UK PM Johnson Introduces Third Lockdown & Warns Hardest Weeks Ahead

A very good morning to you. My name is Anthony Cheung. I'm the head of market analysis here at Amplified Trading. It's just gone 7 AM now on Tuesday the 5th of January, so just taking a look around the markets at the UK European open, and overall it's fairly quiet in terms of cross-asset class movement. We had a lower close of course on Wall Street after some selling pressure that came in after the open on the NYSE, but overnight in the Asia-Pacific session has been relatively quiet. So the cash close saw the S&P finish down around 1.5% 0.1%. Same in the NASDAQ, and the Dow was down around 1.25%. Otherwise, Asian equities a little bit mixed. Perhaps one of the outperformers was in Hong Kong, a bit of a U-turn from yesterday after the NYSE said they no longer plan to delist China's three big telecommunication companies, which did weigh on their shares in the prior session. But getting down to the real stories in focus this morning, and if you're based in the UK at least, I'm sure you would know by now we're going to be heading into lockdown 3. After Boris Johnson gave his speech last night, he imposed a third coronavirus lockdown across England, shutting schools and ordering the public to stay at home amid warnings that without further action there could be material risk of the NHS in several areas being overwhelmed over the next 21 days. As of yesterday, there were just over 26,500 patients in hospital with COVID-19. To give that a bit of context, that's about a 30% increase in a week. Uh, the full emergency lockdown is going to start immediately, and the first review of it will come in the week beginning Feb 15th, with any changes coming into force when half-term ends from Feb 22nd. So you're looking at this lockdown at least to be enforced until really the end of February. Looking at the market's reaction to this, I mean, there really hasn't been one in regards to the sterling currency, and probably the FX market has been one to look at as a barometer of sentiment with these types of things. But probably that in turn is due to the fact that I don't think it's wholly surprising what the government have done. If anything, what perhaps is surprising is about the speed of which they've acted here, which again, Boris Johnson has been met with a variety of different criticisms, uh, over the handling of this at this point in time. So overall, sterling impact has been fairly limited. Obviously, going into a more onerous lockdown has implications for the economy for sure. So definitely there are economic impacts of this, but as far as the intraday sentiment, it's been fairly benign at this point in time. Having a look then at vaccines, because there was a very interesting article about the vaccine and its manufacturing and distribution. The reason why I think this is worthwhile talking about is because if you did listen to Boris Johnson's speech last night, he gave a bit of a different tone, I thought, to what he delivered in the spring in March, where he was very adamant and clear about people must stay at home. He was much more talking in an optimistic way, I thought, last night when he was talking about the fact that the vaccine is here and, you know, kind of light at the end of the tunnel because the vaccine— they want to accelerate the rollout program and so on. However, I think that there's a significant headwind that I think, as what we've seen from various different government officials from the US administration woefully falling short of their target that they had of 20 million vaccinations to be implemented. They're only at around, I think, 4.5 million at the moment. And then similarly in England, it's been a fairly slow pickup so far. So Johnson announced the target to give shots to 13.9 million people at the highest risk from the disease by mid-February. So hence the reason why then that ties in with that mid-February kind of end of half-term timeline for the length of this lockdown. That's when he's hoping that they've given shots to nearly 14 million of the most vulnerable people. Once they have then been vaccinated, the restrictions then can be eased, is what he said. Now, according to an article in the FT last night, I thought it was particularly interesting because they said that red tape and a lack of backup stocks are affecting the rollout of the UK's mass COVID-19 vaccination program, according to people familiar with the process. Now to go with some of the numbers here, more than 4 million doses of the BioNTech-Pfizer vaccine were delivered to the UK before the end of last year, according to one person with the FT. The only thing is that government official figures show only about 1 million people have been vaccinated by the turn of the year. So pretty similar to the conversations I was having on the briefings at the end of 2020, which was looking at the amount of the Pfizer-BioNTech drug that had been distributed to various different states in America, but the very small take-up that had seen on an average at that point a few weeks ago is only around 24% had actually been, been issued at that point in terms of actual vaccinations received. Now if we look at the UK, only around 530,000 doses of the Oxford vaccine were available as of yesterday, and that is far short of what the government was saying just a few weeks ago, which was a commitment of 4 million. Now, one person familiar with the manufacturing process of the Oxford vaccine was very clear to point out that having been developed and brought to market with this, you know, warp speed of what would normally have taken several years has meant that they there's been no time to build up buffer stocks, which is something which would typically happen with a vaccine which would take many years, obviously, to come to market. Separately, Astra has said that it would put only a proportion of vaccine into vials before receiving regulatory approval, which only came, of course, very, very recently. So a number of things here, although definitely the Astra vaccine is seen as a bit of a game changer. We've discussed this before, rightly so. I think it has the ability to really accelerate, uh, the overall rollout program significantly on a global level. However, getting to that point, I think, is a slightly different question. And just given the intensification of COVID rates, the problem of the fact that infrastructure from an ICU basis is getting close to capacity levels. In the case of the UK, potentially in the next 21 days if things got worse, and in the US very much so as case numbers continue to rise as well. I think that there's something to be aware of here in the medium term, which is at the moment markets seemingly seem to be content, at least for now, with the idea that the vaccine is coming. One thing that I'm watching here over the coming weeks is actually these numbers and how quickly they're actually rolling this out, because I do believe that it's going to be a lot slower than current expectations, definitely slower than government officials are saying. I think that they have a slightly different agenda. They obviously need to put a positive spin to improve the optics of their dealings with this matter. I just think that from a manufacturing perspective, although Astra definitely, given the volume of government contracts, will be a big one for 2021 for sure, I think that this idea then of a mid-February having 14 million people vaccinated in the UK, I think won't be met. And then at some point, as the data starts to fit bit that if that is the case, I think it could then start to be, uh, an influencing factor then for people's idea about how that's going to affect the economy. And therefore, I saw yesterday people bringing forward their expectations about the Bank of England rate cut perhaps happening in the late summer and so on and so forth. And this will need to be reflected in market prices. So just a bit of a take on that at the moment. What is the COVID situation in, um, the US? Well, daily cases in the US jumped to a record of nearly 300,000 following the New Year holiday, and an easier-to-spread variant could definitely intensify that surge. And if you look at those numbers, after we had the kind of Thanksgiving, um, increased numbers of cases of coronavirus in the US did actually start to drop off those record high levels. However, If you throw in the kind of double hit of Christmas and New Year, we are expecting with then the added, um, kind of accelerator of the new variant of the virus, these numbers to intensify in the US. So again, further intensification of these numbers in combination with any hurdles met with the vaccine rollout, I think could definitely be something to monitor which could dent near-term sentiment given where markets lie at the moment. Otherwise, the other big thing I wanted to talk about today was something we've known about for a while really, but I guess it's coming to a final point today, which is the Georgia Senate race. So long a solidly Republican state, Georgia surprised the nation back in November of last year by going with Biden and it was the first time that the state had backed a Democratic presidential candidate in almost 3 decades. That's raised liberal hopes of Warnock and Ossoff to potentially turn then completely this, this deeply what otherwise would be a conservative state. Now a few things to be aware of here: if the Democrats pull off a victory in both, because there's 2 seats here, that will leave parties with 50 seats each in the Senate. Now, what happens when there's a tie? The vice president, Kamala Harris, would then hold the casting ballot in the event of a tie on any vote. And should the Republicans win just one of those seats, they would retain their thin majority. Now, obviously this has big repercussions then about the actual ability that the Democrats under Biden might have in order to pass various different types of legislation. Legislation. Now, the latest polling data gives a slight edge actually to both Democratic candidates in their respective races, and should the Democrats win both seats, they'll have control of the Senate as well as the House. As I said, gives Biden the scope to push ahead with a broad package of policies potentially, uh, along with higher corporate taxes. Banks could face concerns over more stringent regulations should Democrats prevail. And big tech could face more challenges as the Dems would take what is expected to be a much tougher stance on the growing influence of some of the names like Facebook and Alphabet and so on. Elsewhere, other things to keep an eye on, or stock sectors— energy shares, which have obviously lifted substantially in recent times following the positive vaccine and the kind of reshaping of global demand on the back of that. But a Democratic sweep could halt momentum to a certain degree. Oil and gas shares on fears of tougher rules for the industry, quite the opposite approach to what we would have had under President Trump. Don't forget that the Democratic sweep could give further support to a strong green energy push, of course, under a Biden administration. And then One of the other things, or two other areas I'd be looking at, is a Democratic sweep could also weigh on shares of healthcare insurers and pharmaceutical companies. It could be going away from that more privatization view under Republican-led government. And then finally, one thing, if it was a complete blue sweep scenario and they had control of Congress as well as Biden, then it could set the stage for an infrastructure spending package that benefits a range of industrial materials and construction shares, given the, the general, uh, Democratic appetite for doing more larger scale. Remember, with those paychecks, um, Trump was going for $2,000 rather than $600. The Dems were actually in favor of that, only then for Mitch McConnell to obviously vote that down for the more prudent type of kind of Republican approach. So with this Georgia Senate race How important is it? I think it is actually very important. I don't believe that the results though we're going to know straight away, probably going to be another day or so. Um, the overall take here, I think the initial market reaction could be definitely something quite interesting and fairly acute for markets in the very short term, intraday, when we do get conclusion of this. However, if it is just literally a very still, a close race between the two. And even if the Democrats have it, I mean, you only need one, um, senator to cross the floor and then certain legislation would be blocked. So it's definitely not a runaway slam dunk. But I think in the short term, markets obviously tend to, from a news perspective, over-exaggerate initial reactions. So they would be the sectors I'd be looking at. So from a broader index point of view, perhaps then you might see a bit of a divergence where the big tech might be weighed on in regards to NASDAQ, but the overall idea about the infrastructure spending package might lift some of those other related names— industrial and material construction shares. The other thing to mention was OPEC oil. This morning is pretty much dead flat, it's trading down just 5 cents per 47.57. OPEC+ talks were unexpectedly suspended yesterday after a majority of members, including Saudi Arabia, opposed Russia's proposal for a February supply hike. The Russians under Alexander Novak were looking for another 500,000 barrels per day increase as what they did last month. Before ministers gather again today, so they're meeting again at 3 PM London time, they'll have the chance to hold bilateral talks and consult with their home governments delegates said. So I would be mindful of any further kind of murmurings and rumor mill going around on Twitter and the like for the outcome of that. I don't expect any change, to be quite, quite frank. I think that the fact that they weren't able to say that conclusively yesterday was perhaps the main thing that really weighed on prices, because obviously they need Russia on board given how large their production levels are. But that in combination I guess with the overall worsening of the virus situation creating further renewed intensification of lockdowns, certainly enough to just take oil off what otherwise was a push-up to $50. But net-net, we're still trading up around $47.50 at the moment, which is relatively high, all things considered. Um, meanwhile, sticking with oil, one thing to be aware of is it's worth noting that Iran has begun enriching uranium up to 20% and seized a South Korean-flagged tanker in Gulf waters. This was yesterday. Quite interesting because the move does come, um, ahead of obviously the incoming US administration. It could escalate tensions when they're looking to seek to revive their nuclear deal. So just something to be aware of given the sensitivity of that geographic area. Looking at the day ahead, obviously the main things still very much so, uh, tracking of COVID and any vaccine type updates. From a calendar perspective, the main sort of things that I'm looking for are really the German unemployment data. That's going to come just ahead of 9 AM London time. Wouldn't really anticipate that to be much of a market mover, but nonetheless worth keeping an eye on since expected to come in at 6.1%, which would be unchanged in the prior month. And then really focus into the afternoon, uh, no major 1:30s coming out of the States, but you do have the ISM Manufacturing PMI, which is expected to weaken slightly off fairly elevated levels, of course, from 57.5 down to 56.6. But the thing I'd keep an eye on is the employment constituent after last month's reading saw a pretty dramatic drop into contraction territory to 48.4 from 53.2. Otherwise, API crude oil inventories as per usual, much later into the evening at 9:30 London time. So, so that is it. I hope that was a good update to get you up to speed of what's been going on fundamentally ahead of the market open for today. I'll see those in Amplify Live community on the live stream shortly. Okay, have a good day and take care.