Virus Concerns Weigh But Keep Calm & Carry On

Okay, very good morning. It is Wednesday, 21st of April. Hope you are doing well. I'm back after 2 days off and I definitely feel much, much better now. The cough almost gone, and I think it always helps to have a couple days off away from the screens to just add a bit of perspective generally to what you're doing, whether trading looking at markets or just any projects that you're working at. So raring to go and happy to get stuck back into things in the Amplify Live room today. But as per usual, I'm going to give you a quick update on the close, what happened in the Asia-Pacific session, and then generally an outlook for the day ahead. And yeah, definitely it's interesting because obviously, as I said, I've been off the desk and haven't really looked at markets since Sunday when I issued to kind of my note for the week ahead. And very very interesting to see just the bearish commentary that I think that was emerging from some of the news I was reading last night. And I guess the first thing that I wanted to say was, was really twofold on that point. I saw that Wall Street closed down, a pretty uniform close. In fact, we were down about 0.7% across the major 3 US indices. The point being, it was the first back-to-back slide we've seen since March for US equities. And so one of the things here is that I, I looked at the chart and for me I saw we, we pulled back a little bit. And when I was writing my note on Monday, I'd already saw the, the kind of weekend activity on some of the brokers that we were going to open down a little bit, a marginal gap down. But keeping in mind on the daily chart just how far and how quickly we had rallied. I was looking at this this morning, and really from around my birthday, when we were down around the lows on the 26th of March, we've basically rallied about 8.5% to get to the point of the record high that we have seen in— looking at S&P futures here, 4183.5. We've actually come off here with the 2-day decline that we've had, about 1.5%. In actuality as well, if I just put a rectangle on here, we pull back to fairly interesting technical level short term on the dailies, which is around 4110.5, uh, an area of previous, um, support that we've seen since around 13th, 14th of this month. Any breakdown of here, I'd probably be looking then for this area of resistance we initially were encountering back at the beginning of April, 4072. The deeper pullback then would be around the psychological 4000 level and the previous all-time high seen around mid-March. The point being is we've rallied pretty consistently over the course of a number of weeks, and to see a bit of short-term profit taking, uh, I think is not that unexpected when you think about the things that have been in play, um, from the vaccines to the stimulus. And with earnings, I think with a lot of earnings, the numbers that we've been seeing, if they are the ones that have been good— and we'll talk about Netflix in a second— but the ones that have been good, it's almost like markets, of course, always forward-looking. A lot of this acceleration in the equity market that we had been seeing was expecting these kind of blowout numbers. And when the blowout numbers come, it's a very little meaningful surprise as far as how markets against this market positioning. And so we come off a little bit, you know, it's not really adding further fuel because it's already It's already— the moves happened to that respect. So I guess the thing I wanted to say was just a little bit of perspective. And maybe it's easier for me to say that coming in. I definitely know what it's like being an intraday person where you get quite absorbed into the news flow, and certainly there's a negative tilt to the overall news sphere right now. But, you know, coming in for me afresh, looking at this as kind of the beginning of my week now, I don't actually feel that, um, that, that, that kind of nervous about what's been happening in markets here. Definitely I will talk about the COVID situation, but don't forget the worst thing of the COVID situation in India, Japan, I was talking about that in the briefing over a week ago. And so it's not an entirely new thing. So for me, I think yes, those situations are getting worse, and I'm going to run you through an update on that in a moment. But I think it's the combination of this, just the, the breakout we've had on the upside and the consistency of that incline we've seen in US equities. It's all just come at the same time to just initiate some of this initial downside. But the downside we've had definitely doesn't make me feel particularly nervous about US equities at this point in time, because if we came lower down, 41.10s, 40.72, 44,000, I think we get buyers definitely down at that lower level for sure. So I don't think there's room to really hit the panic button just yet. Definitely though, you know, coming back to the here and now as well, elsewhere in the other markets, in the currency market, you know, just check out the dollar's performance over the month of April. I mean, the dollar's been getting hit, um, quite, quite badly. And so to see a bit of an uptick as what we did do yesterday, and that's just pushed the pairs in euro-dollar and cable off their highs. I don't think that's surprising either, um, in this environment. And certainly, I guess, there is a risk-off tone, a little bit of a move back into the dollar, and then we just see a bit of a pullback there as well. Um, gold perhaps gets back a little bit of shine upside. I'll be keeping an eye on the high that we had in Monday session that came at 1790. We're trading and finding a bit of resistance at the moment, just testing up and around the R1 in the futures. There's $17.85, up $7 at the moment. WTI crude certainly as well, kind of conforming to the general risk-off tone. But again, a bit of perspective, I think. I mean, if you look at— remember what happened in the prior week, we had that big kind of technical breakout, um, the surge in prices that came back on the 14th, and we, we kind of peaked then right at the, the end of— well, actually, this was where we were yesterday, in fact, and we were up trading at around $64.38. I know at the time there were a couple of headlines talking about the US House panel advancing a bill allowing antitrust suits again against OPEC, and that did come amid this kind of rollover in price when we were seeing some aggressive downside. But I must say that actually, with that type of legislation being put forward in the US, we've seen similar plans to pressure OPEC on oil prices, um, in Congress without success for the last 20 years. So this NoPEC movement, if you like, in America, of course they're going to be somewhat, um, dissatisfied about the apparent cartel that a lot of Middle Eastern African names have on the price of oil. It's never gone anywhere. And to be quite frank, I can't see it going anywhere given the relationships that the US has that are integral then to its acquiring of crude oil from the likes of Saudi Arabia and so on and so forth. And they need that relationship, they need presence in that region. And so the idea that that legislation could go anywhere against, you know, antitrust lawsuits at OPEC, I think, is just just hot air. So maybe some reaction to that yesterday, you know, maybe there's a bit of demand concerns given the fact that emerging markets, you know, the one thing, you know, to play devil's advocate is it might be all well and good that the US and the UK accelerating in their vaccination programs, um, and, and that's great, but areas like India, the emerging markets generally are going to take longer because they're so much further behind in terms of acquiring vaccines to then be administered, that there's a bit of a disconnect. And without a global kind of inoculation scenario, there's always going to be risks, as the UK Prime Minister said yesterday, of foreign kind of COVID virus and different mutation variants coming back to the UK, which could render then the inoculated population unprotected against these types of things. So generally, we do need a global solution for the longer-term control of COVID And that is, that is partially, I think, what could have explained a trigger point, a catalyst if you like, for some of the downside. But again, like the equity market, look where oil has been and then look where we, we were yesterday and look where we are at the moment. I mean, we're still up at the highs that was seen back on around the 30th of March. So, you know, we had rallied from a $58 handle all the way up to a $64.50. So the fact that we've come off, and you know, when we start breaking technical levels we start getting a bit of speculative momentum traders step into the market. You can see there quite a nice break on that double bottom, um, from the mid-April price action, came back up on a test, has just drifted south here since, uh, and we're down about 50 cents again this morning. So again, not denying the downside from yesterday, but I, I don't feel it's, um, again, this overarching kind of negativity I think is a bit overplayed for me for the moment. T-notes up at the top end of the range from yesterday's US session upside. You got the high from the end of last week seen just above, and obviously yields just, just backing off with the, um, the equity sell-off that we saw yesterday. And then that general tone just playing through, helping gold remain elevated overall. So let's, um, yeah, the other point I wanted to make briefly— I said two points earlier— the other point was just more of a, I guess, routine point of view. And for me, it was just the idea of when you're, when you are off, when you've been off and away from the market. So whether you're an analyst like me or whether you're a trader, I do often find that, you know, when you're looking at markets intraday, you get very much in check. It's almost like you've got the real measure and pulse of the market, and you know, you're aware of all the news flow, where we're at. In that type of thing right up to the minute. And then when you're off, you're kind of a little bit distanced from it, you need to catch up. And so again, the procedure I normally have is I'll spend an hour or two before that kind of return to market just looking at things, looking at charts technically, looking at the news flow, reading a couple of stories, and I'll just kind of ease my way back in. And I think for traders it can be a similar type of thing, whether that's, um, you know, just staying quite conservative with your approach to markets that day, whether that's then, you know, only trading high conviction strategies if they materialize, or downsizing in order to just get your, get your confidence back in. I do often think that there is a bit of a bedded-in period when you've had some time away from the desk. So maybe for any new traders, just a word of advice. But look, let's have a quick run through of the news then, and then we'll wrap up. So Yeah, obviously the, the main thing that people are looking at is this kind of renewed COVID concern. And this is looking at India, and this is looking at the 7-day rolling average of COVID-19 metrics in India, looking at cases on the left and deaths on the right. And as you can see here, this wave that they're confronting in India at the moment is by far and away the worst of the situation so far in the pandemic. Um, actually, from a case count point of view I read last night that in fact you can see this breakout here of red at the top because the black line is the average. Actually, we've hit 2,000 deaths in the last 24 hours in India. It's the worst, worst on record. Separately, Japan, Japan moved closer to declaring a virus emergency as infections spread in its two biggest and economically important urban areas, this being Tokyo and Osaka. And then separately elsewhere globally, we'd already seen— I was talking about in my, my, my week ahead notes on Sunday about this kind of double-edged sword that the Bank of Canada weighing up with their rate decision this week, with the idea that there's been some improving economic data points which might warrant this idea of discussion of tapering, but counterbalance that areas like Ontario and other regions in Canada which are seeing advanced COVID cases requiring government restrictions, putting local restrictions put into place. And so that's the, the balance at the moment. And health authorities in Toronto are going to order workplaces across Canada's biggest city to close almost imminently at this point in time. So yeah, overnight in the Asia-Pac session followed the negative close on Wall Street. If anything, percentage-wise, a little bit worse than Wall Street. Particularly in the likes of Japan underperforming given the situation that we're talking about impacting two of the economically most important urban areas in the country. Elsewhere on the COVID front, I did say that Boris Johnson has warned of another COVID— coronavirus wave in the UK this year amid rising cases abroad. So I think a couple of things from a political strategy point of view I think he's doing there. One, he's trying to manage expectations because undoubtedly as we go through into the latter part of the year, particularly when the winter returns, you're probably going to see just an uptick in, in general, irrespective of the advancements made in the vaccine, because we're going to require booster shots and so on. So there's a little bit of management of expectations there. Then also quite explicit in the fact that he's kind of blaming rising cases elsewhere. So again, disassociating it from your own domestic situation, blaming it elsewhere, gives yourself a bit of kind of policy protection, if you like. If things do materially get worse, you can point the finger, like with the new Indian cases that have been identified and spread within India, within London, and so on and so forth. He did say though, Johnson, however, that the country was still on track to lift restrictions as planned, with indoor hospitality scheduled to reopen on the 17th of May at this point. And then yesterday, of course, we had the Johnson Johnson— they're going to restart shipments of COVID-19 vaccine in Europe after that ruling from the EMA, kind of similar to what we've heard before— benefits outweigh the risks after it identified a possible, quote, link between the jab and rare blood clots. Um, I guess this chart is, is a, is a good one in the FT this morning, and it's an article talking about the success of the vaccines, because wherever there's been advanced, um, progression in the rollout program of the vaccine and definitely in looking at the demographics that have been targeted, the older ones, case rates, hospitalizations, and so on have decreased a lot, whereas those still yet to be vaccinated in the under-50 categories, generally younger people, have still got more elevated levels. So the vaccine is appearing to be effective in this case. But what this chart is looking at is on the matrix, twofold, up up being weekly change in new cases increasing, down decreasing, and then left to right the weekly change in mobility. So more strict going left and more open, more mobile, um, or increasing mobility going right. And as you can see here, UK and Israel, the only two in the target zone at the moment. And I think this, this, this is a good snapshot of generally what's going on at the moment. I guess be interested to overlay where they're at and the speed of vaccines and the overall number of vaccines that have been targeted or delivered at this point would be the other interesting overlay on this graphic. But as you can see here, India, um, the worst in terms of case rises, but, and therefore the kind of higher up that they are, the more they move to the left in order to counteract it by initiating more harsher restrictions. So good global picture here of generally what's going on at this point in time. And what you might start to see is a bit of a disconnect where the UK generally, as per PM Johnson, on course to further reopen, which should then allow the economy to further pick up in comparative to other areas like India, or as you can see here, like France, for example. Which are continuing to be impacted by social restrictions, uh, and also that not changing for some time until their vaccination rates pick up and they suppress cases that have been increasing in some of the more densely populated areas in the country to then pull back down the outbreak number, uh, as well. All right, we'll move elsewhere and have a look at a few other things. Just wanted to talk about Netflix, uh, this was the aftermarket performance of Netflix. You can see it's like dropping off a cliff Last night following their earnings, they did fall as much as 13%. They actually were down just around 8.7% in aftermarket close last night, which is around $500. Why was the reaction so negative? Well, a couple things here. Um, the streaming service added just 3.98 million subscribers in Q1 Analysts were expecting and looking for on the street 6.29, so almost, almost double. So really disappointing on their, their addition of subscribers. They also fell woefully short of their own internal target of 6 million. They— the, the bearish news continued because as far as their outlook is concerned, obviously they're reporting Q1. As far as Q2 update, the current quarter, they said could be even more challenging. The company predicting 1 million new customers versus street expectations of 4.4 million. So really quite, quite bad on that front. But I think, I think context is important, and I was looking at the actual Netflix chart here over the course of the pandemic, and this is obviously March when we had the stock market rout, and and then going into kind of mid-March when we hit that eventual low. That low came at pretty much $300, as you can see down here. And we have traded up as high as— right up here at $586. And given that the pre— the aftermarket moves that happened, dropping from $550 to $500. So Q1 of 2020, so this period here was and had been the strongest in company history. Obviously, the initial surprise pandemic outbreak, the move to harsh social restrictions, meaning that people were living their lives at home, saw a massive increase in subscriber rates. They were, they were smashing forecasts at the time. However, the last 3 months, in contrast, marked the slowest first quarter. So since 2013. And so we're having a bit of a pullback in the share price here. For me, it's almost like, um, this stock price needs to normalize. And so I would— personally, I don't find, um, a 10% move in their stock price that concerning. And I know that might sound a bit remiss, but there's a couple of things here. For me, I don't think you— I think on the balance people were expecting potential downside surprise, which obviously materialized. I think it was a little bit surprising in terms of this, the depth of how bad the situation was with adding new subscribers. So granted, I'm not trying to talk that up. It definitely was a bad quarter for them, and this quarter is equally looking to be quite bad. But the cat is now out the bag. They've said that for the current quarter, they might hit now 1 million new subscribers. That was against analysts' expectations of almost 5 times more. So they've already dropped that seed in now. So those analysts need to rein it right down. And so they're kind of prepping up. It's almost like, look, the situation is bad. I'm going to give you an expectation that's terrible purposely. Let's take the hit now so so that when then the quarter results come out and they are diabolical with the number of subscribers we've added, the stock price actually rallies when we get to the next quarterly corporate earnings season. So for me, I think it's a bit of, it's a bit of, um, engineering on behalf of the company in order to come out with these types of statements about just really bad outlooks to manage that fallout. Uh, better to do it now to manage the market because generally speaking then the market, all being well, going through, let's say, next 3 months, we're in a better position with COVID and, and generally economy reopening and, and so on and so forth. And the general stock market will still be supported. The other thing here is that even with the drop in the stock price, the company actually had its strongest financial— it's in its strongest financial position in its history. Now some people are saying that's a a little bit to do with saved costs. There was quite a few people talking about the fact that they haven't really made— because they haven't been able to make new shows, and that's a massive expense to the company. But they actually reported net income of $1.71 billion. That's more than double than a year ago, and they generated free cash flow of nearly $700 million during the quarter. And these types of metrics have never really been seen before. So I think it does give a little nice foundation there to a company that's never really had that, where it's always been pinned on subscriber rates. Um, and, you know, to be able to pivot away from the subscriber rate and talk about the actual underlying financials for a little bit might be a nice way for the company to go forward, to disassociate itself away from such dependency and volatility based on subscriber figure. So, yeah, a couple things there for Netflix I thought I'd just quickly cover. Another thing that came out last night, um, that it dates an old letter, basically it was an exclusive on Reuters, came after the European close. Quite interesting, um, but it is old. It said that US economy is going to temporarily see a, quote, a little higher inflation this year. This is quoting Jerome Powell. As the recovery strengthens, the supply constraints push up prices in some sectors. But the Federal Reserve is committed to limiting any overshoot. Now that's interesting because obviously the Fed have adopted an average inflation targeting model, and what he's saying, what we claim to believe, if we're right from what Federal Reserve officials have said, is that in actuality inflation can run hot, it can run over the 2% target because we're averaging out over a medium-term horizon. But what he's saying here is a little bit more definitive in the fact that they're committed to limiting an overshoot. So whether or not this was done purposefully, it's obviously dated an old letter to April 8th. Obviously the Fed are in the blackout period, um, people have been, you know, kind of led to believe that the Fed are just going to toe the line for the moment. But this would be a little bit more aggressive that they might actually counter higher inflation. So I'm sure this was done purposely from the Fed to just perhaps rein in markets, any risk of complacency about Fed are just going to sit on their hands. And maybe they even want to control this, this equity runaway narrative just to bring it back to a bit of normality again, a little bit. But certainly the equity move was already happening before this piece came out. And then we had the API All Industries last night, not really too much reaction. Bearish on the headline though, a build of 436,000. Expectations were for a draw of 4.4 million. Cushing though was a draw of 1.286 million. Gasoline draw 1.617 million. Quick wrap-up of the calendar then, what's coming ahead. We've just had the UK data out, so just let me get you up to speed. Um, the year-on-year CPI has come in— if you just give me one second— the core year-on-year is 1.1%, which was in line with expectations. Just checking the news feed here, it's a little bit messy. Year on year, 0.7% versus expected 0.8%. So not expecting any real reaction here in UK inflation data. Um, in fact though, the, you know, 0.7%, it's 0.1% lower than expected. It is a meaningful pickup from 0.4% on a year-on-year perspective. Um, but don't forget that just generally energy utility prices have been rising. We are expecting inflationary pressures to increase in the UK and going forward. So yeah, no, I wouldn't really take into consideration too much that data if you're trading sterling today. Otherwise, going further forward into the session, um, there's no major 1:30s out of the US, just CAD inflation CPI figures. You get the Bank of Canada rate decision, which I discussed briefly earlier, happening this afternoon at 3 PM. Then the World Bank to follow at 3:30. Speaker-wise, Bank of England's Ramsden and Bailey 9 AM and 11:30. However, both are speaking off topic, and quite frankly, I'm not expecting anything new from either of those. But just so you're aware, then fixed income-wise, you've got a shorter dated— well, excuse me, not shorter dated— you've got kind of more benchmark maturity bonds coming out for auction from the UK and Germany. $4 billion in a Bund auction out of the German Bundesbank, and then you've got $24 billion in a 20-year bond auction out of the US later on today. Earnings-wise, main ones to look out for— Verizon is probably the, the main one, um, Halliburton, Kinder Morgan, NASDAQ as well. And that is it. So let you guys get on with the session. Sam will go through some of the technicals in more detail for the Amplify Live community in a, in a short moment in time. So otherwise, wish you a good day ahead. Good to be back, and I will see you in the chat room. Thanks very much.