US Stimulus Talks Continue To Dictate Sentiment Intraday

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. Apologies for the, for the lighting, it's just gone 7 AM here in London and it's pretty much still pitch black in the morning, but, uh, hope everyone is doing well and looking forward to a new day ahead. As you can see to the side of me here, a lot of focus on the US and the US fiscal stimulus package, whether or not that's going to come, and are they getting closer towards now finding some kind of compromise. And that really has dominated market sensitivity over the last 24 hours. And really what I wanted to do is I'll give you a quick flavor of what's going on right now, but then I'm going to zoom into the S&P 500 chart because I think that really tells us the narrative of what's influencing market activity at the moment. So as you can see here at the, at the open, US equity index futures are back up higher again, and this came after a really seesaw day, as we'll look at in a moment, yesterday. Overnight it was fairly quiet. Overall volumes are down. Markets are shut in China, Hong Kong, and South Korea today in terms of the overnight session. Remember The Golden Week holidays now being observed in China, so they're going to be out of the market for the foreseeable future. So stock futures have advanced. The DAX future up just marginally, finding a bit of resistance in that overnight range. So worth just keeping an eye there. Otherwise, in the currency market, quite a notable move lower in the DXY, which at this present point in time is trading down about a quarter of 1%. So that has helped just boost some of the major currency pairs EURUSD here. I was just looking at quite an interesting level in the short term. We've got the high that was printed in yesterday overnight session and then was a retest during the late European kind of end of the day. So we're right back there now, 1.1770. But I was looking at this on a daily continuation. You can see here, this is looking back over the last 2 years, and really what I was looking at this morning was the, the breakout that we had of what was a 2-month area of kind of consolidation and quite an important trend line that was holding. You can see here multiple tests through late July, August, and September. We broke through there, of course, coming on the 22nd when we had a bit of a bout of dollar strength, and we broke all the way down to where we were trading at 1.1630 level. But as we've recovered, quite interested to see the euro here. I mean, this is looking on a daily continuation And we, we pretty much tested it to the tick yesterday. We've got up there to have a quick look at it again this morning. So I'm interested to see whether we can break above that and just help create a little bit of further extension here into the EURUSD's recent recovery. Now the DXY is down close to testing, uh, yesterday's lows, so any further continuation of that dollar move could well help that move there in EURUSD today. So worth keeping a close eye on. So overall, dollar weakness, US equities firmer, T-notes lower, the US 10-year down about 4.5 ticks. So just adding a little bit to the losses that were seen yesterday shortly after some of the US data that we had out. Obviously a very good Chicago PMI yesterday. And elsewhere, WTI crude is up around 20 cents, just moving ever closer back towards kind of $40.50 type level. So a little bit of risk appetite perhaps reflected across the board. And if I bring up the S&P 500, it will probably explain why and it'll lead us into the talk about stimulus. So here's a chart that I had marked up yesterday evening. Let me just move this slightly so I can just shorten the chart so you can see everything. So you should better see most of my markups here, but this is looking at the S&P 500 from yesterday's price movement. And as you can see Really quite a roller coaster day that it was. Initially then, of course, dipping— if we start here— after the first round of the US presidential debate. I didn't have a chance to actually publish my overall view yesterday just due to some technical difficulties, but one of the things here was that I don't really see too much that was unexpected really from that debate. Um, in a sense that, um, Trump just looking to come out and really dominate, and Biden just not doing quite as bad as people would have envisaged. I did think that that was a little bit more that sell-off that we had because of some of the recent price movement we'd had going into the event more than anything else. I don't really think it's going to change the emphasis too much, is my short take opinion of what I thought of the first debate overall, but But yesterday then we got through to the open on Wall Street. We really were recovering the equity market. Then the Chicago PMI came out and there was high hopes because Pelosi and US Treasury Secretary Mnuchin were meeting. And that started to then just see a really decent further move higher in US equities, breaking through that initial overnight high we had just while that, that debate was taking place. We then pushed on all the way up into the point when the meeting started to happen. And as they departed, the Senate Majority Leader McConnell— this came out towards the back end of the, the US session yesterday. I just happened to be still sat at my desk at that time and I saw the comments. It was quite heavy selling pressure actually. He said that we are far apart on COVID relief, and the market really raced back down to what was back to its R1 on the daily pivots. It then continued to come back down to pivot, which was quite a decent area of support in yesterday's price action until the actual, um, war was further accelerated by Mnuchin. So also saying still no agreement on stimulus, that just further saw the push down to pivot. Quite volatile into the close. And then over that gap in electronic trade before the reopening, we actually gapped up because reports started to come out that the US House reportedly had delayed the vote on relief bill to today, Thursday, to allow more time for talks. And then Mnuchin's proposal to House valued at $1.62 trillion. So he's starting to bring it up a little bit more toward what Pelosi's been looking for. And we saw a further injection to the upside just given the lack of real liquidity because of a lot of the Asian participants out for market holidays overnight. And then Europe's come in and just taken that last comment a little bit further and just bumped us up above that overnight Asia-Pacific range that you can see here to trade up now 23 on the session. So yeah, really whipsaw price action in the last 24 hours. But one thing I would say is that the stimulus is absolutely first and foremost the main center of attention, and the latest is, is a little bit of risk appetite based on the notion that the sides are coming closer together And so there's a degree of optimism being reflected in these prices now. But we saw what happened yesterday. This was priced in that, and then McConnell came out and we dumped, uh, the best part of a pretty strong move of say 40 points. So definitely that's something to be, to be mindful of and looking out for as we go through the day. Looking at the daily continuation, if we were to continue pushing to the upside, so let's say um, we, we break through yesterday's high and we've got the R1 sitting just above. So there is quite a decent level of resistance here. You can see those two technical kind of signals there if we do push on up higher. But if we do bust through that, we start heading towards 3,400 on the daily continuation. I would be mindful of this trend line that we've had always on the charts in the S&P that dates back really to commencement of the rally from the lows going back to April. It's had a couple of retests in May, in June, and then most recently in September. Having broken through that, the selling was quite heavy, and now we've come back up. We had a brief retest in yesterday's session, but any further move up, I'd just be interested to see around that 97.5, 3400. Obviously psychologically, that was also the February high, was also resistance before. Then we broke higher at the end of August, uh, so has been well respected on a couple of times. So I'd I'd see that as a pretty decent obstacle. If we can get through then yesterday's high in the R1 here in more near-term price action. All of this though would of course be contingent on the fact that they've got to come together with some sort of stimulus compromise to, to just jolt us back higher again in the intraday session. All right, well, let's, uh, let me just give you a very quick take then on what is going on from the headlines. So as I mentioned, Mnuchin said he and Nancy Pelosi have made a lot of progress in a lot of areas and then the House Speaker said the talks with the Treasury Secretary would continue. It was Mitch McConnell saying the two sides were far apart late yesterday which, which caused that brief period of selling pressure. But as I said, now we've kind of reverted back to optimism given some of the overnight developments. The Democrats are looking to vote on 2.2 trillion proposal later. However, that's going to be later today, but the, the chance of that passing the Senate is basically zero because that number is still not an agreed amount that probably Mnuchin and the White House will, will go with. So Mnuchin has said quite openly it sees a deal between $1.5 to $2.2 trillion. His offer currently stands at $1.62 trillion, so right at the lower bound of that range is probably not going to be enough for the House to agree at this point. But the idea is, as we've discussed every briefing, they're getting closer and closer and closer together. So definitely main takeaway point here, this is a market mover for equities, for yields, for the dollar. So this is the, the story of the moment and the one to look out for from a, from a market, um, from an intraday perspective if you're trading. Moving elsewhere, I just wanted to have a quick look at a few things related to COVID in the UK. I'm sure you guys would have seen Prime Minister Boris Johnson was joined by the chief kind of medical staff yesterday and gave a kind of national update and basically said the UK faces tighter COVID rules to bring outbreak under control. So the UK coronavirus outbreak is not under control according to the government's chief scientist. Numbers are going up, hospitalizations are going up, ICUs are going up, and unfortunately and very sadly, so are deaths as a consequence of that matter. The Prime Minister has said the UK is on target to conduct around 500,000 tests by the end of October, and that if evidence requires, they will not hesitate to take further measures. And a lot of that further measure speculation, of course, is kind of harking back to the FT report we had back on the 17th of September. You'll remember that leading scientists in that FT exclusive were talking about the idea the UK government could propose a 2-week national lockdown in the middle of October during the school's half-term, because not wanting to, to cause too much of an impact. And that would be probably one of the most appropriate times at the moment given the context of how the virus is developing. Wednesday actually saw 7,000 cases of COVID-19, so above 7,000 for the second straight day. These are some of the highest levels we've had since the outbreak. However, As per what the Chief Scientist said yesterday, something very important to be aware of with those types of statistics is that the number of positive COVID cases reported back in kind of April time when it was at its peak initial first wave is definitely underreported due to the lack of testing that was happening at the time, and it's more likely that those case numbers were north of 100,000. So again, just to emphasize, it's probably inappropriate to look at stats saying these are the highest COVID positive confirmed cases that we've had, they're nowhere near probably what we experienced back then just due to massive underreporting. A very interesting thing though, uh, two things really. For one, there was a study conducted, a survey of 80,000 people by researchers at Imperial College London, and it has suggested that the government's restrictions which have already been imposed— remember, we've seen various different things that have been happening over the last two weeks could be working, with the virus outbreak growing more slowly. So the reproductive rate is still above 1, but has been coming off some of the more elevated levels. But again, nonetheless, we need to be continuing to monitor this, given the fact that obviously any national lockdown for any period of time is going to have economic consequence. A couple of charts though that came out of the, the PM's address yesterday that I thought just quite top level summarizes the situation. This is the geographical spread of COVID-19 in England, and you can see here why there's been much more emphasis on the north, particularly the northwest. As you can see here, the density of cases is much more prevalent in this part of the country. This is what I thought was a particularly telling graphic and coincides with a key catalyst, of course, which was the students, which have really being quite a dominant theme in the news. The kind of— it always makes me laugh how the media try to frame certain narratives, and they keep shooting students behind these kind of like cages where they've been locked into their university residences just to sort of hit home the point. But university students did start to go back for their first term in middle of September and then the week after. And if you're actually looking at the data, what was, what was quite interesting is people were always quite questionable about putting kids back to school. When I talk about school, I'm talking about kind of the age of 16 and under. But if you actually look at the data of weekly individual test positivity by age group, you can see here, so for like my daughter, for example, at nursery, for kids who are much younger generally and kids of a school age going up to high school age, there really hasn't been much movement here at all with them going back to school. What has been the problem is those then of an age category of 17 to 18 and most notably 19 to 21, which would capture that university kind of demographic. So this is looking on a nationwide basis, and you can see really it was from the return to university where things have really rocketed to the upside. Now, one of the things here then is if we go to the next slide, which is the ICU and HDU admission rate and hospitalizations by age group, it's obviously that age category of the younger demographic generally then isn't so moved to the point of then this creating more health issues. That obviously targets much more the 75 to 85 or 85+ category. As you can see here, admission rates in the much older demographic have shot higher since the same time, and consequently hospital admission rates as well moving sharply higher. So yeah, quite interesting to see what's going on at the moment. I think obviously the, the controlling of the transmission of rates, as per this graphic, of that younger demographic really is crucial at this point in time. But positive signs being seen, which is those latest research coming out of Imperial College, is that perhaps then, although numbers still likely to go up from here, that the reproductive rate in itself is seeing some signs of slowing. And hopefully for everyone's sake, not just the economy, but for people to just resume normal lives and go to work and so on, um, the the economy doesn't need to go into a full state of shutdown, but definitely carries a huge tail risk, of course. Um, on the COVID front, this was an update on the vaccine side of things. The FDA— this is a Reuters exclusive— they've broadened its investigation of serious illness in AstraZeneca's vaccine study and will look at data from earlier trials of similar vaccines developed by the same scientists, according to 3 sources familiar with the matter. AstraZeneca's large late-stage US trial has remained on hold since September 6th, as you remember. So it's been pretty much 3, nearly, nearly 3 weeks or a month now. And remember, at the time there was quite a lot of market reaction, but people were kind of of the notion that, well, actually this is quite normal in stage 3 clinical trials for them to be halted at some point in time. At the moment, the market not too sensitive to this news, but I guess this is one of the vaccine front runners, and if it continues to be delayed for a long period of time, it might well start to become a negative headwind. Moderna is another one. They've stated that its vaccine will not be ready before the US election and will not be ready to seek EUA from the FDA before November 25th at the earliest. So again, I don't think that that's that surprising as a time timeline. That was, that was very optimistic to be looking for something more earlier, in my opinion, and reflected in prices and why markets aren't reacting to that type of headline. Last thing I wanted to mention before I really move on to talk through the calendar is Brexit. Just, just one comment to be aware of. Obviously Brexit negotiations still very much underway, but a little bit of a still somewhat in context, a side issue to the developments on COVID being so rapid in the UK at the moment. Uh, but the French government official has been quoted overnight saying Brexit agreement between the UK and the EU is possible by the end of November, uh, according to Figaro in France. So I think that's quite meaningful just given the fact that France has been one of the more resistant nations to dealing with negotiations with the UK. And this would fit, I think, generally where market perception is at the moment. Which is that this kind of soft imposed deadline from, from Johnson for a deal to be struck by kind of 15th of October, mid-month, I think is looking increasingly unlikely. But a deal of sorts being done before the end of the year and kind of rushed through, I think is still quite likely at this point in time. Looking at the calendar for the day ahead, I've already had much of the overnight session, so just pushing forward now to the— this morning Throughout the day you get the manufacturing PMI numbers, but I must stress these are the final readings, so unlikely to have too much of a market impact. Neither of which is the unemployment rate in the eurozone, obviously something to watch, and it is expected to tick higher but not typically a market mover for European assets. We then have in the US core PCE numbers coming out, weekly jobless claims. Of course, you've also got today from a meeting point of view uh, special European Council. So they start arriving at around 12:30 London time, and they have their roundtable discussions from 2 PM this afternoon. So just so you're aware, and then you've got the final Markit Manufacturing PMI, but arguably more important, the ISM Manufacturing figure, uh, that's coming out at 3 o'clock London time alongside construction spending. And we'll be keen to watch that just given the Chicago PMI performance from yesterday. Speaker-wise, a couple of interesting ones actually, and that being because you've got the chief economists of both the Bank of England and the ECB, Andy Haldane and Philip Lane. Haldane particularly vocal, he sits on the more hawkish end of the spectrum, and obviously a lot of focus on the somewhat less than clear communication on negative rates from the Bank of England. So I'd definitely be keen to see what he has to say. And then Philip Lane, because he was one of the first initiated this whole concern about strength of the euro. And the euro is rising again at the moment. Remember, we looked at those technical charts, just a little break of that trend line. We could be moving back higher again. And so be interested to see whether he tries to, to, to push it back down with a bit of verbal rhetoric. And then you've got Fed's Williams and Bowman, both are voters as well, speaking later on throughout the session. And then from a fixed income perspective, Supply coming from Spain, France, and the UK today for any bond traders. All right, that is it. Gonna leave it at that, let you guys get on with the day. Any questions at all, feel free to leave a comment, and remember to like and subscribe to the channel. Be much appreciated, and I'll see you guys same time tomorrow. Thanks very much.