What To Expect From The ECB Today

Okay, very good morning, Thursday 30th of April. Hope you're doing well. I'm just having a quick look then of what I'm going to talk about, a bit of an update as you can see here about Jerome Powell, what happened with the Fed yesterday. We've got a couple of earnings reports to be aware of, Microsoft and Facebook in particular, that has caused a little bit of reaction in late hours in US trade and overnight. Uh, we've got some earnings reports to look out for. Of course, Amazon, Apple now reporting a bit later on this evening. We've also got then data throughout the day and an ECB interest rate announcement to follow up from the Fed yesterday. So plenty for us to talk about. And just having a quick look at the charts of the general sentiment for the market open and relatively steady in the currency market. You would expect this to be the case with the ECB looming on the horizon, only a couple of hours away. And typically, even though, as I'll discuss, potentially no real concrete action in a similar vein to the Fed, more a bit of a pledge and promise to do whatever it takes, and therefore queuing up potentially more things to come at the preceding meetings in June perhaps. So both the currency pairs— I mean, euro is trading flat at the moment and pretty similar for cable at the moment, just sitting above its pivot level. Equity markets index futures positive. The DAX up about 122 and it follows the NASDAQ futures. It's off its best levels but still up 61. Maybe perhaps that I've had an S&P chart marked up anyway from some previous discussions that we've had. And you know what a mighty rally that we've had in US equities. You You know, since that bottoming out of the oil concerns when price went negative at the beginning of the prior week, we've now rallied the best part of almost 10% in the S&P 500. So a combination of different things, obviously yesterday, and I'll run you through that, some of that Gilead news in a bit more detail. We had a technical breach of the resistance points of what we were seeing from the prior day session on Tuesday, and that came amid around when the Gilead news was hitting market. And then after market, well, we've had first of all the Fed, and I'll explain a little bit more about that in a second, but a little bit of an initial dip on, I guess, if anything, a bit of a lack of clarity. Maybe perhaps some people looking for a little bit more commitment, but I don't think he was ever going to do that at this point in time given the lack of visibility going forward. About how the virus is going to perform, so subsequently the policy actions that are going to be needed. So we had a little bit of a move down on the first part of the event with the Fed, and then we moved kind of back higher throughout the rest of the session. Then obviously Microsoft, Facebook came out, and that helped bump things up, um, late yesterday, but also a kind of rebound in overnight Asia-Pacific session. We had some Chinese PMI data as well that generally was okay domestically at least. Just a slight fade of that as Europe come in, but still positive overall. So yeah, that's the equity story. In fixed income, not too much going on. Marginally higher up, about 3.5 in the 10-year, the Bund up 14 this morning ahead of the ECB. Gold a little bit higher, up about $20. It sounds like a large amount, but tricky one to trade really from a fundamental perspective because Gold has become a little bit disconnected in that, in that typical kind of flight to quality sense, because as you're seeing again this morning, we've had— I think technically you can see here, I'm just looking on the 30-minute candlestick— you've had a retest of what was the high point that we saw just very late going into yesterday's session. And we had a test of that very early in the European morning, and we're just managing to trade above there now. So if anything, perhaps a little bit more technical with the move, given it's a little bit counterintuitive to the general risk appetite from the, the equity movement that we've had over the last 12 hours or so. But let's get stuck into some of the headlines. And Jerome Powell, you know, one of the reasons why we had a bit of a twofold event here was that, yeah, initially not a lot of commitment that came from the statement, but then when the Q&A got underway, obviously one of the first questions that the journalists were asking is that, look, Jerome, you've deployed a lot of tools so far. What else have you got, you know, under the bonnet in case we have a large significant second wave of infections and the economy deteriorates even further than you foresee? And he basically said that it's looking likely that they're going to need to do more at some point in the future. And for anyone who's new to markets, that's pretty much what we'd call the code words the nuances of central bank speak. Now, central bankers never pre-commit. They will never specifically identify a date future in time of which they're going to take a certain course of action, because if they do that, inevitably there's so much uncertainty between point A and point B that they could end up then reversing that decision, and therefore the market will lose confidence in that they're going to follow through on their commitments. And one of the greatest tools that a central bank has, which is its verbal communication, which is a tool just like interest rates and QE in a sense of how it manages market expectations, is going to be diminished. So here, that, that kind of wording for me is prepping up. Then come another month or so, i.e., the June meeting, I think then you're going to start to see potentially a little bit more evidence, of course, about this severity of the, uh, the impact that the, uh, the lockdown of this month in particular has had. And so they'll be in a better position as well to look at the virus and the loosening measures that have taken place and how the global economy is faring, and they can take a decision at that point in time. So that, that was Jerome Powell. The other thing, of course, was Gilead Sciences, some commentary yesterday, of course, just firing up expectations again that potentially Remember, this isn't a vaccine as such. This is more a therapy using the remdesivir treatment. That what was suggested yesterday from some of the primary endpoints of the trials is that the National Institute of Allergy and Infectious Diseases, otherwise known as the NIH, they said that remdesivir results indicate patients who received the therapy had a 31% chance of a 5 faster recovery than those with the placebo. And so this is what they're trying to do. They're trying to find an existing therapy. Remdesivir was actually used in SARS and Ebola, so it definitely has a pretty decent track record of results, but obviously in a, in a, in a different situation in terms of an actual virus. But again, these results are very positive and markets liking that because then you know, is that going to help accelerate this reopening of the economy? Not that it's going to bring forward perhaps the vaccine coming, but it helps ease then that potential earlier identification of these trends, means that they— the governments can respond quicker, the thinking being, and so therefore have better control on this kind of contain and delay kind of strategy of allowing further outbreaks in future. So definitely positive. The CEO of the firm came out and basically said they've got more than 50,000 courses of the company's experimental therapy packed in vials and ready to ship. And as soon as the drug is authorized for emergency use by US regulators— now on that front, obviously, you know, going through medical sciences, that these drugs coming to market go through an arduous process and very lengthy in order to get tested through various onerous measures to ensure that they're safe and so on. But in this case, um, the federal or formal approval would likely take months and require far more robust results than what the company has revealed so far. But during the outbreak, the FDA, um, have shown willingness to clear medical products for emergency use with far less data than usual because obviously needs must. If there's a pandemic and real human casualties at this point, then obviously they're going to do everything they can to fast-track it in that respect. So definitely worth keeping an eye on. We have kind of been here before a little bit with Gilead Sciences. Obviously we had a bump up in markets and then their shares shot back down again after the, the kind of overall results in themselves were quite partial. This seems to be a little bit further development now upon that that narrative. So again, quite positive, but I guess something to just keep an eye on going forward. The other things then that we've had going in chronological order, a couple of earnings reports of a large market cap nature last night which have definitely helped in the, the overnight session. Microsoft, their shares were up 2% in aftermarket trade. Quarterly sales and profit was up, lifted by demand for internet-based software and cloud services If you think about it here, as the headline would suggest, everyone's having to work remotely from home, and of course then this meaning that the usage of particular internet-based software— so thinking about Office, and that obviously is quite a subscription model that the company has shifted to over recent years, and that's proving very successful. Microsoft Teams, these types of applications as well are very widely used Uh, and so they're, they're benefiting on the back of that. So their revenue gain 15% topped analyst estimates, uh, and obviously they're getting the boost from homebound consumers at the moment. The other company was, well, was Facebook. Their shares were even better after market than Microsoft. They were up 10% in aftermarket trade, and we are talking about one of the largest companies in the world here. Uh, they reported an 18% increase in first quarter revenues um, showing advertising demand was strong before the actual COVID-19 pandemic hit. Um, daily users of the company's app climbed 2.36 billion in March. And one of the interesting things here, they said that, um, there was an impact from the lockdown that commenced in the middle of March in America, but then more globally. However, one of the comments that a lot of the analysts were jumping on, and what they're saying underpinned the strong rise in their shares was the fact that after initial steep decrease in advertising as marketing budgets were generally tightened given the situation at the end of March, they have seen signs of stability already in April. And so again, this nature of investors, market participants being forward-looking, they, they kind of jumped all over that and that's what caused the share price to rally so aggressively. Looking further forward to today, you know, it's, uh, it is busy in terms of corporate earnings. So just to give you a bit of a flavor of some of the bigger market cap names to look out for, again in chronological order, McDonald's reports at midday. You've then got the likes of Altria, Comcast, ConocoPhillips all reporting at midday London time, this is. And then after market, that's when we get the, the big boys Amazon and Apple are the two that people will be looking at most closely, and we'll see whether or not they can follow suit. If you think about it, really nice response in, in Alphabet shares that we had on the back of their earnings, now Microsoft, now Facebook. So these really big tech names, which obviously helps them— that disconnect, if you like, between what had been this kind of, uh, the, the reality of the health of these companies, intrinsic value on their balance sheet, comparative to what we've been seeing in the overall kind of valuation of the stock market, which has been surging higher even though the economic reality, reality is very dire. What we're getting here a little bit is, you know, quite depressed expectations for earnings. A lot of these larger caps superseding those things like Microsoft though, and Amazon. If you think about it in terms of from the consumer particularly being homebound, whether working or for just generally living their lives, demands on, say, those two companies' services actually probably even more so than normal because of this unusual situation. And the fact that they're so large, these companies— we're talking $1.2, $1.3 trillion worth in market cap— they're such a large proportion of their respective indices like the S&P 500. If they perform well, they're going to drag up the rest of the index with them. So yeah, these have been, been quite important to help continue this this rally that we've been seeing over the last couple of sessions. For any of the guys on the distribution list, I've sent this out to you, so you'll have that in your inbox for the Amplify guys. Um, the other thing we've had overnight is some Chinese data. You've had the manufacturing PMI. As you can see here, we had this quite severe dip on the back of the readings that would have been when China mainland was in full lockdown we already had in the prior month a quite, um, decent bounce back. And generally speaking, the manufacturing PMI, non-manufacturing PMI, uh, have held up. Um, however, this purple line is the one I just wanted to, to show you really, which has remained in very deep, um, contraction, and that is new export orders. So basically what this chart would suggest with these four lines, there's one it's quite disconnected and much more negative. And that would suggest then that basically domestically, perhaps things stabilizing a little bit. I'm not sure if you've seen, there's been quite a lot of graphics going around about the general kind of traffic congestion rates. This was something we were tracking as alternate data back when we were trying to see the impact in China, just given really the lack of visibility or transparency with their data. It was quite quite a good way— electricity use, general traffic— to get an idea of activity within those regions. And that's really shot up. So definitely they're slowly returning back to a degree of normality. And domestically, perhaps things are okay for the moment, or somewhat stabilizing. But the problem is, is that, you know, they are still quite a heavy, obviously, orientation towards exporting goods. And at the moment, if the rest of the world is going through this severe economic situation, then that's going to have implications on the speed of which that they can recover. And we're seeing that with the new export orders still remaining heavy in contraction. Oil prices were up another $1.50 this morning, trading at $16.62. Yeah, I was listening to Sam yesterday talking to some of the, the new guys, and I think he made a pretty good point. It was He was saying, you know, if you, if you listen to FinTwit, which is, you know, people on Twitter who talk about things related to markets, you know, a lot of pain out there because a lot of people were kind of so sure that prices were going to go down and they've been proved badly wrong because, you know, after getting down to $10, we're now, you know, we're up $7 above that. We've almost doubled the price over the course of the last day or so. So Couple of things that people are looking at here is obviously we had the weekly inventory data yesterday. Some people saying that, you know, that's— they showed a build, but the build was smaller than expected, slight decrease in what we had seen in, in previous weeks. A lot of people as well looking at the fact that, you know, the kind of— we've been monitoring the operational rigs in the US have been declining, so naturally the production rates are also moving lower. And we're seeing similar in other countries like Norway, the OPEC kind of Gulf nations as well. So, you know, as we go into May, as we were anticipating these kind of pledges to move production lower in combination with generally the response of which energy corporations will have to make with such a low price point, inevitably we're going to start to see a little bit of a rebalancing. And as we're seeing with China, You know, with these traffic levels across the nation picking up again, the economy and the PMIs not getting too ahead of ourselves but somewhat stabilizing, you know, demand and supply are coming slightly more back into the realm of equilibrium, albeit still a little bit way to go just yet. But that's what's helping underpin the oil price and its continued recovery from, from very depressed levels at the moment. On the coronavirus side, a couple of different things. I'm going to spend too much time on this. Basically, UK sizes up lockdown options and underscores second wave risk. Dominic Raab, you know, I, I, from a political point of view, and you know, don't, don't, don't take this as a, as what I think for the market because this is totally disassociated, but I do think that Boris Johnson's going down quite a Donald Trump route. In a sense that for me, Donald Trump, if you remember, he named Mike Pence, the Vice President, as the coronavirus czar. And for me, perfect strategy from Trump. That means then that not only now has he issued state governors the responsibility of the reopening plans and the implementation of that, the overall coronavirus dealings are Mike Pence's problem, not his. So as much as we're we know that a lot of the pressure comes from the top. At the end of the day, other people will take the fall if it goes wrong. And I think Dominic Cummings, obviously the, the real brains behind the operation at Number 10, he'll know this. And I think he's adopting a similar strategy. Unfortunately for Mr. Rabb, I think he's going to be thrown under the bus when potentially then if this goes wrong, and that then just sees Boris through And now obviously Boris having another child, I think it was yesterday, that obviously gives another reason as well to kind of step back, give Raab more of the rope for keeping Boris out of the kind of firing line. But we'll see. The point is here from a more markets-sensitive perspective, Britain will next formally review its lockdown strategy basically this time next week. The 7th of May, and that's where we're gonna be looking for more details. Really fantastic article in the FT today, and I'm gonna tweet some graphics, so my handle's here, keep an eye on that. But Italy, Spain, Germany, they've all outlined specific dates and specific measures that they want to do in order for this phased reopening of their economy. Britain hasn't done that yet, which makes sense. Britain was slower locking down, they're slower coming out, and given the rate of infection still or relatively high in some senses, then we're gonna have to wait till May 7th. But it's quite good to see then how this is going to work in practical, practical terms. The UK's Deputy Chief Medical Officer Van Tam suggested the virus could persist for some time, potentially until a vaccine is available. So the idea, of course, as we know now, is that this kind of ability to conduct then face-to-face is going to have to be limited. There's going to be social distancing probably for several more months ongoing. It's going to be a very graduated period over the next probably 10 to 12 months until that vaccine becomes more widely available. And the other countries, of course, Germany— they're actually— new coronavirus cases increased the most in 4 days yesterday. Merkel is due to consult with state premiers today on whether to lift more of the curbs imposed stop the disease spreading. So those conversations, you might get some comments out of Merkel later on today. And then from Trump, as we were just discussing, really, if it's not Mike Pence's fault, if it's not the state governor's fault, well, of course it's China's fault. It's the Chinese virus. And he said yesterday the Chinese are determined to stop him winning another term. He said that the trade deal has been upset by the pandemic. However, other trade advisors within the administration yesterday said they're still committed to getting the previous agreement done in phase 1 of the trade deal. So again, a lot of political posturing going on. You know, I know it's hard to remember, but we do have a presidential election happening in only a few months' time. So he's got, he's got a marketing campaign machine to roll out at this point. So nothing particularly new there, all fitting within the narrative. And again, you know, Trump is a master of this. I was showing this to some of the, the guys yesterday, and I think it's such a good graphic to, to really summarize the tactical approach from Donald Trump, uh, whether it be preemptive framing. And, and what we're seeing a lot of at the moment is diversion and deflection. You know, if you remember when he was being, um, or attempted to be impeached At the time, that was when his, his frequency of tweets was unbelievable. I think he did over 1,000 in one month. And this is, this is all completely going down this route. And I think that's why, at least all things remaining equal at this point, despite America and the globe going to go through some of the, the most difficult hardship in its history, I still believe he's going to survive this at this point in time and he'll, he will beat Joe Biden. But we shall see, there's obviously many more months to go. The final thing I want to talk about here is the ECB. I'm going to cover this live obviously later, but the ECB is to judge then if a trillion euro stimulus is enough. So here's a, here's a great crib sheet and I'm going to tweet this as well when I finish the briefing. I always think that what the guys at ING do with preparing these kind of infographics, which act as a bit of a matrix then to really break down what is a fairly complex event into much more actionable parts. What I mean by this is basically they have the current stance, which is in, in orange, and they focus on the 4 key areas of policy of which market traders are going to be looking at. So inflation outlook and growth outlook, the interest rate and QE decisions, and this pandemic emergency purchase program, the PEPP. And it's on those 4 points then that we can determine how basically hawkish or dovish the ECB are being. And therefore, if you're trading things like the EUR/USD pair, for example, this is what I'd be looking at. Um, the thing I always say to people is that monetary policy particularly now it's so incredibly complicated. I mean, if you think about the Federal Reserve, you know, we talk about the PEPP. I mean, there's about 15 others of those, of which I can't even remember half of them, that are in play at this point in time. And that, that does increase the complexity in trying to understand the language when these central banks are talking. My advice though to any trader, even if you're an an experienced trader as well as a new trader, is try to cut through all of that, specifically pick out the single things that you're looking for, so that when you hear all the noise on the squawk, or you see all the headlines, or you listen to a press conference, you know, your ability then is you already know what, what's going to cause potentially the word, the phrase, the sentence that's going to move markets. So that you can just eliminate and be very reactive in a, in a prepared sense to be able to take action if necessary. So here, the reason why I like this is because you have this kind of, you know, more dovish scenario going down, more hawkish scenarios. So here, ING putting out some kind of euro-dollar targets depending on the outcome or the mix, if you like, that we get over these 4 different key areas of policy. The baseline, I agree with them. Um, recent data suggests CPI pickup will take longer. Yes. Recent data suggests significant slowdown activity. Yes, we know that's likely to be the case. On interest rates and QE, no change. Forward guidance for lower rates for longer. Uh, I agree. And the key thing here is that PEPP program hints at an increase and scope in the June meeting. So as we're saying about Jerome Powell and the Fed, I expect pretty much the same thing from Christine Lagarde. The thing that I'm, I'm looking for here really, in summary, is this idea that Christine Lagarde needs to come out and basically reiterate her pledge that she will do whatever is necessary to get the job done. I think by taking the actions that they've done so far, as with other central banks There has been quite a lot of confidence in markets restored by the scope of actions and the timeliness of what they've done. But more, as Powell said yesterday, is probably going to be needed. And so we're looking for hints of that. The more she hints— if she was explicit, and let's say Goldman Sachs, for example, they think that the ECB will go for a €500 top-up to QE this meeting. They are in the minority here, but that is a possibility. If they just go ahead and they, they take an immediate move then to increase the QE program, obviously that's going to have a meaningful impact on prices. So yeah, let's see how it plays out. I'll be covering that as and when it has— as and when it is happening. Calendar-wise for today, just to wrap up, through the morning, a couple of different things. Obviously we've had the GDP numbers out of France already this morning. Um, yeah, not pleasant reading. GDP was down, uh, 5.8% in Q1, and expectations were, I think, for -3.5%. So worse than expected. This comes, of course, after the GDP contraction in America of 4.8%. That's the worst decline since the financial crisis in 2008. How much has this impacted markets? Very little, of course. Because a lot of this is already priced in. And remember, we're talking Q1, and people are more kind of obsessed at the moment on making those forward-looking decisions on Q2. All right, that is it from me for the moment. I can hear my, my little one screaming in the background, so I'm not going to talk any longer. Quickly then, you've got the flash eurozone CPI and GDP at 10 o'clock this morning, so do keep an eye on that. It's probably one thing for any euro-related assets that could create a little bit of short-term movement. But be mindful, any trades on the back of that would likely be short-lived. People want to clear the deck ahead of the ECB, and, you know, always, despite probably the lack of tangible outcome for many policy changes, no one really wants to carry and hold risk into that event. There is a possibility that they go as far as announcing as soon as today a top-up to that, that purchase program. In the afternoon, you've got from the US then personal income, core PCE price index, the weekly jobless claims. Of course, probably lesser impactful now than they have been in the past. People very much aware now of that situation of the unemployment and what it's going to look like for America going forward. And they've got Chicago PMI Canadian GDP as well coming out later. And that's it, that's a wrap. So any questions, let me know. Otherwise, I'm gonna let you guys get on, and I wish you a good day ahead. All right, thanks very much, guys.