Tracking The Virus & Implications For The US Election

Okay, very good morning, hope you are well. It's Anthony Cheung here, the head of market analysis at Amplify Trading. Going to be talking to you about a couple things, getting you up to speed with the major news headlines in play for the trading session ahead today, for Wednesday the 24th of June, but also going to take this opportunity to have a look at COVID-19, but also looking at the US election. And so the implications that that could have on the outcome of the election that we're going to see later on in November of this year, of course. But starting firstly with the charts, and we actually saw a positive finish on Wall Street. This comes despite as many as 31 states now with an R figure, that kind of key figure that we monitor, that they're trying to suppress then any further outbreak of the virus. 31 states in America now above that 1 level. Regardless of that though, and the fact that states officials considering slowing and reversing reopening plans, cases still surging in some of those key areas— Texas, Florida, Arizona, California— the indices actually finished higher. NASDAQ Composite hit a record high, its 8th straight gain. Overnight in Asia, you've also had a couple of positive developments on the Korean Peninsula, which we were talking about this time yesterday, and that's led led to gains in Japan in that type of localized regional move, given that they tend to be one of the nearest neighboring threats for any North Korean military type activity. And South Korean Kospi also up just shy of 2% as well on the back of that. We'll have a look at those stories in a second. Um, just having a look then at the charts overall, it is though a fairly quiet open, all things remaining equal, despite the kind of gravity of some of those stories I've already just mentioned. Equity index futures, NASDAQ marginally positive, um, whereas the S&P is basically flat at the moment. The DAX pretty sideways really since the open, albeit slightly lower by about 65 ticks. T-notes down 4, gold up $4. And in the currency markets, the Dixie is pretty much flat, so not too much in the way of any major changes yet in the currency pairs. EUR here in the, the top center, just coming up to retest around Asia-Pacific high. Maybe just worth keeping half an eye on. Um, all right, let's get into some of the headlines then and get straight to it. And gonna kick off with this: China has picked up its game on trade with the US, according to a Trump advisor. The US trade deal with China is not only fully intact, but Beijing has actually stepped forward in a number of areas in a constructive way. And so here we are again, we return back to the trade war cycle. We've gone from obviously those comments from Navarro that rocked the market briefly, momentarily in yesterday's overnight session, to then him retracting those comments, Trump coming back and tweeting, to now this latest kind of commentary that we had yesterday. So, you know, on the more positive side, any of that potential tail risk emanating from further escalation on the trade war has kind of been eliminated, at least for the moment. But as this cycle would suggest, it's probably likely to come back in time. Trump did actually hold another campaign rally, his second one in as many days, I think it is. So of course, China were in the crosshairs once again as he tries to kind of twist the narrative to the kung flu, uh, and these types of things. And so again, as I was suggesting in yesterday's briefing, I think everything in this nature at the moment is purely political strategy. And so as I was kind of insinuating, it's kind of just putting that threat out there. As I said at the time, I didn't really think it had much in the way of any concrete kind of substance behind it. It's just a kind of warning shot over the bows to just say to China, look, we are willing to drop this entire thing if you don't play ball. And then they quickly reverse it. So at least that seed has been planted in the negotiations when the two countries are speaking. But all being equal, we're back on for the moment to the point of where, you know, administration kind of hinting at a resolution of sorts and the market kind of stabilizing to that degree. Um, a few of the other things then to get up to speed on: North Korea has decided to suspend military action plans against South Korea. As their report suggested North Korean troops have taken down loudspeakers recently reinstalled on the fortified border. So again, I don't really need to speak any more on this. It kind of goes— it's funny, isn't it, how it works. The US come out with that fairly conciliatory comment from yesterday, and then North Korea all of a sudden suspends military action against South Korea. It's kind of like, okay, you're saying that, we'll do this. And so that kind of proxy element of the Korean Peninsula tension being used as a kind of a side order, if you like, of what's going on between this bigger negotiation confrontation between the US and China. The two things tend to be fairly, uh, in fitting in terms of the timing side of things. And then overnight we also had the RBNZ. They had their interest rate decisions. No real great surprises here. They hold rates, they're ready to deliver more stimulus if needed, they maintain their QE program at basically 60 billion and they outlined their readiness to deploy alternative tools in August. So yeah, as you would expect, it's kind of the, I guess, the status of most central banks at this point in time. It's kind of like, look, we're delivering unconventional measures and we stand ready to do whatever it takes, kind of mantra. So nothing too shocking there. But let's talk about the election. And the reason why I want to talk about this is because, as I've said, Trump has kind of hit the roadshow again, uh, and there's some quite telling things I think that you can expect on the timing and the rhetoric that will come from the US president. And it does coincide with the Financial Times yesterday. They've now released, as we get into that run into the election, they've released their interactive calculator and latest polling data, um, which can basically look at states' Electoral College votes that are most essential to winning the presidency. So this is where we can start looking in a little bit more granular detail now to just generally what some of the outright national polls are telling us in America. And this is a really great— I'll share this link on the video and with everyone. It's a really great tool over the coming months for sure to keep an eye on things. And as you can see at the moment, obviously the polls— well, just quickly jumping over to the RCP, which is the RealClearPolitics data the main kind of aggregator of national polls in America, and the average now has Biden ahead by roughly 10 points. So, so the gap, if anything, as we've looked at before, is widening, um, at this current time. Now, going back to here, what's going to be key then— it always is in a US election— is the toss-up areas. And as you can see here, you've got Texas, Pennsylvania, Ohio, North Carolina, Arizona, and so on. Now what I was quite interested in looking at with this data was a) identifying who exactly are the toss-up states, also then you can almost put those in a hierarchy themselves because the way the Electoral College system works is that certain areas will have more votes, so Texas obviously is one of the largest in America, I think only superseded by, in college votes sense, by California at 55 to Texas's 38, so Texas obviously super important, as is Pennsylvania, Ohio, North Carolina, also pretty sizable in terms of the tipping the fate of the balance of what could end up being the, the key areas to monitor. Now what I was interested in was, okay, I, I, now I know these areas are key, well what exactly is the COVID situation, not just nationally, but can I get some kind of overlay data where I can track then the type of situation that's developing in those toss-up states. And this led me to then another new tool that the FT have just released yesterday. And first of all, I'm going to start with this one. This is looking at new COVID cases in the US overlaid with the UK. And in fact, what you can do is pretty cool on this tool. You can just punch in any other countries and it will, it will bring everything up. And so you can define what it is that you want your visual graphic to look at. Here you're seeing quite a distinct disparity here, right? The, the two lines are fairly correlated in terms of the acceleration and the peak phases of the, the initial first wave of the virus, but the UK has continued to drop, whereas in the US, given the fact as well that they were both these countries fairly late to go into a more stringent lockdown, hence the acceleration phase was quite aggressive hence death rates and case rates in the UK are more higher than in mainland Europe, in the US, and the world. But the US was the first obviously to reopen as well, and so what we're seeing here is that case rates never really dipped that much in America, and if anything now we're coming back up to the peak, whereas the UK have kept going lower. So hence the, the differential between the political kind of government guidelines at the moment. The UK, Boris Johnson gave his first— his last daily news conference that he's been delivering over the last few months, and he's outlined on July 4th the various different rules of which then the UK is going to go through its next phase of loosening the lockdown. Whereas in America now, you've got state officials considering slowing or reversing reopening plans in some of the biggest, most popular states in America. So complete difference there. If we start looking at then the overall case rates, the US has had its biggest rise in new COVID-19 cases since early May. According to COVID Tracking Project, there were 775 deaths in the US over 24 hours, the highest total of the week and a jump from the 3-month low of 284 reported on Monday. While the deaths are going down, the concern is if those cases then infect people who wind up getting sick and go to hospital, it is conceivable you may see deaths going up. That was according to Anthony Fauci, the kind of US main health advisor. Now that leads me on to another quite interesting graphic that I saw. So here what they're saying is, is that, look, cases in America are going up, uh, at a rate of which was now at the 7th, 7th biggest since the pandemic begun. And as you can see, it's been on a distinct increase here as the reopening has taken hold across the nation. What hasn't actually gone in step with that though are deaths, and this was quite an interesting graphic looking at the US overall. So here you're overlaying in blue the number of cases, but then you're looking in purple the number of deaths, and there's a big divergence here. There's been lots more reported cases but much fewer deaths. So I guess what has the I mean, you could look at this in a, in a type of positive fashion, that perhaps then, you know, government authorities are better prepared, they're better able to act, they have better facilities set up and ready in place to help try to at least control the severity of the disease or the virus in order that it does not end up culminating in, in someone's passing. But I guess the other side of that could be, well, look, the, the, the science would probably say that if the cases continue to increase in the fashion— and if you look at the steepness of the trajectory, it's not far off the initial first wave, uh, increase rate— then deaths will ultimately start to increase. Um, you know, I don't think there's, there's too much to dispute that, that fact. If this figure keeps rising, then obviously this death number you would anticipate would also start rising. So the question mark here I thought was quite interesting in this graphic was, um, you know, deaths at the moment. You know, if markets are quite comfortable with the current COVID situation, as they kind of appear to be, without, you know, things are stable fairly at the moment. NASDAQ Composite, NASDAQ's been trading at record highs. You know, if that death rate starts picking up, maybe that could be a trigger signal then for a little bit of nervousness to come back in and risk-off to come come back into the market. And reflecting that as well is the fact that there's been a declining number of COVID-related hospitalizations, but flatlining over the past 10 days. You know, we had been declining. So what we're kind of seeing here, I guess, are a couple of phases. Cases are on the up, hospitalizations, which were declining, have leveled, but deaths are decreasing. So if you think about it, you kind of need the case— you need to contract it first, and then you need to go to hospital. And the third final thing would be obviously resulting in a death. And so there's a couple of signs here that the death count probably will start rising because if hospitalizations, after declining pretty much since April, are now starting to level off, if anything pick up— and certainly we've been hearing some of that in certain states in America like your Floridas, your Arizonas, and so on and then the death count probably will start to shift. I guess the balance at the moment that I'm looking at here is— and I saw a good quote— it's bad news isn't so bad if you think it's going to result in more stimulus. So everything I've talked about is quite negative, right? We're talking about the worsening of the current COVID situation in America and the world's biggest, most important economy. But if it does eventually lead then to more stimulus, and that could be in the form of the Federal Reserve, who've obviously got really creative with lots of different means to support the economy, but the Trump administration as well, discussing another stimulus package with lawmakers that could be passed in July, was what the Treasury Secretary Steven Mnuchin was talking about yesterday. So one way here is basically just spend, spend, spend, spend as far as the government is concerned. You know, we'll deal with the ramifications of that spending later on down the line. At the moment, you know, if your sole objective is securing a second term, well then it's needs must at this point. And there's a couple of interesting things I can show you on that front. So one of the— going back to the FT's graphics and going back to this idea of what I'm going to be looking at over the months ahead is taking these toss-up or leaning states So these ones either side are quite key in the center, and this does include things— places like Texas, Florida, so a number— Arizona, a number of those hot spots of which we've been focusing on, which have seen the most violent pickups in terms of the COVID cases. Now this could be very detrimental to Donald Trump, and if we look at those case trajectories, you can see Arizona has shot up very sharply. Texas, the trajectory is probably even slightly more steeper, but you can see Ohio, Pennsylvania also the same. So these are all highly contested battleground areas, and obviously the, the master and chief, if you like, President Trump— the buck does stop with him in terms of the decision-making in regard to the speed of reopening these economies, as much as he might try to pass that on to state officials, in the end he is leading and steering the ship here. So it's his political, uh, kind of neck on the line in that respect. So this is what I think is going to be quite telling. And what does that lead to? Well, look, Trump was in Tulsa, I think Oklahoma, giving a camp— first of his physical campaign rallies yesterday, and Where was he last night? Well, Arizona. Think about it. If you were a Trump, uh, strategist and you knew that this was developing, these patterns on a COVID level, and this obviously is the clear and present danger right now in the public perception, in the, in the public's mind, Arizona is the, the kind of key one that's at the moment surging. You know, if you look at these Arizona rates it is way and far above higher than where we were in the first wave. So the cumulative number continues of a 7-day rolling average of new cases to grow quite rapidly. So here then, where was Trump last night? Well, yeah, you guessed it, he was at Arizona. And what was he saying? He was blasting China for spreading the virus. He was, he was using those normal racist tropes at a political rally to describe the health crisis as a kong 'Kong flu.' He labeled the US anti-racism protesters as tyrants. The kind of main undercurrent here, and you can probably expect something similar going forward, is A, this anti-Chinese rhetoric, but B, a theme that's always been a kind of a clear and present line held by pretty much every US president since the change in the civil rights laws back in America, going back to the what, the '60s. So Nixon, Reagan, Bush, even the Democrat Clinton was, it was the same. And that's a theme in America of law and order. Law and order is kind of the classic textbook go-to of what we've seen throughout recent modern history of US politics. And so yeah, expect more of it basically. And what I'm saying is that What I would be thinking is that, well, Trump's timing of Trump commentary, which as we've seen markets are still sensitive to comments from him or senior members of his, his team in the administration or advisors, can move the market. So just be mindful then of what are the— what's the underlying situation of COVID in these key toss-up or leaning areas. Because you're more likely or not going to see Trump focused on those specific areas with his campaigning and his commentary, and, and of that theme of law and order. As I said, one of the other interesting things then on the back of this discussion is, um, the re-election prospects. As I've, as I've just shown you, Biden is looking like a clear favorite at the moment, but there are a couple of things that Bloomberg were looking at that I thought were quite interesting and that I would share. This is one called the— it's called the Misery Index. The unemployment rate added to the year-over-year change in the main consumer price index, and that is expected to be at a record all-time high in November when the election is happening, which is definitely not a good sign because history would tell us then when basically there's, there's high unemployment levels and added to the year-over-year change in main consumer price index. So if you're going to add all this stimulus to the system, at some point you would think later down the line inflation is going to rise. So if you think about it from a consumer, man-on-the-street level, not only are you unemployed but the cost of living is more expensive. So things have, you know, it's more difficult. Your, your quality of life is deteriorated by your, your situation economically. So that leads to an increase in the misery index. And what we've seen then, and this is very typical really if you think of the political shifts that we see, and this goes across the board in, in all major kind of Western developed countries, is whenever we shift from say right to left politics, and the UK we go from a Conservative to a Labour government like we did transition in the kind of mid to late '90s, then you have to go through kind of an economic shift because that's then the telltale sign that the policies of the incumbent have failed, essentially. And typically, if you overlay that over a long-term business cycle, well, if a government in the UK is in charge for 10 years, well, you've pretty much hit then, you know, in the case of, I don't know, someone like New Labour and Tony Blair coming in, it's right on the, the back of a flagging economy under the stewardship of the Conservative Party for many years. The economy then starts to pick up, only then for the financial crisis to hit, and then we go through these ebbs and flows. And it's similar with the, the kind of previous Bush administration, and when Obama came in, and then you get this push to then people's equality, their way of life, more social issues come to the front. Because of this large scale of unemployment in the post-financial crisis era, in this case in the pandemic era, which could then lead to a political shift. So these would all be things that obviously are quite, quite negative for Trump at this point. Um, you know, this is looking at something a little bit different. This is looking at the Biden shift because we have seen it, you know, him pulling away a little bit in these more recent polls. Particularly as this reopening has happened, because as I said, the containment and control of COVID-19 is, is pivotal not only for the psyche of the consumer to spend, but also for their— for shops and businesses to get back going again and get the economy firing. 16 battleground states found that their labor market in all of them has deteriorated since the start of COVID-19. I don't think that comes as a great deal of surprise. You can see here Nevada unemployment rates surging by far the most, but as you would imagine given Las Vegas and so on and the nature of how that localized economy generates its, its money. At the same time, 10 out of the 16 on those battleground states have seen a shift in sentiment towards Joe Biden. So as you can see then these blue lines here, they're shifting to the left, moving toward more being quite in favor of what was initially Republican and Trump kind of losing a little bit of support. So yeah, these things, it's so key to monitor going forward on so many different levels. But I guess from a Trump strategy, there are a few other things that are perhaps a little bit more favorable. And if I just scroll down, I think I've got one more graphic here, which is that this is looking at finally stock prices, home prices, and wage growth. So here, yes, the unemployment. So we're looking at here, the, the blue bar would be indicative of when an incumbent party loses the presidency, uh, the orange one hold it, and let's call it the white color is the estimate for 2020. So unemployment obviously is expected to surge, that's, that's not a surprise here, and that is obviously a key area of focus. But if you look elsewhere, just given the mammoth scale of stimulus that the government has been implementing and looking to do more, then real wage growth is going to be sky high. The real S&P 500— look, stock markets are pretty much record highs, and real home prices are growing. And these are things which tend to, in history, tell us that people look upon these types of facts favorably. So that kind of idea— remember what Trump has always done, you know, the stock market is a validation of success of his policies. If you think about it, as I've said earlier, even if COVID gets worse, as long as the market can still be propped up by support from the government and the Federal Reserve, then that's going to be such a key objective for Trump to do. So, you know, pressure— Trump putting pressure on Jerome Powell to do more, of course. Trump putting— tightening the screws on the rhetoric on China to just make sure that that's a key kind of campaign pledge fulfilled, as he did in 2016, for sure. So blaming the virus, something that's totally out of his control, to to kind of remove accountability. These are all the things that you can expect more of going forward. So yeah, hopefully that is interesting and makes a bit of sense. Long story short, get hold of that FT calculator. It updates multiple times throughout the day. I spoke to the head of data at the FT yesterday and he informed me of that. And then you can do as well those more specific searches where you can pinpoint specific areas of interest you want to monitor. Moving on, UK, final things then here. Boris Johnson gambles on lifting lockdown to save the UK economy. This was from his, his kind of final, more regular update on COVID that he was giving. This then goes to a couple of things. It kind of speaks toward the fact that testing capacity is has been greatly expanded now in the UK. It has more ventilators. The treatment of COVID-19 now is better understood. So hence the reason why, you know, when you talk about the wave pattern of a virus, typically the first wave is much bigger because it's very much in many senses reactive. Why aren't governments prepared for this? Well, nature of short-termist politics— preparing for a pandemic is kind of way lower down the agenda. And so we tend to have to react and we're behind the curve, and hence the acceleration on the first phase is always much larger than the ensuing waves that come. So at the moment, the UK, as I've said, has been shaping up relatively positive in terms of the trajectory of the cases. It's almost the opposite of what we're seeing in the United States of America at the moment, as you can see here. So Boris has a key objective, and that is to get the economy back on its feet, and people have got to go out and spend. And this does go against, though— I mean, I say it goes against— it's probably the advice of the scientific community in the UK and his own health advisors that, look, this doesn't mean if you just ignore this now and go back to life as usual then we will have a significant second wave. So they're trying to kind of reassure, keep people alert, if you like, to the prospects of this has not gone away. They said, the scientists, that basically COVID-19 will be here way into 2021. But Boris has taken that leap of faith now, and this could be pivotal. And so really what's going to be key, a lot of the timing around this is based upon the beginning of July when we start looking at further loosening of the lockdown. So I guess through mid to late July will be particularly interesting to see where we're at at that point in time in regard to the COVID situation in the UK and whether or not those case numbers start rising. That as well, if they did, does add kind of some complication towards the Brexit negotiations, which at that point you would imagine they're still going to be ongoing, you know, and it's still a lot of uncertainty whether or not they'll be able to get a kind of a very basic level agreement done, or there's still the option of either no deal or requesting an extension beyond that point. And so the COVID situation might well dictate a lot of that. Okay, the calendar for today: German IFO coming out shortly. Remember, we had the PMIs yesterday, uh, and they were, they, they were quite interesting really. I mean, you had the, the French numbers were very strong, the German numbers maybe not so much, um, in regard to the market had already really rose quite aggressively in the euro on the French numbers, and it was kind of like, well, German numbers are a little bit lukewarm. Both numbers, manufacturing, service, still in contractionary territory below 50. And don't forget, as far as a PMI index figure is concerned, you are coming from a very low base from the prior months. So numbers spiking higher and recovering, to me, don't really carry a great deal of weight. What I'm more concerned in is what is the, the coming months pattern of those PMIs is going to be more telling. So the German IFO is coming out at 9. It's always quite interesting. Again, this is a June figure, so just given the further reopening of the German economy, you would anticipate then that confidence would have risen comparative to where we were back in May. So again, an increase in these numbers I don't think should be taken as an immediate trigger point as to say, right, bang, I'm just going to get long euro, long DAX, so to speak, because there's a long way to go to see what I think the future is going to be like to then what actually is in reality. And I think everyone is aware of the the fact that the coronavirus situation is very fluid and can change very quickly, particularly as we saw in that abattoir situation in Germany at the weekend, which saw that momentary blip in their R-rate to 2.88. Otherwise, the actual day in itself is, is actually pretty quiet. I'll go over the API numbers ahead of the DOE's later on this afternoon, but speaker-wise you've got the chief economist of the ECB speaking shortly. Fed's Evans is speaking on current economic conditions and monetary policy, could be quite interesting, but is a non-voting member. Equally so, Fed's Bullard, non-voter, is speaking, but that'll be towards the, the final hour of trade on Wall Street later this evening at 8 PM London. He is speaking about COVID-19 though and the economy. So yeah, that, that's it from me. Hopefully, yeah, I know it's a bit of US election heavy. I don't think the election so much is a, is a real pivotal thing to trade today specifically, but hopefully those resources will help, and hopefully the explanation makes a little bit of sense of how to kind of be in the best position to anticipate then when these types of commentaries could come from administration and where the focal points will likely be. Okay guys, Have a good day and I'll see you here tomorrow. Thanks.