US Futures Rise Overnight After Losses On Wall Street

Good morning, Tuesday, 28th of January. Hope everyone is doing well. Certainly a few things to update you on, on the Wuhan coronavirus. As you can see here from our live updating map, confirmed cases now at 4,474, total deaths now at 107. But more importantly, how has the market been reacting to this, which is still the main dominant theme at the moment? And if anything, we are rallying this morning, which might sound slightly counterintuitive, but European US index futures have been rising overnight despite those numbers increasing that I just mentioned. Now interestingly, what I'm going to talk about throughout this whole briefing really is what felt like almost when I was reading the press coming in this morning, almost like a coordinated effort to restore a little bit of that keep calm and carry on type of attitude of, of financial markets, which is a combination of different things. And I'm going to talk through these articles in a second, but whether it's individual banks from JPMorgan to Goldman Sachs, whether it's looking at certain different types of indicators, whether technically with a nice trend line in the S&P, or whether more term structure in the case of the VIX volatility inversion which some people have been talking about. There's been a lot thrown out overnight to try and restore almost a sense of calm and this idea of that this isn't the, you know, this isn't any different from what we've seen from previous cases. And so far, the fact that hasn't spread out into really that much into the numbers building external of China, that this is fairly controlled, at least for the moment. It does also come after Wall Street yesterday, basically that the main equities in the US had their biggest fall in almost 6 months on the concerns of this kind of fast-spreading coronavirus, as people are a little bit fearful about the implications this could have not just on Chinese but global growth. The S&P and the Dow did finish down about 1.6%, but, you know, certainly when you look at the case of the S&P, having sizable down days and back-to-back negative days is a highly unusual occurrence. And, and certainly those equity bulls start to come out in force overnight, uh, just to kind of push that narrative that buying the dip might be on the menu for the session ahead. So otherwise, if we look at the other markets, crude oil still nursing this generally the gap lower that we had yesterday. Certainly we didn't recover that and we're kind of mid the range that was seen in yesterday's session, uh, for the time being. Quite interestingly, some comments out of OPEC yesterday talking about preliminary discussions to extend their ongoing output cuts for the moment. Otherwise, in the other markets, Treasuries pretty flat, and that's pretty much echoed as well in the gold market. So If anything, we kind of, we kind of just restored a bit of balance after what was felt quite negative yesterday. Currency markets, the Dixie has been rising very early as Europe's coming to the market. The dollar index now moving back into positive territory. The one that does stick out a little bit, and I'll leave Sam to look at a couple of downside technical levels to keep an eye on, is cable. Cable's down about 33 pips whereas EURUSD is basically flat at the moment. So certainly looks like a bit of sterling underperformance, uh, technically probably a bit of a break on the range low from, from yesterday and also, uh, the S1 on the daily pivots, uh, renewed kind of rhetoric coming out of Europe, uh, late yesterday Michel Barnier, I think he spoke in Belfast and he was talking about the idea that look, the UK are really not, haven't been forthcoming with any details about what they're going to do with these kind of regulatory alignment with Europe. And so therefore, getting a trade deal done in 11 months is wishful thinking. So we continue to remain of that, that kind of stance at the moment. So let's get straight into an update then on this coronavirus. Where are we at the moment? So we've just looked at the numbers, and so definitely they are going north, but remember, markets move on expectations. And yesterday, I think what we have been seeing is a lot of more of a behavioral reaction, and this being kind of more simplified to a fear trade, the fear of the unknown. And humans typically react quite negatively. We tend to overexaggerate and inflate then the idea in our head, and this can be then reflected on market prices from a practical point of view. And This has almost accelerated over the weekend because of this idea about the uncertainties of the incubation period where people might not have shown symptoms, allowing them then to go under the radar, leave then Wuhan as a city of origin of where this virus started, and therefore actually this could be far worse than what we had actually, the numbers that we're seeing at the moment. So that was a lot of what was happening yesterday, I feel. And as I said, it's, you know, from a trader's point of view, the death count, if you like, and the actual total confirmed cases, I don't really see that as too much of a definable black and white metric to kind of initiate any type of trade. Certainly the trajectory of how quickly it escalates, the geographic regions of where that occurs, but also just trying to get a bit of a feel for what is it that generally markets' perceptions are of this is what's quite key. And that's why I think it's a very behavioral situation at the moment. And, and as I'm going to discuss, I think that where we are right now, right now this morning, the reason why equities have seen a bit of recovery from those lows is because of a few different things. One is, saw an incredible amount of graphics circulating yesterday and it was all kind of backtesting, if you like, the historical precedence of various different assets when we have seen other pandemics before. So looking at SARS, swine flu, Ebola, Zika, so across different areas— China, Mexico, Africa, and Brazil respectively. But this was looking at a percentage change in the local, basically the local market. The MSCI index tends to club together different stock indices of different continents. So if you're looking at Africa, it would combine a number of different countries. China is a collection then of different indices, but all for that region. And here you can see the 3 bars. So the one on the left, the dark bar, shows that from the start of the initial outbreak to the crisis peak, that's where it's at its most kind of negative force on markets. And that's to be as expected because markets need to reprice in the fears of the unknown, and that obviously is much more prevalent at the beginning when you have a lack of accuracy about the actual underlying severity of the issue. Then one month in, markets already start recovering. Give it another 3 months and then we start recovering even more swiftly. And you can see the source here is JPMorgan, and reason for that is they've been getting a lot of airplay overnight. That's because JPMorgan have come out with the latest research note, and they've basically said that these episodes do not lead to a prolonged period of selling and emerged as buying opportunities within weeks. And some of the underlying data that they're looking at— I know this is slightly smaller, but this starts to then overlay some of the metrics here of those 4 different viruses. So you can see from start to peak, if we were looking at, say, SARS, which had the biggest negative impact on the Chinese and Hong Kong MSCI index, on an average they fell about 9%. One month after, uh, the kind of peak, if you like, of the severity of that, they then rose on an average about 12.5%. Three months later, they were up on average about 20 2%, 23%. So the point being here, and this is very much reflected across all 4 of these examples, that the market comes tearing back whenever there has been an initial negative knee-jerk reaction. Uh, and JP saying then this could be an opportunity to just accumulate more shares on the cheap when it comes to equities. From that perspective, they're not, they're They're not on their own. Goldman Sachs have also come out. This is looking at a, a way of benchmarking basically S&P 500 versus the 10-year bond. So this is looking at that kind of traditional mix between, from a risk perspective, i.e., this index should be moving up if the S&P, if people are investing in equities, more higher risk assets, and go down in more risk-off situations. And you can see here Again, the four lines are the, uh, four different viruses: SARS, swine flu, avian flu, and Ebola. And you can see here the virus outbreak typically then tends to lead to outperformance in riskier or in risk-off assets like Treasuries, for example. However, within one month, the market already is recovered and then starts to add some over a two-month period. So from Goldman Sachs' calculations then, riskier assets have traded more poorly for roughly about 4 weeks. So we are what, into week 1 and 2 days or so of this coronavirus really becoming a market issue. So within 3 weeks, if this is to repeat, then any of this negativity should be brushed aside at that point if history repeats itself. The other thing that I thought was quite interesting was this: And I don't want to overcomplicate things, so I'll try and explain this as straightforward as possible. A lot of people look at the VIX, which is the volatility index, as a measurement of people's fear or perception of fear in the market. It's a popular measure of stock market volatility implied by the S&P 500 index options. Now, the reason why this is being looked at this morning is there's been a rare VIX inversion. Uh, now when that has happened before, it points to the potential end of a US equity rout. Now this is a graphic that shows that a bit more clearly over the last 13 months, but Monday's slump in the S&P 500 created a rare situation where the term structure for the VIX inverted as the VIX surged to its highest level on October, i.e., identifying then the fact that people were getting quite spooked The equity markets sold off, so volatility is going up. The spot price exceeded the March futures price, which indicates then that perceived risk in the immediate term rather than the longer term— so kind of like when the 2s-10s inversion happens in the fixed income market, people are fearing the worst now and lower rates in the, in the future, whereas with the VIX inversion, what's happening is they're seeing the most maximum negative impact now, but actually a degree of calm later into the future is what this would be indicating to you. So this is, you know, when you put all of these things together— so we've heard JP Morgan, we've had Goldman Sachs, you've got this VIX inversion, you've got people looking back at the data about historical response in markets over the longer term when there has been a pandemic situation. All of this is kind of, again, talking up the market to almost keep calm and carry on type of philosophy. So again, when the market's in this behavioral type of period, I think this is particularly important to try and monitor these types of, types of things, particularly when we know that this type of data is particularly inaccurate and it's almost historical in the sense of the way of which the disease materializes in terms of its physical form, in its symptoms. Okay, final thing was, and I think this was quite funny, yesterday I thought, you know, I'll put a poll out on the Twitter account on Amplify and I'll just ask a very simple, flat-out question: coronavirus, overhyped or underplayed? And it's almost bang on 50/50. I think that was a pretty good reflection of a lot of the market kind of sensitivity yesterday, was that, you know, rather than try to force your hand and think that, you know, this is it, this is the beginning of the end, or this is the perfect buy the dip opportunity, if you are unsure— and this goes for the more of the kind of new people to trading— these types of episodes of this type of news is that you don't have to trade. You can just wait, let the market kind of show some degree of conviction in either direction, and there will be opportunity from a technical framework to try and execute those trades. I think often there can be a little bit of a fear of missing out, particularly when you've had a day like yesterday when the market fell almost the most in 6 months. Months, you know, you kind of feel a little bit like, God, I wish I had a piece of that move. It only happens in that case twice a year to that type of size. But again, this is about— this is a marathon, not a sprint, may I remind you. So, um, you know, when, when the market is this, um, mixed, it can be quite choppy. Uh, and what you're looking out for more is a more unilateral agreement amongst markets about fundamentally there's a strong bias and And that adds then more conviction behind then your ability to be able to just add some size or, or hold a move in that respect. A few other headlines then to be aware of from an earnings perspective. Thought I'd mention SAP this morning. Why am I mentioning SAP? Well, just remember, this is the DAX constituents and automobiles, which was the biggest sector Germany for such a long time is now the 5th sector. Massive fall in a lot of the German auto manufacturers for multiple different reasons, stretching from US tariffs to Brexit uncertainty and beyond. But SAP is actually the biggest company at this point in time, market cap of just over €100 billion, and they equate to about 10% of the overall index. They're Europe's biggest software company, but overnight basically they boosted their revenue and operating profit forecast for 2020. So worth noting that for, for the DAX, just given how large they are. Otherwise, the other stock news that I just wanted to bring to your attention was this. This is Apple. So reports overnight that Apple has asked its suppliers to make as many as 80 million iPhones in the first half of 2020, an increase of more than 10% from the prior year's output. And so generally speaking, the iPhone 11 has been more of a success, and particularly in the Asia and Chinese market. And so sometimes with Apple, it can be quite useful to monitor this supply chain because the fact then that Apple has made this order, if you like, with their suppliers means that they first— they foresee a certain level of demand. Already, which is a net positive, and people will be trading that, that kind of story ahead of time. Why is this important? Well, Apple's earnings of course are coming out after the close today, so not going to mention too much on that now. I'll talk about that a bit later on in the day. The other big companies to look out for pre-market, you've got 3M and Pfizer are probably the most notable, and then as I said, after market you've got likes of Apple for the chip makers, AMD. You've also got Starbucks, eBay, so a few other names as well, uh, just to be aware of. Calendar-wise, what's on the agenda for today's session? Well, this morning, as far as UK and Europe is concerned, it's particularly quiet. There's really not a great deal going on from a scheduled economic data point of view. But we get into the US session, we've got durable goods, we've also got US consumer confidence coming out later on this afternoon at 3 PM London, then the API inventories as per usual after market close. Um, speakers again pretty quiet, a couple of Italian auctions, uh, coming out a bit later alongside also a 10-year gilt auction and a 7-year, uh, US dollar auction as well. Uh, but otherwise I'd say kind of themes for the day, uh, continued monitoring of the coronavirus from twofold. One, the actual numbers in itself, as much as we take that with a pinch of salt, but more so just in terms of the general mood that people and commentators are putting on this subject. As I said, my overall assessment is that analysts, economists, commentators, news agencies, they are all pushing this narrative that perhaps it's not as bad as feared and using those historical episodes as a reference point to validate that type of argument. So whether or not, you know, markets have already recovered a decent amount in Asia— don't forget Hong Kong markets were closed overnight, they're not due to reopen till tomorrow. Mainland China, remember, has been given an extended Lunar New Year break of 3 days as they attempt to contain this situation. So those local markets are still closed for the moment. All right, that is it from my side. Let me hand you over to Sam. He can look over the charts from a technical perspective, but I wish you a good day ahead. Thanks very much, guys.

Yeah, hi guys, good morning. Hope you're good, hope you had a good weekend. So have a quick look over some of the currencies before bringing us on to the equities this morning. Euro, we've got the euro on here. A bit of a bounce from those lows this morning, has hit that, uh, pivot, found a bit of resistance. Let's just put this on the weekly chart and futures. And I just tweeted this, uh, going over one of the— let's get rid of all these lines as well— one of the important points that I'd have on just looking at the last few lows going back here to last year, sort of October time. And then let's just get this one on first. But going through here, you can see from last year's lows— let's just zoom in on that— you can see we're finding a bit of support in and around this, this trend line here. So keep a watch on that for the euro. I would expect maybe a bit of a bounce into the end of the week. Obviously got the Fed tomorrow as well, but certainly a very key area around these lows. And as we put in the pivots, you can see the S1 comes in that area where it would be. So a couple ways to obviously think about that. In— you've got the low of yesterday, you've got the potential trend line. A break of that could, uh, could lead to a faster run down. But for now, I mean, FX really, really quiet yesterday compared to other markets. So perhaps focus not too much on this for now. Looking closer to where we are, just above where we're trading, the R1, a lot of resistance around there from yesterday, previous day, and Thursday's low as well. So really key level. If you're looking for a long, I wouldn't mind really getting long above that, uh, to be honest. Um, then let's put which is on the 15-minute chart. And you got the high of the day, you got the pivot or the mix there as well that would have to go. Let's have a quick look. Trend line's not great on it. Yeah, I mean, looking at this euro, I know it would be a case of a wait and see, which isn't the most glamorous thing in the world, but yesterday's low pivot, the S1, sorry, and that trend line would be my wait and see. And unless we get above the high of the day R1 is the, is the next level that I'd really be interested in. The pound daily chart, it's coming back to that trend line. Just bring that in here. You can see, go back here to November last year, draw it up. We're, we're not far from testing that now. It's down 33 ticks on the day. It's not a big move, but could be if we break below there. Um, it'll be interesting to see what you guys think about this. And again, just tweeted it. Is it a buy? Is it a wait and see for a sell? Or is it just a wait and see, see what the, um, the Bank of England do on Thursday? But, uh, yeah, this would be the fourth down day in a row, and below that trend in the close could get quite ugly, you have to say, for, for the pound. And looking at this more intraday, when we're not far away from, uh, testing that trend line, you can see to see. However, we have gone through it a couple of times, um, most notably had it actually a close on the hourly back on the, uh, last Monday, uh, false break here on the, the 14th. So it's having a go a couple of times, but that daily close is what you'd want to see here. Above where we're trading, S1, obvious area where people could look for some sort of resistance now, and, and above there you you can see we already broke, retest, and found resistance on yesterday's low. So, uh, acting quite well, nice and smooth price action to the downside. Let's have a look what happens on this S1. But yeah, below there could be a further run, you know, there's going to be stops below there as well. Let's have a quick look over the Aussie, which of course yesterday continued its slide down, and we're now not far, uh, oh well, yeah, we are nice and comfortable. Let's put on a daily chart to get a better picture. But you can see we literally not far from, you know, potentially closing below this low that we had back in the November, uh, time, which would be quite significant just looking at this, um, this opportunity. But if stocks are to recover and we're seeing that buy the dip mentality and the fears are raised you know, what opportunity it could be to buy. And, you know, the amount of times people would be saying down at these lows, August, September, October, we're gonna push lower. We know support and resistance works, so unless it gets below there, uh, you know, it's an opportunity for people to take profit. Looking at areas to potentially get short today, you got the high of the day, you got the pivot, and yesterday's resistance points, which would all be attractive for now. Keep an eye what happens on this low that we've already tested once though, because of course there could be the opportunity for the break retest to get short. But with it being such a key longer-term level, I don't think there's much harm in waiting to see what happens here, and that could really alter the bias for, for tomorrow depending on what happens. I'm going to look over at S&P here. Has pushed higher, but it's only up 18.25 points. It's nothing, nothing drastic yet at all. And just, there's a couple of, uh, I'm just bringing the Dow in here because there's a really nice trend line in the mix that held things up going into the close on Friday. You see that we've been break through, and now we're just testing the other side of that, which is a pretty important area, you'd say, where along with some resistance from yesterday, found a bit of support initially. Now, uh, if you're bullish or if you believe that we have— the worst is over, this is an area you want to hold. Below there and we're, you know, back into, uh, that sort of rangy territory that we were yesterday, where not too much was really going on. Decent push this morning, uh, in Asian trade. But, uh, yeah, keep a watch on that level, which on the S&P is really all those highs. But you can see here and this— now put this on a 15-minute— the price action around this point where the S&P is trading has been very key. Support, support, support. Yesterday we then break through around 9 o'clock, find incredible resistance all through yesterday evening. We come back down, almost hit the lows, and then we finally break through, uh, at 6 o'clock. So 3256, a little test of that now, worth keeping an eye on what happens there. Below there, you'd be comfortable saying we could drift lower if it holds. Keep a watch on those highs of the day as well, and that's, you know, coming into play now. Gold, decent opportunity yesterday when it, it came down. I think that was just after the briefing had happened. You can see hit that area support, pushed higher. That comes in today on the S1, so keep a definite watch on that. This is always quite nice, we've gold when you have such a clear trending market to the downside, uh, intraday. And let me just mark up why that is. The high of the day, and then these couple of highs that we've had in around 6 and 7 o'clock, um, just getting squeezed to the downside. And the opportunity here could absolutely be on a break of that trend, volume come in and we push higher, which we know gold, like oil, can do on those break of those trend lines and really targeting back up towards that pivot point as well. If we were to get above there, obviously keep a watch on those highs from yesterday, and there could well be some potential trend lines to keep an eye on as well in the mix around that point. So pivot, you would expect some strong resistance. Keep an eye on this trend line that's coming down. S1, yesterday's low, Friday's high, as big as level as you want. Below there, people will start talking about that, uh, that gap feel towards 1571s as well. Oil yesterday, uh, did, um, well, obviously it finished down for the day but really didn't do too much, quite range-bound. And let's have a look at this longer term. Uh, you can see some of those levels traded at, you know, we hadn't seen for since October time. Um, had a little bit of a bounce today Uh, but again, let's just put this on the 60-minute. You can see the opposite of gold here where you start to get these trends that start to appear, like from yesterday's lows. This would probably get this trend line a bit more accurate, to be honest. Um, but you know how oil and gold work— when the volume picks up and breaks at these levels could absolutely lead to, you know, further downside. So keep a watch on this, really from yesterday's lows to this morning's lows and an area on $53 where we're testing now. So keep a watch on that. Below there, you know, if it was to go now, not expecting the fastest move in the world. So be sensible with any profit targets. Lows of the day, pivot, uh, the overnight low, $52.70. You've got some interesting areas to, to consider around there. But yeah, I don't reckon this market is, is out the woods just yet. So keep a watch on the than that. Quick look over at the DAX just to wrap it. Yeah, there you go, just coming under a bit of pressure over the last 30 minutes or so. Uh, that triple bottom from yesterday and then overnight— no, yeah, last night. Uh, keep a watch on that. If that, uh, is to get a test lower, well, you can imagine those areas in the S&P will, uh, will break as well, and the Dow obviously on that, uh, that trend line as well. So Keep a watch on that, could get interesting. But as we know, the first 30 minutes of a cash open are not always a predictor of what is going to happen later on in the session. Yeah, and saying there, despite positive earnings, they're actually the biggest loser in the DAX at the moment, SAP there. So yeah, weighing on things as well. But yeah, just be a bit careful out there, don't feel like you have to jump in and trade this for now as well. Anyway guys, hope you all have a good trading session. Any questions, please do, do get them in the chat, and I hope you all have a great trading day.