Virus Concerns & Lockdowns Dominate Market Sentiment

OK, very good morning to everyone. It is Wednesday, 28th of October, so I hope you're doing well. Plenty for me to get you up to speed on, predominantly focused around the COVID-19 situation and the resulting government actions that are going to be taking place, this time really in France, but really it's across all of the major Western world, continuation of COVID cases rising, resulting in increased hospitalizations and death numbers also on the up at the moment. So preemptive action looking to be taken, more restrictive kind of measures being adopted. France is a major one we're looking out for today, and I'll go into some of the details. But that really is the overriding theme. If I look at the asset classes this morning, I would say it's a very similar vibe to Monday. Equity index futures are on the back foot. You can see here the DAX is just coming under some pressure already this morning. We've just gone through the S1 here, and really, as soon as Europe has come into the market, they've just bumped this futures market down ahead of the cash open, which is coming up in a short while. But definitely on a daily continuation, really initiated from the beginning of the week. Again, the same COVID headlines, but obviously exacerbated by one of the largest companies in Germany, SAP, coming out and basically cutting or eliminating their outlook given all the uncertainties. And that really did weigh and kind of compounded the downside. And we've reacted quite nicely to some of these technicals on a daily chart going back on a monthly perspective. First off, around that low that we had in late July, you can see the market broke down there, came back up, and it's gone back down again. And again, we, we failed to really break but got to the target of what was those late June lows, and now we're just pushing down again. And technically in the DAX here, there's not a great, great deal of further support, hence the reason why, you know, it's quite a momentum-based product. The DAX tends to move quite rapid from point to point on a technical basis, so I'd probably be looking down here at 11,757 in the futures. Uh, that area has seen some response to in 2020 earlier in the year. Uh, beyond that point then, that initial June low, mid-June, comes in down at 11,589.5. So yeah, Deutsche Bank has come out with earnings, but the reality is these days Deutsche Bank is a very small company in the grand scheme of things. So positive earning results coming out of them isn't really enough to move the needle for the overall much bigger dominant theme, which is that of COVID-19. As such then, Equity Next futures lower, so that means T-notes higher. We're already up at the R1 bottom right here, up 5 ticks. The dollar index is up 0.2%, uh, and that is weighing on some of the major currency pairs. EURUSD cable trading a negative on the session. Gold— this is the kind of usual state of play with gold. It tends to move more in step, not with risk, but with dollar movement at the moment. And so with the dollar up about a quarter of 1% in the Dixie, gold is down about $4. But, you know, worth keeping on that correlation with the dollar, I would say, is likely to hold, not unless you get a really big run in the, the equity sell-off. Um, hypothetically speaking, I think if you started seeing a 1,000-point type plus loss in things like the Dow, for example, I think gold will then start reverting back to type. But that's not happening at the moment. You know, losses on Wall Street last night were around 200, for example. Um, so for the moment, I'd still look to— for gold movement to be defined in that way. Upside resistance here, you can see, to keep an eye on around 1913 in the futures. That's been an area that the market has responded to on a number of occasions. Yesterday And also first thing this morning got rejected off that point as the dollar just started to perk up as Europe come into the market. Oil, crude oil, you can see here we did actually have the biggest build in the API oil inventories since May last night. So you can see that has bumped prices down here in this bottom chart beside my video feed. And then we've just come back down again. You often see this actually with the APIs if there is a meaningful number, like a build of 4.5 million against expectations of around 1.2 2 million, and as I said, a multi-month largest build that we've had. You get the initial knee-jerk reaction immediately after, and then you, you sometimes get some carry-through as Europe come in and react to the same data point. But again, don't forget, with oil, it's being impeded by the drop in demand expectations given the fact that more restrictions are forthcoming on the COVID side of things. So that's the overall general sentiment of things, and let's get straight into the headlines. Gonna start off then with a COVID update. I'm gonna run through some, some stats, and I guess it will add a bit of context as to where we're at at the moment. So in the UK and France reported the most coronavirus deaths since May and April respectively. Italy and Greece posted record numbers for new cases. Deaths in the UK now 367, France just over 520. As of last night when I was looking at the numbers. COVID-19 patients now occupy 57.5% of France's intensive care beds, almost 3 percentage points more than on Monday and up from 43% that was seen just a week ago. So it is increasing quite rapidly. In the UK, Prime Minister Johnson is said to be pressured for a new lockdown as the government assumes a deadlier second wave with a lower but longer peak expected for COVID-19 deaths. That was in The Telegraph this morning. While going back to mainland Europe, in Germany, they're also heading for harsher restrictions. Merkel today will propose measures such as closing restaurants and banning major events. And as per what we heard on Monday, we're looking out for further announcements to come out of France today to be adopted by the end of the week. So definitely this idea or notion of kind of a double dip recession, we definitely are in that phase of perception about the near-term economic future deteriorating at the moment, given out of necessity, of course, for the cost of human life, governments are having to act despite their political will they might have to keep the economy open. Obviously, once the virus gets to a certain status, they have no other choice at this And at the moment, countries like mainland Europe have been, and particularly France, fairly aggressive. France being right from the off one of the first to adopt quite strict measures. The UK would be one to watch given how generally slow the government here has been to act on a number of occasions. Elsewhere, looking on the US side of things, nationally in the US, current hospitalizations with COVID-19 have climbed 37% in the last 3 weeks, but are still almost, um, 28% lower than where they were during the summer Sunbelt surge that we saw in the southern and western part of America. And that's irrespective of the fact that cases have risen to a new record. The 7-day average of newly reported deaths in America as of Monday was up around the 800 marker, which is the highest in about 5 weeks. So overall, I think we were talking about this in the briefing quite a lot. It seemed like the market was so obsessive over some other subject matters like the election, they kind of really missed the beat a little bit. And now we're getting a bit of catch-up towards what has been a developing COVID situation for the worse. And so that's what markets are moving on right at this present point. Point in time. It obviously does come as well in context of things like US stimulus. That's kind of gone completely quiet now, comparative to even just a few days ago, because now we're right into the countdown really for the election, and that's really it now. Otherwise, let's have a quick look at some of the other things that are going on and what's happening, starting off with the US election. Some really interesting stuff here actually, because from an election point of view, the thing I've been keeping a particularly close eye on are the battleground states. And the reason why that is important is because on a national level, some of the, the largest areas like California, the state of New York, Texas, not really so interested in what is a deep blue or deep red state. What What I'm more interested in is what are the, what are the general battlegrounds? What's going to define then the success or not of a US election? And on this point, it's been super interesting to monitor then the battleground states. In particular, we've seen those narrow quite considerably. And as you can see here, Biden really hasn't fluctuated at all over the last 2 weeks. Is Trump, which has really over the last week or so made some decent headway on the upside. And in particular, as you can see here, Florida is now at a +0.4 leaning to Trump. So this is one of the first times I've seen— tracking this stuff every day for since I can remember, really— that Trump has actually taken a lead in one of these key areas. North Carolina as well has continued to narrow, and Biden only ahead now by just 0.7. So perhaps that's adding to a little bit of the apprehension in markets as well, because overall the more contested, the more close-run the election is, the more messy and, and protracted the end result is probably likely to be. So that could well as well be, be playing into this. But again, I definitely think the Cote situation is the dominant theme here. The other thing I thought was interesting last night was a Wall Street Journal article And this was talking about, uh, Trump weighing an executive order to show support for fracking. Uh, order is still under discussion and aimed at the energy industry in battlegrounds like Pennsylvania. Now you might have seen Pennsylvania being named a lot in the press. It's one of those ones that's really seen as a bellwether that if you win Pennsylvania, it could open and unlock the door to then, uh, really tipping the balance in the election. Now, a bit of context here. Fracking supports, um, from 20,000 to 50,000 jobs in the state alone, according to the Pennsylvania Department of Labor and Industry. Since 2018 though, low gas prices, which Trump touts as a positive for consumers, have hurt the fracking industry, with large companies divesting from the region. So definitely This is kind of politics at its finest, really, making quite strategic kind of policy pledges dependent for certain state regions, and fracking being a key one. You know, you know what Trump's like. It's that kind of age-old psychology that if you repeat something enough, then generally people desensitize to it and it becomes the truth. And, you know, he's been there in Pennsylvania, I think, 3 campaigns he's done in a short period of time, and he has that mantra of fracking, fracking, fracking, bring back jobs, and all these sorts of things. So this would be a definite move to try and control that specific type of base that could tip the balance in a very important area when it comes down to the US election. So worth, worth keeping an eye on that. Otherwise, from an earnings point of view, Microsoft They came out last night, um, they had their earnings report. Just having a look what they look like after market. They actually finished down in the end around 1.7%. They were down as much as 2%. You might be thinking, well, hang about, Microsoft sales top estimates on booming cloud demand and Azure revenue climbs 48%. What's the problem? The software maker even clocking 13th straight double-digit gain in sales. But, but herein lies a bit of a problem when it comes to corporate earnings, particularly in these kind of tech names, is that the market's just hungry for just spectacular after spectacular performance. And it's a very difficult thing to, to cultivate and continue to do on a consistent basis. And I think overall, if you look at the broader nature of their Q2 forecasts, because these were Q1 numbers that were coming out from Microsoft, given that some of the tech names report their accounting slightly different, but their Q2 forecast in some of the other divisions on a revenue basis were a little bit shy on expectations, and hence the reason why the market then generally moved lower. Deutsche Bank, I mentioned they've swung to a profit in the third quarter, €182 million of net profit in Q3. That was actually better than expected, and so as such, looking at the pre-market activity, Deutsche are up around 1.5%. Uh, but overall most of the DAX in the red, given the fact that the index, the DAX futures, are already down over 250 points this morning on just the general— I think exacerbated somewhat by technical breaches to the downside in the DAX, and you get some of that momentum forcing the price, so it looks more exaggerated. But the overall kind of negative vibe to proceedings on the back of the COVID developments. Talking about earnings, what else have we got? Coming up and what's in store. Well, on Wednesday pre-market, you've got today Boeing, GE, UPS, the kind of some of the main names to look out for. Aftermarket, Gilead Sciences, Visa, probably some of the other more notable names that will draw some press attention. Remember, Thursday aftermarket is where it's at as far as US earnings are concerned. You get the big guns like Amazon, Apple, Facebook, and so on. And they'll all be coming out on the same, same evening. For oil traders, this was another thing. Despite then the Hurricane Zeta moving in towards the Gulf of Mexico at some point later today, it's being outweighed just by a more existential threat to demand coming by way of another looming global lockdown, it seems. Compounding that with the fact that crude oil inventories last night and the API saw a build of 4.5 million, the biggest build since May. And as we looked at earlier on the chart, the price of oil has come down roughly $1.20 or so from where we were prior to these numbers coming out. So this, of course, will be the prelude for the DOE oil inventories we'll get later on this afternoon. Remember, there's still a shortened time differential between us and the US in terms of London. And so those oil inventory numbers will be coming out at 2:30. So just be aware of that. Don't get caught out. Uh, the Bank of Canada rate decision, uh, that's probably one of the other major things that are happening today. But overall, um, the CAD currency is quite sensitive, of course, to this type of major announcement, but we're not expecting any real policy changes, but a general cautious tone is probably likely to come to, uh, the forefront there in their policy statement. Otherwise, from a data point of view, it's very quiet. And so when it is quiet, that for me tends to draw investors' attentions towards some of the bigger top-level macro themes. And certainly that will draw more focus on the COVID side of things. From a speaker's point of view, you get the post-break decision, Governor for the Bank of Canada, Macklem speaking at 3:15 London, Fed's Kaplan speaking after market. And then there's a couple of bond auctions for those fixed income traders, notably a gilt auction 2030, a Bund auction €2 billion worth, and then a 5-year, $55 billion US 5-year note auction as well. But look, that is it. I'm going to keep it nice and short and to the point. The overall take, as I said, looking at the charts this morning A little bit of a negative start to Europe, very reminiscent of what we had on Monday, with being that continuation of just pricing in the impact of what increased COVID measures are going to have on just economic activity. It's just getting priced in at this point in time. So stock futures a little lower, dollar a touch firmer, T-notes higher, and oil lower. At this present point in time. Okay guys, gonna leave it at that. I wish you a very good day ahead. Thanks very much.