Wall Street Posts Worst 1-Day Drop In A Month As Virus Concerns Mount

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, very good morning to you, it is Tuesday the 27th of October. Hope you're doing well. I'm going to kick things off and start in a chronological order with the close on Wall Street from last night, where all three major US indices finished in the red, ranging from around 1.6% loss in the Nasdaq to the worst case being the Dow down about 2.3%. It was in fact the biggest one-day drop we've had in about a month for US indices. Overall, pretty much the major themes that we were talking about this time yesterday in the briefing, which really was the reemergence of growing market concern about COVID-19 in the kind of relevant geographic areas that tend to influence financial markets, i.e., the Western developed world. So in mainland Europe, the UK, and also in the US, and particularly following those restrictions we saw announced from the likes of Italy and Spain over the, the weekend. Also as well, it comes in the context of the increasing kind of diminishing hopes of a US fiscal stimulus package coming prior to the election. I think most people have kind of written that off now. And so at the moment, if you like, it's kind of worst-case scenario, albeit, you know, I think it needs to be taken in context. Yesterday's sell-off was the worst in a couple of weeks, but by no means was it a complete catastrophe by any means. And I think a lot of people now likely to be just sitting on the sidelines with the countdown now, what, 7 days until the the US election this time next week. The VIX consequently, just with some of the pickup, the overall volatility rose to around 32.5, which is the highest it's been, uh, closing level since around the beginning of September. So certainly this is quite normal pattern of behavior going into the actual election day. It does tend to sort of, you know, market investors do tend to become a little bit apprehensive, and that does tend to reflect itself in things like the volatility index. Boeing, Lockheed Martin, Raytheon— some of those names were impeded yesterday by China's plans to sanction the company or companies over their arms sales in Taiwan. So there is this other small thing called a trade war which still is ongoing at the moment, albeit taking a bit of a back seat on the general macro hierarchy of things. And then we had sales of new US single-family homes unexpectedly fell in September after 4 straight monthly increases. But overall, when you look at the, the data there, I don't think that was a particular reason. It was just another thing that came out yesterday. But low mortgage rates will help underpin demand generally in that area, is what the general perception is. And then the DAX was a real underperformer yesterday. And of course, one of those companies we, we isolated head of the market open on Monday was SAP, which is Europe's biggest software maker and obviously one of the largest components of the DAX. And I think at one point I was looking at their shares and they were down about 23%, which is an almighty move for a company of that magnitude. In fact, it was the worst, um, worst performance for SAP in 24 years after cutting their outlook. And for the German stock index, the DAX, it was the lowest it's traded in 4 months. So definitely quite, quite telling. But let's have a quick look at the overall charts this morning and then we'll get straight into the headlines. And at the moment, a little bit of recovery. And this isn't that uncommon after you have quite a significant day of selling pressure to see a little bit of a bounce. People just closing out those, those kind of short-term short positions in a more intraday speculative day trading environment. And so just gravitating now towards the 3,400 psychological level in the S&P. The other indices also following suit. The DAX coming up towards its pivot in the futures, just clawing back some losses that were seen in European afternoon yesterday. Otherwise, the dollar has firmed up a little bit as Europe has come into the market. It's eradicated any of its overnight easing that was, that was seen in the Asia-Pac session, and we are down now just about 0.1%. So with some of that moderate dollar retracement in the last hour or so, that has put a bit of downside pressure in EURUSD and cable. As you can see, EURUSD now back, having gone through its pivot, just finding a bit of resistance on the pullback up to that level, which was the initial resistance highs from the overnight Asia-Pacific session. As you can see here, but also does encapsulate quite a lot of nice price activity here actually in the short term. And you've got this area of that previous support that was seen going back to Friday session, and then you've got those areas of resistance that we're seeing yesterday afternoon and in the overnight Asia-Pacific session. So a little bit heavy on the breakthrough there, now finding a bit of resistance on that point. So be interested to see if we continue to see more movement into the dollar, as was one of the themes from yesterday. And definitely be keeping an eye back down for a retest at that initial beginning of Asia-Pac high, which was the, the low point we've just seen earlier this morning. Beyond that point then, just looking down to the range low from around yesterday's session, which was holding around 1.1819 in the futures. Sterling then, more so not so much Brexit, no real headlines, or at least meaningful ones for me to get you up to speed on. So this is more of a dollar-based move here. Uh, but certainly from a cable technical perspective, we are just coming back down towards an area of support that we saw towards the close of trade in the futures market yesterday. So any breach beyond here, there's a double bottom we'll be keeping a close eye on, which was seen on Monday's session both in the European morning and afternoon, which would be around the 1.30 handle. With a little bit of that dollar movement upward, gold tends to have that at the moment more responsive nature to dollar movement and fluctuation rather than general risk perception. And so that's just seen gold just bump back down, giving back any overnight gains to flat at $1,905. And then the crude market, pretty similar story to the equity picture really, a little bit of a recovery from some of the oversold nature of what we saw yesterday. But as we're going to discuss, not too much away, major new news headlines. However, people still a little bit, let's say, apprehensive about the situation with COVID And that then leads us on to this graphic. And the reason why I'm bringing this up is, of course, we know that things have deteriorated somewhat in the case of mainland Europe, and France is now the latest country. And as you can see here, if anything, in terms of coronavirus cases, France is seeing some of the the steepest trajectory at the moment, that being the kind of red line. So France's government overnight is reportedly mulling a full lockdown for Paris, Lyon, and Marseille metro areas, including 7 PM curfew, public transport shutdown, and closing nonessential shops, while reports noted a 3-week lockdown could start from Friday evening, this Friday, with details to be announced tomorrow on Wednesday. That's a sign to be aware of. But again, it's not so much— I wouldn't get too caught up in just looking at case numbers. We've discussed this a number of times. It's not really a comparable figure to really look at first wave to second wave, given the massive underreporting of the first wave and now with increased testing in the second wave. I think it's more important to look at it in the context of the trajectory of these rates subsequently the number of hospitalizations, the capacity level of those facilities, and then, and then the knock-on effect then would be the implications for the death rate, which has been ticking higher in all of these areas. So it's kind of the ratio of those numbers that's quite key. And then most importantly, how does— how do governments respond? And it's how governments respond and the stringency of those restrictions which is really going to define then the, the kind of shape of the economic recovery, which at the moment is moving more shallow given the kind of more V-shaped perception that people had if we were going back just a couple of weeks ago, given all of the onslaught of stimulus measures coming out on the fiscal and monetary policy side. So one thing is this, this kind of situation, this graphic here really does solidify in my mind that the ECB doesn't have much of a choice going in towards the end of the year. And most economists share that view that they're going to expand the pandemic emergency purchase program by an extra €500 billion. And that's gone up obviously from €350 billion only just a few weeks ago. And this comes as they want to reassure markets that there's ample support there, given the fact that we are witnessing now potentially with the new restrictions, kind of a double dip type recovery, almost on an accelerated basis, if you like, at the moment. So that's still very much at the forefront at this present point in time. I think then that the overall kind of stimulus side of things has kind of melted away to a little— to a certain degree. Pelosi and Mnuchin failed to reach a deal on Monday. It's kind of like a broken record at the moment. And I think there's a little bit of fatigue behind this particular story. And definitely, as I was trying to allude to yesterday, I think market sensitivity to these has pretty much gone now. Definitely different from where we were 3 weeks ago when every kind of twist and turn in the US equity market was defined by what was the latest statement. Now I think this is all just political gamesmanship, and people are going to have to wait for the election, the composition of Congress, then to ascertain what type of size and timing of the stimulus is going to come out of the US. One thing that did happen overnight was this. I'm not sure how closely you followed it, but Amy Coney Barrett's confirmation by the Senate on Monday solidifies a 6-3 conservative majority of the Supreme Court. And obviously this comes just a week before the US election. It is a major victory for evangelical Christian groups that have loyally supported Republicans and are a crucial voting bloc, of course, for Trump as he heads into the election day. Barrett has by far the clearest anti-abortion record of all of the high court nominees, and evangelical Christians make up approximately a quarter of those that have, I guess, defined a, a choice of religion more publicly. So definitely this is quite key, not only for that side of things, but also of course if we are heading for what some believe is quite a contested election and the Supreme Court now is, is tilted in a more conservative fashion, then obviously this is going to play out more favorable for Trump than it is for Biden at this point in time. So timing for that has been particularly particularly key. The other thing on the election front I just wanted to mention was quite interesting articles coming out in the FT, one talking about the early voting surge. In fact, more than 63 million Americans have voted as of Monday evening, either by returning their mail-in ballots or in early polling station in person. Now, if you're based in the UK, the the system is quite, quite different in America, whereby every individual state can and does have slightly different rules, whether there is mail-in ballot, whether there's not, whether you can go and vote in person ahead of time at certain locations, or whether it's just done on the day. It is, it is quite different state-by-state basis. What's quite interesting here though is that the analysis that a lot of people are talking about is that Democrats are voting early by mail, and Republicans though are far more likely to vote in person on Election Day. That's going back over historical kind of precedence that's been set. Some states, including battlegrounds such as Pennsylvania, Wisconsin, will not start counting though their mail-in ballots until Election Day, meaning that tabulation processing could last for several days. That means then that early vote counts, which will disproportionately include Election Day votes, could show Trump with a lead that might narrow or even disappear as the mail-in ballots are counted. So herein lies a really, I think, interesting point which we're going to discuss in our US election preview webinar on Friday. So if you do have an hour on Friday evening, 6 to 7 o'clock London time. Just follow the link in the top of this video if you're watching on YouTube, and you can register for free. But I'm going to go over this in more detail. But the really interesting thing here is that basically the, the votes that are happening on the day could indicate a Trump looking quite favorable to win. But then, given the fact that tabulation of results for mail-in ballots in what are highly important battlegrounds like Pennsylvania, Wisconsin, where the balance of who might win this election might lie, might take days. And as that data comes in, it's going to be more favorable for Biden because of the heavy, um, the calculation for more Democratic votes via the mail-in ballot system. And then it could actually be looking more conclusive for Trump and a type of Trumpish reaction overnight. But then if it isn't conclusive over the coming days, it might fade more back into the Biden side of things. But then, if anything, um, that's going to be messy, it's going to be legally contested, and markets generally don't like that. And probably the asset class reaction would be a negative one in that sense. So some really interesting things there. I'll share these articles with the Amplify community in Amplify Live so you can read that in more detail. Yeah, and also I'm going to share this one with the Amplify Live guys. This is talking about Trump's kind of path to victory runs through Pennsylvania, and the FT doing some really great hypothetical scenarios about the kind of composition of battleground states that Trump would need to win in order to then secure the Electoral College vote and obviously win the presidency. So I'll tweet some of this stuff as well if you want to check out my handle. Okay, getting back on track then, talking about the overnight Asia-Pacific session. This really is, is a moot point. It's not that important, to be honest, but I just wanted to point out the profits that China's industrial firms rose for a 5th straight month, 10.1% on a year-on-year basis, but at a slower pace as factory gate deflation and rising raw material costs undercut Recovery in the manufacturing sector is the kind of headline. One thing to note is in China at the moment, the latest 5-year policy plan is being thrashed out in Beijing. This is part of their, their meetings that they have on the most grandest scale with the highest Politburo. So the kind of power structure there operates whereby the central bank and all other government departments are very much aligned to very high consolidated power structure at the top. And this meeting of Communist Party leadership runs through until Thursday and will determine the priorities for the country in the coming years. So not expecting too much from this, but generally it is watched in terms of it is setting out the stall for the coming years. And obviously important factors like their ambitions for further global trade and these sorts of things will be what's monitored, as well as their perception of their own domestic economy. All right, quick look at earnings. And so for today, fairly busy day. We've also in the US pre-market, we've got Pfizer, 3M, Caterpillar, Eli Lilly, and you've got Microsoft after market with the chipmaker AMD. They're going to be your main US ones to look out for. In the UK, in the FTSE, looking out for a decent start for HSBC shares. They've flagged a conservative return to dividends on a profit beat. Their shares were up in Asia-Pacific trade in Hong Kong of about 5%. Their adjusted pre-tax profits slid 21%, uh, so pretty big hit to $4.3 billion in the period, but that was way above analysts' expectations of $2.8 billion. And their shares have been bruised, to put it lightly, in recent weeks. So decent upside moves anticipated there for HSBC, whereas for BP, they narrowly avoided a third quarter loss. That wasn't— that was unexpected, so it was better than expected against market expectations. A rebound in earnings for fuel sales offset extremely weak refining margins. So worth bearing that in mind. Two of the largest weighted companies in the, the FTSE Index. Moving elsewhere, jumping over and looking at the Atlantic, this is the National Hurricane Center, the NHC. And the reason why I'm pointing this out is I just wanted to show you Zeta, which has gone from a tropical storm to a hurricane status. You can see here the projected path is going to go through the Gulf of Mexico. Hurricane conditions and life-threatening storm surges are possible along portions of the northern Gulf Coast on Wednesday. So do be aware of that for any crude traders. At the moment, oil not really being too sensitive. I guess it's more about whether the intensity starts to develop in a much more aggressive fashion, which would be quite key. Now these charts just give you the mapping of kind of rainfall and also direction, but if you go on to the EIA website So obviously the Energy Information Administration, and if you go on their homepage, you can just scroll down and you'll be able to navigate to an energy disruption section. And again, if you ever wanted to really, um, you know, up your game and be much more aware of the overall energy infrastructure when there is active storms and other hazards within the Gulf of Mexico, this is a great way of doing that. As you can see here, you've got Zeta and it's got its projected path. So this is just mapping what the NHC are looking at. But the added thing you have here— I know it's a bit blurry, it takes a bit of time for it to pick up— but what you can see here is the timing. So it's 7 PM local time on Wednesday and the projected speed, and most importantly, direction, and an underlying then infrastructure of which the main center path of the storm is going to go through. So here you can see, uh, Beaumont, Lake Charles, Baton Rouge, some of the massive ones in Louisiana that make up a large proportion of US refining capacity. They're all just slightly out of the main zone of where the hurricane is projected to go through. And as such, then the reason why probably things like oil prices have been fairly lackluster in terms of real response to this particular news. So this is how I'd go through tracking that type of thing. And obviously you can zoom in, you can get much more detailed looking at the actual area in itself. So just east of New Orleans is where this is going to hit, or is anticipated to at this point in time. Okay, calendar-wise, what else have we got for the, for the day ahead? Well, um, pretty light in terms of the UK European morning, not a great deal going on until the US session. Remember the clock change just for this week there is a 4, not 5-hour time differential between London and New York until the US clocks change at the weekend. So durable goods coming out 12:30 London time, consumer confidence will be at 2 o'clock, then the APIs will be at 8:30 this evening instead of 9:30. Speaker-wise, probably Bank of England's Haldane, one of the standouts, tends to be— I wouldn't say hawkish, much more like less dovish than the rest, but he's the chief economist and he He's gonna be speaking at 2:45, and then you've got some supply coming from the UK, a $52 billion 2-year note auction for any fixed income traders. All right, gonna leave it at that. Uh, any comments at all, as ever, please feel free to let me know if you don't already do so. Would really appreciate it if you subscribe to the channel. It's the first time watching the briefing, welcome. Feel free to leave comments and I'll be keen to pick them up and and respond to you throughout the day. Okay guys, have a good session ahead and I will see you tomorrow.