US President Biden & Chinese Leader Xi Hold Positive Meeting Overnight

Okay, very good morning. It is Tuesday the 16th of November and quite a few things for me to get you up to speed on. Talking about the overnight performance of the Asia-Pac indices, the MSCI Asia-Pac Index was up for the 4th consecutive day. We had of course the virtual meeting between President Xi and US President Joe Biden last night, so I'll get you up to speed in terms of what they discussed. But overall, a generally positive development, the meeting happening for longer than was anticipated in terms of their discussions. We're also gonna talk about US politics, the infrastructure bill passed in the US. What's the next hurdles there with the Build Back Better bill still to, to be tackled? And then we're gonna talk about the Fed nomination. There's some comments out of a Senate Banking Committee member that are worth noting. Also an informed source about what the odds are of a Powell renomination. And then we're going to talk a little bit about UK COVID, the performance of booster shots. We're also going to look at Tesla, Elon Musk dumping some more shares yesterday, all becoming quite normal fare now, although Tesla shares moving into technically a bear market territory given yesterday's move. And then we're going to look at what to expect in the day ahead. We've got US retail sales. We've also got some earnings reports coming out of large brick-and-mortar retailers like Walmart and Home Depot as well today. So that's what's on the agenda. First things first, though, a bit of a flavor for the overall asset class mix. And we've got a bit of a divergence here in the major currency pairs. Here is EURUSD, which EURUSD tells a bit of a macro divergence story from a top-level macro perspective. Here's EURUSD on a daily continuation chart to give you a bit of an idea here, just squeezing this in. So from what you can see here, from where my video feed is going right This is 2017, '18, 2019, 2020, 2021. So this is looking at a much higher time frame chart, and as you can see here, the 115 area, as per these ellipses, was quite a key inflection point for price, both as resistance in 2019, 2020, and also on the acceleration of the breakdown in price here that we've had more recently. And we've, we've kind of run lower quite quickly here down to that next key technical level, and we're just below 114 at the moment. So we've got euro weakness, and at the same time, in European equities are now starting to see further outperformance. This is looking at the DAX future now on the daily, looking at the multiple month price reaction. And after the low that we saw in October, which actually was a respect of the range, which you can see here going back— if I just put an ellipse around these price points here from the high that we had back in March, the low in May. We came back to test that in October for this latest move higher that we've had. And, and here we are back up at these, um, record high levels. And one of the things here to be aware of is that, you know, what we're seeing from a very top-level global perspective is the Federal Reserve certainly getting tapering underway. Talk now about the timing of when the next rate hike is going to come. Um, when is it going to be? 2022, 2023, so on and so forth. At the same time, the Bank of England looks pretty much set that they're going to be hiking rates as well when it gets even this year, at the end of the year, the December meeting. And all the meanwhile, the ECB are tackling what is a quite difficult and challenging situation with COVID at the moment. I mean, we looked at it yesterday, but let me just Um, see if I can bring that up again. And here we are. Here is the, uh, the kind of COVID performance at the moment. If I zoom this in, in to give you the last 3 months, this is what COVID looks like as new confirmed daily cases per 1 million people. And as you can see here, Germany, France, all seeing quite aggressive upticks. You know, if we're looking at Austria, it'd be off the charts. To the upside. The Netherlands also quite challenging situation at the moment as well. So what we're seeing is the, the ECB are a long way from any type of real policy action, and there's quite a large distance lagging the likes of the Federal Reserve and the Bank of England. And hence the reason why you're getting a bit of a divergent play, where that's an environment where a lower rate here is going to be more supportive for equities, weaker for the dollar in comparison to the strengthening dollar weakening euro, that is, to the strengthening dollar, which we've had of late, obviously having moved to a 50-plus week high last week. So that's the general flavor for the euro. Sterling, as I said, outperformance. So euro-dollar's down 10 pips, cable's actually up about 30 pips. And you can see here a bit of a breakout from the relative consolidation that we were seeing from yesterday afternoon's trade. And the reason for that is that a lot of eyes have been on the employment data that was— that came out this morning. And the reason for that is it kicks off a trifecta of UK data of significance for this week: jobs, CPI, and retail sales. CPI tomorrow and retail sales on Friday. And the reason why the jobs number was so key is because a lot of the rationale behind why the Bank of England did not pull the trigger on a rate hike on the November 4th meeting, as much to the dismay of markets, was because of the fact that they wanted to be equipped with the impact of what the end of furlough might have meant for the job situation. And in actuality, the ILO unemployment rate for September has come out this morning at 4.3%, and that's actually below the expected 4.4%. And the average weekly earnings for September was actually stronger than expected. So lower unemployment rate and higher wages, both bullish signals for sterling, and it's just managed to break out of that, that consolidation from yesterday in that range. And also the R1 in the futures market for a quick run-up towards the R2 here. So one would say that probably now economists already have the belief that the Bank of England are going to hike rates in December, just given the current state of play. We also had comments out of Bailey yesterday who was saying he's very concerned about inflation, so still very much dropping the hints towards a rate hike is pending. So the jobs report is probably enough to seal the deal for a deck BOE rate hike, particularly as well that Bailey will probably want to shake off the kind of any notions of him being an unreliable boyfriend or not delivering on his promises. He won't want that to happen again. So I would say for the moment, all things remaining equal, obviously we'll wait for the inflation number, but inflation's already kind of met the predetermined kind of metrics, i.e., it's heading higher. It's it was really the jobs market that was lagging, but this data now really kind of cements that idea for the market that a rate hike is somewhat inevitable now for the Bank of England. All right, let's move on then and talk about a couple of news stories. And I'm going to start off with what happened overnight. So President Joe Biden and the Chinese leader Xi Jinping spoke for the need for cooperation in their first face-to-face summit, virtually of course, which went on longer than expected. It went on for more than 3 hours, even though there was no major breakthroughs. Not that you would be expecting any in these types of talks at the moment. This is just about rekindling the, as Xi would say, the old friend vibes rather than anything definitive, any type of trade agreements or anything like that. So what Xi said was that he was happy, obviously, to see Biden, that both sides face multiple challenges together while they must increase communication and cooperation. Xi, though, had hoped that Biden would return US policy toward China back to rational and a pragmatic path. But he did go on to say that he warned China would safeguard its sovereignty, security, and development interests. And obviously this is talking about the thorny issue of Taiwan, of course. And so all in all, the meeting went, went pretty good. Nothing kind of concrete coming out of it, but opening the channels again to resume dialogue is a positive step forward from where we were perhaps just a few weeks ago when they were posturing and flexing military muscles and sailing the fleet through contested waters and so on and so forth. That's not to say that those things will stop anytime soon, but all in all, a fairly positive outcome. As I said, the MSCI Asia-Pac shares was up for a 4th straight session overnight. Equity index futures US are pretty flat this morning, but we had a completely square finish, unchanged across all major 3 indices yesterday in the US. So going into the North American handover, it's, it's pretty, pretty neutral to, to a worst-case scenario averted, I would say. On the flip side, WTI crude is also about 50 cents, trading an 81 handle this morning. Elsewhere, the other thing of course that happened last night, confirmation Biden has signed into law his $1 trillion infrastructure bill at a ceremony yesterday. Biden now has a lot of work to do to restore— then given how dragged out these, these, these talks have been to the passage of these bills, obviously highly contested between the Democrats and Republicans in this divided Congress at the moment. So now he's going to hit the road and he's traveling to several crucial swing states to basically basically sell this infrastructure bill to the American public. And of course, the rationale there being that he's got half an eye on the midterms, which will be happening kind of this time next year, with both control of both chambers of Congress is going to be up for grabs, of course. And we've seen some Republican gains in the likes of Virginia and so on and so forth, and the falling approval rating of Biden. So hopefully he can use this passage to kind of galvanize a little bit of the momentum back in his favor. Democrats are increasingly wary of the electoral chances, obviously, after that, as I said, disappointing statewide elections. So other than Virginia, New Jersey's been the other one that happened earlier this month. Meanwhile, back in Washington, don't forget that, you know, it's far from the job is done for Biden. Lawmakers in his own party will this week continue their wrangling over President's second and much larger proposal of that $1.75 trillion, which is the Build Back Better bill. That package, opposed by Republicans, has been held up by months of disagreement, of course, between progressives and moderates, even within the own Democratic Party. To give you a bit of flavor of where those talks are at the moment, a handful of moderate Democrats in the House are withholding support for the bill until an independent cost assessment is conducted by the CBO, the Congressional Budget Office. They said on Monday that they expected to publish those estimates by the end of the working week, i.e., this week. And so it's hard to see any real movement on that at this point in time, particularly with Biden hitting the roadshow to kind of push out the, the passage of this infrastructure bill. So that's where we're at at the moment. Before I move on to the other stories, If you're not already signed up to it, don't forget you can just simply put in your email here to get hold of my daily market newsletter I put out at the end of every European trading day. So around 5:30, this will hit your inbox completely free. It's where I kind of digest or break down, deconstruct one of the major topics day by day that have happened in markets. And so yeah, feel free to shoot your email in there. I'll drop the link in the video as well. if you want to get that email in your inbox. Otherwise, moving on, just having a look then elsewhere, some Fed comments to be aware of. This is Fed's Barkin, and the reason why I'm mentioning Barkin is he is a voter, at least for now, in the FOMC. And he said it may take several months at least for the Federal Reserve to understand if high inflation and labor shortages are offshoots of a pandemic that will eventually ease or reflect more durable changes in the economy. So giving a bit of a timeline there and, and I'd say fairly measured comment, which is unsurprising. Barkin fairly centrist in his policy views, but gives a degree of kind of support then to the overall mantra of what the Fed has been under the Powell stewardship, which is fairly just toeing the line and, and just seeing how the economy evolves and not being too fazed by market movements. And it's fairly in keeping with that. The other thing that came out was, of course, We're still awaiting whether or not Powell himself is going to be reappointed as the Fed chair. And the latest here has come out of a Senate Banking Chairman, Sherrod Brown, who said he was told by the White House officials to expect, quote, an imminent announcement about President Joe Biden's pick for the Federal Reserve. Charlie Gasparino from Fox Business News— and some of you might not be aware of who he is, he's a fairly well-recognized journalist. He's very well informed during the financial crisis, so he's got a bit of a rep, and his source is generally a fairly high quality. And he noted that Wall Street odds of a Powell reappointment are at just 50/50. So it's still a bit of a toss-up. Obviously, if it's not Powell, then it's Brainard. But as we've been talking about before, Brainard, if anything, is even, even more one step to the left of being dovish, if you like. So if she was to get in, you might see a potential, some equity bid, dollar weakness, yield lower type move. But I'd say that the actual division between the two isn't really that far different. And actually, Powell has seen his odds decline over time. So it wouldn't be the most shocking event ever if he didn't get reappointed. My bet, for what it's worth, is still that Powell gets the nod in time. And if that is the case, then yeah, you wouldn't really expect any immediate reaction, just more continuity, which will be of some relief to markets overall and would likely further cement then the directional trend of Germany equities and so on that we've had of late. All right, elsewhere we've had some comments that Boris Johnson, he spoke yesterday and he said he left the door open to another coronavirus lockdown this winter warning that people must get their COVID-19 vaccinations and booster doses to avoid fresh restrictions. Now, one of the things that we're seeing at the moment is this, which is yesterday you would have seen that all over 40s in the UK will be offered a third vaccine after advice from government scientists. And one of the things here is that new data in England show that boosters do not really top up immunity, they elevate protect— protection well and above the peak of what a 2-dosage regime would mean if you're taking a COVID vaccine. And actually, as you can see here, then these numbers start to become, you know, really high. 3 doses cuts the risk of infection by over 93%, according to UK Health Secretary Agency. Not only this though, that it's kind of a strategy where we're trying to squeeze both ends of the age spectrum demographically. So whilst we've now given a third booster shot to the vulnerable and the elderly, and we start to work that down now to be inclusive of the all over 40s, we also are bringing up the bottom end by— it came out yesterday that the Joint Committee on Vaccination and Immunisation have said that 16-17-year-olds initially offered a single dose should now receive a second dose. And at the moment, obviously, this is all supply permitting, but this would obviously be quite positive signs going into the winter. And what I'd say is that Boris Johnson's saying these types of things— I mean, Bloomberg have really made a bit of a mountain out of a molehill here. Chris Whitty, the Chief Medical Officer, has said that the NHS is very close to that kind of point of which starts to become problematic because of the seasonal changes and the flu, meaning that more pressure naturally happens during this time of year on the NHS. And so any further outbreak of more COVID patients is going to be problematic. And sure, in theory, that would make sense if we then start to see a renewed wave. But equally, scientists have said, you know, if you go back to— remember that COVID chart? Although we've had a bit of an uptick after that decline since late October, death rates overall, hospitalisations still remain fairly level in terms of the UK. And some would say that actually this peak that we're starting to see now in Germany, France, Austria, and others, the pattern has been that that's a lagged COVID case rate pattern from what we had already seen through early October. And this has generally been the kind of status quo that we've had since the beginning of the onset of the pandemic back in early 2020. And so what's happening in Europe right now, some would suggest doesn't necessarily mean that then that's going to impact England. It's almost the other way around. England had this outbreak earlier, and now it's hitting mainland Europe, kind of like when we had the Kent Alpha variation. Obviously, it's said to have originated from the UK in Kent. It really saw an aggressive outbreak here given the higher degree of transmissibility and then it moved to mainland Europe, which caused some issues. So, um, we shall see. So for me, this is more political management coming out of the PM, and I think it's a sensible move to do. But at the moment, it's looking good on the booster situation, um, all things left aside. The undeveloped world, um, is still very much struggling to even receive first-level, uh, vaccine— vaccines. But that's a discussion for for a different session. All right, elsewhere, Morgan Stanley, just to point out in case, you know, you're— any of you are interviewing at MS at the moment, doing assessment centers, things like that. Their head equity US strategist Wilson has basically come out and, you know, this absolutely— fair play to the— to this guy. I think there's a picture of him here. Yeah, Mike Wilson, and he basically is quite a bear on Wall Street, and he said earlier in the year that equities were going to sell off aggressively. His 2021 target he issued at the beginning of this year, he said we were going to fall to 3,900, and we didn't get anywhere near there. The market just kept going up. Now his target for the next 12 months is a pullback down to 4,400, um, and he said that while profits are projected to extend their expansion, he warns that growth slowdown and withdrawal of Fed stimulus will likely pressure valuations for the rationale of why we'll come off the— why we will come off this peak. But the point being here, and what I liked about this guy, is that, look, he said he was wrong. If only Andrew Bailey could put his hands up and say, do you know what, I got it wrong, my communication could be better and will be improved going forward, and all would be forgiven. I mean, what's quite just frustrating to watch from the Bank of England governor is he's insistent that he keeps blaming traders in the markets. And I think he's slightly forgetting here is that as much as that's true, you can't be at the beck and call of traders and markets. At the end of the day, your greatest weapon as a central bank is your forward guidance and loss of trust and credibility. Is devastating to your ability to manage an economy. And he's doing a pretty good job at the moment of making sure that it's very difficult to really take anything that he says with any type of credibility at this moment. And that, that reestablishing of trust is going to take some time. But, you know, just like Wilson did, you know what, got it wrong. This is what I see going forward, and this is why I see that view. And You know, credit to him. But yeah, just to keep in mind then that MS much more on the bearish side of the forecast spectrum. The other thing was Tesla shares at the moment did break $1,000, but they managed to close just above that yesterday. But basically what's happened is Elon Musk offloaded another 934,000 shares on Monday, so just under $1 billion worth. According to regulatory filings that got unveiled. That adds to the $6.9 billion he already dumped last week to meet his 10% threshold. Here's a bit of a visual graphic for you. This is the kind of the amount that he sold in millions and the days of which he sold them. So it was November 9th last week when he really dumped the biggest, the biggest load, if you'd like. But one of the things here is even though Tesla's share price has fallen, you know, 20% or so since he's started this process, he's still got a heck of a long way to go potentially, which is going to be super interesting to see where Tesla shares really end up. Musk would need to sell some 17 million shares, more than double the 7.3 million he's already offloaded in recent days, if he's to commit to that poll that he did about the 10% amount that he was talking about selling. So yeah, watch out for Tesla. And obviously we talk about Tesla and its volatility that it sees, but obviously that does have a direct translation because of its market cap into the major indices like the NASDAQ, for example. So definitely keep an eye on that going forward. Um, all right, or the S&P, I should say. Um, having a look then at the calendar for today, a couple things we're looking out for. Um, we've already had the jobs data, as mentioned. The morning fairly quiet, and actually the main focal point of today is going to be on US retail sales. You also get industrial production, cap utilization later with the NHHB housing market index. Going to start with retail sales though. It's on track to increase, um, the month-to-month reading is expected at 1.1% from previous 0.7%. Uh, many Americans getting their Christmas shopping done early There's also lots of risks around, you know, supply constraints, meaning of out-of-stock situation the closer we get to a holiday. So people generally— the behavior likely to be this year that people frontload those purchases even earlier. We've got things like Black Friday and so on coming up as well, not far off to consider in next month's retail sales report, coupled with apparent robust demand for Halloween items. The early holiday rush has probably given sales a bit of an autumn boost, albeit fairly moderate. As I mentioned, we are also on the flip side going to get the likes of Walmart and Home Depot announce their quarterly results today. As far as Walmart is concerned, analysts on both adjusted earnings per share and revenue is expected to rise, but basically at a slower rate than in recent quarters. And the reason therefore is that they performed very well during the initial part of the pandemic, and so it's a bit of a moderation from those elevated levels. Investors will also be watching for Walmart's, what we call the US comparable sales growth ex-fuel number. That metric measures the rate of growth generated by the company's existing stores and clubs in the US, including e-commerce sales. And analysts expect comparable sales to rise year on year with growth accelerating from the pace set in recent quarters, but flat to the year-ago quarter, uh, just as a reference point. And then, yeah, that is pretty much it. So other than that, you've got the API inventories after market as usual. From the speaker perspective, Christine Lagarde— there's no text expected, but just so you're aware, just after 4 PM London time, Fed's Barkin speaks again alongside fellow voting but more hawkish Bostic. They're going to be speaking on racism and the economy at 5 PM. And then Mary Daly, a voter, speaks later on just before the Wall Street close. But that is it, gonna leave it there, let you guys get on with the day. And any questions at all, feel free to drop me a comment. Otherwise, I'll see you tomorrow. Thanks very much.