Updated View On The Virus, Vaccines and Market Reaction

Hi there, my name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. Don't forget to subscribe to the channel to get daily content from myself and the rest of the team. And if there's any questions about today's briefing, feel free to leave a comment below. Okay, good morning folks, it is Thursday the 12th of November. I hope you are doing well. I'm going to have a quick look around the markets, and rather than really focus so much on the charts in this briefing, I really want to get you up to speed on the COVID situation, particularly in the US, and also a few things to think about in order to kind of anticipate what might happen in the coming weeks, and also to put a little bit of context as to the moves we've seen this week, of course, kicking off with that virus vaccine information coming out of Pfizer, of course. So just having a look at the charts this morning. Let's start in chronological order. Um, on Wall Street last night, this is what the heat map looked like, and a bounce back for the tech stocks. And so the NASDAQ 100 jumped the most, it was up about 2.31%. The S&P comparatively was up just around 0.75%. The Dow was actually flat to a minor negative. Some of the stay-at-home shares which have been pretty battered earlier this week on the back of the Pfizer news put in a pretty decent recovery. So like Amazon, Apple, and the mega-cap names, uh, up around 3 to 3.4%. Um, in terms of Asian equity markets, uh, traded mostly lower, sentiment gradually deteriorating from the somewhat mixed performance we had on the closing Wall Street, as I just mentioned. But I'm going to talk about this a little bit more. There's been a lot of noises about potentially a rotation intercyclicals, as we mentioned before, out of some of these fairly stretched moves we've seen in some of the tech space. But I'm going to give you reasons to think that now's not the time for that, because I think in summary things are going to get worse before they get better, and I'll explain why in a moment. But having a look then at the charts and how things are shaping up this morning, equity index futures are trading negative. You can see here the Dow just finding some technical resist— resistance at around its S1, which is quite a nice area now of resistance for the price activity before the US comes in. That could well cap the upside here, which is around that 29175 area, which was around the support point that we saw before the bounce that came into the close on Wall Street. Elsewhere, the NASDAQ down around 55, the S&P kind of locked within a bit of a trading range from, uh, the session from, from yesterday morning, defined by a high of around 74.25 to a low of 40.25. So we're around the bottom end of that range for the moment. Elsewhere, gold, uh, it up— is up $4, but relatively flat. The dollar is largely unchanged, albeit has been moving higher in the Asia-Pacific session, which has weighed on the major pairs. to a certain degree. Underperformance though being observed in sterling currency, as you can see here, finding a nice area of, again, resistance from the support levels from yesterday afternoon. It's come back up to retest before pushing back down now to the S1, which brings into play around 1.3170, just above is the S1, and then the low that we had before the rally we saw on, would have been Tuesday morning. Um, we have had some UK data already out this morning, and for Q3 preliminary GDP, it came in quarter on quarter at 15.5%. That is softer than expected 15.8%. Other numbers that came in, things like manufacturing output was 0.2% against an expected 1%. So, um, although this data I think is largely insignificant because the market is now forward-looking given the new COVID situation developing right now and the current then restrictions in place which would impede Q4 growth. The fact that Q3 was a little bit softer already and we're expecting further deterioration going forward into the end of the year in the Q4 GDP readings, perhaps a little bit of a negative headwind just to weigh on sterling. Obviously, some Brexit deadlines are going to be missed, as we heard yesterday, and also the dollar has seen a degree of strength in the overnight Asia-Pacific session. Interesting to keep an eye on that pair this morning. Otherwise, oil— most notably for oil, it's just held on to the gains from yesterday. We're right at that colored kind of rectangle which was the restricting the price over a 2-month period, really through September and October. We broke through that yesterday, just giving some of the renewed kind of pickup in demand expectations, albeit I'm probably going to dampen those a little bit by the time I finish this briefing. Um, also we had the drawdown in the APIs, remember, because of the federal holiday we had in the States yesterday for Veterans Day. It means that then that data from the DOE is going to come out this afternoon, and an expectation there is for a drawdown following the American Petroleum Institute figures we had, um, 2 days ago. All right, so going to delve straight in at the deep end. I'm going to start with this chart and I'm going to, I'm going to give you my latest take on what I think about COVID and how I think it's going to impact markets and be perceived by market participants in the coming weeks. And starting off with this graphic, this is new reported cases by day in the United States of America. Current US daily record is now over 145,000 and hospitalizations as we can see here, have jumped more than 10% between November 6th to yesterday in 6 states, and led by a 20.4% jump in New Jersey that we've seen. Overall, what has this led to then with this renewed kind of surge in cases in the US? New York Governor Cuomo came out last night and said the private indoor and outdoor gatherings statewide will be limited to 10 people and that gyms, bars, and restaurants must close daily at 10 PM. These new enforced restrictions will come into effect on Friday. Now, a few things here to be aware of then. Infectious disease experts have warned yesterday that the surge in coronavirus cases in many parts of the US is likely to get materially worse in the coming weeks. Now, I saw a fantastic thread by a fairly well-followed scientist, which I'm gonna touch upon in a moment. You can see the entire thread on my Twitter account. In fact, I'll show you now. So if you just go on my Twitter account, I reshared it. The chap's called Trevor Bedford. He works for Fred Hutch, which essentially is an organization that looks at studying various different viruses, everything from cancer to HIV, and ways and means to try and counteract that in terms of medical science. But he had a really good string of tweets that I think needs to be understood. And basically the point that he was trying to make was that deaths— so this is the case numbers surging, of course, what we've seen in America, but the death numbers are relatively low comparative to wave 1, of course, that we saw back in— the peak really came around the 17th, 16th of April. That was when numbers were just over 2,200. We currently are around numbers of around 1,400 as of yesterday in the US, so around half, let's say. But important things to recognize here is that deaths are a lagging indicator And basically, this chap's run the maths, and you can approximate that there is a timeline of around a 3-week lag reported. So, um, deaths lag reported cases. There is a lag between when a case is diagnosed and when the individual may succumb to their disease, and there is a further lag between the date of death and the date of which then the death is reported. Hence then consequently there's a 3-month lag. Now doing the relevant adjustments to calculate then predicted rates, it is anticipated that with around, let's say, 118,000 reported cases— we've even gone above that now by a good 25,000— but at that figure when these numbers were run in the US with a 7-day smoothing out of the averages, it would translate to approximately 2,150 deaths being reported in 22 days' time, so basically the beginning of September— beginning of December, excuse me. So what we're saying is that this graphic here now would approximate that this, this acceleration, which you can quite clearly see that the rolling average here is getting more steeper in terms of its trajectory that that is going to end up looking in, if anything, going in excess of the peak of what we saw in April. We're just right at the bottom of it at the moment, and that's what— because of the 3-week lag with this, this graphic here. Now, a couple of things to be aware of as well is that even if a vaccine is approved soon, and obviously this has been the main focal point of markets this week, everyone's kind of latched on And I think a strong degree of that is behavioral— people's want, of course, to address humanitarian crisis that we're currently facing on the global level. But even if a vaccine is approved soon, people must continue to rely on face masks, social distancing for a number of months as a minimum, most likely, because initial vaccine supplies will be limited. Of course, we know this. And will be reserved for healthcare workers and other frontline workers and demographics such as the old elder nursing home carers, things like this. That means then that the more kind of productive, let's call them, members of a society that create then economic growth, they're going to be pretty much last in the queue because predominantly a lot of these are going to be of the age that would not be on the priority order. Meaning then that more widespread inoculation is going to take time. So not only are there these barriers we've discussed before about logistical, you know, the two-shot process like what we had with Pfizer, it's got to come a month later, once it's got to be transported in ultra-cold temperatures, which brings about infrastructure issues with costs, so on and so forth. The other point then being is that by the time we see full inoculation, it's going to be a long period ahead. It isn't, as I would say, what politicians are suggesting, like in the UK right now, that yep, Christmas is sorted, don't worry guys, the Pfizer have got the vaccine, we'll get it out there in December. Far from the case that that will address the current situation, in my humble opinion. This leads me then to think generally that the market has inappropriately reacted so far this week to the latest Pfizer vaccine news, particularly the initial jerk moves that we're seeing. And I think that they're going to revert back to having a more pessimistic view about this current situation. Now, a couple of things here. The US is going to be behind the curve. It already is. I mean, one of the things that you're seeing here at the moment is that quite the opposite is happening in mainland Europe. In fact, numbers in France, Germany, and one of the hardest-hit areas, Belgium, their numbers of cases have started to plateau, irrespective of the fact that things are spiking. Obviously deaths are rising, as are hospitalizations, because remember it's a forward indicator, the fact that cases are plateauing, so we can't anticipate those deaths to start also doing the same for a number of weeks. The point is though, we're hitting a plateau on this exact graphic. We're here, we're looking in the US, and so that's come because of proactive and preemptive measures that were taken. And fairly stringently so in the cases of France, for example. So even though the cases have been bad, they've been dealing with it in a fairly prompt fashion. Quite the opposite is happening in America, of course, because you've almost had a political distraction, which is a US election, of which the current administration— may I remind you, Trump— has made zero mention of this because he's still trying to legally challenge an election which he's quite clearly lost. So for me, again, uh, a lack of leadership and interest in an outgoing Trump administration with very little political gain to be confronting this issue, which is if anything only going to stain his reputation as president now he knows he's going to be leaving, um, means then that there's going to be a lukewarm response to really tackling this as it should be done scientifically. Um, because we know that, well, if there were no politics in human society, we probably would be taking a radically different approach to this. But that's not the case, and obviously politics is right, right in there in terms of how these countries are responding with this. And I think in the US, it's going to be— they're going to be distinctly behind the curve. And my worry is, is that these numbers here we're looking at already currently going to mean that the death rate is going to, if anything, exceed Phase 1. But I think that that number could have the potential to go way higher than Phase 1. Now, just looking at the country on a nationwide map, you can see the spread is already happening. Before, it was really more centered in Wisconsin, Michigan, Ohio, these types of areas in the Midwest. But we are, we are gradually moving out again. You can see both east and west And another concern I have here is Thanksgiving is coming, uh, November 26th, so we've only got a couple of weeks. And obviously this is one of the major holidays in America where people typically travel, they move around, they mix with family members and friends. So the potential for further transmission of this virus without any appropriate, more stringent measures being imparted, I think it's going to be difficult. So A lack of national leadership, I think, puts a lot of pressure on state governors to really take action. And so again, you're probably starting to come to the realization that I'm quite bearish on what this means. From a, from a markets point of view, then I think it's way too early to talk about this whole rotation out of tech and the kind of end of what has been pretty phenomenal run for a lot of these pandemic-related individual equity stories, because what I'm saying is I think things are going to get worse, particularly in America. And so I think that that's still got some legs to run in the likes particularly of companies like Amazon, which have obviously thrived in this type of environment. So, you know, COVID cases get worse, restrictions get tightened, inevitably lockdowns take place. And I would not be surprised in America if this gets rolled out all the way through into next year, and then Biden comes in, and obviously he's talked about his willingness to do further lockdowns. So I think you're good for the moment in terms of some of these tech names, and I think it's a, it's a little bit preemptive to start talking about then a full-blown kind of rotation out of that I don't think that's going to be a case at least for another 3 to 6 months, the former being the earliest possible, I would say, in my opinion. So yeah, sorry to be the bearer of bad news, but I kind of feel compelled here to really dish out a dose of reality when everyone's, I feel, has got a little bit ahead of themselves on the vaccine front this week. Now it's not all doom and gloom though. Anthony Fauci, the, the kind of leading infectious disease expert in the US, he was speaking in a conference yesterday and he said he was optimistic about a forthcoming update on the virus from biotech firm Moderna. If you remember, these are one of the key companies that's been around from the beginning, from Gilead, AstraZeneca with Oxford University, Moderna, Pfizer, and BioNTech. These are all the big runners, if you like, for the vaccine in clinical phase 3 trials. Now, he said he would be surprised if we didn't see a similar degree of basically efficiency of the vaccine with positive results comparative to that of Pfizer. And the reason why people are talking about this is that Moderna are due for an update in the coming days, so it is something to look out for. But as much as that will be a good thing, you know, on the surface, more companies getting to the point of where the science is proving more effective is definitely a good thing. However, I do think that in terms of markets' response, it is going to be diminishing, as in I think the first cat out the bag was slightly— caught markets off guard when Pfizer just broke the news. I think as more companies come out and say similar, I think it's going to have a lesser degree of impact in the day trading environment. Because of the factors I was talking about before, and we have done throughout the week, about the whole timeline to distribution, inoculation, as well as things in the context of getting, getting worse at this point in time. The silver lining, of course, and this is what's helped actually companies like Pfizer and Moderna, is that with all these case numbers accelerating, it means that these scientists can, can gather more data and quicker. And so therefore, hopefully they can achieve their end result in a more timely fashion. We hope, touch wood. So yeah, that's it really. Nothing really more I wanted to say on that, but that really was— I feel quite strongly on this at the moment. We shall see, but I'm just getting you prepared. 12th of November, you heard it here. This is going to get quite bad in the States coming forward, and I'm afraid Christmas could well be cancelled at this rate. All right, let's have a look elsewhere. OPEC— yeah, it's been a couple of reports out of OPEC overnight, and obviously a lot of people talking about this. Price has recovered quite sharply throughout the course of, of this week. I mean, we were just 2 weeks ago trading near $30 a barrel, and we are now trading up at $41.50. So sharp recovery, um, and this has put a lot of emphasis then on, do now OPEC+ actually need to do anything? Uh, they've already really committed themselves to rollover, but for how long is the kind of question. And this is the latest: talks between OPEC and its allies are zeroing in on a delay to next year's planned oil output increase of 3 to 6 months. According to several delegates in the Bloomberg article from last night. The ministers are holding their online meeting at the end of the month, November 30th to December 1st. So I don't think there's really too much to add there. As I said, in the oil market short term, um, definitely this COVID situation would not fare well for oil demand expectations, which have been reignited earlier in this week. If things play out as I've mentioned on the COVID side in America, it could well be then the oil price does start to give back and drift down again over the foreseeable weeks to 2-month period. Um, so yeah, that, that's it on the OPEC side. The other thing was Brexit. We obviously had the headlines yesterday. We saw reports that Ireland sees the EU-UK trade talks going past the mid-November deadline. Of course, that was for this Sunday. This fits exactly with our baseline expectations we've been talking about on the desk for a while. We never thought they were going to strike a deal this week, not with the more kind of tangible, uh, and legal real hard deadlines coming until we get well into December. So with a little bit of volatility yesterday, uh, on that comment, but I just want people to be super careful with not getting overly committed to that type of news flow. In the context, I really didn't think it was that surprising. So after it kind of blipped high, it blipped down, and then it kind of came back up, and now it started drifting down. But I think that's largely for other reasons as well. So yeah, a couple things to be aware of. We could see further Brexit headlines before the end of the week. I'm sure that we will, just given that kind of tentative deadline that was in place at the end of the week. I'm sure the risk for me is more about going into the end of the week. There was supposed to be a deadline. Strategically, if I was Dominic Cummings, I'd be very much putting the pressure on Boris to be quite stern, threaten to walk away, that whole kind of pantomime saga to kick off once again, just to keep the pressure on at this point in time. This irrespective of the fact that obviously in the UK the COVID situation is particularly challenging at this present point in time. Um, okay, quick look at the calendar for today. Uh, what have we got? Um, we've already had the UK data, as I mentioned. We are going to get the IEA oil market report later, following up the OPEC one we had yesterday. Eurozone industrial production at 10:00, US CPI and weekly jobless claims coming at 1:30. I don't really see either of them being too important, quite honestly, particularly on the inflationary side. There's no real pressures at present given the economic environment. And obviously with the adoption of AIT, we're nowhere near becoming a real focal point for Fed policy at this point, with definitely downside risks emerging ever more so. And then we've got the DOE's, as per normal holiday-impacted data, coming out a day later. It's going to be at the slightly later time of 4 o'clock London, not 3:30. Speakers though, there's a few you do need to be aware of. Bank of England's Bailey, the governor, does speak, and he's already started speaking. In fact, he's just said that sterling data was in line with the bank's expectations. Recovery has been strong, but we still have a huge gap and the process has been very uneven. I don't think that's really too surprising, to be honest. Nothing really interesting out of that, but he is speaking at the moment. Um, you've got ECB's de Guindos, Fed's Evans, Fed's Williams, and Bank of Canada's Wilkins all speaking today. and it's the second day of two of the ECB Forum, Centro, Portugal. And Panetta, Mersch, Schnabel, and Lagarde, probably the main one here to be aware of, and I'll be sharing the live links at the time, is at 4:45. Christine Lagarde, Bank of England Governor Bailey, Fed Chair Powell, they're speaking on central banking collectively on a panel discussion from 4:45. Uh, so that's definitely one late in the day to, to be aware of that could be interesting. I'm not, we're not expecting as a base expectation anything really to be said. I think they've already shown their hand in recent commentary and bank decisions that have only been a short time period ago. But of course, these are the main players in the mix, and so any further insight as towards becoming perhaps even more, uh, downbeat would be quite interesting. All right, that is it. I'm going to leave the, the briefing at that. I have noticed that the dollar is taking a bit of a turn as I'm coming to the end of the briefing, so it's given up any of those overnight initial European entrance gains and just backing off in a Dixie touch, which is just providing a bit of a bid tone here into some of the other currencies.