What To Expect In The Trading Day Ahead

Okay guys, very good morning. It is Thursday the 16th of April. Hope everyone is doing well. First things first, just remember to like and subscribe to the channel. I had some really great comments and engagement with questions and stuff yesterday, so long may that continue, and thank you for joining us. I'm gonna have a quick word, and I've mentioned this before, but for anyone new who is joining us, this is Amplify Now, which is our kind of new e-learning portal we put together and launched at the beginning of 2020. Do check it out, I'll put a link in the description of the video if you wanted to have a closer look and look at all the different material. But one thing is, first of all, from a top level, what is this? Well, basically Basically, we've condensed all of the, the teaching that we would have done in-house on our trading floor in London onto an on-demand e-learning kind of portal. Now, that portal consists of different chapters. You can see here Chapter 1 is going through Economics 101, and this is very much not theory-based economics. It is in a way, but this is all applied market-relevant economics. It's very different to what you would study, for example, at university or from a book. This is all about what is it in our experience. So predominantly me, Will, and Piers deliver all of the content, and we've all been in the market from ranging from 15 to 20 years. It's about what is it you need to know to analyze and trade markets, basically. So Economics 101, and then we cycle through different asset classes, FX, bond markets, commodity markets. Of course, we go through technical analysis, how to interpret, trade the news. Probably one of the most popular sections, um, trading psychology, um, risk management, and it goes on. There's also quite a cool feature where yesterday evening Sam did a live webinar. So both him and I do a private live webinar for 45 minutes every Wednesday, which is also part of this portal. And the, the newest part that we've added recently is kind of a market section at the top where Sam records a short kind of review of each day and then his kind of trade ideas and setups for the following day. So great if you're, if you're swing trading, if you're working full-time, but also intraday. And then I put together what we call a Macro Now section, which is basically little snippets of videos, generally around 10 minutes in length, so little bite-sized pieces where I talk about some of the hot topics at the moment. Or for example, yesterday I put live recording of the US retail sales report as it came out and Empire Manufacturing to see, you know, the idea about preparation, execution, risk managing, correlations, these types of things. So do check that out. As I said, I'll put the link into the video. Some of the comments here from the feedback just generally has been, you know, just great to see since we launched the product. You know, people are— have generally enjoyed certainly the fundamental aspect. Hopefully that I can help in that respect, but also the trading psychology, I'd say, is an area which we, we definitely specialize in. We have Will, our MD, who, who very much teaches in that area. So yeah, check it out. And I'm just happy to say that it's been well received so far. We'd love to get more people onto the portal to kind of grow out that community. So I'll leave that with you to, to have a look. But let's, let's get straight into markets then. Let's talk about what's going on this morning. And from a charts perspective, not going to spend too long on that, um, I'm going to let you guys obviously do what you do on your technical analysis side. Um, overall, from a sentiment perspective this morning, a little bit of reversal generally from what was a slightly lower close on Wall Street last night. I think the Dow finished down about 450 points or so. This major 3 indices kind of down about 1.82%. So overnight in Asia Pacific session, bit of a mixed bag, but we've clawed back a little bit in the futures since we've had the European kind of open. The DAX up about 77, the S&P up 10, the Dow future up about 100 at the moment. In the FX markets, Dixie's still pretty strong. We'll have a look at that in a moment. That has put a bit of downside pressure on both the major pairs, just more generally in EURUSD and Cable in the top left-hand corner. And then T-notes pretty sideways, basically flat at the moment, holding on to some of the elevated moves from yesterday given the kind of economic reality hitting home as evident in some of the data that we saw. And then gold, just a little bit of a range break, it looks more than anything else this morning. Uh, just quite recently here in the top right, we just popped higher, uh, just getting close proximity to the R1 on the futures. And that being as well, you can see from a technical perspective, uh, the previous high point that we had around when some data were being released yesterday, kind of range from the Asia-Pacific session from yesterday and the support point from the prior session. Well, 2 sessions ago in the US afternoon. So interesting to see how gold actually responds here at around that level. But gold a little higher, looks a little bit more technical-led there with $11 gain at the moment rather than generally a risk-off kind of theme to things. Crude oil still remains one to watch, I guess. Yesterday it was on our kind of watch list, kind of headlining if you like in that respect. And yeah, you can see when we retested around this kind of $20 level This is the $20 mark here. We bounced, got close to it again, then we saw another break, came back to that level, and then we started to see a little bit more weight come in as Europe entered the market yesterday. The lower bound now printing at around $19.20. These lows are getting lower in that respect. And this is when we, we kind of look here just more broadly around those late March, early April lows. So we have managed to break below there. So we are trading still around two-decade lows at the moment in WTI crude. Irrespective of that accord struck between OPEC+ and G20 oil-producing nations. So still definitely watching this at the moment. The inventory situation obviously clear and evident yesterday. It's going to take a little bit of time for these cuts to kind of kick in. And of all, you know, with the, the data we were seeing yesterday from the US and just generally globally, just really solidifying the economic impact and the demand consequence of what we're seeing. I do think, you know, WTI crude could see some more downside, still remain quite bearish on that for the moment. Haven't seen that big kind of sell-off yet, but definitely again it remains on that kind of watch list in that respect. And on that front, actually, I did do a tweet yesterday where I was talking about this a little bit, and I just want to quickly bring that up because I got asked a question from our head of trading about just generally— let me switch over my screens— oil prices. And he was asking, by how much do I think US oil production will drop in April, May, and June as a result of current prices making some of the more expensive shale production economically unviable? So this is true. There's, there's definitely a sense that with oil trading at these levels, there are going to be casualties and there already has been to some extent, but definitely in terms of the operational number of rigs, uh, in play, that's going to drop dramatically at these price levels given that it's not economically viable at these levels. I guess what Piers is asking here is, well, how much is that going to be specifically? Because when you put that on top of then the forced cuts being now adopted by OPEC+ and so on, is that enough now to offset then this demand shock and then therefore to put a floor under prices? So my response here was really using the IEA report. I'm sure if you, if you trade crude, you were watching that release yesterday. But kind of going through the nuts and bolts of that report, and it showed a couple of interesting things. So just quickly to share, it showed that a forecast drop in demand in April of as much as 29 million barrels per day year on year, followed by another significant year-on-year fall of 26 million barrels per day in May. So really, April and May is, is the kind of, I guess, the, the peak impact of the demand. And that kind of goes hand in glove with what we're seeing just generally with tracking of the movements of the virus. Now, as we'll discuss shortly, we're seeing a bit of plateauing now in some of the key hotspots, but other areas obviously on the decline. Now, in June, according to the IEA report, the gradual recovery likely begins to gain traction, although demand will still be 15 million barrels per day lower than a year ago. So despite the groundbreaking OPEC+ accord with the likes of US and Canada, of course, as key countries outside of that, uh, due to see the largest declines, one of the main things is I don't— going off these numbers, these forecasts of which you've got to base your decisions on through their research, and it's a shared view amongst other kind of bodies is that generally the demand shock is going to outweigh any measures that have been taken thus far. So in the short term, um, I think there's more pain before then we see a recovery. But this OPEC deal is going to be more long-lasting than what is going to be that very, um, kind of testing period over the next coming weeks. Uh, it's going to be quite, quite key. Uh, total non-OPEC output falls could reach 5.2 million barrels per day. But that's not going to happen until Q4 of 2020. So I do think that the deal struck will carry some weight in order to help support prices, but it's just not enough for right now when we're at the peak of the demand shock, if that makes sense. So yeah, definitely that's what underlines my kind of bearish view on oil for the moment. All right, let's move on. I'm going to just literally go through all of the major headlines for this morning, and then I'll let you get on with the session ahead. So update on the coronavirus cases now, as you can see on the left-hand side here, have now topped 2 million globally. Interesting statistic: it took 4 months for coronavirus to hit 1 million confirmed cases globally. It took 12 days for 1 million to turn into 2 million. You know, as per the kind of nature of the virus and which the way it spreads globally, and now as a pandemic, of course, you know, this is obviously one of the most worrying things right at the beginning. But there are some positive signs that we need to discuss. And first off, let's have a look at this chart here. Let me just zoom it out a little bit so you can see the kind of trajectory of these lines. And this is one we've looked at a number of times on the FT, and it's looking at the idea that obviously Italy and Spain's death tolls have been far falling. But importantly, the two kind of that we were looking at, which was still kind of coming up to the peak at this point and was somewhat lagging some of the mainland European spots, was the UK and the US. And UK and US daily deaths may be plateauing now according to what the latest data we've been seeing from yesterday is suggesting. Um, on this point then, the UK is expected to extend its national lockdown today. Remember, it's not like we hit a perfect kind of triangle, hit a peak, and it declines. We generally hit a period of plateauing, and as the Deputy Chief Medical Officer of the UK government said just a few days ago, it's going to be potentially 2 to 3 weeks at that plateau before then we start to see this material decline. So the lockdown, as we've suggested before, is probably going to be into the early kind of end of first week, second week of May, most probable. That would be in fitting then with much of the same sort of timelines that we've seen from other countries. Um, on this point, um, the chief medical officer Chris Whitty though did say that in his view we're probably reaching the peak overall. Um, elsewhere in the States, Trump said data suggests the US are also nearing their peak, uh, in new cases. He said he will unveil guidelines to relax the stay-at-home rules today. So that doesn't mean— I wouldn't anticipate him to say right, that's it, stay-at-home rules are over now. Again, he's going to give guidelines and some guidance, and how definitive or accurate that guideline is going to be, probably not very much. But, but again, it's kind of just trying to manage and give the, the public some kind of idea about the roadmap ahead. I mean, as we've seen, um, the, uh, the kind of Health Secretary in the UK suggesting about 100,000 tests going to be happening XYZ date, that's not going to be hit either. So with these types of numbers that politicians put forward, as I've said many times before, you know, take them with a bit of a pinch of salt. They're not particularly, I would say, market moving most of the time. It's just, you know, they're politicians and they have a job to do with a certain type of agenda that they have. So other things, German Chancellor Angela Merkel, she said that they would allow some smaller shops to start reopening next week. Uh, but if we quickly just jump back here, obviously Germany's been in a period of plateau for quite a bit longer than the likes of the UK and the US. It's a little bit further down that kind of development curve, if you like, in terms of the virus in itself. So all in all, although obviously this is not a good situation here in terms of total numbers, one great headline I saw yesterday was a lady— I think she's based in the UK— She was the oldest confirmed lady to contract coronavirus and basically fend off the virus, and she was 106 years old. So absolutely cracking job. And yeah, not a good situation overall globally, of course, but, you know, signs are that we're, you know, for cautious optimism at this point in terms of how the virus is perceived. However, Even though this is, you know, kind of, uh, a potential positive, the economic reality of course is what's, what's hitting home now. And this is where, you know, as somewhat of a lagging indicator, uh, which is somewhat why markets haven't just, you know, just collapsed on the back of this type of information. I mean, certainly we did see some selling pressure at the initial release. But look, we finished lower on Wall Street last night, and this morning we're rallying again. So, you know, a lot of this information that we're going to get about the economic reality of what the last several weeks is going to entail has been priced in to a large extent. I guess what we're trying to track as market participants is about how severe is this impact, but And also quite importantly is obviously current prices today are pricing in future expectations. So this kind of guideline and roadmap that politicians do put out is going to be quite key to manage that as kind of deliverable milestones of where might the economic recovery be. And we've got to look at economic data right now as to determine, well, how bad is now? Because that will likely then be our starting point to then how long will the recovery take? And the longer that takes, well then the more market prices might be sensitive in a, in a negative fashion and so on. So here, just gonna go through all of the different data points that we had yesterday because there were some quite top-level ones of importance. And first off was US retail sales. Of course, it came in at -8.7%, so the worst number on record in fact, albeit it wasn't that far removed from expectations. And the bottom end of that range for retail sales in the US yesterday was -24%, and it came in at -8.7%. So it is historically the worst we've ever seen, but it wasn't anywhere near as bad as it possibly could have been. However, there were other data points. US industrial output dropped the most since 1946, so basically the Second World War, as you can see here. Uh, we had the Empire State Manufacturing, uh, that was a pretty bleak picture, the lowest in history. Uh, firms only anticipate a small improvement in business conditions over the next 6 months. Uh, so this is it, you can see the severity of the drop-off. But again, yes, this did breach by a considerable margin the most pessimistic estimate on the street. However, we are talking about the state of New York. And obviously that's been the, the kind of epicenter of the US outbreak. So not a huge surprise, albeit pretty dire reading in terms of the number and the overall report. And then that leads us up into what we're going to be looking out for today, of course. And it's Thursday, so every Thursday we get those weekly initial jobless claims coming out the US. They have been a bit of a focal point to kind of, I guess, visualize how bad the unemployment situation is likely to be in America and the the kind of depths of the economic downturn in Q2 for the US. And the estimate for jobless claims this week is, well, the more precise number now, 'cause I tweeted this at the beginning of the week, the expectation today is for 5.1 million. It got a range low of 1.4 to a high of 8 million. Remember, we've got up to kind of the mid-6 millions, it's kind of the high so far. But if it comes out as expected today, that would put the 4-week average obviously north of 20 million, meaning that roughly 1 in 8 of the workforce would have been laid off and now applying for, for jobless claims. So yeah, quite, quite incredible really at this point. And this was a graphic here where widespread job losses could send the unemployment rate as high as 20% in April. And I would say, I mean, that's not as high as that figure sounds. And in fact, that's double the peak of what we had in the global financial crisis. I've seen numbers way higher than that, in fact, put out by some big Main Street kind of Wall Street analysts. So yeah, this is JP Morgan's estimate for April, but obviously this is likely to be tweaked per what today's number comes out as. But as you can see here, the peak of the financial crisis was down here at 10%. A similar margin was seen in the kind of early '80s. So this would be unprecedented in that, in that scale. This was again another way to add a little bit of context about how historic the current times that we live in are, and this, this COVID-19 situation. This is looking at a graphic from Deutsche Bank, and just to explain what we have here, we've got 4 different scenarios that we've, we've faced as economic challenges over the years: the financial crisis, job losses due to the COVID-19— so this is the present situation, the second bar— the third one, jobs lost during the 1930s Depression, and jobs lost during the 2008-2009 recession. And so this is Here, this was the amount of jobs lost in the financial crisis, but here the amount of the change in non-farm payrolls and the monthly payroll data that we've seen. If you take the cumulative value of all of those jobs created since the global financial crisis, so totaling them up from 2009 to February of 2020, if this number comes out as expected, it would mean that basically We have superseded now all of the jobs that were created since the, the global financial crisis over the last decade. So again, it's, it's, it's quite, um, it's quite unimaginable really when you think about the scale. But the important point here is while all of this is quite grim reading, don't forget a lot of this has been priced in to this respect. I guess what we need to do going forward, and I guess determining whether or not whether this is a bear market kind of rally, or actually is this something more concrete behind this recovery that we've been seeing in equities of late and may continue, it's going to be, well, how— when we put all of this data together, and then when those kind of advanced GDP numbers and we start to get more clarity over just generally the second quarter, and also how does the the virus develop on the relaxation of the lockdowns in terms of any potential, um, kind of secondary waves and stuff. That's what's going to be quite key, I think, determining the future price movement. So even if jobless comes out quite bad, I would say the kind of shock value of how it might move the market is probably decreasing to some extent. So do bear that in mind. And also bear in mind that actually pretty much on every single occasion jobless claims has come out higher than expected, we've actually rallied on pretty much, I think, all three occasions. So, you know, that goes to show about how depressed expectations generally are, that you can take a negative number and the markets rally to that extent. What does this mean just more generally? Well, I mean, this was the heat map from yesterday. And the reason why I'm showing you this was the financials have been the kind of highlight of earnings season. It's always the way of which earnings season generally gets released. The United States is a period of a couple of weeks now. We'll see these earnings reports, but banks, major banks start it. And we've had JP Morgan and so on yesterday, day before. You then had yesterday a few more. Goldman Sachs investment portfolio took a bit of a hit. Bank of America, Citigroup following their rivals and setting aside billions in terms of loss provisions. JP, I mean, we finished down at what, 3.5% 2 days ago. It was down another 5% yesterday. So these money center banks definitely, because a lot of them as well have consumer exposure, and with these mass layoffs, of course, those kind of products and usage is going to decline. So they've been hit quite severely. Yesterday they were ranging down between 5% and 9%. Um, some of the investment brokerage type national banks, a little bit better performance, uh, but still obviously not fantastic. But Goldman's managing to just etch out a slight positive gain on the session of about 0.2%. Earnings front, not really too much from an index trader's point of view on a macro perspective to look out for today. Um, but obviously I'll be tweeting the latest kind of timetables when everything's going to happen for next week when we start seeing more companies reporting. Final piece of headlines to be aware of, just in case I get any questions to front run that, um, then have some Aussie jobs data overnight. Not really too much reaction, to be honest. Um, in fact, Australia posted a surprise rise in jobs in March because a lot of that front-run the entire impact of the coronavirus. And in fact, actually, from a jobs perspective, employment was bolstered by hiring by supermarkets and associated supply chains in order to get ahead of the impending lockdown. So actually, it's kind of an artificial— artificially high number that doesn't really reflect the current condition. So it's been discounted by the market. In that sense, even though it was better than expected. A quick look at the dollar. This is the dollar index, and this is pretty much a year to date what I'm looking at here on the axis. And interestingly, obviously quite a powerful rally that we had in the dollar yesterday. It's up again a decent amount this morning, and we're finding a little bit of resistance though, just at the kind of symbolic kind of 100 level. You can see That was a previous point of contention when we were rallying in the dollar quite aggressively, uh, back in, in early, mid part February, and we found some stern resistance at around this point. So we're kind of back there again now. Um, why is it rallying? Well, I guess the easiest way for me to explain this is if you look at this chart and you look at the timing. So when the pandemic really started to grip financial markets and equities were seeing large, significant, big sell-offs. Remember when we were seeing the Dow falling, you know, kind of 1,500 points, the price— the circuit breakers, the price limits were kicking in every single day. That— this dollar rally was at the peak of that volatility. And so here it's one of those things where although you might think, well, the US economy is getting badly hit on the back of this, well, Well, that global reserve currency status really starts to kick in when you start to see a kind of a global issue facing financial markets. You know, the kind of flight to quality is into the greenback in that sense. And so here you've had a pretty significant rally, and then obviously we came tearing back down after the Fed started unveiling all these types of additional liquidity programs, more unconventional measures as as taking obviously rates down to zero, restarting QE and so on. And then we've kind of bounced around quite, quite a lot since then. So now I think, you know, if you're actually looking at the, the movement we've seen over recent weeks, it's starting to get a little bit more narrow. I think that's a reflection as well as overall markets, the volatility has died down quite a bit from where we were. And I do think that's why we're coming up to quite a decisive point in the coming weeks or so of really deciding or not, are we going to get that new secondary push down in markets in terms of equities? So there's a couple of different things, I guess I'm saying, I'm tracking in order to determine have we actually hit that bottom or not yet, whether it's, you know, kind of movement in the Dixie, the equity market, the oil market. I think it's quite a key component to that because I think if we do breach these lower bound levels, as start to see a run down to $16 or below, I think that potentially could be a catalyst. So I think at the moment a lot of these asset prices kind of almost feels like the market's watching one another to see who shows their hand first a little bit. And that probably explains why a lot of these fund managers, as we saw in that Bank of America, uh, kind of hedge fund manager survey recently, we talked yesterday, is that why there's been quite a movement into cash for the moment, because I think that indecision, you know, provides quite a lot of challenges in terms of that investment of money over a longer time horizon rather than just intraday trading. So yeah, hopefully that makes sense. In terms of the actual schedule for today, for this morning, you've got some eurozone data, industrial production, US data, housing starts, building permits, obviously the jobless claims we discussed discussed. And then the Philly Fed Business Index expected to be again pretty similar to what we had with the Empire number yesterday. We're going to look for a negative reading of 26, pretty much doubling of the figure that we had in the prior month. Range there, -42 to -18. Earnings-wise, Abbott, BlackRock, Morgan Stanley. And then from supply side of things in fixed income, you've got French and Spanish supply, as well as a gilt auction coming out of the DMO, is also happening today. Finally, just wanted to point this out because it's not happening today, but it's going to happen tonight. So before I deliver the briefing to finish off the week tomorrow morning, by this time tomorrow we would have had released the latest Chinese data. Uh, it's quite a meaningful part of the month if you look at Chinese data. It's their GDP reading, and that pink line on the right-hand side is actually the market estimate. And as you can see here, the expectation on the street is that GDP in China, which is always tracked at around this kind of 5-6% level, is going to drop to -6%. Now there is actually a range where the bottom end of that range we could see a drop of up to -11%. This also comes alongside retail sales, fixed asset investment, industrial output, all for the month of March. And remember, China was in full lockdown at that point, so it's going to be a good indicator of just how, how severe has that impact been. And that's going to come out overnight session, so definitely worth keeping on the likes of the Aussie, for example, if you're looking at a proxy in the FX market. All right, that is it. I'm gonna wish you a good day ahead. Any questions, of course, just feel free to leave a comment and I'll reply throughout the day. Remember to subscribe to the channel and I will see you guys tomorrow. Have a good session ahead. Thanks very much.