This Week In Markets: 30th Nov - 4th Dec 2020

Okay, very good morning to you. It is Monday the 30th of November. Hope you're doing well, had a great weekend. As usual, gonna have a quick look around the markets and also look at a couple of the major events happening this week, and hopefully we can kind of pick out then potentially what the landscape looks like for the next 5 trading sessions. And Starting off with the overnight session, uh, quite interesting actually. As you can see here from these center charts, I've got the Dow, the NASDAQ, and the S&P 500 futures. And if I was just to look at the S&P for example, and this was replicated across those three majors, we had a gap up at the initial open. Let me just remove my camera for one moment to make the chart more visible. We had a gap up at the reopening of trade. The initial indications when I was putting out my piece on, on Twitter for the week ahead was that the market was set to open up about 0.2%. There was some news coming out, um, in regards to more vaccine stuff, which we'll get to in a moment. So we actually gapped up, but we hit basically this trend line I've been keeping an eye on throughout really the initial Pfizer spike. So this chart I've been continuing to add annotations as some of the key fundamental kind of catalysts. And that was that big extreme move that we had in that first response to the Pfizer developments back on the 9th of the month. We had the retest here, um, back on the 24th, so Tuesday last week. And then this was last night, we opened up, we pushed up initially to that trend line, and then we've just come all the way back down. We've actually had a pretty sizable pullback, in fact, and from the high from overnight The S&P's down about 1.35%. Now importantly, there hasn't been a singular kind of catalyst for that, no real major negative headlines. But remember that it is now the end of the month, it's the last trading day of November. Of course, US participants who are largely out of the market since Wednesday, given Thanksgiving holiday and the very quiet Friday volume-wise that we tend they'll be coming back in. So a lot of talk obviously on the, the month end about just given the, the size of the, the rally generally that we've had, um, not just in November but of late, putting us up to all-time highs if we were to look at things like the Dow for example. And then a little bit of unwinding of that, uh, book squaring of some degree wouldn't be the most surprising thing. The Dow here is already down, or has been down, in excess of 350 points this morning. Again, let me just remove my, my camera feed for a moment, and then we'll just draw in a bit more of a picture of the, the Dow price movement. So we hit the all-time high in the middle of last week. Of course, we really busted through that previous double top on the Pfizer, Moderna stories, smashing through 30,000 in the futures at least, and getting up to around that 30,165 at the high. So continuation, a bit of a pullback, and this really is the overnight move here. Um, so it's been pretty steep as we've got through what was the low in the futures seen towards the back end of last week. And quite a key area here technically, I was watching, uh, in early trade here. You've got the S2 level with what was the high on the 11th there's been an area of support in the middle of the month and resistance before the eventual break higher on the 23rd. And we snapped through there, and that probably resulted in some of that initial follow-through on that price movement. It's steadied since, but we're still down beneath that area. And so, uh, definitely on the downside next, as I've put on this rectangle, would be an area I'd be watching for the rest of the session, that being that low that we can see on the 17th and then that kind of range high through the 19th to the to the 24th before the move higher, and that would be at 29447. So yeah, equity is a little weak, but as I said, I don't think there's anything massively negative that's happened. I think perhaps just a little bit of fatigue on the upside going into month end would make the most sense to me at this point in time. Otherwise, in the other asset classes, T-notes not really doing a great deal. I mean, you would expect in a normal type movement for T-notes to be quite a bit higher with that equity sell-off. Seen overnight, but that not the case. But practically flat, we're up just 1 tick. In gold was quite an interesting move that was seen in the overnight session. There was that sell-off that Tim and I were talking the Amplify Live community through when we saw that on, on Friday. And remember, a lot of that range break, but also the fact that given the lower trading volumes, you do tend to see kind of price movement somewhat exacerbated. That was exactly what we were seeing at the end of last week when gold started to break down. And then in the overnight session, we actually broke through that level of Friday's low to, to print the initial intraday low that's been seen in the futures at 67.2. Worth noting, overnight in Asia, you did have Asian indices were generally lower, the exception being China. And the reason for that, China's factory activity expanded its fastest pace in more than 3 years. Their manufacturing PMI came in for November at 52.1 against 51.5 expected. The central bank, PBOC, also unexpectedly injected funds into the financial system overnight, which typically lends its hand to being more supportive of their local domestic equity market. Um, in the currency markets then, uh, just a quick look, uh, the dollar just seeing a little bit of recovery as UK, European early birds come in. But overall, this is a look at the US dollar index over the period of the last several days, and this was that initial pop we had on the upside when the market got down through and around this key 92 level, which of course we've been watching on a multi-year kind of time frame. Really important support and resistance area over multiple years. And every time we've got down close to that level, we've seen quite a large kind of rejection and then a move up. But as we've been saying in the last week or two of briefings, the overall trend continues to be a deterioration of the dollar. And that's definitely what we've seen. Although we get these kind of pullbacks that can be quite violent, the overall move has been south. And that again happening overnight. As I said, the dollar index just picking up a little bit. This is the— in the futures, looking to close the gap on the low from Friday, but albeit still down around 0.1% this morning. So looking at these major pairs here, both slightly supported. EURUSD then, probably one that's quite interesting to watch for the week ahead, because if we put that on a daily, we obviously have broken out of that area that was constricting price on the upside. So this is looking here at the last 4 or 5 months worth of price action. And that area around 1.1924 was quite key. We've— we definitely got through there in last— well, the end of last week on Friday with the breakout. And then now looking to target back up around 1.20, which we know is a kind of symbolic reference point for the ECB where they start to voice concern about the strength of the euro and how that could impede then the fairly fragile recovery in Europe, given the back of the fact that a number of the largest economies, obviously like Germany, are heavily dependent on exports. Otherwise, oil is another one. I'm going to bring up that chart when we get around to the headlines to have a look at, because there's an OPEC meeting happening today which is particularly important. So we'll have a look at that chart in a moment. So let's get straight into some of the headlines and get you up to speed of what's been going on over the weekend. Um, so this was one of the main things that I saw. This is in the FT, and it was talking about the fact that UK is poised to become the first country to approve Pfizer and BioNTech's COVID-19 vaccine. Clearance is possible as early as this week, according to people familiar with the situation quoted in the Financial Times. An emergency US approval could come as soon as the 8th to the 10th of December. So hence the reason why the UK may well be first here with shipments in the US. Then if that approval can come at between the 8th and 10th of Dec, shipments could start within 24 hours later as everything is getting prepared in advance ahead of time. Although British doctors have been put on standby for a possible rollout before Christmas, anyone who saw my notes that I tweeted or I put in Amplify Live the weekend on Sunday, there's two points that I'm looking at, I think, just to be aware of. And point one is, despite the high order volume— so what I was reading at the weekend in regards to this specific Pfizer-BioNTech COVID vaccine is that there's enough, with a double dose obviously for this particular vaccine, to vaccinate 20 million people in the UK. The thing that I wanted to point out on point one then was the speed of manufacturing. Is likely to be slow to start, and companies also have deals to supply hundreds of millions of shots to Europe, the US, Japan, and elsewhere globally. So just to make that point more clear, although a lot of the numbers that the politicians have been putting out, obviously they have a slight framing objective they're trying to hit, which is, look, we're gonna, we're gonna order and have 20 million shots When that 20 million comes in, uh, is a different matter. As I said, um, especially someone like BioNTech, they're particularly small comparative to some of the other more matured names like your Pfizers and the AstraZenecas, for example. And so the ability for them to upscale with these monumental amount of demand that's coming on, given that they're right at the front running in this kind of vaccine race means that it's not going to be a quick process. So although these, these first vaccines may become available, the reality is it's going to be drip-fed in over time. And, and that really leads me to point 2, which is ministers have already said, in regards to the UK at least, that care home residents and workers will be the first in line to receive a vaccine, followed by people aged 80 and over. Followed by then healthcare workers and then the wider population. So as you'll remember, we've talked about this quite, quite a few times in regards to big banks putting out their analysis, but the overall adoption of a phased system. So as we said then, care home residents, older people 80+ years old, then healthcare workers, then probably those with underlying medical conditions like obesity or diabetes, these types of of things, and then the rest of the population. So this is a very long period of time we're talking about here. Um, so hence the reason why this just being a headline that would be an immediate positive. Well, that's kind of already happened with some of the moves that we've already seen over the last few weeks in the month of November. So just getting you up to speed there. Definitely vaccine updates, um, is something I'd continue to be very vigilant about. I mean, this week there certainly are some economic data points to keep an eye out for culminating in On Farms on Friday. But vaccine news is always going to be important, both in a positive fashion if there's any more developments in terms of approval statuses that come in, any more quality details in second round of testing of, of certain phase trialing, and then if there's any negative surprises, of course, something that just comes up that was not anticipated. So I definitely would remain vigilant on that front. Just so you're aware, over the weekend the NYC school system is set to reopen, and the reason I'm just pointing that out is it is the largest, of course, in the US. So that coming despite the closure that it saw just a few weeks ago. Moving over then, I'm going to talk from vaccines to COVID government plans on how to contain the actual virus, and this is looking predominantly at the UK. And this has come as Boris Johnson, as I'm sure you might have read, has come up against great resistance from a number of Conservative members in regards to how stringent then this latest tiering system that's going to be adopted post then the lockdown that we're in to end on December 2nd. And the main reasoning there that they have is that it's going to inappropriately penalize certain areas, which is going to have quite devastating economic repercussions. Concussions. So as many as 100 members of Johnson's Conservative Party are unhappy, surprisingly, with this three-tier system, fearing it's too harsh. As a concession to persuade Tories to back the strategy, the government has promised that regulations would automatically expire, expire in February under what he's calling a sunset clause. Before then, MPs will be given a chance to vote on whether to to extend the rules in January at this point. So worth, worth keeping an eye on at the moment as Boris tries to manage his own political party. Moving away from that, on the Brexit side of things, the saga rolls on. We had a lot of commentary. The person they kind of sent out to do media rounds at the weekend on Sunday was the Foreign Secretary Dominic Raab. He came out and said that the EU negotiators, British and EU negotiators, have been showing pragmatism and good faith during the recent talks, and there's a deal to be done potentially this week, said Dominic Rabb, saying he's upbeat as talks enter the final few days. Negotiations, they are continuing with officials, I believe, face to face, given the fact that they had to move virtual at one point last week because the European official contracting COVID resulting in a lot of of social distancing and so on, waiting out in order to see that through. But overall, what do I think of this? I still don't think they're going to get a deal this week. I've said this many times. I still don't think we're at a real pressure point where politicians are going to fold and really make the types of concessions that would constitute a deal. Although I still believe that that will happen, I don't think it's going to happen as soon as this week. So again, thanks. Just keep an eye on— looking at oil, I did mention this, um, briefly, that we'd look at the oil chart. So before we do, let's just get up to speed on what the news flow is. And a panel of OPEC+ ministers couldn't reach an agreement on whether to delay January's oil output increase, leaving the matter unresolved before the full meeting of the cartel and its allies today and tomorrow. So apparently what happened was Saudis and Russia were putting quite a lot of pressure to get early discussions underway yesterday, but they, they failed to really reach any type of coordinated agreement. Now, most participants in that informal online discussion on Sunday evening last night supported maintaining production curves at current levels into the first quarter according to a delegate. Now that would be what markets are expecting, which is the current supply pact between OPEC+ just be rolled over for another 3 months effectively to cover Q1. And that, of course, as we know, being because of the fact that COVID is still quite rampant in areas like North America, but it has also led to quite strict restrictions in mainland Europe, the UK, and so on, although those are going to be softening over the weeks ahead is what people are anticipating. Nonetheless though, in order to secure a firm support for oil prices, they want to just roll this over for another 3 months. Anything less than that, then price of oil is going to collapse pretty quickly. Um, the other thing here was that the Russian Deputy Prime Minister and Energy Minister Alexander Novak spoke in favor of postponing the supply hike. So that's a good thing. Russia is incredibly important in order to backstop any deal given how large they are, so the Saudis will be happy with that. Um, however, the UAE and Kazakhstan have said that they were opposed to that being the case. The other key name that a lot of people tend to look at because of their lack of, uh, adhering or complying to the General Supply Pact is Iraq. Iraq has not asked for an exemption from OPEC+ limits on the country's oil output. For fear that an increase in production might actually cause crude prices to fall, which would be self-harming for them. Um, so they're continuing to toe the line, at least for now. So what I'll do is I'll, I'll update you as the morning goes on about specific dates, and I'll share some of the live feeds from, from the meetings that they've got, uh, with OPEC that are happening today. But if we look at the chart, this, this definitely could be important uh, in regards to markets have definitely priced in a rollover of the supply pact. If I just make my oil chart a bit bigger for a moment. So remember on the daily chart, um, we, we broke above that really key area that saw a decent breakout of price action on the upside last week, which is around that summer high, which was also that March 2nd low at the time. And that, that created it and the break above $43.78, and we ran all the way up to around $46.26, a decent push on from that point. Since then though, we have backed off a little bit. You can see here, um, a little bit of weakness seen in overnight session. The oil-equity correlation, uh, fairly tight at the moment, tied to just general, uh, kind of economic sensitivity overall. And it's come off, but it has recovered, and we're back down to the base of the kind of range that had been forming since really the middle of last week after that initial breakout that we had. Uh, on the downside, I mean, could we get back down to these lower levels? And that lower level really on the daily would be quite key, which would be a firm area of support back to the initial point that created the powerful breakout, which is kind of more on the daily around 43.78. So if we start getting down to around these sorts of levels here, which is close to around the S2, and that high we had on the 24th could be quite interesting. But to get down there, which is another dollar lower than where we are at the moment, and we're already down $0.83, I think you've really got to start having, um, kind of, uh, the discussions from the OPEC meeting hinting towards the fact that they're finding it hard to get a deal done. If that starts to do the rounds, those kinds of noises, then oil I think could definitely move lower today. An inability to enforce that rollover, um, oil's got to take back some of these recent gains. But don't forget, the base scenario is they do agree to the 3 months. If they were to go as far as 6 months, I think now that has kind of, uh, we've moved away from 6 months to center around 3. So rolling out for 6 would definitely be a short-term catalyst intraday for more positive crude prices. If that was to happen, I'd be looking up for a quick run-up back up towards $55.71, that previous high on the 25th, and what we had at the end of last week, and perhaps even a push on back towards this initial high that we've seen, um, in recent months. So yeah, definitely something to be aware of as soon as today, and then going forward into tomorrow as well. All right, quick look at the, the calendar for this week. What have we got? So one thing to be aware of, Christine Lagarde does speak later on today at 10 AM, European Policy Center Forum. It is interesting from a European perspective, you've got a November flash CPI which is expected to show another decline in prices And that, of course, coming ahead of the December important ECB meeting. This is on Tuesday's session, you can see here. Today we've got Christine Lagarde is speaking, as I just mentioned. Her and several of her colleagues are scheduled to speak this week, and this will be the last opportunity before their kind of, quote, silent period to signal their intentions for what they intend to do for that December meeting, where the market is expected that fairly large €500 or so billion top-up to their current PEPP program. So be interested to keep an eye out for what she has to say, particularly in context of the fact that the dollar index at the moment is trading at its lowest level since April of 2018, which if anything is the main reason of why euro keeps grinding up towards that key 1.20 area again. So it'd be interesting to see if she tries to counteract that with some of her comments later on this morning. Otherwise, just running through this calendar, you've got the RBA rate decision. Seemingly the previous course of actions that they've taken with rates and, and QE are paying off, so nobody really expecting any real definitive change there. We then get these manufacturing PMIs coming out Tuesday, but these are final readings, so nothing too shocking to be aware of there. Given the final prints for November. But on Tuesday, you do get the Fed Chairman Powell and Treasury Secretary Steve Mnuchin appear before the Senate Banking Committee. They'll also be speaking on Tuesday and Wednesday. Now, obviously, this could be quite interesting because if you think about it, Mnuchin has been talking about refusing to extend the Fed's emergency facilities. So the dynamic between them obviously is going to be quite interesting. To see as they host that event. Of late, there has been obviously a little bit of tension because Powell's definitely been wanting— although being underutilized in those tools— to keep them on the table to alleviate any pent-up kind of concern that the market might show under the current downside risks emanating from the developing COVID situation in the US. So that could be quite interesting dialogue to keep an eye out for. Overall, though, probably not expecting expecting too much. Then Tuesday you start getting things like ISM Manufacturing. Don't forget then, that means on Wednesday we get ADP, then we get the Non-Manufacturing on Thursday. So the usual suite of US data that runs us in then to Non-Farm Payrolls, which is coming on Friday. Now headline change in payrolls is expected to show a print of 500,000. Now 500,000, uh, that's jobs created, so it's still a positive number. However, that number is decelerating, uh, and that comes in step with two increases we've seen in the week-to-week initial jobless claims, which is anticipated to happen again this week. So how important payrolls is as an individual figure, I'm not so sure, because ultimately it will probably will show a degree of job growth But in the period ahead, given the fact that now we're starting to phase in increasing amounts of lockdown as that outbreak of COVID-19 goes from Midwest America to nationwide, resulting in more people and their loss of jobs, particularly areas in like hospitality and leisure and so on, then I don't think it's that unsurprising to see this headline figure slowing. So I don't actually think payrolls is that big a deal. But certainly, as ever, it will be the main crescendo to end the week as far as the set pieces are concerned. So that really is about it. So, you know, with, with payrolls, then, you know, a note I made here was the following, that even if— do know that if there is more positive vaccine news to come, then a moderate deterioration in job growth would likely be overlooked by the market. And thus, that reverting back to the gulf between forward-looking markets on mainstream and a deterioration of the situation underlying in reality on mainstream. And this is what I mean— what I was trying to say was that the jobs data is going to, it's going to slow if anything, it's going to get worse. But it does come in context, of course, stocks being up at, up at highs. So we're back in that era again of that kind of disconnect being apparent between the kind of the harsh, um, kind of realities in, in real-world terms against forward-looking markets, um, who are anticipating things like ECB, for example, to have to do more, uh, and that being, of course, a very supportive factor. The final article I just quickly wanted to mention. I definitely don't see this as something tangible for right here, right now, but I think it is meaningful as far as the transition going from Trump to Biden. The one thing to have a look at— there's quite a good article in the FT today which I'll share about Georgia Senate race. There's 2 seats there and they, the Republicans, have to win by votes in order then to maintain the Senate. No, not many people have really been too focused on this, but obviously if they don't and the Democrats win, that ties them, and then the casting vote from Kamala Harris, obviously who's a Democrat, would then constitute a blue wave. So it definitely is something that needs watching very closely. Um, but this is an article that I wanted to just quickly touch upon, and it's about The EU seeking to forge a new alliance with the US to bury the tensions of the Trump era and meet the challenges of China, according to a draft plan from Brussels that was circulating over the weekend. So for me, some were— as I've talked about in briefings over many months ago, there were some speculation that China might have actually preferred a Trump second term rather than the Biden victory for this very reason, is that through the era of Trump protectionism, um, generally had isolated the US not just against China but isolated itself from its other key Western allies, predominantly that in mainland Europe, for example, as well as the UK and others. So here then comes a more challenging issue for, for China, which I don't think is a deal breaker I think it just means that they're— they'll come up against more stern challenges. And that's because if Europe and the US can unite behind a coordinated front, that's going to be much more challenging for China to take on that kind of long-term play and that global ambition of taking over as the world-leading trading partner. So quite an interesting development there on that article. Worth having a read if you get, if you get time. All right, that is it. I'm gonna leave you to get on with things. Gonna wish you a great week ahead. Again, hope you had a great weekend, and I'll see you same time tomorrow. Thanks very much.