US Lockdown Begins As Virus Numbers Increase

Okay, very good morning to you. Hope you're doing well. It is Tuesday, 17th of November. Gonna have a quick run through then of the overnight news, how we close on Wall Street, a couple of things to be aware of for the session ahead from a fundamental perspective. And so starting as usual with the overall cross-asset class mix for for this morning. And overall, fairly quiet. We had a positive close on Wall Street last night. The S&P up around 1.2%, Dow 1.6%, the Nasdaq a slight laggard, up 0.6%. The Russell 2000, though, of US small-cap stocks, often seen as a bit of a barometer for the domestic economy, did close at a record high. Obviously then, this all coming on the back of what had been a continuation of a similar theme to this time last week, which was more positive vaccine news, this time coming out of the firm Moderna. Uh, you kind of know this already. I did put out a video at the time when it came out, but the main takeaway point here being, uh, that the vaccine can be stored at refrigerated temperatures for at least 30 days. That's much longer, uh, than Pfizer, their counterpart, and deep freeze issue that was really one of the main barriers for Pfizer, which is about ultra cold temperatures at -70 degrees Celsius. That is not the case for this Moderna vaccine, so much more easier in terms of the potential significant logistical issues that would have been present for the likes of Pfizer. So that was a net positive for markets. And overall then, the kind of heat map at the close, a little bit reflective of the fact that energy and financial stocks led to gains both sides of the Atlantic. Travel stocks also benefited, as we saw this time last week, with the biggest kind of movement coming in some of the US airline stocks, which are up 4 to 5%. Cruise liners also gaining, and the NASDAQ underperforming. So kind of a soft version of that rotation that people were talking about. A couple of things though that I'd like to stress, really twofold, about why I think that this move is a little bit different from the move we had last week. Already largely what you've seen here reflected on the charts and This is kind of point 1, which is top right-hand corner here in gold. You can see a big downward move when the news broke and then we reversed it within the course of about 2 hours or so. If we look at other products, the US 10-year dropped, reversed most of the move within the same sort of timeframe. And so some of the things here, point 1 is the behavioral element. What I mean by that is the fact that generally when news comes out, the first time a specific piece of news comes out on a subject, it obviously has the most impact on us because we don't really have much of a reference point. And the Pfizer one really did come as a bit of a surprise. We knew that updates were going to be pending given that they're in phase 3 of clinical trials, but we didn't know exactly when or to what degree how positive the data was going to be. Now the kind of cat is out the bag and Pfizer's come out and front run almost some of these latest updates. The Moderna one had some bang when it came out, but very short-lived in some respects. The second point then of why the moves are fairly more contained than they were before is, don't forget, there's also, you know, a vaccine is kind of a medium-long-term idea about obviously securing then a more solid economic recovery, alleviating concerns. The quicker you can get it in, obviously the better, both from a humanitarian point of view but also from an economic and markets perspective. However, there is a really bad COVID development going on at the moment in North America, in the US, and that's requiring lots of different shutdowns now on the state level. And so for me, this idea of rotation, I think kind of similar to what I was saying at the time of the, uh, of last week, things a little overdone. Uh, I think that's what's controlling a lot of these moves. Remember the airline stocks outperformed yesterday, were up kind of 4 to 5%. They were up more like 20% when the Pfizer news came out. So I think the reality is a little bit more baked in as people come a little bit more educated about these viruses, I would say, uh, is, is one point. But also the fact that if the pandemic gets worse, well, the love for these tech stocks isn't going away anytime soon. And so the rotation is much more mild, I think, for the time being, because we've got to get through obviously, uh, the next probably Q4, Q1 at least, uh, if not further into Q2, into the second half of next year, before then really you see a real, maybe tangible commitment by big fund managers to start rotating out some of these, these tech names at this point. So yeah, just thought I'd point this out. But otherwise, a quick look at the other sectors and, you know, what's going on at the moment in the FX markets. Uh, the dollar fairly flat, albeit coming off its lowest bound levels in the overnight Asia-Pac session, just, just firming up a touch European players come in. So both cable and EURUSD just coming off their highs. Near-term technical levels, EURUSD just coming off the initial high that we printed really around this time yesterday, which was around 1.1873.5 in the futures. So the nearest and clearest point of resistance down that double top. Pretty similar case here for cable as well. I can see a rectangle I had on some of the resistance areas for me from yesterday still playing true at the moment, which was the cap of the Asia-Pacific session as we were going in from Wednesday into Thursday night. It's capped also the price activity, uh, yesterday and this morning. So a fairly substantial area now of resistance for the upside for any cable appreciations if we were to see them throughout the day. As you can see there in other asset classes, the NASDAQ still kind of conforming to what has been a key area of resistance I was watching yesterday, which the market had responded to, that being up and around the high that we had from Monday early morning futures trade at the reopening of Globex trade this week on the initial pop through of some of this range trade that we were trading at the time. Then also we've got the movement from the top of the pre— just before Pfizer news spike on the 9th. So last week Monday to then the Tuesday low, and the fib retracement on the 618, it comes in at around that level that restricted the price action from yesterday as the, as the high in the futures. So that's still a bit of a near-term barrier. Any break above there at any point, I'd be looking in terms of the intraday today, the R1 is a quite interesting area. You can see here close proximity to the intraday high, got the R1, and you've also got these previous areas of here, the resistance that we had on the high on the 5th going into the 6th, and also the closing of that prior week as well, going from the reopening of trade on the 9th. Otherwise, in the oil markets Uh, that is fairly quiet ahead of the meeting today of OPEC Alliance. We'll talk about that a bit more in a moment, but we're trading around pivot at the moment, just drifting a little lower as Europe have come in. And in the fixed income space, basically trading flat at the moment. All right, so let's get stuck into some of the headlines and talk about what's been going on from an overall perspective. And starting with this idea about US COVID and what's going to go on. Joe Biden, the president-elect, did speak yesterday. He was talking about the fact that, look, Trump's got to play ball and work with the new incoming administration in order to, to deal with this coronavirus pandemic. Nothing really particularly specific in regards to plans that, let's say, Biden had. But if you remember, something which was already being adopted as a strategy from, from the Trump era was that of putting the onus on local state governors to take action on any types of restrictions that were being imparted. If you remember, that was a good way for Trump to kind of disassociate himself from any COVID fallout because then it wasn't a national-led, uh, kind of coming from the administration policies, it was coming from an individual state level, which does to a certain degree make a lot of sense because on the ground, if you think geo— in terms of the geography of America whether it's the Midwest which is being impacted now, or it's the Tri-State or the Sun Belt, they're all very different in terms of their economic makeup and also their geographic kind of temperate weather, which can have an influence over the performance of the virus. So here then, what's happening is we've been waiting for quite a while and numbers have been accelerating quite dramatically in America. And, you know, if I show you what that chart looks like, the 7-day average, which is the green line, has consistently been moving higher and is now in excess of 150,000 cases per day. And obviously that death toll has been edging up. It's approximately half of what it was back in the initial spring outbreak, in the initial first wave. However, the fact that these numbers are so high now would then indicate that the death toll will match what we saw back early in this year in kind of March, April time, given the 3-week lag we tend to see. Now the spread is becoming more further and wide, um, as you can see from here. You remember during the election, really the deepest red was contained up in the Midwest kind of area, but it's gradually started to filter out through kind of central to east coast and going from north to south. That has led then to a number of actions taking place, and this is what I can update you on. The governor of California said he was activating what he calls an emergency brake and applying tougher coronavirus restrictions to large parts of the state in an effort to contain the surge of infections. This, of course, an important thing here, does come ahead of Thanksgiving holiday at the end of the month. I did see some surveys doing the rounds yesterday And it was asking the US public about whether they're going to adhere to kind of limited numbers of people gathering, the social distancing, these sorts of things over Thanksgiving. And as you would imagine, it's a shockingly high number of people that said that they would not adhere to those types of restrictions. So I think all of these governors are very mindful of Thanksgiving, traditionally, then one of the biggest holidays, of course, in the US calendar. And one of which normally a lot of people get together to celebrate. And so they're taking preemptive measures, I would say. And California, of course, is particularly important given the fact that economically it's such a large contribution to, to US growth overall. And the fact now that they're starting to go back into a more restrictive environment is going to have to then be reflected in the economic recovery that we've been seeing in the US. So not only are high-frequency, more real-time data points starting to reflect quite a significant downturn in overall broader activity in the economy, that's only going to be accelerated now by the, um, implementation of further restrictions that's going to happen. A lot of this then has led to the idea of What I thought was quite interesting, I saw a comment from Steve Englander. You might not have heard of that chap before, but he's basically the head of North American macro and FX strategy at Standard Chartered. And he said that he believes the Fed, Federal Reserve, may surprise markets by increasing its asset purchases to $120 billion a month before the December meeting if it appears that rising COVID-19 cases are weighing on the economy. Now, if you think about the domino effect here— case rise, restrictions come in, that impedes economic, then, uh, activity, which then makes the downturn or recovery, um, more severe. And therefore, the Fed might want to take more preemptive action to get ahead of it rather than waiting until the middle of, middle of December, which is when their next meeting is. So I thought that was quite interesting. Definitely, that would be another shot in the arm to fire up markets, and you would expect equities to probably rally again quite aggressively. Because don't forget, we have a lack of fiscal stimulus right now, and obviously as, as companies and, and so forth start to struggle, particularly in the hospitality, leisure sectors, things that have been impacted very, very significantly before, people are going to lose jobs. And so therefore, do the Fed feel the need to really step in? And if they do, I'm sure markets would breathe another fairly significant sigh of relief if that were the case. So just something to perhaps keep an eye on. Uh, I don't think we're quite there yet, but we've got almost a month to run till the Fed meeting, and that death toll should mathematically start to pick up pretty rapid over the course of the next fortnight. And so therefore, could we see Fed intervention in about 2 weeks' time? I think quite an interesting prospect to bring about. Um, the other thing here is that other areas, uh, citing the rising number of cases— Philadelphia, which is the largest city in Pennsylvania, said yesterday that it will ban indoor dining as well as indoor gatherings and events involving people from different households from November 20th through to the new year. The state of New Jersey yesterday reduced the number of people allowed to gather indoors from 25 to 10, and starting today, Washington State will enforce a number of restrictions for a period of a month, including shutting down indoor service at bars, restaurants, gyms, limiting gatherings from people from different households as well. So we're starting to see the first kind of emergence of more definitive action being taken now across the US. I expect this to continue. The interesting prospect now is I think the Fed are a little bit far away from making that more interventionist kind of approach. I don't think it's quite warranted just yet, but seemingly a lack of anywhere near getting a compromise on Capitol Hill, given how far apart, uh, the Democratic and the Republican Party are at $2.4-ish trillion and $500 billion. That's not coming soon either. So although equities have been moving up very positively in knee-jerk reaction to vaccine information, I think that there's a risk that things could turn a little bit more sour, uh, given how far we've, we've run up quite recently, especially in the equity markets. So yeah, a few things to think about on that side of things. All right, elsewhere, OPEC. We do have the OPEC meeting today. They had some telephone conversations yesterday, uh, the Joint Ministerial Monitoring Committee, the JMMC meets, and it's suggested by a technical panel in an article on Bloomberg yesterday that they have advised the ministers of OPEC+ oil alliance should consider delaying its planned output boost by 3 to 6 months. The official 23-nation alliance won't make its final decision until November 30th-December 1st meeting, which will be held around 2 weeks' time. So again, if you hear any headlines tweets, these sorts of things, 3 to 6 months is pretty much baked in. Anything longer than that, 9, 12 months, obviously the longer, the lesser probability of that happening, but the more bullish a price that would be if that was to materialize. Other things then, Tesla. I'm sure you read this last night, um, but the, the S&P index has finally bowed over to the fact that, look, you've got to include Tesla now. You know, it's a multi-hundred billion dollar company. It's got to be represented in one of the world's most significant and largest indexes of the biggest companies. And so I don't know if you saw this last night, but Tesla shares were up after the closing bell about 13, just over 13%, and it came on the back of the fact that Tesla will enter the S&P 500 little Christmas present for Elon on December 21st. It will be one of the index's most influential constituents. I was having a look at the actual list of the S&P 500 companies by index weighting, and actually it jumps in there with the likes of Berkshire Hathaway, Procter Gamble, Johnson Johnson, which, which take up kind of the 7th, 8th, and 9th spots in the S&P top 10. And Tesla is going slip right in there, straight into the top 10. Never has this been seen before, of a company going in at such magnitude into the index. Now, their shares were obviously up yesterday, they were up after market. Uh, the, the membership or inclusion within the index comes with a host of different benefits for the company, including forced purchases by index-tracking investors and mutual funds. If you think about those with representation then of S&P exposure, given the fact now that such a large proportion of that is going to be taken by Tesla. Well, they've got to start buying into Tesla then to have an equal amount of representation of that index. So one of the upsides here for that stock, but quite, quite meaningful story there on a single stock basis. The other thing is Brexit. I've read a couple of things this morning I thought were quite interesting from a top-level perspective. Bloomberg have put out their latest analyst poll, and cable, they say, may fall to 125 by the middle of next year according to 9 different bank strategists. What does that look like? Well, here's a chart to kind of encapsulate a little bit of the, the Brexit saga going back to the referendum in the summer of 2016 through to Johnson winning the election, the first lockdown, and where we're trading at the moment. As you can see, we are relatively high here comparative to where we were back in the depths of the initial first wave of the pandemic. And a lot of that obviously has been supported by, at the time, what was an ultimately weakening dollar more than overall sterling strength. But there comes then the decision as we go into year end. I must stress though, as much as these strategists are saying there could be a 5% downward risk to a no deal materializing by the end of the year, They do go on to stress though that the base case scenario by a probability of 70% is still some form of agreement by the end of the year. And that certainly for Amplify here is where our expectations do lie. Uh, for that to come to pass, the currency on balance from the 9 strategists, they say, could rise by approximately 2.5%, uh, which would be up to around 135. So remember, the upside relief would would be half the size as the downside shock. And that's because on the balance, expectations are that a deal will be brokered, and hence then the upside is much more lesser significant. On the Brexit side, a couple of things I did see that I do think are worth talking about. The UK chief Brexit negotiator David Frost told Johnson, the PM, to expect a Brussels trade agreement early next week. That was according to The Sun. An EU diplomat also suggested the EU is ready to find a creative solution to avoid an accidental no-deal Brexit, according to The Telegraph. And then the final one is coming out, I think this was in The Guardian. Separate reports suggested that under emergency plans, an EU Parliament vote on a Brexit trade deal could be delayed until December— wait for it— the 28th rather than the currently scheduled December 16th. So you remember that timeline that I shared with you before? So, uh, to refresh your memories, this is what that timeline looks like because I did tweet it. So here's all like the main dates to be aware of, and there's a European Parliament meeting happening on 14th to the 17th of December. And you remember what I've kind of been alluding to for some time is that, look, just because these dates are fixed here, that does not mean— and I'm using the whole 4 years of precedence to make this kind of assumption— that does not mean they cannot have emergency meetings and summits at any point, given what would be highly accelerated talks going this close to the wire into the deadline. And so for me, hearing that in The Guardian kind of just ultimately just solidifies it in my head. This thing's going all the way down, isn't it? You know, David Frost saying that he's gonna have a deal by early next week. Yeah, you know you're not, I'm afraid. Why would you do that? I just don't see any point at this time. The other thing I think that's interesting is the fact that those EU diplomats are talking about finding a creative solution to avoid a disruptive no-deal Brexit. Brexit. I think that is logic. It's not in Europe's or UK's interest, given the compounded difficulties experienced from COVID to make Brexit actually a tangible, real risk. So as much as I think that if we do go down to the wire, Sterling's got to price in a little bit of increased no-deal risk. But ultimately, I think a deal gets struck. And so that deal could well come. In that period just before the new year. It would not surprise me at all. Okay, final thing then, looking at Canada for today, really quiet in terms of UK European morning, uh, just US retail sales coming out this afternoon was probably a main focal point. But as I said yesterday in the weekly outlook, this is October data for US retail sales, and so it's quite backward looking. And if you think about now what I've just described that is happening on a state level with restrictions to control COVID-19 in America. It's what the future retail sales numbers look like in November and December that's going to be critical. October is yesterday's chipped paper, I'm afraid. And so I don't really see much ability for this number to really move markets a great deal. I think one thing that could be quite interesting is this number is expected expected at +0.5%. Last month was 1.9%, which is quite a bit higher than expected at that time of release 4 weeks ago. If today's number is much weaker than expected, and we're anticipating it to get much worse again, that could be quite interesting. But it's got to be a quite outlier in a negative sense then to accelerate this idea of a US slowdown. Otherwise, in the afternoon, you've got Bank of England Governor Andrew speaking again. He's spoken pretty much every day for the last week and a half or so, so there's little risk associated with him actually saying something, I would say. Same case with Christine Lagarde, who speaks— you remember yesterday, today, I think she takes a break on Wednesday, hits it again Thursday, Friday. So she's speaking pretty much all week. The more she speaks, it's kind of a dual-purpose kind of strategy, I guess. Um, one of the main things being that she just wants to, um, strategically be positioned where she's always present, she's always communicating. Therefore, the markets can be assured, uh, because all the time she can be kind of paying heed to the fact that developments are happening in markets, which gives markets more confidence that she's on top of the situation. And we don't need to guess, we know what she's thinking. And that's a positive strategy in regards to traditional central banking kind of tactics. The other thing though, from a trading point of view though, is that it means it becomes relatively dull what she says because you hear from her so often, you, you know what she's saying and it doesn't really— you don't get these dramatic shifts in policy hints or thinking because you hear from her so often. So it kind of diminishes the impact from an intraday day trading environment, but definitely As I always say, it's worth keeping an ear out when the likes of Lagarde or Bailey or Powell speak, for sure. Even though our probabilities are— our expectations are very low that they'll say something market-moving, they of course do have the propensity to do so. You do have Dave Ramsden also speaking, fairly interesting character, and also fairly aligned at the top with Bailey in terms of his position. So worth keeping an eye out for 5 PM London time. Pretty quiet overall, I'd say, from an overall perspective. Even though retail sales and industrial production, manufacturing production, cap utilization would be normally quite important collection of data, I think in the context it's been kind of played down a little bit given what's going on. All right, that is it. I'm not going to talk anymore. Any questions? Of course. I'll see everyone in, in the live chat room on Amplify Live. Otherwise, if you're watching this on YouTube, just leave a comment below. Happy to help if I can. All right guys, have a good day ahead.