US Stocks Back To ATH Ahead Of US Non-Farm Payrolls

Okay, very good morning to you. Hope you're doing well. Happy Friday, 5th of February. Uh, just a quick shout out to the Amplify Live community. It's been a really great week just for the guys trading, but also in terms of content. I had a really great interview with one of the traders who's going on to bigger and better things, joining one of the biggest remaining kind of prop firms, Geneva Trading, based in Dublin and Chicago. So good luck to him. And then we've had a really great session and an update in depth about the vaccine situation and the ongoing global rollout program, which is really critical to understand then the, the shape of what the future looks like in the coming months, particularly the second half of the year. And then We've had the, the live streaming sessions from the Bank of England yesterday. We'll cover the NFP in full later on this afternoon. So remember, if you are watching this on YouTube, this is delayed because the Amplify Live guys get it early. So remember to check out the link below if you're interested. But otherwise, look, let's get straight into the market and talk about what's going on today and a little bit of a look ahead to non-farm payrolls and what we can expect there. But really, I just wanted to wrap up the week with a quote. And don't worry, I'm not going to start spouting haikus at you. I'm just going to talk about someone, uh, a piece I was reading, and they said, quote, the virus is getting incrementally better at the very same time the earnings season economic data seems to be showing improvement. I think that's a really nice summary generally of what's going on in markets right now. Remember this week what we've had, and this is this week alone. You've had ISM non-manufacturing PMI, the highest since February of 2018. Um, in terms of the manufacturing, the highest since February of 2019. ADP, 174,000 against expectations of 49,000. Weekly jobless claims, the third straight week of declines in the lowest number since the last week of November. Amazon, Alphabet, you know, smashing $100 million— $100 billion, I should say— revenues in a quarter. So overall then, all of that has come in the context of Federal Reserve officials continuing to push against any notion of tightening, irrespective of the economy showing some signs of heating up. Now, one of the latest was Esther George. She is a non-voter, but she spoke last night and she said the Fed are still, quote, far away from achieving its goals and it would be premature to start a debate on scaling back its massive bond buying program. Again, very similar to what we heard with Evans the previous day and Bullard and others. And, you know, someone like Esther George typically is defined as being a hawk. And yet she herself is saying it's far too early to start calling it the end of the bond buying program. So I think overall you've got a bit of a perfect storm here when it comes specifically for why equity markets are moving back to all times high, all times high. You've got a bit of momentum picking up economically, supported by the lower for longer mantra, which is definitely here to stay. And the idea being that the people who are pulling these levers, making these decisions from Treasury and Yellen to Powell at the Fed, everyone is there to provide this supportive environment going forward. So let's have a look at some of these charts and really encapsulate that mentality, because here is the S&P 500. And technically then, uh, an important breakout we had in price activity going into the close. So that usual kind of flush in volume going into the close on the NYSE last night just saw us push through that double top and fresh all-time highs then. And then as we drifted in the futures in the overnight Asia-Pacific session, bit of that momentum just fatigued after the close, and then Asia just took it on as well. Again, in terms of the kind of geographic sentiment, it's definitely being— Asia definitely has its own unique domestic narratives, but definitely not moving the global kind of sense of sentiment. And that's definitely being derived from generally higher close on Wall Street. Asia generally following suit. And in Asia, we've drifted up, futures still pushing on up. And if we look on a daily on the S&P, you can see then quite clearly that 3860, which was that kind of obstacle that restricted price at the end of January, broke that last night. And that's now providing a degree of support to price. And, you know, looking on the upside today, Whether it does or not, the idea is here, this market, I still feel for 2021, is not just going to 3,900, it's not just going to 4,000, it's going higher. So all things remaining equal, I think there's enough of the groundwork set on the just general summary of what I was just describing to see equities just continue the upside trend. That doesn't mean, though, but as we go up, we don't have the odd afternoon or day of pullback, but that doesn't detract from the trend, which is, you know, this is looking on a daily since November that this kind of trend just continues. Perhaps the acceleration of the upward gains starts to decrease slightly, but the market's still in a bullish mindset, I think, going forward. And I think US equities have got plenty left under the bonnet. Otherwise, elsewhere, what was really interesting about yesterday's session was a lot of the dollar-based movement. And this is a look at the, the Dixie, looking back to really encapsulate the, the story of the pandemic. So here you can see the initial volatility, the push-up on the kind of flight-to-quality bid into the dollar at the depths of the sell-off that we saw in March in global equities. And then generally the response, obviously coming heavy-handed from the Federal Reserve Reserve to instill ultra-loose monetary policy, and that's just seen the continuation of dollar weakness. But taking the reference point from the May high and a retest in November, um, we had yesterday— this is something I was talking about a lot as a trigger point then for subsequent movement elsewhere, and I'll explain this now— is that the dollar broke out after two attempts on this trend line yesterday, and that coincided then with EURUSD breaking in a very meaningful area, which was 1.20. So we did, looking at the euro-dollar futures here, close below 1.20, and that is meaningful from a technical point of view. It's a big level psychologically. It's one in the past of which the ECB has used as a bit of a reference point in terms of their uncomfortableness in terms of the euro level, and it's acted as resistance before, and that was a real sort severe about-turn previously back in September, uh, when the ECB originally voiced their concern. And you can see there it was strong resistance, and here how meaningful it was when it broke, because that really saw the euro fire up, and we eventually moved up even 4 points higher than that in the following weeks thereafter. So we're back below that point, and that was what was interesting. The initial Dixie trendline break, that then led to The euro was consolidating at the time around this 120, but when it broke down, that further lifted the dollar, and then subsequently that started to weigh on some of the precious metals. So here we saw a nice breakdown in the gold price, and you can see we dropped down to around 1811. You can see how technically driven the gold market is in— and momentum-based when it breaks these levels. So under the prevailing strength of the dollar, which has been persistent this week. You've had gold consolidate. 1833 was a big level that breaks, the price comes down pretty quickly. And then again, the 1811 was a big area and it dropped down. And this was yesterday afternoon amidst some of those currency moves. So we've recovered a little bit here, just breaking out now of some of the Asia-Pac range. You know, it's got a bit of room to the upside. 1800, of course, is psychological. And 1,800 is noteworthy given that that was the low we had back on the 19th of January, as you can see here. So these were a lot of the technical points that were helping assist some of the downside sell-off yesterday. And similarly, silver was a, was a similar price pattern in terms of it broke through the lower bound of its trading range for the time being. So at the moment, the BIXI is flat pretty much. So not having too much of an impact on markets right now. But the point is it's held on to its relative gains throughout the week, which has been a pretty decent move in the greenback. For cable, of course, yeah, really powerful move on the back of the omission really of any great detail in the statement or their policy report about negative rates. So it's definitely the idea I think that the Bank of England wanted to convey yesterday was that, look, We are talking to banks, we're getting them to prepare for the what-if scenario if negative rates do need to be adopted in the future. But the idea being is that, yes, Q1 perhaps growth-wise looks a little bit more tepid than perhaps what they previously saw back in November's projections, just given the variant of the virus and the subsequent lockdowns we've seen. But the second half of the year looks promising for a strong return, and that therefore rendering further stimulus in a policy sense like negative rates not really appropriate. If all things remain equal, and that is the deployment of the vaccine— vaccination program goes as it has been, which is fairly successfully. And so we had a really big about-turn in sterling. And yeah, we've got a couple of speakers today. Bailey himself, you've got the, the deputy also speaking, Ben Broadbent, later on this morning. So Broadbent 10, Bailey 130. I wouldn't expect them to say anything new. I wouldn't be looking for them to really shift the communication from what the Bank of England said yesterday. But again, another, I guess, meaningful cushion with the vaccination situation has helped sterling somewhat outperform a little bit the euro, which technically now also is, is going to trade perhaps a little heavy now it's through that 1.20 for the time being. And then following on from the all-time highs in equities, that, that kind of narrative then of this kind of semi-Goldilocks scenario, um, means that oil prices are still just loving life for the time being. And again, we've had a couple of meaningful kind of technical platforms for price to work off, which originally was around this $56.25. We broke through that yesterday evening, and then we've just accelerated up. And then in Asia PAC session, we've had a bit of a floor for price, of which it is just now testing. But even if we did pull back today, I mean, if you're looking on a daily continuation, it's been such a great week for oil. And, you know, yesterday we found a bit of hiatus at around that $56 handle, which was what we were looking at for a target to book some of the longs on the break, break of that Feb 20th, 2020 high. And now we had pullback, decent pullback to $55.30, but here we are back trading $1.20 back above that area. And having got above that zone of resistance, really upside technically on the daily chart, I don't really see a great deal until we get further up to 5736. So how that plays out, I think, um, a solid payrolls— and we'll talk about payrolls, let's just talk about payrolls now. So a solid payrolls, I think, is very much, um, kind of priced into the market. I think if you did get a good payroll report, perhaps you just see a bit of a continuation but in a moderate sense to the general directional trends that we've had, which is kind of equity strength. Dollar maintains its kind of bid from the week. And we have yesterday seen a sell-off in 30-year Treasuries pushing the US yield curve to its steepest in more than 5 years. You know, don't forget as well, there's still this idea that stimulus, a large additional injection of economic stimulus, is still forthcoming, albeit it might be watered down as it goes through its various kind of procedural passage in Congress. That with the global growth expected given vaccination drives gathering pace and, and with payrolls kind of feeding that narrative just is why we've seen the moves that we've had in markets this week. And, you know, things like the whole GameStop situation, you know, that's a distant memory now. And as we were saying at the time, not one that global markets are really looking at. It's a very concentrated small catchment of people that are looking at those things that doesn't reverberate out to the broader market. But as far as non-farm payrolls is concerned, then I guess for me it's about appreciating the market's positioning. We've had a slew of good data, as I just mentioned, from the US, and that does mean then that expectations are for an upside print because the actual consensus is kind of like with ADP, was around 50K for the headline, but definitely markets are sitting on the higher end of that. ADP in itself was 174,000. So yeah, looking at the employment constituent breakdowns of the various different things that we've had this week, they would all be indicative of a positive report. So yeah, the disappointment then is what if it's not great? And just given that market positioning, do we get a little bit of a pullback? In the— in summary, it doesn't really matter, non-farm payrolls, because that might create an intraday interesting movement if it is weak. Do we get equities and just book profit going into the weekend? We see a bit of a pullback that feels heavy, but in the, in the context of the week's gains, it's really quite marginal. And then with the dollar longs as well, profit taking, just looking to just come out of some of that, and the euro just drifts back up to 120. That could well be a scenario today. And maybe you get some bottom feeders coming down in some of the precious space just to lift things up into the close under those conditions. But does it really change the, um, the idea of what the Fed are going to do and the tactical approach of just being far away from anywhere near discussions about ending bond buying? No, it doesn't. So beyond today, I don't think it really changes it. And hence the reason why some of these patterns that we've seen form throughout the week might just continue, uh, thereafter. But look, a few other things to briefly mention away from that. That's kind of the overall, uh, take and generally the most important things. A couple of side notes on the vaccine front: Johnson Johnson have asked US drug regulators to clear its COVID-19 vaccine for emergency use. If cleared, it would be the US— a third vaccine for the US after Pfizer-BioNTech and Moderna of which their kind of rollout strategy is being heavily dependent on. Again, we— you know, I did a really great chat with one of the guys, not me, the content really coming from him, one of the guys in the community on Amplify Live. If you would like me to share that, then I'm happy to do so. Just drop me a comment in the link and perhaps I can put out an edited version over the weekend on the YouTube channel. But, you know, for me, understanding really the situation with viruses, although it's not like we're seeing these headlines driving markets, but from a macro perspective over the medium term, that is the critical key to understand where we're at there. And with the vaccine and distribution and rollout, as to then timings and what the geographic timings would be on the economic recovery that we could see through the second half of this year. So it's really important to to understand that stuff. So J&J looking to get that US approval. Separately, the FDA in the US are drawing up new rules to make it faster to approve treatments and vaccines for the new variants of COVID-19. And then the last thing is, I thought, just an update generally because people don't really mention too much at the moment the numbers in cases and hospitalizations and so on in the US. What does that look like right now? Well, hospitalizations yesterday fell below 90,000, and as a marker, that's the first time that's happened since late November, so a couple of weeks. While cases though have risen by the most in 5 days. So this is one of those— this is another key reason why this kind of Goldilocks scenario exists. So the economy is, is heating up through macroeconomic data points, as we can see this week. Earnings looking generally robust, but COVID-19 in itself is still a long way from going away. And so the Fed and policy officials, whether government-led with their federal, state-level strategies, or from a monetary policy perspective, don't have a choice. They've got to keep They've got to keep the stimulus checks coming. They've got to keep a low lending environment coming. And that's why you're getting this kind of perfect storm almost for equities just to continue back to all-time highs. The other thing I just wanted to mention was Italy, just very quickly. Yeah, definitely got the call wrong yesterday thinking that it would take a bit of time perhaps for Draghi to pull the relevant strings in order to form a government. The latest is that Italy's PD Senate chief expects Draghi has an 80 to 90% chance of forming a government. And without getting too bogged down into the details, basically, if you look at the, the kind of strategy of who he can talk to to acquire how many votes to form a government, and it's basically in any shape or form depending on which way he goes, it's looking likely he will be able to form a government. And as we know, Draghi, an incredibly well-respected individual, uh, both from a political standpoint but also from a market's perception. And yields in Italy have just continued to fall, and we've broken out of that important technical range in BTP futures at 52.14. You can see here the high on the 20th and this area of resistance we've had throughout the week since that aggressive gap up on the confirmation of Draghi towards the beginning of the week. And BTPs just continue to rally into the close yesterday. So upside targets, um, you've got the previous high we had, which is the year-to-date high in BTPs, um, at 52.66. All right, quick look at the calendar. So aside from Non-Farm, what else is going on? Well, the UK and European morning is very quiet. There's nothing really of magnitude to be aware of. So all things being equal, it could be quite quiet in the run into the jobs data. Payrolls hits at 1:30, so I'll be on the live stream with the team, uh, 1:30 on Amplify Live. And then going into the afternoon, that really is the, the main thing to look out for. So with that, I'm going to wish you a great session ahead. Have a great weekend, take care, and If you're watching this on YouTube, as I always say, really appreciate it if you could like and subscribe, help grow the channel, and hopefully other people can benefit from this, this macro fundamental rundown every morning. All right guys, take care.