This Week In Markets: 7th - 11th December 2020

Okay, very good morning to you. It is Monday the 7th of December, so I hope you're doing well and had a fantastic weekend. Uh, going to do my usual routine on a Monday, so gonna summarize some of the main headlines from over the weekend and they're going to give you an update on a few key things to look out for in fundamental kind of themes for the week ahead. And for any of the kind of more chart analysis from a technical perspective and trade setups. The team will be going through all of that live on Amplify Live. So do check that out if you're not already part of the community. But just having a look at the charts this morning and looking at how sentiment is as we, we commence a fresh week and a couple of observations. Equity index futures, just very minor negative territory. Nothing really too great to speak of there. A little bit soft overnight in Asia. Some new talk about US sanctions on Chinese officials coming overnight. But in contrast, we had some positive export and trade data coming out of China. Otherwise, Brexit very much a dominant theme, as you've seen over the weekend. And sterling is underperforming against its European counterpart a little bit this morning. Cable's down around 40 pips. You can see here in the top center chart in the futures trading around and finding some support at the 134 handle for the moment. EURUSD down just 12 by comparison. Um, otherwise elsewhere, gold, not too much movement seen in the overnight session. If anything, just grinding up just a touch. We're up around $3.50 top right. And in the bottom right, you've got T-notes, which is up around 2 to 3 ticks in the overnight session, just finding in the futures bit of resistance and tightening in price action around the pivot. Which it resides just below at the moment, uh, with some of the softness seen in the equity index futures. Uh, oil markets are trading around a $46 handle, so we still remain at the top end of the kind of band, um, on the trading range that we are in predominantly for most of last week. Obviously, the market generally liking what it heard from OPEC+ in that agreement to increase a level of production by only 500,000 barrels per day, but having now a sequence of monthly reviews going forward And so we continue to kind of monitor. Now we know the supply picture, the demand side with things like more vaccine updates expected this week, which I can talk about in a moment. So that's the overall kind of theme as we get into things. So let me just go into a couple of these stories in more detail and we'll look at the calendar and main events that we're, we're monitoring. So starting with Asia, as I mentioned, we have some Chinese data overnight. So Chinese exports rose at the fastest pace in almost 3 years in November. So the number for exports came in at 21.1% versus the expected 12%. So particularly strong. Analysts said improving domestic demand and higher commodity prices helping buoy the, the reading. But if you remember, with the PMIs that we had last week in China, both from a manufacturing and services perspective, both pretty much accelerating at around decade-type levels. In terms of speed, but now also exports, the fastest pace in almost 3 years. So continuation of pretty, pretty decent numbers coming out of China. Take for them their accuracy as you will, but overall this is a positive kind of sign for the overall global picture at the moment and for short-term sentiment that China is not just stabilizing but performing and functioning fairly well at the moment. On the flip side, though, from a political point of view, Donald Trump seems pretty intent in just getting the final few blows in before he departs from the White House. And the US is said to be preparing to sanction at least a dozen more Chinese officials over their role in recent disqualification of Hong Kong legislators, according to two people familiar with the plans. So at the moment, China hasn't really responded to this. Obviously, we'll keep an eye out if they do. I don't anticipate that they will be particularly harsh on any type of rhetoric, given the fact that now the transition is kind of underway. But it's worth just keeping an eye on this. And certainly as Biden comes in, how they're going to tackle, if they do in a more unified form with the rest of the kind of mainland Europe and the UK, for instance. So still bubbling away in the background, but I wouldn't say it's a particular focal point for markets this this morning. That leads us then on to probably what was the most dominant news theme over the weekend, which is that of Brexit. Actually, as I'm speaking, I can see pound just slipping again a little bit down to the S1 now in the sterling futures contract. And let me get up to speed on what the latest is, which is that UK and the EU are striving to finalize the deal before this evening, a compromise on the long-standing stumbling block of which was the access to British fishing waters is starting to emerge, i.e., a compromise on that contentious issue, according to people familiar with the discussions on both sides. And reading through the press both last night and this morning, it seems like— and in actuality, I'm not sure how much more symbolic than it was actually— than actually getting a deal done in its difficulty on that particular issue. So it looks like that's been resolved. That would mean then that a level competitive playing field is now one of the main last remaining issues to deal with. EU chief negotiator Barnier this morning, he's been out on the wires. He's basically told EU envoys that there is no UK trade deal yet. The three main issues are still open, as according to an EU source. And so overall, the pound has traded a little bit weak. If you remember, it's mainly been driven, if anything, by persistent dollar weakness last week. I mean, the Dixie this morning is actually up around just shy of 0.2%. So it is weighing on those major pairs. But the underperformance of the fact that, look, no trade deal has come as yet. If you remember, we started last week the same as we start this week. There was supposed to be a deal. It's been pretty much a recurring pattern we've had for the last several weeks. And then here we are again Monday morning and there's still nothing concrete. Yeah, tonight is apparently going to be, uh, the kind of the self-imposed the night that a deal is going to get done. And the reasoning for that is that it needs to be then ratified with enough time before the end of the transition period at the end of the year. So what I would say is if you're trading any sterling position today, it's going to be particularly susceptible to headline noise because I'd say the rumor mill and various different sources is probably going to be in full flow today. So just be, be mindful and be careful of that. In terms of any type of deal concrete coming out, remember, normally have a full day's worth of deliberations, and then by around 4 PM type time, London time, is when normally we get the exit then from a day's talks, and we know the, the kind of outcome where we stand. And that can create quite a meaningful move in sterling. As I speak, I'm just seeing some new headlines come out. Barnier was relatively downbeat on the prospect for a deal in this morning's briefing, according to a senior EU ambassador. That's just come out now, probably why we've just bumped down just a little bit more in sterling just now. Separately, another thing to be aware of is the UK's internal market bill. If you remember that, that was the one that broke the law, so to speak, in regards to what was a contested issue just a few weeks weeks ago, uh, that's to return to the House of Commons on Monday. The government intends to reinstate controversial clauses that would give ministers powers to rewrite parts of the original Brexit divorce deal after the House of Lords removed them. But, and importantly, what we have seen over the weekend is that a signal that PM Johnson could be preparing for an agreement. He's prepared to drop those clauses if they are no longer needed, according to people familiar with the matter. Remember, EU were going to sue the UK for reneging on its deal, on the terms legally they had agreed to, with then securing the exit and then transition back in January of this year. Basically, what long story short was happening according to sources at the weekend is that Johnson's willing to say, look, okay, fine, we'll basically drop this whole internal market bill, some of these clauses, in order to appease and get the deal over the line. So it definitely looks like we are centering in on some kind of deal at the moment. So, um, deal or no deal, I guess, is, um, if they are able to get something later on today, I'd expect then a kind of recovery, a full point move. I think it wouldn't be out of, out of the realm of possibility in terms of a relief rally back to the upside to reverse course of some of the selling we've seen overnight in the end of last week. If they have an inability to do so, then I think we continue to just trade quite heavy in sterling as we go through the week. That's probably going to just weigh even further, uh, more and more so. Okay, a quick look elsewhere. One of the other big things I think this week, and something which obviously has supported general equity direction, which has been this, this forever push to kind of all-time high territory, has been this talk last week that we had about stimulus. And so President Trump and Senate Majority Leader Mitch McConnell will come on board with the apparent $908 billion package to provide pandemic relief, according to a bipartisan, uh, group. This was citing, uh, Bill Cassidy, a Republican from Louisiana, um, that they're seeking legislation before the end of the year. So I guess anything in regard to that will be quite key on whether that's going to be successful in progressing or not, then in a more negative way. Goldman Sachs, I read in a comment from one of their notes at the weekend, said they believe that that number will be whittled down to around $700 billion once Republicans' demands are met. So the idea here being that markets generally like what's happening from an equity perspective when we get closer to stimulus talks, and so anything more than that confirmation just supports the underlying trend. a continuation going in towards year-end, particularly with the risk of a government shutdown looming as well in about a week's time or so at the end of this week, and then that could well start to weigh as a negative headwind. One thing to be aware of then, politicians are somewhat incentivized to get something done sooner rather than later. This is looking at the latest new reported cases by day on a 7-day average in the US, and you can see we are starting to see that little Thanksgiving bump starting to come in, which many had feared. Uh, new reported deaths certainly are, are up there at the highest that they've ever been. And then hospitalized COVID-19 patients by day is particularly high at the moment, up at around that consistent 100,000 level. And what this has led to is that California will impose stay-at-home orders in areas where intensive care units are close to capacity. Remember, even last week around Thursday, Friday, they were at 85%. So given these rates, probably even closer to maximum capacity now. And New York City's average positive test rate rose above 5% for the first time since May, uh, at the moment. So still a very serious and evolving situation in a negative way, which means then that You know, if politicians aren't in the coming weeks able to really come to market with a sizable stimulus relief package, then we could find this kind of gravy train, all one-way direction to all-time highs in equities, could see a little bit of a blip. But I would say the expectations are that they will probably broker some kind of deal because they have to. That generally seems to be the way in which politicians seem to work. On that front, on vaccines, a couple things to be aware of. Britain is preparing for the first country to roll out Pfizer-BioNTech COVID-19 vaccine this week, initially making the shots available at hospitals before distributing stocks to doctors' clinics. The other main thing we're looking out for this week, which particularly could be, be one of the key events, is that the US FDA meets to discuss the vaccine made by the companies Pfizer-BioNTech on Thursday. And if the FDA authorizes emergency use, what this means then is that Human Health Services Secretary Alex Azar over the weekend said that vaccine distribution in the US could begin within 24 hours. So kind of very reminiscent of what we had once we had UK approval last week. Could we see that in the US as soon as this Thursday? And obviously securing this authorization process to then start getting at least underway some of the frontline workers, particularly in a very stressed situation like we're seeing in the state of California, for example, where hospitalizations are nearing capacity, is very important for continuation of some of the, the general market direction we've had of late, both with increasing US yields, securing of a vaccine, the stimulus talk, these will all continue to roll over as key themes for this week because overall US data is fairly quiet. So they will be quite dominant still as key themes. The other thing is from a central bank decision, I mean, we do have things like the ECB as well coming out. Um, we know that this lady here, the president Christine Lagarde, is very much expected to deliver an increase of €500 billion to the PEP the pandemic emergency purchase program and also to extend it out, the pandemic bond buying program, to at least the end of next year. We heard sources comment saying to that fact last week. New economic projections in ECB are likely to show the eurozone economy contracting in the current quarter as opposed to when they last issued their forecasts, which would have been back in September. Of course, they were forecasting an expansion. So the reality setting in then, as we've seen in countries like Germany, for example, who continue to roll over a fairly stringent degree of restrictions, as although we're hitting a somewhat plateau in some of these areas of new cases, they just want to make sure that they get this virus under control. And so therefore, limitations to a certain degree of normal operating kind of rules, if you like, have been slow to come back in the reopening of these economies. And that's having an economic impact. And so hence the reason why the ECB needs to take further action. Definitely for sure, we need to be watching out for what Christine Lagarde has to say in the following press conference as well, which will come on Thursday, and any reference at all to the euro, given the fact that we have traded up close towards 1.22 now. And obviously that's 2 full points above the previous area of concern that the ECB had shown when the euro had got to those levels before, just back in September. I guess one of the stress points, um, at the moment is that it's very difficult, I think, for the ECB to really get that euro recent move higher under control because predominantly it's been driven by not so much euro strength but more dollar weakness. So be interested to see what she has to say there. And what the ECB can, can do or construct in a form of any type of rhetoric or forward guidance to try and harness that euro in terms of the continued move higher that we've seen. Um, looking at the week ahead, so Monday today, it is pretty quiet. Um, we'll be looking out for Brexit updates. That's probably one of the main days this week is today on that, that you'll see the pound fairly sensitive. As I said, it could be particularly volatile because I've been expecting an increase in the number of sources. Uh, that will then dictate then whether or not the House of Commons debates and the Lords amendments to the Internal Market Bill will need to go ahead or not. I'm sure Boris might use that as a little bit of leverage to hopefully try to get a deal over the line. We shall see in due course. Um, then going on to Tuesday, we've got the likes of German ZEW, Eurozone GDP, but this is Q3 final readings. As you can see, pretty light on the docket then, both for Monday and Tuesday on the US data front. Wednesday, got the German— Chinese, excuse me, inflation readings, CPI, PPI. You also get job openings in the US, and you've got the Bank of Canada rate decision. Not expecting much in the way of any policy changes there. Thursday, we get UK GDP readings expected to come a little bit back down to reality after the big pop that we had in the prior reading. So the consensus estimate for a move back down to 0.4% from 10.1% previously. We then have the ECB rate decision as mentioned, and you've also got US CPI, which is anticipated to have risen. Um, but a couple of things to be aware of here with US data CPI I don't think is— I think it's still a relative tier 1 piece of macroeconomic information, but how market moving it is, probably not a great deal, I would say. And we are anticipating a slight slowdown in, in demand at the moment. And then with US numbers on Friday, you do get University of Michigan, the December preliminary reading, which is expected to show slight deterioration from the prior time out. And that's mainly down to the fact that of course of course, we've been seeing a worsening coronavirus situation in, in the US and, and the restrictions coming into play, which is going to have dampened consumer sentiment to a certain degree. So that's, that's pretty much the week. As you can see, it is pretty quiet in terms of major calendar events. In terms of data, US CPI, Michigan on Friday, CPI on Thursday, jobless on Thursday as well, of course. ECB on, on Thursday. Otherwise, I'd say more of the major themes centered around the latest Brexit situation for the sterling specifically. Vaccine update coming out from the US FDA, approval or not, on Thursday on Pfizer-BioNTech. And then also you've got, um, just a general theme on the stimulus talks coming out of the US, which will be quite critical this week. So that's your rundown. Uh, as I said, I haven't looked at the charts at all. I'm aware of that. Um, Sam, Tim, the other guys will go through all the charts in greater detail on Amplify Live. So look forward to seeing you guys in there, and I will see you same time tomorrow. Thanks very much.