What To Watch In Markets This Week

Okay, very good morning to you. It is Monday the 1st of June. My name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. I hope you all had a fantastic weekend. Before I begin talking about the general fundamentals and a preview for the week ahead, I just wanted to say remember to subscribe to the YouTube channel. There's some excellent videos there already for you to have a watch to supplement what I'm going to talk about, which is very much the news that's occurred over the weekend. And from a fundamental perspective, then what's the general consensus for the main events for the week ahead? There is already a full weekly trading setup video from Sam North, one of our senior traders, and he's going through the markets much more from a technical basis. And then Eddie Donmez, one of my colleagues, has also put together a fantastic video looking at— about explaining in more depth all of the background and also what's to be expected, including things like who are going to be the winners and losers between US and equity Chinese specific stocks in his latest video in the Trade War Explained. So if you just jump on the Amplified Trading YouTube channel, you'll be able to access all of those alongside my weekly daily updates that you'll see in that playlist there at the top. All right, well, let's move into the briefing then. And what have we got on the agenda for today and this week? And things off to a relative positive start actually, despite an initial dip down that was seen in overnight trade. Initially, you don't know if you can see it quite here in the middle of the charts, a slight dip in the initial reopening of electronic trade last night on Globex. And this came after, as I'm sure you've seen, investors weighing the violent protests in some American cities that have been seen stoking concerns about the reacceleration in the infection rates in the US that could well dampen the economic recovery following the, the death of George Floyd. However, that move was largely brushed aside, and the main theme being that of that highly anticipated speech which we're awaiting from Donald Trump came pretty late last Friday. But actually, stocks, as you can see if you go back to the close on Wall Street, we were rallying all the way into the close after he spoke because although the revoke of China's Hong Kong— well, Hong Kong's special status, he refrained from making any adjustments to the China trade deal. And so the net summary here was that it wasn't as bad as some might have feared, given all of the increase in the rhetoric that Trump and the administration were making last week. And as such then, this is what the, the general scoreboard looks like from the overnight Asia-Pacific session. Probably help add a bit more context. So the Hang Seng was up north of 3%. The Chinese mainland CSI 300, the large companies in China, up just shy of 2%. Um, in terms of the equity index futures even further. In the forex markets, the dollar a touch softer has been quite typical where we've seen a little bit more risk appetite return, uh, going off the general price pattern movement from last week. The DXY is down about 0.4%. It's actually just below the lows it saw toward the end of last week's session. So both major pairs being supported at the moment in the currency markets. You can see top left here, EURUSD just having a retest up and around Friday's high in its respective R1, the futures. And then cable, despite then, as I will talk about in a moment, the next round of Brexit talks probably unlikely to yield any form of real tangible progress irrespective of that. Cable just taking heed from the generally softer greenback and coming back up towards Asia-Pacific highs, up 78 pips this morning. So both EURUSD and cable on a firm footing. Irrespective of the, the equity recovery that's been seen overnight, gold is up about $7. Just using the R1, which was in the overnight Asia-Pacific session a point of resistance, is a bit of support, a floor to price for the moment. T-notes though is down about 2 ticks but has been relatively quiet trade. The pivot just holding the price action for the time being. All right, well, let's go into some of the headlines and talk about some of the main stories and what we've got on the agenda for the, for for the week ahead. First off, starting with the overnight session, do note you had the official Chinese manufacturing PMI, uh, did miss expectations but did remain in expansionary territory. The non-manufacturing PMI and the Caixin manufacturing PMI topped estimates, so maybe helping a little bit in terms of just a general stabilization of prices. Remember, from a kind of a week ahead point of view, the PMIs really do take precedence. Let me just flip over and change my screen. This is the weekly calendar I've put together from my macro menu, which I'll put in the description of this video if you wanted to look at my written text in a bit more detail. But you can see here Monday really dominates with the manufacturing PMI numbers, US ISM Manufacturing PMI coming this afternoon, and then you've got the service PMI data on Wednesday. So these numbers numbers are going to be one of the main things coming out this week alongside other things we'll discuss such as rate decisions. You've got the RBA rate decision, the BoC rate decision, and the ECB rate decision all coming this week. And obviously we bookmark things with non-farm payrolls coming on Friday, of course, which we'll have a look at in a moment. So looking at the, the headlines, what are some of the things in play? Well, This is one. Europe's virus hotspots exit lockdown as experts urge caution. UK, Italy plan to remove some restrictions this week. This comes as per what Boris Johnson had already outlaid in the UK last week. The 1st of June is kind of the next phase, the next one thereafter coming in the middle of the month. Um, interesting then to continue to track and monitor and be vigilant towards any new reinfection rates. Certainly they're not going to appear immediately as the lockdown loosens, but certainly with that incubation period, as we know, can be a number of days up to approximately 2 weeks. This is going to be something, uh, still to monitor. It feels like generally, um, the, the more closer tracking of the virus has kind of dissipated a little bit, as certainly last week tensions very much turned to the trade war. But I would say then, the, the further we get down the loosening of restrictions, the more likely it is that we need to monitor these closely again going forward. So yes, maybe not the singular bigger thing, biggest thing right now, but certainly definitely needs to be— you need to remain somewhat vigilant. One thing I did see, and I just wanted to comment because I often do when Goldman's come out with their latest research note talking specifically about the S&P 500 and US equities, but, uh, they've kind of flip-flopped a little bit between, uh, being optimistic to pessimistic to now perhaps then a little bit more optimistic once again, having, uh, rolled back what was their previous fairly negative outlook. Um, let me just flip over on a different chart here and you can see. So, uh, previously Goldman Sachs had expected the S&P 500 to slump to around 2,400 So this is that gray dotted line you can see here down at the bottom. So this is the current price on the S&P 500, and what Goldman's were anticipating was a pullback down to that level before then a re-acceleration and a push back higher, uh, towards 3,000. Now what they've said is it's highly unlikely monetary and fiscal policy support limit likely downside to roughly only 10% from the current day's price. A 10% depreciation would be here. This would be 20% in that effect. So they're looking now for potential downside risks being capped if we did have a reversal at 2750. They've maintained their year-end target of 3000. We're obviously trading above there in the S&P at the moment. We're trading around 3046 currently, but they have also said that the S&P could go as high as 3200, which as you can see would put us back above those early March before the, the kind of initial pricing of the pandemic move that we saw. So full reversal of that move and up testing towards support points that we were seeing in the beginning of the year of 2020. So yeah, just thought I'd point that out. In terms of this week ahead though, there are a couple of major events that are happening. I mentioned the RBA and the BoC. I'm not going to go into those right now in detail, but I am going to talk briefly about the ECB. The ECB very much expected on Thursday to increase their quantitative easing program according to a Bloomberg survey economists conducted essentially last week. A majority of them foresee an increase of €500 billion, some— the next kind of group of analysts seeing €250 billion, but anything short of expanding that program. And this comes of course irrespective of that German constant constitutional court hearing we had about 2 or 3 weeks ago would be a massive shock to markets. And if they don't expand their QE program, you would expect the euro to accelerate. There'll be some sharp moves in European yields on the back of that. Probably European equities would come under pressure because markets are very much now priced and positioned for more to come in the form of monetary policy stimulus from the ECB. Alongside this, we get the latest Eurosystem and ECB staff macroeconomic projections. So For those not familiar with that, this is essentially the 4 times during the year they rotate, um, every kind of quarter of releasing their latest vision about what the future looks like economically. And this will be quite important because it's likelihood that they're going to need to downgrade that to the reality of how bad economically the European area has been impacted by the coronavirus. And so as per usual, we'll be tuned in and listening very carefully to Christine Lagarde as she holds that regular press conference. So that's going to be one of the main events for this week. This is just a quick look. I know the, the text is a little small to see. I'm sure I can zoom that in a little bit more, but this is looking at the basically the central bank's QE program. And if you remember, it was at the end of basically 2018 going into 2019 where they effectively turned the tap off and ended QE. This was part of their kind of normalization of policy and winding down of active quantitative easing. However, that restarted, of course, as we know, towards the back end of last year, and it really started to— well, in terms of the announcement to restart it, and then it really started to pick up some pace as we've gone through the response to the pandemic. So the 12th of March was when the ECB started to ramp up their purchases from what had been the recommencement back towards the end of last year. They then in April, well, if you remember April, they eased their collateral requirements. They then put out this pandemic long-term targeted refinancing operations also kicking in. So you can see here the kind of depths of which they've gone back to having unwound some of this program. We're right back to really where we were during 2017. To give you some idea. The other thing, of course, is you've got payrolls coming on Friday, and the, the headlines are going to make for some pretty scary reading. US unemployment is set to rise to 19.6%. So obviously this is kind of topping up that pretty drastic number that we had last month, and that was the month when we had the full kind of repercussion of the most stringent part of the lockdown. This data here for the month of May will actually capture part of some states reopening, but that's really what's going to make this report somewhat less important than, I'll say, with June, which is when I think you're going to get a much better idea. This is next month's payrolls report about the general speed of recovery, as most of the economies then will be in some shape or form in one of the phases of being reopened. Um, so for this time round on Friday, yes, it's going to be a dominant feature of mainland, uh, or Main Street kind of press, if you like. The unemployment rate near 20%. The actual non-farm payroll number is going to likely have declined by, again, another deep negative number. 8 million is the market consensus. You've got a range low of 7— minus 17 million to best case scenario of just -2.5 million. But the idea here being that although, um, things haven't been this bad in US jobs since the Great Depression of the '30s, markets have very much priced all of this in, uh, and are forward-looking at this point. So as much as it might well create a little bit of an episode of volatility at the point of release, I don't actually think it's going to be too much of a big deal. For markets to manage this, this particular number. The other thing then, moving over to the UK, wanted to mention a couple things because actually, well, if I jump over to here first, this was an exclusive kind of interview in the Sunday Times. Michel Barnier, who is the chief negotiator for the EU at the Brexit talks, and the reason why I'm mentioning those is that Brexit talks go into their fourth round of discussions. This then is actually, I believe, the last round. However, Johnson's already been tabling that he wants to fit one more in after a European summit in the middle of the month for this looming deadline about whether or not the UK will in fact ask for an extension to the current transition period due to end at the end of 2020. Now, Michel Barnier, what did he say? Well, he effectively told the Prime Minister Johnson that he must keep to his promises if he wants to avoid a double economic hit of a no-deal Brexit and an economy severely impaired by the coronavirus pandemic. David Frost, who's basically his counterpart on the British side, reported in the weekend press that he's become frustrated with the bloc's continued demands over fisheries. That's one of the main sticking points at the moment, and this kind of consistent, consistent push that Europe have got about regulatory level playing field. And so all in all, I was reading some of the press from the UK on Brexit last night, and it really feels like we haven't moved forward really at all. I don't actually think we're going to move forward in this next round of talks either. Such has been the form of gamesmanship and kind of political kind of posturing. The way that Brexit has gone is we need to get closer towards that final kind of 11th-hour deadline, if you like. Before then, something happens, some deal-making will inevitably take place. So for me, does that then create a risk given the relative sterling complacency somewhat in its positioning at the moment for potential of a no deal? Um, I think that yes, there is some potential at some point for weight to come into sterling. I just don't think it's this week. I think if we come out the end of this week with Brexit talks and actually there is no progress. I don't think that comes as no surprise at all. So yeah, I don't actually think that as much as Brexit comments will be coming potentially thick and fast throughout the next couple of days, not sure how market-moving they'll be, to be honest, at this point at least. One thing I thought was quite interesting though, following that thinking through, is there's been a report exclusive to the Financial Times this morning which is reporting that the UK government is preparing a stimulus package for July. The proposals are said to include training, infrastructure spending. The newspaper says that up to half of bounce-back loans may default. Um, so a bit more detail on the back of this. What they're saying is that with unemployment rising rapidly, the Prime Minister might also be due to make a major speech in June. Aimed at encouraging Britons into work. And interestingly, Whitehall figures said that Dominic Cummings, obviously the figure you're very familiar with, the man, the chief advisor behind the scenes, he's said to be the main driving force and architect behind this latest plan for a stimulus package. So actually, for me, I think this is— this potentially puts some extra risk about the eventual outcome of those Brexit negotiations when we get down to that end of June deadline. Because to me, the fact that Dominic Cummings is said to be the main person driving this latest stimulus package, and the fact that Boris is then going to drop this kind of unveiling and big speech in June, makes me think that then the UK are trying to kind of appear in a strong hand, that they're going to support the economy irrespective of the fact then that they're not going to be bullied by Europe into conceding on certain red lines that they put forward. So it almost feels like for me that the fact that this has come up and the fact that it comes from Cummings, then actually the risk of no deal probably increases in my mind. Still, is that going to be a factor for today? Possibly not. But, you know, it really is starting to— and I would expect the intensity of it breaks the negotiations to ratchet up a few notches, notches, uh, over the coming days for sure, or weeks I should say. Um, that is pretty much it from me on my side. So that's kind of your general overview of the headlines of things that are going on. Um, so ahead of non-farm payrolls, don't forget you get the usual kind of sequence of major US data. So you'll get the ISM Manufacturing PMI today, you get the Non-Manufacturing PMI Wednesday. So keeping an eye on those employment constituents alongside the ADP employment change number on Wednesday and the weekly jobless claims on Thursday. All of these things will help give us a, a bit of a reference point for what we can expect from the, the BLS report on Friday. Otherwise, you've got the German factory orders, they're coming out on Friday, which I'll also be keeping a relatively close eye on as well, alongside the German unemployment change rate. And then, as I said, you get those other European PMI numbers manufacturing on Monday, today, and services on Wednesday. So that is it from me. Any questions at all, just feel free to, to leave a comment on, on the video. I'll be happy to engage and respond. The final thing just to leave you with, for any oil traders, there's been a couple of headlines out this morning already. OPEC is reportedly close to bringing forward their next meeting to this Thursday. Previously, the meeting wasn't scheduled to next week on June 9th. This is following a proposal from the Algerian energy minister, and it's reported that Russia has had no obligations about bringing that meeting forward. Of course, this could be quite important just given the fact that there has been some noises, remember, about a week ago or so about Russia, whether or not they want to continue down this route of aggressive supply cuts or not. And so that'll be one to watch, any further updates that could come this week. All right guys, that's it. Have a good session ahead and a good week, and I'll speak to you tomorrow.