US Stimulus Talks Lift Market Sentiment But Can They Deliver A Deal?

Okay, very good morning to you. It's Wednesday the 9th of December. Hope everything is going well. And just going to get up to speed as per usual, then run you through the major headlines from the close on Wall Street last night, anything major in the Asia-Pacific session, and then what we're looking out for, for the rest of the day. So things like any further updates from the US FDA on approval of the Pfizer vaccine And of course Brexit, which I've got a few points to stress as well and how to tackle that if you're trading the sterling currency. So first off, going to start with this chart here. This is the Nasdaq 100, and as the title would suggest, then gained for a 10th straight session, its longest, its longest streak that we've seen in a year. You'd have to go all the way back and, you know, you could say seasonality to a certain degree, the Santa Claus rally of the end of last year. But that aside, another positive close on Wall Street, albeit fairly marginal last night, but we have added to those gains in the overnight session. And if we look at the index futures this morning, I've just got the 3 US majors here. You can see a little bit of a gap up on the recommencement of trade for the S&P. So sitting above, of course, the 3700 handle now, the, the overnight high, 3714.75. NASDAQ as well, just consolidating after quite a large push that we saw into the late hours on Wall Street. And we've just kind of gone sideways since then. Similar with the Dow, and consequently then in terms of the DAX this morning playing a bit of catch-up and trading around its R1 where it's found a bit of resistance this morning, up 58 points. Why is this even happening in the first place? Well, the first thing, if you weren't following markets last night, was this So we had Senate Majority Leader Mitch McConnell, uh, suggested setting aside some issues. Now what those issues were, were business liability protections in exchange for the Democrats in negotiation dropping their demands for state government aid. And so this strategic retreat, as it's being termed by McConnell, has seemed at an olive branch of trying to strike a deal. And so as we've kind of said this week, very quiet in terms of actual scheduled economic data pieces, particularly coming out of the US, but generally kind of globally. And that means then a lot of focus on these top-level themes. And stimulus— will they, won't they— is pretty much as important, if not for more multi-asset, than will they, won't they on the Brexit deal this week because of ramifications of the government shutdown threat that we've got in the end of the week. So that was followed then by a couple of other things, but firstly, just rounding off the close on Wall Street. So that helped bump things up last night. In addition as well, Pfizer shares, you probably saw, were up around 3.18%, and that came after an FDA staff report showed the company's vaccine is highly effective in preventing COVID-19, and there were no safety concerns, concerns that would prevent it from being granted an emergency use authorization later on today. Remember, the US FDA are meeting to discuss the vaccine by Pfizer and BioNTech later today, but I would say the cat's out the bag slightly. I expect that to go through. Much of that positivity was what helped lift things last night and in the overnight session. Also as well, one of the other things, in case you, you hear a headline about it, Um, there has been an update from the Army General in the US, and the reason why he's particularly important, because he's the one leading the rollout of the vaccine. He has commented last night that it may take a few more days than earlier thought. Remember, reports we were reading in the last week have suggested that as soon as they get that emergency use authorization, within 24 hours the vaccines will start being used. That's what we were seeing in the UK just yesterday. But he suggested that actually the delay could be up to around 4 days. I think it's a bit of a moot point, really. I don't think that makes a great deal of difference in the grander scheme of things, which is something to be aware of. Then we move into the overnight session. As I said, we kind of pushed up into the close and we actually continued that kind of momentum in the overnight Asia-Pacific session. And this is another thing that we've seen, again, stimulus related. And this was Treasury Secretary Steve Mnuchin presented a new $916 billion relief plan including state aid. And remember, that was one of the things which McConnell's original deal was looking to get a concession on in order to strike a deal. So there's a number of different things happening here, and the more proposals that there are, uh, the more then, including things like state aid, which would meet the demands to some degree of the Democrats, the more likely it is we're centering and coalescing around a potential deal coming forward. And the markets are kind of liking that at the moment. Another thing we had overnight, just so you were aware, was this, uh, China's state-backed coronavirus vaccine. This is from Sinopharm, a unit China National Biotech Group, um, they've basically come out and a UAE study has found that the Chinese coronavirus vaccine protected 86% of the people, um, it was tested from getting COVID-19 in their latest trials. And that does mean it's been granted emergency use authorization specifically in the UAE. But perhaps important because this is something that's been deployed in China, but just moving offshore, if you like, and potentially again more positive vaccine news as well, probably just helping sentiment, uh, give another additional nudge. Um, in that respect then, in the overnight session, we did see general dollar weakness However, as Europe's coming to the market after what had been pretty persistent dollar selling in the overnight Asia session, it's just reverse-coursed partially. The DXY is well off its lows now, but still down 0.2%. And so we've run into a little bit of resistance in cable around 134, and then euro at around the R2 around 121.50 in the futures. Cable here, obviously quite, quite a key one today. I'm going to talk much more about Brexit in a moment. That 134 handle, which is this top rectangle you can see from right— left to right, has been quite a key marker, if you like, for price to pivot upon as either staying below or above. And we've had a move off there. So for any of the early birds catching that 134 handle, which is that range high that we've traded in the last two sessions, or pretty much this this week, exiting out the initial moves that we saw on the initial sell-off on Monday morning. The other final thing to mention in the overnight session was this. We did have some Chinese data overnight where Chinese consumer prices declined for the first time actually since 2009, so 11 years. It came in at -0.5%. Expectations year-on-year were for 4 flat, although mostly due to a 2% drop in food inflation. Remember, we had these astronomical pork prices that were really accelerating food prices and lifting the CPI for months gone by in China. As that's fading out— so there was a 12.5% slump in pork prices when you break the data set down, and that kind of explains the weakness in that reading. Does mean, though, that a weak consumer profile is still pretty evident here, given if you take out non-food CPI, it did also still contract by around 0.1%. So the 0.4 on top to hit 0.5 negative was predominantly from the food situation. So we've had some really good data out of China recently, obviously, in the PMIs, for example, in the export data. This is the first one that perhaps hasn't quite lived up to that to quite the same degree. Still, that underlying consumer-based demand. In the overnight session, we did have in Japan, though, a little bit more positive. Machinery orders in Japan jumped at their fastest pace in more, more than a decade. But I would say with those types of figures, you do have to remember that that's fine. It's accelerating the best in 10 years, but that's because it got hit very badly. So for it to jump quite up quite quickly is not, I don't think, too unexpected. All right, well, let's talk, let's talk Brexit. What is the latest? And yeah, loads of headlines coming out. I've kind of summarized a few things here and definitely a few things that I would say I'd want you guys to be on the lookout for. So first off, PM Johnson is going to meet with European Commission President von der Leyen in Brussels for dinner Tonight, no set time, but obviously dinner. So probably the likelihood then of the outcome of those discussions might not come until very late in the evening. That does then bring about the consequence of probably quite a liquid market at that time of day, but I would imagine that most institutions will man their FX desks— on the sterling desk, that is— through into the, into the evening to make sure that that's covered. So, um, just timing-wise, I'll confirm in the Amplify live chat later on today when we know more details. Yesterday, of course, the UK dropped its controversial parts of the Internal Market Bill that would be given— well, that would have given it power to unilaterally override the Brexit kind of divorce treaty, particularly in relation to the Irish border. So that's seen as a somewhat of concession on the side of the UK to help these, these talks progress. But that does not detract from the point that that is a separate issue to the same three that have dogged these negotiations from the beginning: fisheries, competitive playing field, um, for standards and subsidies, and how those agreements might be enforced in future. So they're still the main 3 things that we're looking out for. The kind of summary here that I wrote in my morning note that I published on Twitter this morning was that sterling could see yet more headline volatility today, with a lack of deal putting Cable at risk of further downside on a more binary outcome given the emphasis particularly on today. What I mean by that is, is that of course they don't need to strike a deal today, albeit most people envisage that realistically then these European officials need to read through any agreement in time to then vote on it on the 28th of December. So ultimately it really should get done this week. However, we know they like to push the timetables, and it could be then that And that's— I actually think that will happen in the end, is that they'll get a deal done right at the end of the month and, and will be granted— which is a Brexit deal on this magnitude has never been done before— but Europe could grant then this type of grace period, if you like, to then see it through into the new year without a disorderly kind of exit through the transition process. So some of the main things here is that I just wanted to point out is that a lot of emphasis has been put on today specifically. And the reason for that is that EU leaders have made very clear, and it's coming from right at the top, so the Council head from Merkel to Macron, that the European Council meeting happening on Thursday and Friday, these negotiations will be kept off the agenda, off the agenda. Meaning then that if something's not struck tonight, well, then it's probably not going to happen this week until perhaps the weekend, if not then Monday and so on. So I do think that today's outcome of that evening call is a little bit more binary. That does also mean that I reckon you're going to get lots more source comments, leaks, tweets, and so on that could disrupt the pound, and it will remain very sensitive given how anxious people are about the end outcome of this. No-deal contingency planning, that's probably something you're going to hear a lot more about. I think it was the Irish Foreign Minister was talking about this last night. You're probably going to hear a lot more of that rhetoric on both sides, but that's prudent given the situation at hand. But it's only going to serve more to the kind of sensitivity that sterling has in terms of this pent-up, kind of, as I said, anxious market that we're seeing at the moment, which means that it can be quite whippy in price action. I just wanted to point this out and then bring in a couple of what banks are saying in terms of their forecasts if there were a no deal. Must stress, still don't see this for us as the base case scenario. But what would a no deal mean? Well, the biggest thing here is the first bullet you can see at the top: tariffs on UK exports to the EU of as much as 40%. Agricultural fisheries would be hit especially hard. The EU would lose fishing rights to UK waters, with future access hinging on annual negotiations. Trade would be hit by the full force of new customs and veterinary checks at the border. Um, lots of different things here. So understandably so then, a no-deal scenario is incredibly negative, particularly given the situation at hand with an already impacted COVID economy at this point in time. Hence the reason why most people think a deal ultimately will be cut. The reason why I'm pointing this out though is that two banks— RBC, they've come out and said, because I just wanted to give you some context, that the pound would be at risk of falling as much as 6% against the dollar if there is a no-deal agreement. And, um, MUFG warns of an 8% plunge within a week. The size being large, as again, the outcome is seen unlikely, and so there's going to be obviously a much bigger move given that would be a lesser probability outcome than the market's priced and positioned for. So yeah, a couple of things there. WTI crude, um, not too much reaction to this overnight, but obviously ahead of the DOE's, we did have the API's last night. We had a build headline of 1.141 million above expectation of a draw 700,000. Cushing draw 1.845 million. Gasoline. In fact, the biggest build since April at 6.442 million. That is pretty chunky. And distillates, a build of 2.316. But, um, Tim's going to go through that a lot more detail, uh, over the release, and he'll be trading that live for you guys on Amplify Live. He's also going to do a masterclass on actually DOE and trading those types of events this evening at 6 PM London time for those interested. Quick look at the calendar for the rest of today then. Uh, what have we got? We've had the Chinese inflation metrics. It's very quiet actually in UK, European information for this morning. So attention to this afternoon where we've got the Bank of Canada rate decision. Uh, not expecting any rate change there, rates to remain at 25 basis points. And then you've got the DOE this afternoon at 3:30. So it's a pretty quiet day. Uh, that would mean then that more than likely people will continue to dwell on the bigger macro topics at hand. Stimulus, as I've said from Monday, still a real definable, I guess, fundamental factor going forward. Now we've had some progressive movement on different sides here. Mnuchin coming to the table with his own proposal to follow up with some of the concessions, an olive branch being offered by the Senate Majority Leader Mitch McConnell, has got these wheels in motion a little bit, and the market's like what it's heard. So far to a certain degree, but there does come the point of actual delivery and agreement, and that's something we'll be looking out for. That, any other further vaccine updates of course, and then this Brexit situation. And again, likelihood is, is that we'll get some kind of short-term price movement on the back of lots of hearsay that will do the rounds going into then the dinner to be held by Johnson and von der Leyen later this evening. Of which then it's either, um, they've got the, the, uh, a deal in principle and perhaps then they need to go over finer detail. If so, relief rally of sorts. Um, probably not what I'm expecting, which is probably going to be no definable deal as yet, but they're committed to continue the dialogue. But if that happens, then obviously the market might not like it because if they can't pick up talks straight away the next day because Europe— granted, they might be bluffing— have said they're not willing to discuss it Thursday and Friday when they're going over other topics on the agenda in their European Council meeting. And, and the pound could be susceptible then for some more downside, uh, if that was to play out. All right, that is it. Gonna leave it there and let you guys get on with the rest of the day. Thank you very much. Any questions, I'll see you in the chat room on Amplify Live. Thanks very much.