This Week In Markets: 31st Aug - 4th Sep 2020

Okay, happy Sunday to you. This is August the 30th, a bit of a late one, just coming up to 10 PM here in London, but it is a UK bank holiday on Monday. All other markets open as per usual, so I just wanted to jump on and basically give you a bit of a flavor for what to expect, some of the key things fundamentally to account for for the week ahead, and we'll have a quick review of some of the charts as well. Again, there will be no briefing from me tomorrow, just so you're aware. But first of all, one of the things I normally do in my macro menu, and I'm going to shortcut that and jump straight to a couple of things to show you instead, is before I look at the charts, is looking at the IG Weekend Wall Street Dow. Basically, I like to keep an eye on this at the weekend It's quite an interesting thing to look at because generally before I even look at some of the news, which generally speaking I'm looking at all the time, so I kind of have a gist of what's going on over, over Saturday, Sunday and what I can expect for the open. But the weekend Dow is quite indicative really if there's any major news stories in play. So whether it be something about the trade war, for example, or COVID-19 type development. And as you can see here, the Dow is called to open basically flat. So that would be indicative then, and it is, that there really isn't too much for me to talk about in terms of major weekend news at all. So very much so, it's more of about a look ahead for the week. On that note then, I've got a calendar here of some of the major things that are coming out. And again, UK bank holiday on Monday, so a little bit lighter than normal perhaps to get proceedings underway. But overnight we do get the latest in the Chinese manufacturing and non-manufacturing PMI data for August. And in fact, we get the PMI numbers throughout the entire week. Uh, in case of the UK and Europe, is the final readings, but some emphasis on the US numbers which are going to come out— manufacturing on Tuesday, non-manufacturing ISM on Thursday, ahead of, of course, non-farm payrolls on Friday. In terms of the Chinese numbers, uh, these actually have been relatively robust and showing a degree of stabilization, but perhaps just worth keeping an eye on the Aussie If you're looking in the overnight session, I'm just bringing the Aussie into shot here, obviously being a big beneficiary here of the continuation of the dollar weakness following on from the move to average inflation targeting we heard adopted by Powell last week. And technically speaking, looking on the weekly candle, we have seen a definitive break of that long-term trend line last week that we were watching with some interest. And you can see we've had a decent push on the upside on that break, really moving a decent kind of 100 pips or so, a full point from that. And we're coming close proximity to quite a key level here that I'd be keeping an eye on as we go through, and particularly even the overnight data given those numbers coming out of China, which is around here. That was that end— 3rd of December, the end of 2018 high that we printed, which was around the 74 handle here. Any break above there this week, if we continue to see a consistent kind of dollar weakness and if these Chinese numbers shape up and are quite positive— we've also got RBA interest rate decision this week as well. So if all things come out in the right sequence to be supportive of that move, if we break 74, obviously the 75 is the next big key area here in the Aussie. That would encapsulate close proximity to some of those highs in around July of '18. And also support point towards the back end of 2017, beginning of 2018. Anything beyond that point, then I'd be looking up to around 76, 78. But could we get up there? Well, we'd need a number of dominoes to fall in the right way for that to materialize. But I'd probably be keeping an eye on 74, 75 there on the longer timeframe for the Aussie. Otherwise, sticking within— let's stick with the Asia kind of PAC region. One thing that I can obviously just add a little bit more color on, given the breaking video that I did on Friday following the resignation of Shinzo Abe— was it a surprise? Well, the timing was a surprise, but in terms of his health and the situation, I don't think that was too much of a surprise. As I've said before, he did resign, I think it was back in 2007, and so it does leave a bit of a a gap now politically, and that does bring about some uncertainties about Abenomics, this, this kind of policy, the 3 hours of massive fiscal, monetary support and economic reforms. And where do we go now going forward? And so yeah, just having a look here, this was that the yen strength that we saw. I'm looking at dollar-yen here, and we saw a move really from around 107 down to really 105. So pretty sizable. I'm looking here on a weekly, perhaps then looking at the much bigger picture, there will be some key levels to the downside. Again, if this continues, obviously we're in the context of generally a softening greenback at the moment, and that should help then the, the possibility then of someone else coming in. I'll run through some of the names in a second, but if they ease off the strength of Abenomics in various different of those three arrow forms then that could lead and result to further yen strength. And as I said, in the context of the weaker dollar, that 104.14 here, looking at the, uh, dollar-yen futures, would be really big, um, looking about just over a point lower from where we closed on Friday. As you can see then, that was the support level back in the beginning of 2018, or Q1. It was also a support level in the summer of 2019, and we did see a break below there. But you can see Looking on the week, we had a real extreme bout of volatility amid the ongoing pandemic when it broke out earlier this year, but we did close on the weekly above around pretty much to the point of that same level around 104. So that would be key this week, and I certainly would be keeping an eye on that. As you can see, technically a break of that could well open up the door to some more aggressive selling here. Um, on the broader picture, obviously that 101.14, that was that pandemic low, but was also the low that we saw back on the 7th of November of 2016, and a good area of support back in 2014. And then analysts at JP Morgan, I saw, were writing that it does put the risk of perhaps dollar-yen trending back to 100 again in the medium term, depending on who the replacement is, of course. And then the bigger prevailing move below there, if we were to get down, would be much toward the 2016 low. But I'd say that's a little bit far-fetched for the week ahead. I'd be more concerned about this 104 kind of level, um, and that if it comes under threat could lead to and result in a bit of a further push down to the, um, to the downside. Bit of news then to just update you on, uh, on the Japanese side of things. I've had a chance to really read around this a little bit more, um, and in terms of timing, firstly, so the LDP will hold elections to vote for a new president of their party. So this is just normal situation then given the resignation unscheduled, on time from Shinzo Abe. There would then be a vote in parliament for the new Prime Minister, which the winner of the LDP presidential election would almost certainly go on to, to win. That person would hold the job until new lower house elections, which must be held before October 2021, with a September 2021 date is widely being expected at this point in time. Now, a couple of names that are floating around. Two of the names being thrown out are currently the finance minister, Taro Aso. Some of you will remember Aso. I think it was, perhaps it was one of those meetings that they have with the, what was it called, Davos. And I think he got drunk one lunchtime and he was in the middle of a panel discussion. I think he fell asleep. You should check that out on Google if you get a a few minutes there, but Taro Aso, who's currently the finance minister, and Fumio Kishida, the former foreign minister, both at times have expressed some concerns about the continuation of the BOJ's qualitative and quantitative easing policies and negative rates. So although the Bank of Japan governor is not due to step down until April of 2023, 3, there is some speculation that they, or Kuroda, may go early if one of those two characters was to come in, given their kind of anti-stance towards some of this ultra-loose monetary policy that Japan has adopted under then the Abe-Kuroda kind of double team. Um, Citigroup, they put out a note that I saw at the weekend. They said, if as many expect though, Abe is replaced by Chief Cabinet Secretary Yoshida Shuga, then the party may even lean towards Abenomics 2.0. For better or worse, the continuity of economic policies will probably be maintained. So just again to simplify, there are some other candidates. There's a really good Reuters article on this. I think I tweeted it from the, the Amplify Twitter account last week, so check it out. But to simplify, the Finance Minister Taro Aso and And the former Foreign Minister Fumio Kishida would be seen as more or less dovish, let's say. So it'd be more bullish for, for the Japanese yen. If it was Yoshida Suga, who is the cabinet chief, cabinet secretary, that would be more a continuity play over from what we've seen. So it'd be less of a bullish signal for the Japanese yen. So just going over that in a bit more detail. Okay, so moving on then. Monday otherwise is pretty quiet, but you will see then we've got the first of the major Fed speakers. Fed Vice Chair Clarida is speaking at the Paterson event. We've also got Bostic. Actually, if I just bring this up, this is a tweet I did a short while ago. These are the voting members who are speaking this week, and this week marks the final week of which then Fed officials can speak before the blackout period begins on midnight on Friday. For that mid-September 15th, 16th meeting. So you've got the Vice Chair Clarida speaking on Monday on the Fed's new monetary policy frameworks. That particularly could be a good one to watch to get a little bit more depth and insight. And Governor Loriel Brainard is speaking on the same topic as well on Tuesday. And then you've got the New York Fed President John Williams discussing the economy and COVID-19. So, you know, if there were any types of uncertainties about what exactly Powell delivered at Jackson Hole, well, this will be the key opportunity then before the blackout period and that mid-September meeting for these, these guys to really guide or forward guide the market in the appropriate way for that meeting. Moving on then, on to Tuesday. So Tuesday morning London time, we'll know the result of the Reserve Bank of Australia's interest rate decision. No real great surprises are expected here. All analysts surveyed by Reuters are expecting the RBA to hold interest rates at 0.25% and the 3-year yield target to remain as it is at the moment. So then that leads us further on into some of the other data points that are coming out. And these are final readings coming for the UK and Eurozone in terms of the PMIs for manufacturing. But for the US, it could be quite interesting. And I saw some interesting comments. Uh, the guys at Newsquawk was, was citing Credit Suisse. Uh, and just to run you through, you've got the ISM Manufacturing on Tuesday. And then you've got the non-manufacturing number coming on Thursday. And analysts at Credit Suisse expect the ISMs will see a peak in September. Now, quite interesting here, they're arguing that there are near-term risks to the downside, and although COVID cases are trending lower, the bank says that cooler weather conditions in the fall amid pressure to reopen schools create the conditions for future outbreaks. Credit Suisse also note that business investment will continue to be pressured while there is uncertainty over how long the virus can persist, and adding that all of this fiscal support is fading with Congress at an impasse over future measures. Remember, not really expecting anything this week, um, just given they're not coming back until mid-late September to really start discussing back on Capitol Hill. So lack of fiscal support coming imminently You've got this changing of cooler weather and the push to reopen schools, which could be the perfect recipe for further outbreaks. And then thirdly, business investment will continue to be pressured given the fact the uncertainty over how long the virus can persist, and particularly going into that seasonal more cooler period of the year. So kind of a trifecta of quite interesting points there, I thought, from Credit Suisse for the ISM numbers. So I mean, these ISM figures are for August. So perhaps we continue to remain fairly supported at this point, but then going forward, worth bearing in mind as we go into September and beyond, and probably go some way to also go and align with the thinking of why the Fed have continued to be ultra-accommodative and moving, you know, not just on the sake of inflation, but the idea of keeping rates low for many, many years. You know, we are, we are far from over with this whole COVID situation, particularly as we come to the back end of summer. Summer and how that develops going forward. Otherwise, a few other things that could be of interest for you guys. On Tuesday morning, you'll be looking out for the Eurozone flash CPI figures, and then that takes us through into Wednesday. ADP employment change expected to show a gain of jobs of 1.25 million. Again, this acts as the precursor, of course, for the Labor Department report. For non-farms on Friday. We'll talk about that in a second. You've also got factory orders coming out of the States on Wednesday afternoon. More Fed speakers as well. Fed's Williams discussing COVID-19 in a webinar, Fed's Mester discussing US outlook and monetary policy, and you've got ECB's Weidmann as well, the German representative, speaking in a virtual event, all on Wednesday. Coming into Thursday, again, final readings, but the service PMIs come out of the, the rest of the world, so to speak. Particularly mainland Europe. But then you've got that ISM non-manufacturing number, and again, that was particularly strong last time out and continues to be firmly in expansionary territory given how depressed the figure was just a couple of months ago as the economy starts to try to reopen. And then that leads us really firmly into Friday. And then on Friday, we've got obviously the headline figure, the change in non-farm payrolls. Now, non-farm's looking to, to see the US add an additional 1.5 million jobs over the period for the, for the reference period of August, which will leave employment a net 11.4 million lower than where it was in February pre the actual COVID pandemic. A couple of things here to look at, which is also the kind of the way of which the market tracks more real-time sensitive data on an employment front to ascertain then what the jobs report could look like. And the August high-frequency data has signaled growth in employment conditions more generally speaking, so People typically like to look at this more frequent information rather than these, in these more traditional measures, particularly over the last few months during this, this pandemic. Initial jobless claims have been ticking lower, albeit at a slower pace. Continuing claims have also improved on the month. The PMI sub-indexes for employment have also jumped up, which is a net positive. The August NFP report will also get a boost from temporary hiring for the 2020 census, where field work began on the 11th of August. And in terms of a number, then that should artificially inflate this non-farm payroll number by an additional 240,000 temporary workers who've been employed, though this effect will wear off in months ahead. So the market generally won't take that on board as a sign that things are going really great. It's just something to be, to be mindful of, that there should be an upside benefit to a very short-term, one-time seasonal boost of jobs temporarily due to the census. Something to just keep in mind, and I'll talk about more at the point. We'll cover Nonfarm Payrolls live, of course, on the YouTube channel, and also in a private or in a webinar as well. So we need to do don't forget is to subscribe to the channel and you better access that as and when we go live. Okay, that is pretty much it. So just maybe a quick look at some of the charts, starting off with the euro. I'm just gonna very quickly go through these because I know Sam and Alex, the other guys, more technically minded than I, and probably more qualified to talk about them. And I know you guys are keen to mark up your own levels, but The euro is at quite a telling point here, still has been somewhat restricted by that, that summer '18 high. You can see here I've had a couple of rejections. Of course, we briefly broke through it just about 2 weeks ago, but last week we did close above that summer '18 high. So quite sure to see if we do get persistent dollar weakness again. So all these dollar-based pairs would be quite keen to watch. Then that does open up the prospect for a further push up to the 1.20. So that's the euro kind of story I'd keep an eye on here in the intraday, the market reopen for Monday session. Just keeping an eye then on that double top that we had really, which defines the morning and midday session on Friday. Any further break and a push then up towards where we were trading back on the 18th, 19th of the month. Looking at cable, despite— I saw in the polls the conservatives who was something crazy, like 25 points above Labour, um, at the point when Boris took over. Now they are absolutely level pegging with Labour, um, is that in terms of the Tories. And there's been lots of headlines over the weekend about Rishi Sunak and about potentially putting up taxes and how that's splintering then even within the Tory party. But obviously Boris has made multiple U-turns over lots of different things in recent weeks, but no one cares. And no one seemingly cares about Brexit at this point either, because what the FX traders— what's moving the, the cable pair at the moment is the dollar story. And so near-term, when we get back into trade, you've got the Friday afternoon high. We got close back up to that right before the closing futures trade. So worth keeping an eye on. And you know, we are technically now firmly above that key level of what was resistance, which was seen previously around— which was the 31st and 2nd of January. So right at the beginning of the year, we're trading at year-to-date highs now. So there is some open room here for, for sterling, and I think a move up to 1.34 could definitely be even within the cards on, on Monday's session. But then we'll be targeting up and around, uh, the gap up that we saw back on the 13th, which would basically be the 1.35 handle. So although I do think that pressure may well mount as the major Brexit deadlines come, we are not expecting any major Brexit information this week. This is a timeline I tweeted on my, my Twitter account last week, and if you actually look at where we are at the moment, chief negotiators meet for specialized discussions as necessary, but there is no formalized ones happening Actually, as of what I'm aware of at the moment, the next round of negotiations doesn't actually take place until the 7th of September. So not next— this— not this coming week, the week after. So I wouldn't be expecting any types of breakthroughs, but I wouldn't be expecting that anyway because the new soft deadline is not until the 2nd of October. So we've still got a couple of weeks to run before we get to that point, the next meaningful one. Then you've got the extraordinary EU summit which is happening on the 13th And then those chief negotiators could well potentially meet the week of 14th and the 21st. So I do think that pressure might well mount a little bit, and this might well start to creep up the agenda. But for the moment, in terms of this week, I would say keep an eye on the dollar. Forget Brexit, forget the manufacturing service data coming out. It's all about the greenback as far as the, the pound is concerned for the time being. A quick look at equities then. As always, it's just such a phenomenal story at the moment as far as the equity market is concerned. I mean, I'll just pop the S&P on the daily for a second. You know, we've just continued to skyrocket. There's no other better word I can think of at the moment. The continued idea of the Fed keeping rates now basically where they are for the next 3, 4, 5 years going forward, uh, continues to just fuel then further expectations and more gains. And we've had those major mega-cap tech stocks continue to push higher, big banks calling for big double-digit percentage gains still to come from some, a number of those big tech firms. And the idea as well, I think, is slightly behavioral, because if this market comes down, there's just people loading up again to get long. So I still don't see a lot really to detract from us moving higher for the time being. And if we do see any short-term bounce of profit taking, you know, whether that be from where we were trading in the overnight session Thursday into Friday last week— and that's close to where we closed actually last night, on Friday I should say— then a pullback back down to around these levels, then here, then here, and then a really big level down at 3448 here. They just will give a better opportunity, I think, where people will just buy into any sell-off. So I still remain pretty bullish for US equities. I don't think it would be without its bumps. I just think that really the play is not to short US equities, but it is to pick your spots and wait for the pullbacks, which inevitably will come at times. One little, you know, kind of emergence of some negative information the market might book profits and people will bail on some of those short-term longs. And then that will just mean another opportunity to, to reinstate a buying position again. So here in the NASDAQ, we have formed over the course of the last 2 days of last week a bit of a range. So I'd be keeping an eye on that. So just these kind of areas here, should we break either side, then we might continue to push up. And, you know, just looking how quickly this market has run up, I mean It is susceptible for a bit of a push back down, but again, if it does, then I'd probably be looking here and then further down just for another area just to pick it back up again. And I expect other people behaviorally will do the same. So yeah, that's it. Look, hopefully that was useful. I know it's a Sunday night, so if you are watching this, get to bed, enjoy your bank holiday if you're in the UK. And yeah, just feel free to leave a comment. I won't be issuing one of these tomorrow, but I'll be happy to pick up any comments, if there's any questions people have. Okay guys, thanks very much for listening and enjoy your bank holiday. Take care.