This Week In Markets: 7th - 11th June 2021

Okay, happy Sunday! Hope you're doing well. I hope you've had a great weekend and enjoyed the, the sunshine wherever you are. Thought I'd get ahead of the game and put this briefing out early Sunday night ahead of the Globex reopening instead of the usual Monday morning, just to buy myself a little bit more time. I will endeavor to share the latest kind of headlines, if there's any that comes out overnight, and some technical charts into the Amplify Live Discord private room for the community. But otherwise, look, let's get straight to it and let's have a look over a few things I want to discuss. Going to wrap up some of the weekend news flow. Obviously, historic G7 tax deal that's been struck. There's been a little bit of volatility in crypto again overnight, and there's some updates on the US infrastructure bill in the US as well, and some quite interesting information that's come out that could be slightly problematic for Biden going forward. Then we'll look at the week ahead, going to focus on a couple of key things We've got the Bank of Canada and the ECB interest rate meetings happening this week, Wednesday and Thursday respectively. And probably the main feature of the week is going to be US CPI coming out. And also we have the release of UK GDP at the end of the week. So let's just get straight into it and have a look at the charts and obviously a little bit of a digestion of where we, where we finished post-payrolls. And obviously payrolls came out and very similar fashion really to what we had last time where the market was kind of perhaps not quite caught so offside as before. But again, the bar was a little bit firmer. You remember on Thursday we had a string of good data, including the likes of a really strong forecast beating ADP and payrolls on Friday did not live up to that kind of expectations. So as such, Quite clearly to see really in gold. I mean, these two spots are that sell-off that we saw on gold on Thursday last week. We had some of the good data coming out, kind of technical breakdown helping as well, the break of the trend line, some momentum as we were triggering through some of the support levels. But to where we really closed on Friday and completely took back that entire move after that payroll report. So as you can see here, you've got gold at the top that we just looked at, then you've got the S&P 500 on the right here, and a T-note the US 10-year at the bottom, all rallying. And that tells you one thing, it's kind of a policy, monetary policy-oriented move that it kind of validates the more cautious gradual approach of the Fed, of which they've been telling us for some time that that is the kind of tactic that they're going to adopt going forward, irrespective of what we're likely to see, which is again fairly scary levels of inflation that will come out in the CPI report in a few, few days' time. From an S&P perspective, obviously we're right back up there again, uh, pretty much. So we came up to retest that previous high that we saw right at the beginning of last week, and that's pretty much where we finished. But you can see just the severity of the rally that we saw after that payroll report. And remember, that was the last opportunity really ahead of the blackout period, which is now in force ahead of that mid-June meeting. So it does take some of the pressure off And that certainly was reflected in market prices Friday about the idea of any near-term hawkish surprise and of talking of tapering, anything of that nature, and definitely not expecting too much of detail to be discussed at that June meeting. So on a daily continuation, you know, we're right up there again, knocking on the doors at the all-time highs as far as the S&P 500 is concerned. And that's an area we'll be keeping an eye on and what will likely dictate really whether we push on, on the daily here, break, perhaps pull back, and then a push on next target up psychologically up to around 4250 here in the S&P really is that CPI number. If it isn't as high as I'll discuss in more detail in a moment that people expect, then certainly that in combination with the jobs ongoing situation now, the back-to-back payroll figure, I don't see any reason why we don't, we don't print a new all-time high certainly this week in US equities. The NASDAQ, if anything, the Friday acceleration was even more, um, acute to the fact that tech stocks particularly were suffering at the middle part of last week. And we were seeing a bit more of a cyclical play where really strength was seen in more like energy and financials. And that got reversed obviously on Friday with the tech and NASDAQ outperforming on the basis of that slightly softer jobs number that we saw. From a currency perspective, obviously that weakened the dollar and, and gave some reprieve to what otherwise had been a downward-trending, um, major pairs in EURUSD and Cable throughout most of last week. In terms of EURUSD, not too much I'm looking at really right now at this point in time. When we get back underway and start recommencing trade, but on a daily chart, obviously we had a bit of a breakdown last week, particularly on some of the fluctuations of dollar strength on that good data on the Thursday last week, which did break the trend line definitively that had been holding up the euro over the last 2 months. We have recovered some of that given some of the downward pullback in the dollar on the back of payrolls. Interested to see how we play out at around these levels, really either north or south of this horizontal 121.65 and a half in the futures, which as you can see has been a bit of an inflection point for the euro of the last several weeks. As far as cable is concerned, we do have some data coming out at the end of the week, which I'll, I'll talk about in a moment after I've wrapped up the news. But cable's not too interesting near term. We had a double top and what has been a good area as well, the end of May, beginning of June, at 142 handle, which has been significant. So definitely on the upside, we'd be keeping an eye on that. And then we had the Friday late evening lows which came in at 4155, which we'll be watching. Again, largely for the week, I do think that it's more dollar movement that will be leading the direction of these major pairs, and it's going to be that CPI report that's going to be particularly key for the fate of those major currencies. As far as energy markets are concerned, we continue in that upward trending market. The trend channel is still being respected for the moment, and so that's what we're still watching. Um, downside, it's 69. You can see the market bounced off that going back to towards the end of last week, and that was also a point of resistance back on the 3rd and on the 2nd of last week. So any pullbacks, there's a couple of areas to keep an eye on. So 69.26, this kind of resistance point turned support, then the 69 handle, then lower down 68.87, which starts to encompass prices back for really the month of June. And then also the trend line. Otherwise, on the upside, all roads lead to $70. And again, if we did get a not as high as feared inflation number and that weakens the dollar and the dollar continues to remain offered throughout the rest of that week, then there's no reason fundamentally— looking more specifically to dynamics for oil— why I don't think we can— uh, should stop us from going higher and eventually coming up to $70, to be quite honest. Uh, but look, let's talk about some of the news and what, what's been going on. I'll be as concise as I can be. Um, we had this G7 ministers' backing of a global minimum rate of at least 15% of tax. They agreed that countries should have the right to tax a certain proportion of the largest, most profitable multinationals' profit in the locations where it is generated. So as we know, this is quite important for some of the big tech names in particular. So the likes of Apple, Alphabet, and so on, given the fact that, you know, for us in the UK, places like in Dublin in Ireland where the tax rate is lower, they pay close to no tax at all, and companies like Facebook would be included in that. A couple of things to be aware of: the Treasury Secretary Janet Yellen said that both Amazon and Facebook will fall under the new proposals for the global minimum corporation tax. However, I've just seen an exclusive for The Guardian newspaper in the UK in the last hour, and they've come out and said actually there's a loophole which would be particularly, uh, net positive for Amazon to evade this tax. And the reason for that is that a communiqué from the G7 ministers said that they envisaged Pillar 1 would only apply on profit exceeding a 10% margin for the largest, most profitable multinational enterprises. And the reason why that is important is that restriction could then rule out Amazon, where their profit margin in 2020 was just 6.3%, very small comparative to some of the other companies. And so therefore they wouldn't have to pay tax on that. So we'll see. Um, obviously the accountants for these big companies are, um, kind of geniuses and they'll find any way not to pay tax. But, um, as far as market implications are concerned, I don't really necessarily think that there'll be, um, a big or if any reaction in any of these tech stocks because this has been very well telegraphed that this move was probably going to happen. For one, Amazon are going to evade it because of their low profit margins anyway as part of that first pillar ruling of how this particular deal is constructed. So that's number two. And so I'm not necessarily expecting this to be anything, um, too impactful for the first week, first day of this week's trade. If you look at the weekend Dow via IG, it's quite a good indicative measure of how we should reopen in the futures market shortly on Sunday night, and it's seen flat. So the market's not really that spooked by this, and so that's how I'd be looking at it. Other things to be aware of, um, this guy, you might not recognize this guy Does look a little bit like Liam Neeson, actually, come to think of it. But it's not Liam Neeson, it's Joe Manchin. And you probably would have heard of him if you're fairly familiar with US politics, because he's one of those names that is a bit of a thorn in US President Biden's side. And a couple of things to be aware of here. One is that we are looking for updates on the infrastructure bill in the US this week specifically. And the reason for that timing is that the US Transportation Secretary someone you probably recognize his name from when he was running during the presidential race, Pete Buttigieg. He circled Monday, June 7th, as the date by which negotiations with the Senate Republicans must have a, quote, clear direction. And if not, he suggested Senate Democrats should propose a more targeted infrastructure bill. So looking out for commentary pretty much as we start the week. And obviously this infrastructure bill kind of dragged its heels a little bit, and the more it drags its heels— I was reading over the weekend in some articles that some of these US-based beneficiaries on the infrastructure side, so particularly types like US steel firms, they've been up like 100% or so in the last couple of months. So if we start to get this infrastructure bill look a little bit shaky, they've got a long way to fall back. To kind of reprice, if you like, and the new timing or the passage at all of the infrastructure bill of what we were led to believe just a few months ago. So definitely looking out for that. The reason why Joe Manchin, who's the West Virginia senator, is particularly important is he holds a swing vote in the US Senate, and on Sunday he voted to block a bill overhauling US election law, presenting a major setback to Joe Biden's efforts to reform voting rights. So What exactly was this? Well, Manchin said the bill, which expands mail-in voting, lengthens the hours over which people can vote, was the wrong piece of legislation to bring the country together and unite their country. Remember, Biden was particularly successful at the election over Trump because of the mail-in voting system, and the more he can kind of emphasize and push legislation or new forms of voting in that direction, the more favorable it'll probably be for Democrats. Given the demographic and the type of way of which they— their— the Democrats tend to vote. And so the other thing, Manchin though reiterated that he would not help Democrats as well scrap the US Senate's arcane voting procedure known as the filibuster, which requires a supermajority of 60 senators to sign off most pieces of legislation. So again, just to put this in context, one of the main things here is that Although the Democrats do control the Senate at this point in time, remember, it is a 50-50 split. In fact, it's actually 50-48, but the two independents' voters kind of then put it to 50-50, and therefore Kamala Harris, the VP, has the deciding vote, and thus control to the Democrats. Joe Manchin is a Democrat, but the problem is though he's fairly, um, not that aligned with with Biden. So therefore, he is one of the main figureheads, if you like, that can determine whether or not Biden administration can pass through key legislation. And he's a key person to watch, and his latest things could then have knock-on implications then for this infrastructure bill going forward. So that's the update there. In the crypto space, um, crypto stablecoins, they've seen a bit of volatility over really a main thing coming out of China. Remember, it was the Chinese legislation and further commentary that's just really impacted Bitcoin in particular over recent, recent weeks. But Weibo suspended some crypto-related accounts over the weekend. When trying to view them, a message would simply come up saying that accounts have been reported for violations of laws, regulation, or Weibo rules. And so again, more complications in that, that key area has been— it's weighed on the price a little bit, but I was just having a look and it's kind of fluctuated today rather than necessarily be lower, I'd say. But in a further development that undermines a little bit this idea about institutional adoption, the reason why this headline is mentioning Goldman's CIO— so CIO stands for Chief Investment Officer— and earlier this week Goldman's held two round tables with 25 different CIOs of long-only funds and hedge fund managers, and they were basically asked, what do you see as quite key for going forward, or what was your preferred investment style? And I know this is a bit small, so let me talk you through it. But basically what it was saying was, which investment style or asset class is your favorite? Asking these fund managers. And they said growth followed by value. And then which of these investment style asset classes is your least favorite? Bitcoin, number one least favorite. New IPOs, um, second least favorite. So again, not drawing too many conclusions out of this, but obviously from a slightly bigger picture, you know, this institutional adoption is obviously a key talking point as we continue to go forward. But with, with Elon Musk obviously pulling in, pulling out of Bitcoin, and what is he doing with it, with all the commentary of late, with the large fluctuation and that kind of short-term crash in prices that we saw, and, and kind of huge volatility, uh, over that period, institutional adoption which might come in the future is probably not going to arrive anytime soon. And this kind of ratifies that kind of the way that CIOs are thinking at this point in time. All right, let's talk about the week ahead and a couple of key things. As I said, I'm only going to talk about the key things, so it's not an exhaustive list, just so you're aware. But just going through things then, the Bank of Canada is actually meeting on Wednesday. I'm just going to correct something on my notes, in fact. So Wednesday, the BoC is meeting They're expected to shake— not to shake up the market. They're expected to reiterate their recent policy rhetoric and probably decide then they're gearing up for another round of QE tapering, which they've already commenced, probably in the month of July. Canada's been experiencing twofold. It's had a bit of a setback. Employment rates had actually— this is employment rates— had dropped for a second consecutive month. In May, and that's because they've had certain pockets of outbreak of COVID-19 which has required more containment measures to be, to be put into place. However, their vaccination rates in Canada are particularly good, and so therefore, as we go further forward in the months ahead, further tapering is expected to continue going forward and the economy to expand. The next, and arguably Biggest thing of the week then is US CPI. Now US CPI is due on Thursday and that is expected at 4.7%. Um, that's against a previous of 4.2%. The core year-on-year is expected to have risen through, uh, from 3% to 3.4%. So that would be the highest levels since the mid-1990s. And if you think about where interest rates were there in the US, awfully lot higher than where they are at the moment. So again, this is key because the market is ultra inflation sensitive, and this isn't inflation metrics measuring forward-looking expectations of inflation. This is inflation as it's measured. So these numbers are going to be a real test for the market and this view of how transitory inflation is. And a couple of things here to be aware of, and a few things I was reading. For one, it's quite important to think about, well, what are the drivers of inflation to determine whether or not they are indeed transitory, i.e., temporary of nature. And as you remember, the last CPI report, you can see here the main drivers of core inflation in April: used cars, transportation services, and shelter. Now, a couple of different things to be aware of then. So first, used cars— prices of used cars increased an astonishing 21% year on year in April. If you think about what's been going on, chip shortages causing a lack of manufacturing of new autos, so therefore squeezing up these prices. And the expectation is, is that this is going to carry through into this month's reading or this week's reading as well. The other thing then is the, the, and second is the rent of shelter component, while also transportation services were also part of flipping the April core inflation report in an upside direction. So they're the key areas that you need to be looking for and how they're performing, um, when you're kind of interpreting this number. I guess the more proportion it is concentrated in in an area, let's say, like used vehicles, I would say that the less evidence that gives to the inflation bulls, because then if once you should take that out, because auto manufacturing will pick up in the period ahead as the economy reopens and people go back to work and there's less supply constraints, well, that number's going to come down again. And so therefore, by definition, this is temporary. And if it is one of those main contributing areas, this is how people are going to compute whether or not the Fed is right in the stance that they're taking. Um, the true test of inflation— I was just reading a report out of Nordia this evening, and they said that really it's going to be what happens when inflation is likely to stay present over summer. It's about what happens after summer, which is going to be key. the direct bonuses, if you like, of the Biden administration. Um, so stimulus checks and so on will run until September, but in parts of the US, the checks will already be halted during June for areas like Iowa and Mississippi. And that will give us a flavor of how the labor market looks post these money handouts, which we know, uh, a lot of federal states as well have been cutting off some of those programs, trying encourage people to get back into work, given the fact that they were benefiting from the fact these stimulus checks outweighed minimum wage in the US. So a couple things to consider there. The final few things are we've got the ECB meeting on Thursday. We're not really expecting anything of a great deal to come out there from a definitive policy change point of view. It's kind of like they need to avoid mentioning the word taper just to keep the markets remaining confident that nothing's going to come out and surprise them, particularly given the fact that lockdowns are currently being lifted in Europe, vaccination rates to continue to improve despite the slow start that we saw several months ago. So business activity, consumer confidence, and inflation are all expected to rebound shortly. One of the main things to remember is Christine Lagarde herself said late last month that it was far too early to discuss reining in plans around their bond program. We've had a number of dovish comments out of ECB officials in the recent days and weeks that would lend its hand for them not to do anything too drastic this time around. However, we do get the latest staff economic projections. Growth expected to be relatively unchanged, inflation like to be bumped a little bit higher is probably the base case that most people are looking for. And then on Friday, just to wrap things up, we get the UK data coming out, which is GDP. The reopening of shops, outdoor hospitality in April will unsurprisingly lead to another decent monthly growth rate and pretty much reiterates then that kind of more medium-term positive outlook for the UK, of which at the moment comes in contrast to what has been a trending weaker dollar of late. And that should keep cable knocking on the door at these multi-year highs at this present point in time. Um, that's, that's it. So I'm going to leave it there. As I said, I'll update, um, for the guys in AmplifyLive.com. If you're not part of that community yet, you can join absolutely for free. So just check it out, AmplifyLive.com. But for those already there, I will see you first thing in the morning, and I'll be sharing some technical charts and an update on the news and so on. All right guys, thanks for listening and have a great week ahead. Take care.