, plus 7, uh, number, but on a battleground level it's plus 3.2. Now he is ahead across everywhere at the moment, so for Florida which has flipped and flopped between the two candidates. Biden is actually ahead by 1.4 at the moment, but obviously all of these are quite closely contested. If you want more on that and more information, you just need to go to the, the Amplify Trading YouTube channel. I did publish a video on Saturday, which is what I recorded, a short, a short preview, if you like, of all the main things you need to be aware of. It's about 25 minutes long. But check that out. Any questions at all, just leave a comment on the video, be happy to help. But as I said, we will be covering the entire thing live all night long, uh, to coin Lionel Richie, on Amplify Live. So I really look forward to that, and hopefully you can, you can join us. Otherwise, sticking with the US, we've got the Federal Reserve meeting as well. I do think that this is an event rendered pretty much redundant by the fact that the US election is happening on Tuesday night, the Fed is happening on Wednesday night. So incredible amount of uncertainty, of course, that's coming on the back of this. There is a renewed uptrend in COVID cases, of course, happening in America, particularly in the Midwest states at present. There's been a lack of agreement thus far for a new fiscal package, so I'm sure there'll be much more kind of push towards Congress when the election settles in order to help support the economy through this next phase. And therefore, probably then the general tone will be downside risks for growth foreseen in the coming months, and the Fed kind of remains on standby. So I don't actually— we will cover, of course, the Fed live on Amplify Live, but I don't really think it's going to be up there as a real market mover just chiefly because of the timing, and it's going to be very difficult for them to make any real decisive action at this point. But overall, increasing downside risks are likely to keep them in a fairly dovish mindset for the time being. In terms of Australia, quite an interesting one to look out for, for them as well. I think it's tonight going into tomorrow morning, so this time in the briefing tomorrow I can update you, but they are expected to cut interest rates to a fresh record low at 0.1% from current 0.25%. The RBA moving to a traditional QE program by announcing it will purchase a set value of bonds over a set period of time. Economists suggesting this could be to the tune of around $100 billion AUD. Also reverting to what it did back in the main peak of the pandemic in the initial phase in March, April, the RBA was buying bonds along the curve to address market dysfunction without a set target. This provides maximum flexibility, an option the RBA traditionally prefers, and setting yield targets on bonds in 5 to 10 year range, complementing its 3-year target. So just overall a more robust stimulus given in the form of tweaking some of these monetary tools that are currently in play at the moment. As what we can expect from the RBA. Speaking of the RBA, the Aussie dollar is down just a, just a touch, not a massive reaction, but worth noting that their trade dialogue with China continues to be fairly precarious at the moment. China is likely to ban Australian copper ore, copper concentrate, as well as sugar later this week, according to multiple Chinese sources covered in Chinese pressed just in the last hour or so. And that's just something else to keep an eye on as well. With China, there has been economic data both over the weekend and overnight. You've had the various different manufacturing PMIs. So you've had the official gauge, which showed manufacturing PMI in October 51.4, pretty much in line with expectations, manufacturing remaining above 50 for the 8th straight month. The service number came in at 56.2, an improvement on 55.9, getting a boost from rising spending during holidays during that period. The Caixin Manufacturing PMI, that came out overnight, that came in at 53.6, the highest since January of 2011, slightly above expectations of 53. So overall, some fairly firm data there from a domestic point of view from China, but obviously being a, an an export-led nation. What's going to be particularly challenging for them in the period ahead is if there is a global further deterioration which is going to impede any imports from their country going forward. But domestically, at the moment, these numbers really reflect a fairly strong set of figures. For crude oil, as I mentioned, it's already down, uh, fairly significantly in the overnight session. It's been pretty quiet since Europe was coming into the market, having gone through 7 AM here in London, but it is down still around $1.50. Now, a few things here. Rising supplies coming out of Libya and Iraq, certainly it has been problematic, let's say, for the supply side. In addition to that, then, OPEC is scheduled to hold a policy meeting coming over the end of this month, November 30th to December 1st, which is likely to delay a planned 2 million barrel per day production increase. If you remember, when they initially implemented the kind of unprecedented supply cut, they initially started at 9.6, 9.7 million, reduced that to 7.7, and they were going to go in a staggered fashion as the economic recovery was taking hold. The only problem is we're going through more of a secondary phase downturn now, with all of the pickup in COVID and subsequent global lockdown that's taking place, which is dramatically impeding demand expectations. So expectations are very much so that OPEC+ are going to roll over the stringency of the current level of cuts for a little longer. But the overall lockdowns in Europe now, with the UK or England joining suit, is what's been the predominant factor to weigh on crude oil this morning, as well as a technical break as well in the overnight session through the lows that we saw last Thursday. Earnings-wise, 126 S&P 500 companies reporting this week, but quite frankly, with everything else that's going on, if you're an index futures trader, none of these are going to really move the needle and I think will get pushed aside. If there was nothing else going on in the world right now, there was— if there was no election, if there was no COVID-19, then I think earnings would be much more important. But that's not the case. And so therefore, unless you're trading these smaller-cap individual or mid-cap small-cap individual stocks, I really don't think they're that important to the overall macro narrative for this week. So I'm not going to spend any more time than that. Um, looking at the week overall, just running through it in chronological order, today you do get the various manufacturing PMIs, but these are the final readings, but worth keeping an eye on the ISM Manufacturing coming out the US this afternoon. Uh, remember, all times now revert back to normality between the time differential of London-New York given the US clock change at the weekend. So ISM Manufacturing at the regular time of 3 PM now, London time. Um, that's going to be particularly important alongside some other data points coming out the week because because it has an employment component. And of course, we'll be looking out for non-farm payrolls on Friday, so do look out for that as a, as a sub-reading to the actual headline figure. Aside from the US election on Tuesday and the RBA, which we talked about, you've got US factory orders coming out on Tuesday. You've got BOJ minutes coming out that evening. You get the final October service PMIs on Wednesday. ADP private payrolls coming out on Wednesday with ISM non-manufacturing. Thursday you got the Bank of England, as I mentioned. You've also got the FOMC— well, excuse me, the FOMC actually is taking place on Thursday according to this calendar. I'll double-check that. I can understand why they might have moved that if that were the case, because given the fact that it's coming straight immediately after the, the election, wouldn't be of too much of a surprise. But I'll confirm that with the Amplify Live guys. And then Friday you've got the the change in nonfarm payrolls, of course. How important is that? Again, in the context of things, it depends really where we're at. I mean, a lot of this week is really determined on the outcome of the election. And overall with that, I think the most market disruptive outcome is going to be an inconclusive night, one then as we go on, if it leads to a Biden or a Trump win but with a split Congress, particularly a Biden win but a split Congress where the Republicans retain the Senate and the House with the Democrats, then again I think that could be a lesser positive outcome than what would be seen if we were to get a more definitive conclusion with an overall win for either political party. Probably the most bullish generally overall being a red wave, but that would be against market consensus expectations, which generally is for a blue wave at this point. All right, that is it. Not going to go any further than that. There's obviously plenty to digest there. Feel free to go on my Twitter handle. I've got a full kind of summary notes for what I've just discussed. Otherwise, any comments, of course, just feel free to leave a message on the, on the video. And I wish you guys a good week. It's going to be a busy one, but hopefully, um, through Amplified Trading, we can help in these videos and through our chat room. All right, take care, guys.