US Fiscal Hopes Fade While UK/EU Battle Rising COVID Cases

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning guys, it is Thursday 24th September. Hope you're doing well. Just gone through 7 AM now in London, so a quick review of some of the major headlines, how we closed overnight on Wall Street, performance in Asia, and then expectations for the day ahead. And we'll run through a couple of charts. From a news perspective, actually not too much for me to talk about, so gonna predominantly focus on a couple of charts. I've been marking up some key downside levels I think would be prudent to keep an eye on in the likes of the NASDAQ and S&P futures. We can have a look at the FX charts and gold, silver continue to pull back as well. Continuing of their, their recent downside trend. Otherwise, just looking at the general sentiment here at the open, it is a touch negative. DAX future down about 150 this morning, US index futures also in negative territory, NASDAQ 64, the S&P 11 points at the moment, albeit Treasuries pretty flat. Oil not really seeing too much direction despite the, the general move that we saw yesterday volatility that was seen around the inventory release. We actually drifted lower as the session progressed, just generally through the late US session into the Asian hours. I think a lot of that generally is what's reflected for the overall narrative for the open this morning, which is about the apprehension of what the, the economic situation, the recovery might look quite— look like without now forthcoming fiscal stimulus, which is one of the key things we'll, we'll talk about. But oil overall actually fairly range-bound. The bottom end of that range around the $39.19 type area has been holding really around despite Monday low print at $38.87. The markets have respected really $39.19 over the last 2 days, and we bounced up towards pivot at the moment. Um, DXY is up about 0.1%, so not too much in terms of an intraday movement thus far. However, what I would say is that it's continuing to maintain some of the gains that we've seen over recent sessions, and that has then as a consequence keeping a bit of a pressure on those major currency pairs like EURUSD and Cable, which we'll look at in a moment. All right, well look, let's get straight into some of the main sort stories here. And I'm going to start off with the Fed pleads anew for stimulus and markets start to give up hope. So yeah, what exactly is happening here? So yesterday, um, US equities did finish, uh, it's quite a decent move lower. The S&P was down about 2.4%, the NASDAQ was down over 3%, Dow just shy of 2%. Asian stocks followed suit, and it's all coming after numerous Fed officials really were stressing that more fiscal stimulus is critical to sustaining the economic recovery. None more so than, of course, Jerome Powell, the Fed chair, who's been speaking all week and will be speaking again to US politicians later on today. This comes as the fiscal kind of impulse in the US starts to wane and some of these expectations for slow and steady recovery start to be just tested at the moment. A couple of other things to be aware of: US Congress, according to CNN, is reportedly readying to leave Washington as early as this week until after the election, and therefore would not be able to put through any type of coronavirus relief. And also, of course, going back right to the beginning of the week, um, the chances of aid are fading further after what we saw at the end of last week, which was the death of Justice Ruth Bader Ginsburg. And, and that's put the fight over the Supreme Court right at the epicenter at the moment of US politics. Meaning then that stimulus talks are getting bumped somewhat into the background because of the importance then that the composition over the Supreme Court will have for the US election. And so all of that has kind of, if you like, pushed back this expectation of forthcoming stimulus, and markets have become very dependent on that given the large scope of the reaction we've had since the onset of the pandemic, and also given the fact that we were talking about numbers in the multiple trillions only a few weeks ago, and now it's looking more and more likely that not even anything will come. And so I think that's just adding a little bit of apprehension to the market. And then to throw into the mix, the other headline of note, um, from the US is Donald Trump has refused to commit to a peaceful transfer of power if he loses the election, sparking further concern about the, the general length of delay that's going to be caused by this mail mail-in ballot system. So all of these things kind of coming together. And yesterday, you're going to look at the S&P here to start with. Um, we— after the Europeans left the market, things started to, to sour. Um, technically we broke through the, the kind of double bottom that held a lot of the price activity in the futures market from, um, which would have been Tuesday's session. As DAX did then see quite an aggressive break lower. And since that point then, we initially hit this further extension of selling pressure in the Asian session before bouncing. So in the near-term range now in the spoos, and we're kind of looking at 3239.25 and 3210. That low has held so far, both as an Asian low and European opening low. But we're definitely worth keeping a close eye on because I was just looking at on a daily continuation, um, there's a really big level really is that 3192. And the reason I've been looking at this is because of that area of respected support that it provided the S&P through mid to late July, as you can see here. And that was really quite critical to hold the market up at that point in time. So if we see further downside pressure, that will be a really big area to keep an eye on because a break of that, then the selling pressure could get heavy quite quickly. But that could be then a firm area where the market might respond in kind to stabilize and whether bounce but perhaps consolidate a little bit after what has been quite a run lower here more recently. Sticking with the US equity theme then, let's have a look at the NASDAQ. I've been also Um, looking at that this morning, and as per usual, it outperforms, it underperforms, and yesterday very similar losses of over 3%, giving the quite decent move lower that we saw yesterday. At the moment, in terms of the futures, we have still got a little way to go. The S1 would be a near-term level of significance, that coinciding with the low point that was seen on Monday afternoon just after the first hour of Wall Street trade. For the commencement of the week. But if you start looking on a daily continuation here, so just stepping back onto a higher time frame, I think there's a really big level if we were to break first of all. So if we're zooming in, uh, first area of course is going to be here, which is the Monday low and the S1 on the daily pivots. If we break there, that's the first real test of support zone, but then that opens the door for a challenge deeper down to really, again, critical level, much in a similar fashion to the S&P. I'd say 10,514. So what we have here is the red line, that's the 100 DMA, and we have been sandwiched at the moment in the, the NASDAQ between the 50 and 100 DMA. The 50, you can see, has held both on Friday, on Tuesday, and, um, in yesterday's session. So the fiscal hopes fading just moving back lower. Technically, the 50 DMA providing some resistance here to the price action in the NASDAQ future. And as we've come back down, a break of Monday low, you've got the late July lows coinciding with that 100 DMA that I'd be keeping an eye on in that rectangle there would be quite key. Any further break and push down through that level, I'd then be eyeing 10,296, which would be that low print on the depths of the EU COVID fears we saw materialize in mid-July. That would coincide then with the resistance we had in mid-June. Before then, the eventual break came at the beginning of July. So these would be the key levels I'd be watching. Obviously, markets can move very quickly if the, the kind of sentiment does shift and we continue, you know, if it gets exacerbated by key technical level breaches. So hence the reason why I think it's, it's prudent to be looking at these levels now rather than, than later. Sticking with the charts, let's have a quick look elsewhere. Gold and silver in the commodity space have drawn a lot of attention recently just because of— we, we were in, we were in quite a long period of relative, although large range, kind of consolidation. But we've now broken below there, and you can see really the bottom end of that range that was holding through kind of the, the third, fourth week of August, the first, second week of SEP, having broken now. Around that 1920 area has provided a bit of area of resistance now before this push down. Importantly for yesterday's session, through the COMEX open, we broke through the actual low point that we saw back on the 12th, which was the, the bottom of the route that we saw on that big day of sell-off on the, um, the kind of unwinding of the big push-up that we had on the breach through 2000 up to near 2100. So that's now broken. That is somewhat symbolic in, in nature. And since that point, we have continued to push down another $25 or so. If we were looking at the, the near-term price levels— I know it's a bit difficult to see here with my, my camera feed, so let me see if I can quickly just remove that for one moment. So here then, if I just broaden out the chart, the next levels I'd be looking at in gold— you've got the S1 in the futures and that would be seen down at 1845. And that starts to encapsulate then some of this top end of the range that we were seeing back really in mid-June— or mid-July, excuse me. So that's definitely a key area here around 45 to 47. Any break of there, we could very quickly see a move back down to the S2, which would be also around the bottom end of the range from that same July period of consolidation that we were seeing Uh, so that's how I'd be looking at that if we continue to move lower. If we bounce today, then we'll be looking at the reversal of some of these moves, the pivot then, and $74 to $77, um, I'd be looking at, which was that initial break low that we had. If we start looking on a monthly chart, uh, probably looks a little bit more clearer. Obviously we've had this quite big reversal as the persistent dollar strength has really been weighing on some of these precious metals. Here. And so if we continue to move lower, obviously the really big area of support on a, on a higher time frame would be down at around the 1800, or in this case 1795, which would of course be the key area of which then acted as resistance but then catapulted prices higher from a technical perspective only around 2 months ago or so. In terms of silver, obviously things have been particularly violent. You know, these are, these are all old markups that I had from when we were rallying at the time, but you can see the pullback now is looking increasingly more kind of violent, particularly the, the sell-off that we've seen so far this week, drifting from $26 all the way back down to $22s now. So if we continue to come down lower, I'd probably be keeping an eye on $21, $21 being this area here of resistance we had back on the 5th of July any breakdown further through there, then I think it opens the prospect down to $19, which starts to encapsulate that previous area of resistance that was really containing price action and saw quite an explosive break on them, the eventual move through there that we saw back in the start of July. So there's definitely a little bit more room, I think, for these precious metals to come down, contingent of course on continuation of some of the dollar moves. But just given this, the way of which gold and silver have been moving through the last couple of months. Yeah, another $1.50 move lower here in silver definitely is not off the cards. As I said, with gold, I don't think it would be that surprising to at least get down another $10 to test around those levels here, close to the S1 and that previous highs that we're seeing in July in the intraday session. In the FX markets, I'm just gonna have a quick look. I will give you an update on regarding the news to do with the UK. Obviously this is just the chart we had yesterday, but just looking, things haven't really changed from here, uh, what we were discussing the other day. So the 200 DMA continues to remain quite a, a decent marker, um, not only because yesterday we fluctuated through it, but we closed below it. And I think that was very important. And so when we reopened commencement of trade today Again, the 200 DMA providing some resistance, and we've just continued to just edge lower. The change on the session is only around 20 pips, but if the dollar does continue its appreciation, then it should continue to weigh here because fundamentals for sterling obviously are not looking great at the moment. So that rectangle is still in play. The market did respond to that when we were looking at it yesterday, which is around that kind of 126.53 $1.23 type area, which starts to encapsulate then some of those previous highs that we had in April, but also more near-term through July, would definitely be important. Again, contingent on a technical breach, but dollar strength, there's not a lot then. If we get through this zone of support then for, for cable, got the $1.26 handle psychologically, and then really opens up the prospects of pushed down. So it's been a little bit choppy yesterday, but overall, if you actually look at the trend that's materialized this week, certainly cable has come considerably lower. You know, we were starting the week up at around a 130-type handle. We're now trading down at around 127 overall. So the fundamentals are kind of playing out in that, in that respect. Um, looking at the euro, EUR has been under pressure, of course, with the, the resurgent kind of dollar. Near-term, near-term to the price action at the moment, I'd probably be keeping an eye on this kind of level here and then here if we see any reversal back up to the upside. At the moment, the trend definitely is lower, and just looking on a slightly higher time frame here I mean, again, this week has really been dominated by a bit of a bounce in the greenback. And here I think we're at a fairly significant level. You can see if we go all the way back here on the left-hand side, this is going back actually to October of 2018. That was also where we closed on the daily on the 24th. And so quite an interesting level here at the near term. Any breakdown through there, I'd be looking at a slightly deeper move down to 1.1633s, which would be then putting us back to the initial January 2019 high on a slightly higher time frame. But yeah, let me get you up to speed then with a couple of other headlines. That's the charts, hopefully that's useful. I'm going to start talking about the UK a little bit first, looking at the COVID rates. Certainly As, as we were kind of talking about throughout the whole week, case numbers continue to rise. Yesterday reported at 6,200 type level. This is one of the— this is actually one of the highest levels ever that we've had registered in just one single day, as you can see from the kind of height of the period of the initial lockdown and the worst case numbers we're seeing in April. This does come though with a bit of a caveat. I don't think it actually, you know, a chart like this, I think, is very misleading because it actually would suggest that cases now— it would be, if you're looking at it just purely on the, the pattern of the trend, you would say, well, now's just as bad as before. I don't think that that's the case because what happens now in terms of the volume of testing, the awareness, the ability of people to go and get checks this kind of setup of infrastructure facilities, I think is radically different from where we were when there was none of that going back into March-April period. The point being is now, um, and, and this is backed by, um, the science from Imperial College London where researchers have suggested that, um, in actuality, probably back in April-May, there were more likely to have been around 100,000 new infections a day it was just a case that there wasn't enough testing to, to see those numbers reflected in the actual overall kind of data. Because remember, the death count now from where the death count was then is radically different, of course. So this, this number is going to get way higher than the daily case count that was officially registered here, but I don't think that necessarily should really be of too much surprise if you understand actually how the metrics are measured. Hospitalizations though are on the rise and the death count is gradually increasing, but again, this is kind of what's been spooking the market and caused that movement lower this week already. So really it's about now how quickly it further accelerates. At this point, I was looking at some of the headlines this morning, generally related to UK and coronavirus and Obviously a lot of universities went back and there was recently Freshers' Week, and I think there's a lot of universities which actually have had quite, um, isolated outbreaks, um, into the hundreds of students. Of course, that was one of the key risks given the— generally a lot of the new case numbers were related to that type of age demographic. But hospitalizations here, as you can see in England overall, the number is still relatively low in the grander scheme of things. But the point is, is about how quickly it— that it has risen over the last 2 weeks or so and is likely to rise further still. On the COVID front, of course, and this I think is adding— it's not just that markets are slightly tentative at the moment on the back of a lack of fiscal forthcoming kind of program in the US, which I think ultimately is very key. But also COVID is not just a UK situation, it's also impacting mainland Europe at the moment. Dutch cases are now spiking, and generally before they've been relatively well contained. France is preparing a further shutdown, German numbers are going up. So all of this, of course, is a kind of reshaping then the idea that the economic recovery, what it was looking like a few weeks, months ago, is looking a little bit different now. Because of the fact that naturally as this virus starts to show and numbers start to increase, then governments need to respond in kind by imparting further restrictions like what we've seen in the UK, and that's gonna impede that recovery story. The Chancellor is gonna be speaking today, Rishi Sunak. He's gonna be speaking at around 12:30 London time is my understanding. He is gonna set out to MPs today a new scheme to subsidize wages of people in part-time work, replacing the furlough program that ends at the end of October. So this is exactly what we were talking about yesterday or the day before, which was the CBI's plan for basically helping a kind of a part-time structure, because he doesn't want to continue the existing framework of the furlough scheme because the fact that it quite likely is keeping a large number of people employed who otherwise probably wouldn't be. And so then a more realistic or more effective way of doing this is to use a subsidy of wages for people in part-time work. In addition to that, he's expected to extend the life of the For Loan schemes, which has already backed just close to £60 billion in lending to companies through government guarantees. And so as we've said before, he's going to try and continue to remain adding credit, if you like, or access to it in a favorable fashion to keep companies which are going to be under stressed conditions going forward, particularly with the expectation of these restrictions likely to get more intense going forward. The budget, of course, has been delayed. He confirmed that yesterday, but that was absolutely no surprise. Absolutely no point in, in having a UK budget typically seasonally at this time of year, because if you think about what's going on, we've got a highly uncertain future now with the latest developments with COVID You overlay that with a self-imposed mid-October soft deadline for Brexit, you know, the moment he writes a budget right now, it's pretty much out of date because the situation is fluid and it's going to be changing a lot over the coming weeks. So therefore it's just been delayed until later this year, potentially potentially, I guess, into, into Q1 of next. So when he comes out, it's kind of a similar story to the way the government handled then the press kind of leak before the Boris Johnson speech of all the measures that are going to come out. So what Rishi says today should come as no surprise for markets really, because much of it has been drip-fed into the press already. Finally, a quick look at the calendar for today. These are the major data releases. You've got German IFO coming up at 9:00 this morning. And then you've got a number of speakers. So basically German IFO, US jobless and US new home sales, they are major data points. But from a speaker perspective, this is what the docket looks like. So incredibly busy once again and purposefully so. You know, if people are a little bit unsure of, you know, and looking to clarity from the central banks, particularly the Fed, then it's not uncommon for them to kind of litter the schedule or the docket with lots of speeches. And this generally is a tactic of management of market kind of sentiment in a way. So you've got Kaplan. Powell, of course, is testifying to the Senate Banking Committee today, this time around, having already done the House. Then you've got Bullard, Evans, Barkin, Bostic, Williams. So you're getting the full kind of roadshow Uh, so definitely it'll be interesting to see what happens there. I would say overall, perhaps just given sensitivity in, in market prices this week, perhaps it's a little bit more reassuring. They'll continue to do whatever they can do, that type of rhetoric. Um, definitely no need for any kind of hawkish noises at this point if they want to try and manage stability in markets, which is generally quite fragile right now. And then the other one that's going to be really interesting is, is Andrew Bailey. He of course spoke back on Tuesday and it did cause some short-term fluctuation in sterling, a lot of market focus on commentary pertaining to negative rates, and he didn't really comment too much on that before. And it's any explicitness around that particular policy tool can be market moving. So Bailey speaking at 3 PM London time at the North East England Chamber of Commerce. So yeah, that is it really. So hopefully that was useful. Any questions at all, again, as always, just drop me a comment. Absolutely happy to help. And also you can follow me on Twitter. Thank you very much for everyone for following. Managed to get over 10,000 followers now, so Yeah, amazing. I'm just happy that people like my macro ramblings and find value from it. So hopefully it's, it's all useful. All right guys, enjoy your day and I'll catch you later on. Thanks very much.