This Week In Markets: 5th - 9th October 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 you, hope you're doing well and had a good weekend. It's Monday the 5th of October. As you can see, just starting with the charts here to give you a reflection of the opening sentiment to get the week underway, and generally has been a positive Asia-Pacific session. A little bit of a reaction there in fairly light volumes overall. Remember, China is out all week at the moment for the autumn festival, and traders generally reacting to the possibility that President Trump may be able to leave hospital as soon as today. And that comes after— I'll update you with some conflicting headlines about the state of his health at the moment, but overall that's seen as a fairly positive signal. But I'll say for now, that does mean I would say that the benchmark is now set, that he— well, markets would expect that he's going to leave hospital today. That's ultimately the risk that gets run with making those types of comments, and that definitely is reflected in price overnight. Generally equity futures moved a little higher. So if he doesn't come out tonight, you could see a negative reaction here in markets if that doesn't materialize. Otherwise, going to get you up to speed on the look ahead for the week. But before I do go through all of that news flow and we look at the calendar and what's to be expected going forward, a quick look otherwise in other asset classes, then we'll have a look at the S&P. It's quite a nice narrative to where we are at the moment generally in terms of things like the stimulus talks as well in America. But in the FX markets, the dollar index a little bit softer but has just, just started to rise ever so slightly as Europe started to come into the market. It's just gone through 7 AM here now in London. And so cable and euro dollar, slight divergence here. Cable is a slight negative, down 7 pips. You can see here in the center on the top, whereas euro is up about 14, albeit just ticking a little lower as I speak. Um, the one thing is, from a very top level for sterling, although Brexit talks are now going into this more intensive period, uh, the one thing is though, from a Brexit point of view, it might be positive. From a COVID point of view, things are certainly looking a little bit more negative. Technical adjustments to a supposed error in their calculations have seen COVID cases shoot higher pretty much double if not tripling over the, the data we've seen released over the weekend. Otherwise elsewhere, gold just edging a little lower during the Asia-Pacific session, just finding a little bit of support here at around that initial low print that was seen going into the open on Friday, so $1,895.50 in the futures. And then elsewhere, WTI crude trading a little higher, up around a dollar just recovering somewhat now, up to $38. But we'll have a look at some oil-related stories as well in a moment. But let's have a look at the S&P 500, and I'm going to remove my video feed for one second just so I can share what is then a marked-up chart, something that Charles is sharing via Twitter a few times last week. But I just think it's a really nice way of just looking at how busy it's been really, and seesaw the price action, and a lot of it dependent on the outcome of stimulus talks in the US. And obviously we've heard, and we will be hearing even more so this week. I'll show you the calendar in a moment, and there is a ton of Fed speakers throughout the week, including a keynote speech from Fed Chair Jerome Powell as well. And probably likelihood is, is they're going to talk mostly not so much about their own policy, but about the necessity for fiscal policy. Trump has been saying the same, of course, over the weekend as well, saying that now is the time, everyone's got to come together. And that, I think, markets will still remain incredibly sensitive to. And on that point then, let me just get you up to speed on what's happened with the fiscal talks. Pelosi, the House Speaker, said on Sunday that progress was being made on coronavirus relief legislation. So definitely for sure they are still in dialogue. I think Steven Mnuchin, the Treasury Secretary, and Pelosi met pretty much, or spoke at least, nearly every day last week. And so whether or not then that something more conclusive and further compromises can be made, of course the House passing that $2.2 trillion plan, however failing to appease the, the Senate at this point. And I think a lot of that then direction in the short term will be contingent on that, as well as obviously further indications on Trump's health. This red line here, this kind of rectangle, is what I had colored all the way from last week. And you can see it has been a, a bit of a reference point really for market direction in the S&P. And it really was initiated from here, the aftermath of the round one of the US presidential debate and that sell-off that we saw ensuing after, after that in the overnight session. And there is another presidential debate this week, but it is the vice presidents actually this time round. And so following that contentious first debate, it's going to be Pence and Senator Kamala Harris that will be going at it. In terms of London time, that's not going to happen again until the same 2 AM kind of Thursday morning. So really Thursday's European Open, we'll see the, the tangible outcome of that. But here you can see we've had a bit of a test, um, in the overnight Asia-Pacific session down at that same level. We're just having another look at it here now. So seemingly just a bit of selling pressure coming as Europe steps into the market. Any breakdown of this price, probably be just looking for that initial low point that was seen at the opening of re— of electronic trade, uh, that would come in down at 3349.5. So you can see the positive push that we had in the overnight Asia-Pacific session. Europe a little less willing to buy into this kind of, uh, Trump story, uh, at the moment about him looking to depart and move back to the White House by as soon as today. But definitely a key level to keep an eye on. All right, well look let's get into this and what exactly is happening with Trump. Well, conflicting reports over the weekend. Chief of Staff Mark Meadows, you might have read, he said that the president's vital signs looking, or have looked, troubling. And that was in direct contradiction to the chief physician Sean Conley, who said that Trump had made substantial progress and spent most of the afternoon conducting business. However, Conley then came out, I was watching the news last night, and said he was just making a comment because he felt quite positive at the time, but maybe it got over-interpreted. So he kind of rolled it back a little bit. The president is believed to now be on a dose of 2 of 5 of the experimental antiviral drug remdesivir and is not experiencing any side effects, is what's being reported. And if things continue to go well, as I've just mentioned, he could be allowed to continue his treatment back at the White House as of Monday. But therein, as I said, I think lies a bit of a risk. If that doesn't materialize today, people will probably make the assumption that at least health is not yet at a good enough point for that to happen. And that could be perceived as a short-term negative in the intraday in terms of a sentiment perspective, particularly given some of the short-term positioning we've seen more positive in the overnight Asia-Pacific session. Uh, net-net, what I would say is that the common belief here in terms of the symptoms showing and whether or not then when you, when you actually have the virus, there's a critical period in the first couple of days of which then your health either becomes progressively worse or you continue to show no real deepening symptoms. And we're all around that point in the next kind of 2 to 3 days. So really, I think markets will be particularly sensitive to updates coming out of Trump. Now, Trump, I I think, as to be expected, has been doing video posts released via Twitter every day for the last 2 days. I would expect that probably as well to continue, as he wants to convey a sign of strength and he's defeating the virus and so on, that political narrative. If he doesn't do that now, he's kind of like set the precedence and people will also start to see that as potentially reading between the lines that perhaps he's not able. To do that. So I think a really key two points here for this week, I'd say, for sentiment, and this being equity direction but really across asset class, will be whether Trump and, and updates pertaining to his health. And particularly the first half the week will be key because that's really the, the juncture whether or not he's going to get worse or better in terms of where he's at with the timeline so far with the virus. And then two, the US stimulus. How do those talks go between Mnuchin and Pelosi? Um, having a look then, this is what the latest polls look like. And there's been a lot of media attention both this morning and the weekend about the latest poll from NBC, Wall Street Journal. And the reason for that is because it had the widest lead for Biden that we've seen in a long time, and that's a +14. The average RCP poll of polls now stands at 8.1. And if you actually look at what that poll— what the polls look like, you can see here a further divergence materializing. And this really, if you actually look at the poll dates, is encapsulating the first round debate, of which I would say Trump did some— I mean, it was, it was a bit of a mess, but Trump, you could say, did what he was expected to do, which was try to dominate the conversation, not really let Biden get a word in. But Biden didn't perform as badly as some might have feared, and so therefore I think it's— that's what's being reflected in the polls. However, if you actually look at the dates, of course, none of these polls really reflect this latest headline with Trump contracting COVID. These polls only go up to the 1st of October, and currently it's obviously the 5th, and he didn't actually break this until the end of last week. And so It's going to be quite interesting over the next 48 hours or possibly 3 days to see these latest polls, whether that— whether or not they have any impact over people relaying perhaps sympathy to, to the president or not, and whether we see some further narrowing here to go against this recent divergence going in favor of, of Joe Biden. But as ever with polls, you know, we monitor them, of course, but you've got to take them with a pinch of salt for what you believe will be the end outcome for the election. But notably, uh, it's worth a mention just given the fact it's the widest they've been in some time. The other thing is as well, not just Trump, COVID in America definitely needs monitoring very closely. And the reason for that is because actually the number of new positive daily tests has jumped from 36,947th of September 29th to now over 51,000 as of the 3rd of October, according to the COVID Tracking Project. And this has led to these headlines here. The New York City mayor on Sunday proposed reinstating the lockdown for 9 neighborhoods in Brooklyn and Queens, and where there have been a surge in coronavirus infection cases in the last couple of days. So remember, markets generally have been fairly I guess comfortable, even despite then the pickups we've seen in UK, mainland Europe of COVID cases. That's because the US has been fairly suppressed in terms of this, this current period. However, if these numbers start to go up, that could be problematic for short-term sentiment, particularly if any stimulus in the US is not forthcoming. Moving on then, sticking with COVID but, but coming back to the UK, some really somewhat shocking headlines coming out over the weekend because on Sunday the number of cases in the UK jumped by 22,961 after it emerged that more than 15,000 test results had not previously been transferred onto the computer system, including for contact tracers. So basically a kind of, I guess, a technical issue leading to an underreporting of the number of cases. The Prime Minister was talking at the weekend, acknowledged his government's summer plan to subsidize dining out, that eat out to help out may have helped in fact spread the coronavirus. And he talked about a tough winter ahead in this COVID battle, definitely preparing then the British public for, for perhaps then a more stringent lockdown. And that has been speculated in The Guardian. The Guardian last night ran an exclusive report talking about a new a 3-tier lockdown system being planned for England, which could be announced in the coming days. And basically this would be the toughest measures seen so far in local lockdowns rather than national-led. And this would include the likes of closure of hospitality and leisure businesses, no social contact outside your household in any setting, restrictions from overnight stays from home, no organized non-professional sport ports. Places of worship though can remain open. So definitely the way it's heading at the moment, I would say this is what somewhat inevitable. Much of the UK actually now is in localized lockdown anyhow, so I don't think it's too much of a, of a larger leap to get to this point. Schools were not mentioned in the draft. Government source said this was because Johnson had made clear that the classroom closures would be a last resort And obviously this goes with a lot of that expectation that perhaps that half-term period in the middle of the month could be when, if there were going to be any type of national lockdown activity, that could be the time when it might happen. So yeah, the pound a little bit underperforming, but only ever so slightly, and because of these kind of negatives. However, on the positive side, one thing that has developed over the weekend is an update on Brexit. And this has come after the UK and European Union agreed to step up their negotiations over a post-Brexit trade accord. Johnson held a call with the European Commission president, you can see here, on Saturday, and they both renewed their commitment to getting a deal done. Johnson does not particularly wish for Brexit transition, transition period to end without a new trade deal in place. But has again reiterated he believes that Britain could live without such an outcome. So continues to kind of keep that, keep the weapon on the table as they go into somewhat these, these tunnel talks as they've been referred to last week. So again, you've got to be mindful of just tracking those journalists, probably a lot of Brexit sources and so on, hearsay will be doing the rounds as we go through through the week. And remember, that self-imposed deadline for Boris Johnson is only roughly 2 weeks away now, or even less than that. Okay, a few other things to just quickly mention, and this will incorporate the kind of calendar and the week ahead. This is an article on Bloomberg talking about the ECB has a messaging problem as Lagarde and Lane dynamic models the view. And the reason why people are talking about this is that this week we get the ECB minutes. We do also get the FOMC minutes, which I'll talk about in a moment. But from the FOMC minutes— or excuse me, the ECB minutes— this chart here perhaps explains a couple of things. One of the things that has come to the forefront has been the strength of the euro over the last few weeks and the contradictory kind of way of tackling that. Here on the left— and that's a bit small to see— but This is when Lagarde said the ECB will carefully assess developments in the exchange rate. And at the time, the euro actually moved higher because of the idea that people thought that the ECB president might be a little bit more forceful with the rhetoric to try and jawbone the currency lower to stop its appreciation. And Philip Lane, the chief economist, definitely was more so. I remember that FT article that broke, and he was saying the euro strength is a real concern for him and other members of the council. So yeah, it's quite a lot of people interested to see then. Recent sources have reported that splits among the governing council were already apparent at the last ECB meeting, so you may see some more divergent opinions in the accounts from the September meeting when those minutes get released. Apparently the hawks wanted to quietly slow the pace of PEPP buying, those pandemic emergency purchase program buying and thought the macro forecasts were too pessimistic, while the doves wanted stronger warning against euro strength. So be really interested to see how that plays out. One thing on the calendar here, you'll notice that Christine Lagarde on Tuesday, she'll be speaking twice, um, so definitely worth keeping an eye out for that ahead of then the release of the the ECB minutes. Other things then to quickly talk about other than the ECB, you've also got the RBA rate meeting happening this week. Although according to economists, the Australian Central Bank is set to hold rates in a yield target, several economists leaning toward lowering of rates and target. And I was reading some bank reports and they were talking more about the space speculation of late about a possible rate cut from the RBA has risen in the last couple of weeks, and the actual meeting then is going to be quite important. It could well be very volatile for the Aussie dollar when this comes out. Although on the balance economists don't expect action, there has been a shift to a more dovish rhetoric, and so therefore futures markets are pricing in on the balance more in favor of an actual cut materializing this week. So on the balance then, I'd say anything short of cutting could well see a temporary more hawkish reaction in the currency, just given its positioning in the futures market. In the oil market, really two, two stories I wanted to quickly mention. One is about Libya. That was obviously in focus last week given given the fact that they've been increasing production. So their oil output now has risen to just shy of 300,000 barrels. Uh, the eastern ports of Hariga, Brega, and Zutina are the ones in focus following a truce in the OPEC nation's civil war and the lifting of blockade on several of their energy facilities and infrastructure. Um, separately as well, Saudi Arabia's finance ministry sees oil prices at around $50 a barrel for the next 3 years. This is according to analysis from Goldman Sachs at the weekend of the kingdom's pre-budget statement. So I thought that was just quite interesting, the fact that Saudi are basing their budget on a level at $50, although obviously for a 3-year period this will, will go beyond then the COVID-impacted economy we live in right now. And obviously growth should return through '21 and beyond. But it's interesting to see that they see $50 as that kind of marker to base then all other calculations from. Might well give you some idea about where they would want to kind of manipulate supply in order to get that type of price achieved in order to fulfill that type of ambition on their fiscal management So yeah, I mean, that, that's pretty much all of the, the headline news. Just wanted to have a quick run through then of the actual calendar because there's a couple of different things here. As far as the, the landscape for the week, Monday you get the various service PMIs, but these are the final readings. The one that's probably more interesting will be at 3 PM this afternoon UK time. You get ISM Non-Manufacturing. From a US data point of view There are a couple things coming out. Probably the main big things I'm looking out for in the US from a data side is the ISM Manufacturing today, and then you've got the jobless data coming out on Thursday in your regular kind of release here. We do have the FOMC minutes on Wednesday evening, but in quite all honesty, from the, from the US, I'm not expecting a great deal. This would be the minutes that reflect then the, the introduction of average inflation targeting. But I'm more interested in the speech that comes the day before that, which is Fed's Chair Powell addressing a conference in Chicago. That, and if you actually look at the calendar as a whole, we've got Fed speakers Monday, you've got Powell, Fed speakers Tuesday, more Fed speakers Wednesday, more Fed speakers Thursday. So you kind of get the point. I would say then really the Powell speech is probably the most notable one because obviously this is current and it's present, not backward looking like the minutes, which I don't think are really going to yield too many surprises given the fact that we have the full summary of economic projections and press conference with Powell at the time in question. So that's kind of the US highlights. Otherwise, another interesting speech that is going to be happening on Wednesday is that of, um, not Wednesday, excuse me, Thursday is Bank of England's Governor Bailey is speaking. And obviously this comes at a time where there's been a lot of, a lot being said about the miscommunication somewhat about the Bank of England's management of negative rates. And we've had a real cross-section between Andy Haldane and Tenreyro about whether or not this is this is a viable policy step going forward. Bailey tried to address that last week, but the fact that he keeps speaking in these various different speeches to me tells, tells me something, that, you know, the Bank of England still don't feel comfortable that the market has quite got the right message yet as far as negative rates are concerned. From my point of view, my view here is that I think that the Bank of England just want to make clear to the markets that it's an option and that's an option only. It's there if it should so be needed, and they're trying to have it there to reassure markets at this point rather than use it immediately, is my kind of, um, my view. Whether or not they need to make stronger hints towards it really is going to be contingent on how do these Brexit talks play out in the coming weeks, how does COVID and the resulting lockdown restrictions impact the UK economy going forward. These will all be key metrics then to really define whether or not the negative rate conversation heats up in the coming weeks. So we will probably hear more on that over the course of the next 2 to 3 weeks for sure. And that, that is really it in terms of all the things I wanted to cover. So overall, my main summary of the week would be there's really two biggest points I think will be— will require vigilance to monitor. And that is Trump's health, particularly in the next 48 hours. Does he get better or worse? Does he indeed go back to the White House and leave hospital? Today will be quite key. The fiscal US stimulus talks are really important. And then you've got Jerome Powell speaking this week, a lot of Fed rhetoric. And then you've got the minutes coming out of the ECB, the Fed shared with also the RBA rate decision. Okay guys, that is it. Any questions at all, feel free to just drop me a comment. Otherwise, remember to subscribe to the channel. Really appreciate, uh, the growing of community— of our community online. And anything I could do to help, I'll always do my best. So with that, have a good session ahead and a good week as well. Take care.