What Does The Stamp Duty Change Mean For UK Housing Market (Rishi Sunak Stimulus)

Okay, very good morning to you. It is Thursday, 9th of July. Hope you are doing well. And first off, thank you very much for everyone who managed to join us for the live webinar yesterday evening on risk management. Really appreciate the engagement and the questions. And if anyone would like a recording of that, then just feel free to drop your email on YouTube on the comments section, and I can send you a recording if you missed it. But otherwise, let's get straight into it. And before I start talking about, um, more stimulus coming out the UK government from Rishi Sunak, let's just have a look at the overall charts this morning. And another positive close on Wall Street. Again, it comes despite now US infections of COVID-19 topping 3 million. More than a quarter, that is, of the global total was coming from the United States. Arizona, Florida continue to report increases, albeit those being at lower levels than their 7-day average. And I definitely think it's that latter point for the moment that's keeping markets fairly comfortable with the notion that these, um, the steepness of the trajectory of the curves of COVID cases in America, albeit is going north, is in a controllable fashion as per where market expectations were just a week or so ago. So the virus really is going to encompass only a very small part of what I'm talking about today. That does not mean that it's gone and forgotten. Obviously, the nature of how the spreading of the virus can compound very quickly, particularly when there's reports I was reading this morning where People are trying to block Trump coming to give his live kind of campaign rallies because it was reported back in Tulsa, Oklahoma, that actually the fact that he held this physical rally and people not all were wearing face masks, that that actually did increase the reproductive rate in that area. And so it definitely is something to monitor. Of course, I was seeing some other numbers as well this morning in a Gallup survey. Talking about how people are getting increasingly kind of frustrated with social distancing and actually people's adherence to that rule is decreasing. So not quite out of the woods yet, but for the moment, for the purpose of this briefing, it's not really going to dominate too much because it's not really an intraday focal point right now. But keep an eye out for those updates of course this afternoon. Otherwise, in the other charts, the NASDAQ, you know, back up to those all-time highs again. It's in the major tech stocks still kind of leading the way, and I'm going to talk a little bit about that in a moment interesting note that came out of JP Morgan. It's worth talking about. But you can see technically now a key level to keep an eye on on the upside when looking at the NASDAQ 100 future. Got rejected from it yesterday. Um, well, when I say yesterday, I mean the late US hours and the early overnight Asia-Pacific hours. So any pullback here, um, there's some, you know, quite a nice area of support in the in terms of the actual near-term range for the NASDAQ that's probably worth keeping an eye on. But those upside levels for sure will be now a key marker to the upside to, to watch. Otherwise, gold has been, you know, continuing its ascent. And you know, this was something which I've been talking about in the briefing for a while. We were on the desk here of the notion that if we could really break above, it was like we were banging on the door couple of times on that key area just short of 1,800, and we had that kind of almost false break last week when we got above 1,800. Then we saw quite a wicked pullback, but now we've got above there. This is the kind of price movement that, that we were anticipating, and I know Will's been in this long for, for a decent period of time now, a number of weeks, looking for this to materialize, and here it comes. And, you know, we're trading at 1,820 this morning, and You can see here technically there's not a lot on the upside in the form of resistance. So I would say if anything, you know, the, the psychological levels of, of round figures at 1,800, every clip 3,040, and then obviously 5,000 all the way up to 1,900. Now I really don't see too much in a way to step in the way to halt the rise of gold over the medium term. You know, all those risks still remain irrespective of what I've just said about the virus, it still remains a decent asset to maintain some exposure to, just given the overall, just general global environment at the moment and the risks that are still on the table. In combination with, of course, the idea that, you know, more stimulus ultimately, you know, what does that mean for inflation as well later on down the, down the line? So gold this morning intraday is backed off that, that aggressive run-up that we had yesterday afternoon. Um, but near term, the pivot level is probably a, a solid level because just underneath the pivot level in gold, you can see here you've got that cluster of previous resistance and support. That's probably going to be an area that a lot of people will be looking at today. So a nice band of support here if we did pull back, if anyone was still of a bullish mindset to reassert the, the long position in the short term. In the currency markets, the Dixie's a touch softer. That's helping some of the major pairs. And let me just move this chart here to EUR/USD 6. So EUR/USD in the futures was finding a bit of resistance near-term on the R1 level in the overnight session. Cable though continues to rise, and obviously this is going to kick off then some of the things we're going to talk about. But it's interesting, and, and this is a something for any new trader to be aware of when it comes to government announcements, particularly in the UK, through all my years of watching markets, whenever the government does make announcements, whether it's just generally the budget is normally the main one, or the Autumn Statement, or something like what we had from Rishi Sunak yesterday, it does tend to be very well telegraphed in the press. The government are in the business of kind of like not just waiting for this big event and then bang, they drop the bomb. It's more about trying to instill confidence. So what they do is they kind of drip feed into the press up to the event all of the things that are likely to happen. Remember in the Sunday Times, now I think this was 2 weekends ago, if you go back on the briefings, the Sunday Times was talking about the cut to VAT in the hospitality sector, looking at potential cuts to or changes to the stamp duty, and all of these things of course materialized. So yeah, it probably explains then a little bit of the front running of sterling buying earlier in the week and You know, if you actually looked at the pound when the Chancellor was making his statement yesterday, although some of the related stocks did move in some sectors like pubs and restaurants, just given some of the things that he announced on that kind of 50% discount rate that the government would stump up in the month of August for anyone dining between Monday and Wednesday, those shares responded quite positively. But the pound actually was very little changed, and that's often what happens with these kind of budget-related commentary that we hear. But look, an overall assessment here of what the Chancellor has done: they've raised the threshold of which sales tax is paid on stamp duty to £500,000 until the end of March, at the level of which then 90% of buyers probably will not have to pay any tax. And, you know, just— I find this quite incredible because I think the housing market in the UK is about to go crazy then. I mean, this is just unparalleled, what he's done. I mean, personally, this is quite, quite good timing because I haven't yet exchanged contracts on a house move that I'm going through at the moment. So Rushi's certainly saved me a couple of pennies. But the idea here is that, I mean, from my own experience, we went to an estate agent and the property didn't even get online and it already sold. You know, I think we had something like 10 viewings in 2 days. So it's incredible at the moment. And the other estate agents I was talking to at the time, just given, you know, because I've been in it at the moment over the last couple of weeks, you know, they said demand's been going crazy. I mean, I can only speak for London, but I guess London is probably somewhat exacerbated by the idea there that people want a bit more space space. And fortunately, I've been lucky to have a garden and things like that. And so people moving out of probably central, central, out to a little bit on the fringes, looking for a bit more space, may have, may have had something to play for it. But then the property that then I was looking at was on the market and sold in 2 days, and had— and actually you had to overpay above asking. So I think the demand was already there, was spectacularly strong and was coming back quite aggressively. And now that they've dropped this new development with cutting stamp duty, I think house prices are going to go crazy again. It's almost like the financial crisis all over when house prices obviously rocketed in the years thereafter. Now, of course, politically this will this will probably carry some connotations in regards to then, you know, if you have money, well then fine, to buy a property is going to help you. If you don't, then well, it doesn't really have much of an impact. And so it's only going to make then affordability of housing potentially more harder in the long run. But look, at the moment, I think short term, I think this is going to be a big positive for, for your UK housing prices for sure. The other main thing that he, he announced was additional £30 billion to head off the unemployment crisis. This was mainly focused on young people, low-income workers being the focus there. And at a potential cost of £9 billion, they were offering an incentive bonus of £1,000 for each employee that government would cover for companies bringing back furloughed employees. But just reading what some of the analysts have been talking about this morning, and some of them, and more importantly, the industry bodies that represent, say, employment tribunals and employment groups is basically that, I mean, put yourself in a company's perspective. The government has said they're going to cover £1,000, right, of a bonus if you take back a furloughed employee. But think about the cost of that employee to the business, and if your business has been impaired significantly by COVID-19, well, £1,000 really is not going to make a lot of difference. Because you're going to make a much greater cost saving. It's going to be much more beneficial for your business just to cut that employee. So there's a lot of people have been quite critical of that particular point, and you know, that's not a small point. It's going to cost the government nearly nigh on £10 billion in order to facilitate that. So be interested to see how that plays out. The hospitality value-added tax, I think, will be quite a forceful factor for the sector to 5% from 20% for the period of the next 6 months, just to get things going again. With that eating out in August kind of discounting, um, period as well to come in. So that's the overall summary of what happened. Um, to be quite honest, I don't think there was anything particularly surprising there. A lot of this had been, as I said, leaked into the press, but that is always the case. Um, but it does lead on to a couple of interesting things, and, and I'm just going to keep this relatively short, but there's a good article in the FT this morning and it's talking about can Sunak, the UK Chancellor, will he be— well, will Sunak not be able to play Santa Claus forever? You know, I was talking to a couple of people yesterday and they were kind of singing the praises of Rishi Sunak. You know, obviously he's thrown a lot at the situation, which has come at the sake of you know, paying for a large proportion of people's wages, that the government's been stepping in in regards to furlough, and now with the stamp duty side of things and everything and anything in between, you know, his popularity, if you like, if you look at a lot of polling comparative to say the Prime Minister, you know, he's way more popular in this regard. But that's not a surprise, you know, when you're the guy that rolls up to your family Christmas party and start handing out the biggest and best and presence, or then you're going to be the most popular uncle in the room. So the question comes, of course, in the slightly longer run, which is how COVID-19 has really hit public finances. So this is a look at public, public sector net borrowing for 2020-21. And when you start to kind of accumulate everything together, and you know what a different world we were living in pre-pandemic. This was the budget forecast pre-pandemic, and look at the size of it now. I mean, it's multiple times larger, as it's needed to be given the severity of a global health pandemic is going to have when you just literally stop doing business from one day to the next. But just cycling through this, borrowing is set to hit £360 billion by the end of the financial year. And what I thought then was quite interesting, because I know we have a couple of students that watch these briefings as well, is context and really encapsulating from ONS data where we were and what this looked like on the increase then in net borrowing in order to counteract the recession that followed the global financial crisis. And that's that hump that we can see here. But if you look where we are at the moment, I mean, we're more than double that level in terms of the estimate of what it's going to look like over the period by the end of the financial year. So it's way over and above the type of, um, reaction that the government has made in order to offset the economic downturn. And in regard to public debt, it's already now larger than annual output of the economy. So public sector net debt as a percentage of GDP is now just over 100%, as you can see here, having tracked pretty much sideways around 80 in the aftermath of the pickup really from 40, where it doubled during the response to the financial crisis. Obviously, this distinct pickup has now seen debt larger than what our annual growth output is in our country. So, you know, there's no such thing as a free lunch. And one of the interesting things here is at the moment a lot of this is being propped up by the Bank of England, obviously doing their quantitative easing program They're actively purchasing bonds at this point. So there's a lot of forces here that are, that are propping up the, uh, the market and confidence. But what's interesting here is that, you know, Sunak will not be able to play Santa Claus forever is a good point because at some point then things like the furlough scheme do— does need to come to an end. And what obviously Sunak is is banking on is that for one, we see a controlled and a non-significant increase in COVID cases. And in the case of a second wave virus, that allows the economy to continue to reopen and get back on its feet. And it's that process accelerated by all of the stimulus that he's, he's announced, not just yesterday but since the pandemic began. The question mark then is if that doesn't materialize you know, where does that leave things come the kind of autumn? Where— what's going to happen in the autumn, all things being equal, he's going to have to start putting out a roadmap of how exactly is this going to look like beyond the initial reaction, i.e., what happens next? What's the government's intention to get this under control? And, you know, we know what happened after the period of 2008-2009. That's when austerity starts to kick in. Because the government needs to now start figuring out a way of paying back this exponential growth in, in debt that they've accumulated to deal with the immediate danger. So yeah, that's not so much for trading the pound now, but definitely economically, I think it's going to be interesting to see how this plays out in the second part of the year. And obviously there's this small thing called Brexit. We still have to to solve as well. Um, elsewhere, just quickly going back to the charts and the intraday picture, um, not only was there kind of a positive close on Wall Street, Chinese equities rallied again. The Shanghai Composite was up for an 8th day, so Chinese stocks are up about 9% for this week. I mean, it's just been crazy. So, you know, the call to arms, if you like, from state media to galvanize the retail trading community, which obviously is slightly different because it's so much more dominant, um, in mainland China than it would be in the Western world, um, has really just ignited things, uh, at the moment. So China continues to rally. On that point, we have had some Chinese data, um, overnight. So, um, inflation metrics, uh, the PPI was at -3%, expectations were for -3.2%. The CPI was a +2.5% reading year-on-year, which was in line Uh, so the general headlines reading that China's factory gate prices falling for a fifth straight month in June. So as I said, down 3%, although signs of a pickup in some parts of the sector suggesting a slow economic recovery remain somewhat intact. As you can see here, the CPI number, albeit in line, when you break it down to its components, high pork price inflation continues It was up about 82%. There's been other things that have impeded just generally the food component of inflation. Serious floods occurred in many places in mainland China. The coronavirus cluster in Beijing's biggest wholesale food market a few weeks ago, slower hog production as they still try to get over the swine flu situation that was, that was creating lots of culling of pigs as well in the country. Has kept that number elevated in particular. But again, for the, for the morning open in Europe, if you're trading the regular kind of asset classes, it's not really too much of a consideration. It's just a point of note in regards to that inflation metric. A few other things I wanted to run through then. Um, quite an interesting note from Goldman Sachs telling investors to prepare for volatility around the November US election. Okay, yeah, that makes sense, that's not that surprising. But the details were that the coronavirus is going to add what they call major complications to the, uh, basically the tab— tablating results, with a recommendation then to extend hedges out to December expiration. So what they're suggesting is it's not just a one-and-done moment of volatility to peak in November, that actually you should hedge and cover yourself for a period of volatility over until the end of the year. Now the reason for this is they're saying that given the several-week delay in finalizing results that were seen in 2000 presidential election, there was also a case study back in 1876 when a similar type of thing happened where basically there was a very protracted long period of time for them to finalize results. And the elevated volumes of mail-in ballots used in recent primary elections— now why is that? Well, behavioral changes, but also COVID-19 is probably going to increase that. And there's a potential for increased mail-in ballots then for this November's US election, which could see heightened risk of election-related volatility that could extend beyond then actually Election Day. Current probabilities according to Goldman's calculations have equal 62% for Biden to, to win, 61% the, the Senate and 85% for the House in terms of Democrats, compared with 43% for the White House, 30% for the Senate, and 61% for the House in regards to what was seen in late February. So again, remember, when it comes to US politics, if you're not familiar with it, it's not just about who wins the presidency, it's about the composition of Congress, that being the House and the Senate, and whether or not then you get a blue wave A blue wave would be Democrats in control of both chambers of Congress and the White House, or a red wave would be the complete opposite, which would be Donald Trump winning the reelection and the Republicans retaining the Senate and winning back the House. Um, that would be slightly positive for stocks according to UBS, their strategists. They also noted— I've got a few notes here— that an interesting question is, you You know, if Trump loses, is that immediately bad? Well, it does also depend on the composition, as I said, of the chambers. Um, Democrats would focus on economic growth, so it's not like the Democrats would be bad for what has been the perceived kind of Trump pump for markets. Republicans, though, would probably focus more on the extension of tax cuts. Both their forces are net positive for kind of supporting economic recovery, and therefore you would think in this sense keeping this equity kind of rally alive. Um, the status quo of a Trump victory with the Senate under Republican control and the House in Democratic hands, that would probably be largely neutral because it ultimately leaves us in exactly the same situation, um, of where we are at the moment. A Biden victory with a Republican Senate majority would be neutral to slightly negative as it expected increase in regulation might hurt growth, but there, um, there likely would be constraints on tax hikes. So again, regulation is quite a key thing where the sides of the political spectrum see slightly differently, and that could have repercussions. So yeah, quite an interesting piece. I've tweeted it from the Amplify Twitter account, so if you're interested in taking a look, it's worth a read. Um, and on that front, there was another bank that came out overnight, which again I thought was, was quite interesting. And again, just giving you an overall summary, but I have shared this on Twitter as well, but JP Morgan, one of their head guys, was talking about the fact that the S&P 500 could easily reclaim a record. So Sam North, you're going to owe me some, some money for talking your book, but he's basically talking— if I just highlight the main crux of what He said that— and don't forget, we've got earnings season coming up in, in North America soon, in only a few weeks, and it's going to be pretty horrific. But the point here is that while profit expectations have obviously been dampened due to the pandemic, uh, and the S&P 500's price-to-earnings ratios are at a 20-year high, just given these somewhat stretched multiples, given how high the equity market is comparative to the underlying economic situation, JP suggests that equities look cheap relative to bonds amid the economic stimulus, and they, they— that could in itself encourage money managers such as pension funds to shift asset allocations from fixed income to stocks. That could help prop things up. There's some interesting points that he does make, and there's a bit at the end which I thought was particularly interesting. And so here, looking at specific sectors is very important if you are looking at kind of stock selection. And the uncertainty of the, the economic and political outlook has driven traders, as we know, into large-cap tech names. And as you've seen, they've become an increasing influential factor given that what the top 5 tech firms pretty much dominate now about a quarter of the S&P 500. So Here then, tech mega caps are in favor, but banks and energy stocks are not. And that's because of their general sensitivity to any implications for a slowdown in growth. And also, they're just a very low interest rate environment that we're in as well, squeezing margins for, for big banks. So tech, tech stocks though, you know, how much of that as well as a reflection of behavioral change, the ongoing demand And that's one thing that the, the JP also add is that managers are buying these mega-cap tech and momentum stocks while shorting smaller cyclical and value stocks. And that's something which you've probably read as well about Warren Buffett, a very infamous and long-term successful fund manager, has really been struggling in this environment because it's kind of counterintuitive to his approach, which has been highly successful for a very long period of time. This trade is in part driven by market expectations that COVID-19 pandemic is to worsen, or not get better at least, and lead to permanent shifts in the economy. However, they do know that while we think this is, is not properly pricing either of these events, a repricing of which could result in a rapid momentum sell-off and a value rally. So worth keeping that in mind. But again, quite an interesting piece. And, and, and kind of, you know, it's interesting, these sell-side institutions, uh, I mean, if you remember in the briefings I was delivering just a month ago, they were all so bearish, and now seemingly they've all flipped and becoming more bullish at this point. So you've got to take what you read from these guys with a bit of a pinch of salt. But if you're to determine the overall kind of, uh, kind of herd view as a mass market, which is what you're as an individual trying to do to capture these underlying trends in markets, then you've got to listen to a variety of these banks to get the general assessment for what the, the coordinated view is that's shared among market participants at this present point in time. A few final few headlines. This was one I saw: Australia warns citizens not to travel to Hong Kong over Security Law. Uh, Canberra suspends extradition treaty and eases migration access for city residents. So this isn't that surprising. Um, it's been something similar we've had in other countries like the UK, for example. However, what we have seen is whenever Australia has tried to become a little bit tough with China, China have responded in quite a forceful manner that can have immediate and direct implications for the export of goods for Australia. And given that we know that China is such an important trade partner of Australia, every time that they've come out and started saying about, you know, we're not going to buy certain products, agricultural, more hard kind of physical commodities from your country, that's had a meaningful impact on the Aussie dollar. So Worth keeping an eye on this from the point of view that it would not surprise me to see China come out with some type of retaliation against Australia. They've done this multiple times before in the last 12 months whenever Australia's tried to get tough. And so that could then mean from a fundamental headline perspective that Aussie could be subject to some headline, uh, volatility if that was to occur. Uh, the final story, just so you're aware, because I'm filming this ahead of the cash equity open. If you actually look on the scoreboard of pre-market activity, you'll see the largest-cap name, one of the largest companies in Europe, SAP. They're up about 3%, a stark outperformer ahead of the open in Germany. And that's because an update last night, S&P said its business activities gradually improved in the second quarter from the effects of the global lockdown, with revenues, operating operating profit edging up, and they confirm their full-year outlook. Now, they are a punchy company within the— in terms of market capitalization in Germany, so worth bearing that in mind. Calendar-wise for today, it is very quiet this morning, not too much in the way of real significant scheduled events. You got this afternoon usual focus then on the initial jobless claims. They're expected— now we've kind of had this massive that we saw in the end of March, early April, when it was kind of north of 6.5 million. We've seen this decreasing scale. We've kind of leveled off now at around the just over 1 million marker. And so expectations today for 1.375 million, a range of 1.2 to 1.9. Is this going to move the market? Probably not would be my initial assessment at this point in time, but it definitely warrants just keeping keeping an eye on. Otherwise, it's, it's a fairly quiet day. Yeah, you've got a longer-dated bond auction in a 30-year bond for $19 billion coming out of the US Treasury this, this evening. But I would say, as I've said all week, it's a fairly quiet calendar, all things being equal. So again, there's some key technical levels that we're trading near-term in most of the products, but particularly as in what we looked at, the NASDAQ, the euro on that R1 cable looking to push up to a similar type level. T-notes, oil are pretty uninteresting right now and have been fairly quiet at this point. But again, I'd be looking to base a lot of the decision-making on that upon the broader sentiment analysis on the cross-asset class movement today and looking at the technicals about perhaps a little greater importance than normal given the distinct lack of fundamental catalysts, at least at this point in time. All right, that is it. I'm gonna wish you guys a good day. Again, drop me a message on the video with your email if you'd like the recording if you missed the webinar last night on risk management, and I will gladly forward that on to you. But have a good day ahead, and I'll see you again same time tomorrow. All right, take care, guys.