US To Unveil the Worst GDP Report Ever Recorded

Okay, very good morning, hope you're doing well. It's Thursday the 30th of July, obviously another big day for markets because we've got the Advance Q2 US GDP number coming out later, expected to show a contraction of 34.1% in the US economy. We've also got kind of mega-cap tech earnings day after market. If you think about it, we've got the likes of Apple, Amazon, Alphabet, and now Facebook, which was delayed from yesterday due to a court hearing, meaning that those 4 companies alone account for around 35% of the entire NASDAQ 100 reporting after market today. Firstly, just thank you again for everyone who attended the webinar that we hosted on the YouTube channel yesterday. Don't forget, if you're new to the channel, to like and subscribe. Content coming every day of the week, including the weekend, so hopefully it's all useful for your further development. But let's get straight into it. Let's start looking at the charts for this morning. And what is it that we've got? Fairly quiet, actually. This comes on the coattails, of course, of the Fed yesterday. And actually, I'd say, you know, looking at the price movement here, it's very minimal. I'll discuss a little bit of what Jerome Powell said in the statement of the Fed and so on. But ultimately it didn't really deviate too much far from the tree, so to speak, of what we were expecting. And that's kind of replicated on the charts this morning. So main takeaway points here was about the Fed sticking to the mantra of doing whatever it takes, with no sign of the virus easing at this point in time. And so if you actually look at things, equity markets in the US did finish a little bit higher, a bit mixed overnight in the Asia-Pacific session. There's been a lot of earnings out already in the likes of mainland Europe and the UK. It's probably too many for me to, to comment on individually, but as I said, you've got another big earnings day coming stateside as well, particularly after market. So equity index futures, not too much going on to be honest, and that is a reflection across other charts as well. Just drifting off a little bit those, those recent highs. The DAX still caught within a relative range from some of the price activity from yesterday. In the currency markets, yeah, the dollar's having a little bit of a comeback. It's up about 0.1% this morning. Again, any of these kind of movements that we see in the dollar where it has come back— it did do this about 24, 36 hours ago— before then it moved back lower again. I think, I still think that trend is in place just given what's happened in the, from what the Fed is saying. You know, there's no way that they're going to do anything other than further, further easing at this point in time, particularly with the way that the virus is developing, not just in North America but globally at the moment. In the currency markets though, quite a significant marker symbolically, I guess, that's been hit, and that came around the time of the Fed decision last night, which was 1:18 here I'm just looking in the, in the futures at the euro, whether or not you'll get a little bit of profit taking. You can see that to a certain extent last night we ran up to around 1.1819 and we're off about 50 pips from there at the moment, from where we were at the peak shortly after when Powell spoke last night. So yeah, probably a bit of short-term profit taking just given that aggressive run-up that we've had in the euro of late. So just drifted a little further south Quite a lot of attention and headline coverage, of course, toward the emergence now of coronavirus picking up in a couple of the hotspots in mainland Europe and in the UK. The UK Health Secretary Matt Hancock just came out about 5 minutes ago talking about he's worried of a second wave, must tackle any second wave that starts to roll across Europe. This, of course, follows Boris Johnson's commentary earlier in the week and what's been developing in Spain and other countries. Um, so yeah, definitely before you had quite a nice clear divergence between, you know, quite clear positive narrative for the euro, negative for the dollar. Now I guess with a lot of that recovery fund seemingly now somewhat priced in, um, the, the situation developing on the European COVID front could be then a bit of a stumbling block to just put a little bit of a cap on that near-term rally for the time being. So definitely worth keeping an eye on, and I think reasonable to see some profit taking given how quickly the euro has moved up over the course of the last week, week and a half or so. Cable similarly just backing off the 130 handle, basically flat. As I said, the DXY, although off its lows, is, is only up marginally. In the gold market, I guess this you could define as a period of consolidation now after what had been such a phenomenal rally, um, having hit then 2,000 here in the futures just what, yesterday, you know, in the, or the day before in the Asia Pacific session. We had a retest of that, some of the fluctuations around the Fed. I mean, if you actually look at it, the price range on the candlesticks and around that hour worth of price activity was you know, good $40 or so. So still pretty, pretty jumpy on price. Um, and with the silver market, we've had a little bit of a breakdown through what was an area we were just watching technically last night, um, as we broke through $24.20 again. And that's just led to a bit of a push further down. So if we continue to move lower, maybe that previous high that we had, which was the, the high back on the 22nd might be an area to keep an eye on. And then you've got that S1 level, which was around some of the lows that we had going back to the 28th, so 2 days ago. And then the key level will probably be down here at around 2335 if we continue to remain heavy, which was that area of resistance and support that we had back last week. Elsewhere, Treasuries, uh, pretty flat. The overnight Asia-Pacific session was, was very quiet. You can see here, and the 10-year bumped up a little bit on the back of the Fed, but we are just talking here a matter of ticks. So not by any means was it a sizable move. And then the oil market, pretty disinterested by things at the moment, but there is some Saudi commentary I'm going to cover which perhaps could be quite interesting about capping the upside. Let's go into the, the commentary then. What did the Fed say? Very, very quick overview. They vowed to use all tools to support the, uh, the recovery from the economic downturn that Jerome Powell called the worst in our lifetimes. So pretty sobering speech, but I guess that's what you're to expect. And it does come again ahead of today's GDP number, which is going to be horrific, but a lot of that obviously already priced in. Powell repeated that the coronavirus pandemic poses considerable risks to the outlook over the medium term. That the federal funds rate would remain near zero until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals. Well, if you're going to define it then by those two kind of traditional mandates, then it's going to be a heck of a long time before those goals are achieved. And so the market taking heed then that the Fed are going to remain in ultra-accommodative mode for an extended period of time. The Fed said they would extend emergency swap lines with some central banks until the end of Q1 of 2021, as well as temporary repurchase facility for international money authorities to swap treasuries for, for dollars. So again, similar to what they had yesterday, the extension of some of those other emergency lending programs as well. The Fed are just doing everything they can to just maintain calmness and stability in markets and to say that basically they'll, they'll do whatever is necessary. And as far as the market reaction is concerned, that was fairly in fitting, I think, with what most people were anticipating given the deterioration we've had in the general US economy since the last meeting back in early June. So yeah, enough I guess to keep a floor under prices generally, and particularly in the equity market as well at this point in time. Other things to be aware of from overnight session, just a quick mention that AUD/USD is a touch softer this morning. It's about down about 22 pips in the futures. And we did have some CPI numbers overnight. Um, in fact, it wasn't quite as deep a negative number as analysts were expecting. It came in at -1.9%. Expectations were for -2%. But I guess symbolically, the quarterly drop was the largest since 1948 when the data was first recorded. Um, the main things here were declining consumer prices, mainly as a result of free childcare plummeting 95%, and a fall in preschool and primary education down around 16.2%. Cost of fuel also, um, drove move to deflation. The cost of fuel plunged nearly 20%, uh, just given some of the fluctuations to the downside we were seeing, remember, over the prior quarter for oil prices generally. So some of those things, of course, like the fuel price, very temporary in nature as to the, the school fee situation. So I don't think the market should be too overly concerned about that figure. And as I said, it was anticipated by analysts, so it wasn't actually that far removed from expectations. It's just such a dramatic and quick fall that we've seen in CPI into negative territory. And the one thing, of course, though, with the Aussie to keep in mind is really two things. One is the situation still developing with this confrontation ongoing at the moment with China, which obviously has great connotations or threats to then the economic recovery, um, any deterioration in that relationship for the Australian economy. And then secondly, um, just want to quickly flash over to the COVID situation. Got a bit of a selection of different geographic areas globally, from the US to India to Australia. But the Australian PM Morrison came out overnight and was talking about the coronavirus spike in Victoria state, he said, is very concerning at this point in time. Follows a record increase in cases for the state, which surged by 723 cases and prompted a mandatory wearing of masks now fully across the entire state in Australia. So yeah, at the moment, certainly, uh, Australia, Spain, India, which encapsulates quite a few key different areas— Spain for kind of the mainland Europe, they're definitely the the one that's accelerating the most rapid at this point in time. Australia has been trying to tackle this emergence of this latest outbreak over the course of the last 2 weeks. And India has just continued, really. There's been no, no, no sign of that peaking anytime soon. And so, you know, it's interesting because we look at a lot of these prices and I was looking at this chart earlier. This is the Google Mobility Index, and you know, something I've, I've talked about before. But interestingly, the Google Mobility data shows the average time spent away from home and at work is 15% lower, so generally 85, than the normalized pre-COVID levels for the third straight week. Now the reason why I think this is quite interesting is that if you look at it, markets saw this just, you know, incredible recovery after that March rout. And that came in lockstep with the idea that at the time the first wave, let's say, was starting to plateau and decrease, particularly in mainland Europe where stringent and fairly rapid lockdowns helped to control and contain, let's say, the severity of the outbreak in itself. That meant that then economies could start to reopen That was happening through kind of May and June, and this number was moving higher, which obviously is a kind of net positive, meaning that things can start to pick up again economically in terms of activity. However, as I just mentioned then, um, we've remained here below— well, in terms of this, this tracking here, we've remained pretty much at 85 for 3 straight weeks. And so this idea about data points, they've been easing. You know, we look at US consumer confidence, some of the other economic data points we've had of late from America, which were over and above expectations, are now missing expectations. In particular, the mobility index has stabilized after what had been a recovering trend. So, and the COVID situation globally, if anything, looks like it's getting a little worse at the moment because particularly with these fears now of a second wave in such a populous and important area for the global economy such as the eurozone. So it's just interesting to see then what that could mean for the likes of oil prices, for example. You know, oil, similarly to equities, just had this almighty recovery over the course of May and June, which was when we looked at that mobility index, is when things were recovering quite sharply. We then had obviously this unprecedented OPEC deal. They rolled it over in terms of how long they're going to apply it. However, with OPEC, all of the deals that they, they strike are generally quite short-dated by nature, given how difficult it is to get everyone to agree to a certain course of action. Now, we did have a break above a very key technical level, uh, obviously in the last 2 weeks or so, which was around $41, and that did lead to a bit of a run-up in price up to around $42.50. But Since then, we've really just sat at that level. We haven't pushed on, which some might have been anticipating. I think a lot of this is to do with the fact that, you know, with the COVID situation, with, you know, places, key economies, even on a state level in America like California unwinding their reopening process, things looking a little bit more tentative in the UK, particularly, you know, this quarantining measures with Spain. Spain's situation domestically getting worse now. That's going to stoke fears across what might happen then the rest of mainland Europe. This is going to have back to that demand implication again, which caused that complete destruction of it back in March. Now, it's definitely not going to be to the same severity because we're much more well placed now to anticipate this. What I'm saying is that could well cap the upside because people are going to get, you know, ever more worried about here what this means then for the global demand for these kind of commodity-based products, particularly if things like you know, quarantining, that's going to have a massive impact then on air travel and tourism, meaning then a demand for these fuels and things like that is going to decrease once again. You know, so very problematic obviously for those certain sectors in tourism, hospitality, but also the airline industry, but also the consumption generally of fuel. And you know, one other thing here as well is that, you know, if you think about the performance of China and their economy, which has been relatively stable-ish and it's been okay, you know, they're a country that's largely dependent on the rest of the world performing in order to import their goods. And if the rest of the world is being impacted now by an increase in COVID cases, well then that's quite, quite worrisome then on an entire global level, which is not good on that supply and demand equation when it comes to crude oil prices. So I guess pretty fair pegging at the moment for where we are with price given the supply cut deal that's in play with OPEC at this present point in time. However, at the moment, I guess it's the demand side that we're just monitoring with some interest. And, you know, on the news front with oil, Saudi Arabia is seen cutting oil prices as fresh supply meets demand slump, which is what I've just been really talking about. So, so basically Saudi Arabia has got little choice but to reduce the price of oil at this point in order to just keep it, keep it up. So yeah, it's just quite an interesting juncture we find ourselves at, over the bigger picture rather than just the intraday. A few other things then to talk about. Calendar for today, we've got the German state-level CPI numbers coming out throughout the morning. We've also got the German flash GDP number for Q2, quarter-on-quarter expected at -9%. Um, so much more severe downturn from what we just caught the tail end of when the coronavirus first began, which was a Q1 reading of -2.2%. Um, otherwise going into the afternoon is where the real focal point will be from a data point of view. The Q2 advanced GDP number, let's just have a look, it's expected here to come in at -34.1%. And, you know, this is looking at going all the way back to the last 70 years of change in GDP quarter on quarter in the US. And it's just phenomenal to, to see it in a graphic like that because, you know, that was the— that was about as bad as it got during the financial crisis, which was around -9% or so. And that has been seen back in the kind of early '80s, also in the late '50s. This is a whole different ballgame. But that's explainable because the fact that this is a global health crisis, meaning that the immediacy of it, its impact is very rapid. The idea here is though that yes, it could move markets. The expectation is for a decline of say 34%. The range is -40% as a worst case on the street. The best-case scenario would be a contraction of just around 22%. So there definitely is a range of expectations here, and if we were to get, say, a -42%, -45% type reading, sure, that would be quite considerably worse than what we were expecting. And in that type of situation, sure, you might get a bit of a knee-jerk reaction. But as we've always said, you know, there's two things here. One, markets are already kind of priced for the idea that this is always going to happen. You know, largely pricing of this type of figure we're about to see become reality today was why we were selling off in March. But then two, you've had Jerome Powell come out last night and he's come out and basically said that, look, we'll use all tools at our disposal, things are going to get worse, um, but we'll continue to support things through every mechanism we can. So I don't really see it having is that bad a thing? And it becomes one of those situations where even if it did come in at a severe -45%, it's kind of like, well, just means the Fed then have got to get even more proactive with what they're already doing. And at what point then does really bad become actually quite good in some kind of counter-logic way? But anyone in markets will know how that monetary policy kind of plays out on prices. So yeah, I think there's definitely— this is going to obviously capture a lot of the broad— broad awareness of headlines and media across the world today. How much its implications are for the market, I think, is probably to a much more lesser degree. The other thing though we do get at the same time is the initial jobless claims. This did have a little bit of reaction in markets last week in a negative sense, and that was because of the fact that it actually ticked up for the first time since March Uh, I wouldn't anticipate this to have again a dramatic impact, um, not unless we saw quite significant lift in this figure. And you would expect probably this figure to drift upwards ever so slightly probably over the coming weeks as a reflection of what has been the developing nature of COVID in America and this inability to continue that reopening which was helping people get back into work, of course, before. The final thing I wanted to talk about, um, just to wrap things up, was earnings. Such a big day for earnings. Facebook, yesterday they had their House Judiciary Antitrust Subcommittee hearing, which meant that their earnings, which were due for Wednesday, have been bumped and they're actually going to come out after market today. So that means now you've got Apple, Amazon, Alphabet, and Facebook um, which is about 35% of the NASDAQ 100, all reporting at the same time, which smells like trouble, um, but could equally be positive. I'll, I'll dig out all of the expectations and any key areas, and I'll share those via our Trader Zoom room. And also I'll tweet a few things later on tonight as we get closer toward the release. But certainly just given the magnitude of these names, um, I definitely would be watching these later on tonight. I guess one thing is, is that, you know, those collection of stocks have really just absolutely outperformed the market by such a huge extent. It was kind of like with Microsoft, you remember, um, that we had last week, and their numbers are actually pretty good, and their, their cloud division, which is probably the one area of which analysts watch most closely and defines their post-market reaction, was actually a really strong double-digit number. I think it was in the 40%. It's just that it's not as good as the 50% we saw in the prior quarter. So it's almost like the bar is so high, the share— the stock prices are so stretched that in order to then add another 5% on top of that, you know, these numbers have got to be, you know, something special. And so I'd say on the balance, the risk typically is to the downside with a lot of these. But we'll see. As I said, I'll, I'll cover that more, and I'll share all of the, the post-market reactions as they happen in real time. That is it. No much more for me to add. Again, summary this morning: pretty quiet overall. There's no real one deciding driving force moving markets right now. The Fed, relative calm reaction in markets to what the Fed did yesterday. It was more of a reiteration of their dovish kind of stance, if anything, just paying heed to the fact that conditions have got worse and pose considerable risks. And so therefore they'll continue to remain in place. So yeah, that's it at the moment. I wish you a good day. Any questions, of course, so just feel free to leave me a comment. I'll be happy to help. Alright guys, have a good day and take care.