What You Need To Know In Markets This Week

Okay, very good morning to everyone. It's the 3rd of August. Hope you all had a fantastic weekend. A couple of things first. For one, on Friday we've got the release of US non-farm payrolls, and myself and the team will be covering that live, an exclusive webinar. Now normally we get nearly 1,000 registrations for these events, and they are capped at only 500 places. Beauty of Zoom, of course, that we can deliver this across the world. So if you want to join us live, there's a link in the description to this video. If you click on that, you can register. Alternatively, you can just go on my Twitter handle, which you can see here below my, my face. If you go to my pinned tweet, you'll see my macro menu, which is my kind of fundamental review for the key themes I'm looking at for the week ahead. And at the top there, you can see a registration button there in red. Click on that and I'll take you through and you can submit your details. So hopefully I'll see you in more detail and interaction and engagement on Friday for Nonfarm Payrolls. But let's get straight into it. Let's talk about the week ahead. What have we got on the agenda? And yeah, the open fairly quiet. A couple things definitely to talk about in this briefing for sure, from COVID to central bank decisions to the outlook for the dollar. For what's happening on Capitol Hill and US stimulus, all the way to TikTok and earnings. So there's lots to, to cover. But first of all, just having a look at the overall sentiment this morning, equity index futures, not too much going on here. The S&P's flat, the NASDAQ DAX upper touch. Elsewhere, gold in the futures and the spot, very close around that $2,000 level. So definitely that remains on the, on the watch list for sure this week. Can we really bust that level and break breakout to the upside. I'm sure we will find out either way in the coming sessions. And then going to have a look at the dollar as well, and a little bit more detail. Um, talked to Sam yesterday and we were talking about the dollar, and he's got a, a pretty definitive outlook of what he thinks, just given how depressed the greenback has been, hitting a 2-year low, that he thinks then, given some of the technical rejections which I'll walk you through on some of the charts, that we could be in for a week of some renewed dollar strength, given how depressed the price has been. Otherwise, in the crude market, we're going to talk a little bit about OPEC. Of course, their, their planned deal now has come into effect as of the 1st of August. So that means now that the supply cuts are lesser onerous than that they were in the prior weeks gone by. And then in the US 10-year, pretty flat. You have got a mammoth amount of supply to be announced by the US Treasury in order to kind of supplement then this huge stimulus that they're offering to markets. And that's going to be a notable thing for fixed income traders this week as well. But let's get straight into it. I'm going to have a look at a couple of these FX charts. I've just gone through and marked a couple up. I'm just going to remove my— if I can— my camera. So bear with me. There you go. So having a look at the euro this morning, So in the major pairs, we are lower and the dollar is up about a quarter of a percent. So Sam, definitely his call right to kick off the week. And one of the main bases for his reasoning here has been— I'm going to cycle you through Euro, Aussie, and the Pound, starting off with the, the Euro. Obviously, the Euro has seen a phenomenal couple of weeks. This is looking at the breakout that we've had in the last 2 and a bit weeks where we broke that trend line from the summer of 2018, uh, kind of coinciding with the ECB overdelivery, the European coordinated effort with the Recovery Fund, and we've seen the dollar weakness, of course. And so we broke out, we've gone through 1.16, 1.17, and 1.18. However, we have seen a bit of a pullback after getting rejected around those highs that was seen in around the late September time of 2018. So that's looking over the course of the last 2 years, definitely a clear horizontal level of resistance just coming into focus. But if we start to zoom out and look at the bigger picture, this is now looking at the last, you know, kind of 11 years or so, going back all the way to 2008 where we saw a double top going back here to April 2008 and July of 2008 and then retest in 2014. To where we are right at the moment. So there's that horizontal line of the 2018 high, which comes in around just short of the 119 handle. But what Sam was looking at is the market's inability to close above what initially was a price that did momentarily move not only above that 2018 high but also, uh, over this long-standing trend line, and it failed to break it. And so the rejection of that level from a long-term perspective definitely is very significant for sure. Elsewhere then, looking at the Aussie was another one we wanted to have a look at on a longer time frame. This was looking at a trend line as well going back to 2014, a retest at the beginning of 2018, and then last week's price activity. And again, we came up close proximity in AUDUSD to the highs that was seen back at the very beginning of 2019. But that area also coinciding with that long-standing trend line getting hit to the tick pretty much before then turning back lower. Certainly a few things to have a look out for this week. I'll discuss the RBA in a moment, but certainly again a rejection of a key level which will be meaningful for the dollar. And then finally looking at cable You know, cable's been on a tear of late, having broken out above its 200 DMA and those previous highs that we saw in the middle of June. And having surmounted the 130 handle last week, we run up to around 132, which was a clear level of resistance really year to date, both in kind of late Jan and also pre the pandemic sell-off that we had in March. And we've just backed off since that price. So there's definitely some key rejections in the FX space, uh, and just given the, the consistency of the dollar weakness, a little bit of a bounce here following these technical moves I don't think could be too unsurprising. And then just shifting over quickly to the precious metals space, and this is how a quick look at gold. But before I look at gold, I just wanted to have a look at silver because similarly, a key technical rejection at around those support levels— remember, these were these upside levels that we had, uh, kind of marked ahead of time, just given how violently, uh, the silver rally had been in the previous 2 weeks or so. And that was when we were watching it, if you remember, breaking through $21, but we quickly went through $23, $25, and then again pretty much to the tick hit the $26 handle symbolically, but also That was that key area of support going back to, you know, beginning of 2011 and also the end of that year and the summer of 2012. Really important level for silver, and that also getting rejected, creating a decent dollar and a half pullback in the price. As far as the yellow metal is concerned, gold continues to remain elevated, but we were kind of talking about this at the end of last week about how we've had these progressively more shallow pullbacks in gold, which would be indicative then to a breakout in either direction. But obviously meaningful to the upside is this $2,000 level, which you can see has relatively held so far. But the pressure is building, it would seem. A lot of people obviously still talking about gold very much so at the moment, but then COVID globally is still getting worse. Lots of uncertainties as well about the impact that will have on the shape of the recovery going forward. So definitely gold, I would say, only a matter of time. Even if we did see a bit of a breakdown like what we had, uh, in towards around Thursday of last week when it got rejected off that 2000, even if we did, I would still see some pretty strong areas of support then for the market just to come back higher again. So really here would be a key area around 1975, and then lower down just capturing some of this previous support levels that we've seen back on the 29th and also the 30th, around 1950 type mark, then to just follow the move back higher. So whether the break comes here more near-term or later, I definitely think that that 2000 is going to go at some point, and when it does, I'll obviously it could be quite a violent move, uh, just given some of the, the pent-up demand for gold at the moment and the technical symbolic nature of a breach of those levels. All right, well, look, plenty of headlines for me to talk over, so let's get straight into those and start off with COVID situation. Um, here we go. So this is looking at new confirmed cases of COVID-19 in the US UK, Australia, France, and Spain. So these are a number of countries at the moment that are kind of on my watch list. If anything, in the US— US cases rose by just shy of 60,000 at the weekend, marking a 1.3% day-on-day increase. That is in fact less than the 1.6% average for the previous 7 days, according to Bloomberg and the Johns Hopkins University. Viruses have also slowed in Japan, Germany. But the other areas that are capturing a lot of the headline news story at the moment is in mainland Europe. Of course, it's been Spain, but also France have seen their numbers been picking up. And then in Australia, in a different continent, um, they have come out and Australia's Victoria state has tightened restrictions and declared a state of disaster after this outbreak showed no signs of abating 3 weeks after capital Melbourne was put under lockdown. And in fact, in Melbourne, in the metropolitan area, they have now enforced a curfew limiting movement between 8 PM and 5 AM. And that, that new restriction will be enforced for the period of the next 6 weeks. So again, that level as well in the Aussie that we were just looking at, not only a technical level trendline getting rejected, but also as well the deterioration that we're likely to see then on the economic severity of the pandemic hit that Australia is going to go through. You had some housing prices overnight which decreased sharply. The country's moved into deflation for the first time in 22 years, we saw last week. And so if anything, you're looking for a weaker Aussie dynamic at this point. So any dollar recovery and the rejection that level could be decent for Aussie shorts. Um, the other country is the UK, of course, and this comes after, um, there's been a couple of headlines that have come out over the weekend. The UK is looking apparently at all options at this point in time. This has come after what Boris Johnson gave a speech at the end of last week, and we heard from the Health Secretary Matt Hancock about them basically putting the handbrake on the reopening of the final remnants of what was the COVID-19 lockdown. Instigated back in kind of late March, early April. And the type of things that they're looking at here— there's a Sunday Telegraph article and a Sunday Times piece. The Telegraph talking about possible measures including the lockdown of the capital in itself if infection rates spike, and quarantining, tightening quarantining rules for those flying into the UK. The Times wrote that there could be travel curbs in and out of the M25 highway encircling Greater London and a ban on overnight stays. So certainly, um, the UK government kind of taking heed, I guess, from what is developing at the moment in mainland Europe, particularly with the attention in Spain last week. And so they're kind of the three areas generally that I'm looking at. The UK ourselves, given the way that the numbers are panning out at the moment, you would anticipate anticipate that numbers will move higher this week. And in Spain, France, and then elsewhere, Australia is worth keeping an eye on as well. Interesting thing that I saw actually, the study with some FT data in regards to the UK. A lot of people obviously had been talking about Leicester, which had its— was one of the first larger populous areas to have a more localized lockdown. The government's still saying that that is the key way to kind of manage then the economies to still function, not having a nationwide lockdown. But very important then that we start to control what— there's a difference between what they're deeming to be isolated kind of outbreaks or more community spreading. Leicester would be like with Blackburn, Bradford, and Oldham, something more akin to community spreading, which is more of a progressive, slow slow, consistent, steady incline of numbers with a more flatter shape. Whereas when you get some of the other areas which we've had before, which are isolated outbreaks and say an abattoir in the Northwest where, where cases have spiked, but then given the fact that it gets locked down and controlled, it doesn't spread to the rest of the community and comes immediately back down. It's the former that's a real issue. So you can expect then as what we've seen in the northwest of England. Uh, lots of these kind of more local authority lockdowns to take place going forward. Um, moving on then, other things I want to talk about in the equity market. I haven't really talked stocks yet, but JP Morgan came out with a note this morning, sees a risk of modest stock drop but don't go defensive. They're talking about the next couple of weeks Um, if economic data misses expectations, there could be a modest equity market correction. Um, yeah, I mean, that definitely could well be the case, but I guess the underlying sentiment here is, and I agree with, is that this market is not going to go down, let's say, 10% plus, um, at this point in time, just given what's in play both from a monetary policy and a fiscal perspective, it's just hard to see this equity market sustaining a consistent move lower. So here again, the key areas we'd be looking at— I'm just looking at the NASDAQ chart here for the moment, and you can see what a great level that we were respected on, that trend bottom end of that trend line, which was that resistance level that we had when we were initially pushing up at those all-time highs in the NASDAQ back at 10,292. Seems a distant memory now because 11,000, obviously just above there, is the, the new all-time high. And we're not far off there at the moment. Again, any pullback here— this is the 21 DMA we have here in the blue line— then perhaps then 10,766.5 could be an interesting floor for price. You can see a couple times that that's been respected. And, and definitely worth watching this week about how we reacted around that 11,000 level once again. Uh, just going to quickly bring up the S&P as well. The story there hasn't really changed a great deal despite the ebb and flow that we have been seeing of late. And with the earnings season now getting, I'd say, less interesting— I mean, let me just broaden this out a little bit. Renewed US-China tensions still remain something to keep an eye on. One of the things we've had is US officials have said that TikTok, under its Chinese parent, poses a national risk because of personal data that it handles. Microsoft CEO said it could continue negotiations to acquire TikTok from ByteDance and that it aims to reach a deal by middle of September. The whole point here is that banning TikTok some Republicans have said would alienate many of its younger voters ahead of the important US presidential election in November, whilst also likely triggering a wave of legal challenges. So that's kind of the latest of the US-China, uh, kind of trade spat playing out for the moment. But you can see this area here really that's held so far, and it's a really key point around that 3,200 31.96, which has held the bottom end of that range of the price movement through much of the period of the month of July. So as we start to edge up a little higher here, we're just getting very close proximity to retesting up around the high that was seen on the 23rd. So quite a key mark there, 32.84 and the 3,300 handle on the upside. Uh, any breach though of that July kind of floor with the next level, a key area to keep an eye on is 31.19, being those lows that we we had in the early part of July. You can see here as well, we had that resistance point in early March, and it's been another area of key in November and also December of last year as well. So yeah, again, room for a pullback, sure, in some of these US equity markets, but still I would say a good floor for price that should, well, mean that, you know, any significant weaknesses to be bought into at this point. I know it sounds like a quite frightening prospect given everything that's going on COVID-wise, geopolitical-wise, but it's just the nature of the way markets are set up at the moment. Um, let me just have a quick look. Hopefully I was just sharing my charts there. Let me just double-check because I'm going to quickly run you through again. So the NASDAQ These were those levels in the NASDAQ that I was just looking at here. That was those levels at 11,000. And then when it comes to the S&P, uh, this is what I was looking at here if I wasn't sharing it just then. So this is that area, 3196, and then that 3119 is a key area on the downside of any pullbacks. And then the upside, key area of resistance seen just above here, uh, the previous move high that we've had, that we've the post-pandemic recovery, which would take us back up to these levels that where we were trading right at the beginning of the year. All right, a few other stories just to wrap things up, and going to talk about the central banks just momentarily. We do have the Bank of England happening this week. I wouldn't actually be expecting a great deal here. If you remember, they boosted their asset purchase facility by £100 billion at the last meeting. So I'm expecting unanimous in terms of no policy decisions to be taken this time round. They do have the release of their monetary policy report, so this is one of those alternate meetings when they would have the full press conference as well. They'd be talking about their projections, but it's unlikely they're going to call them economic really projections at this point in time. It's more likely they're they'll refer to them as simply scenarios, given how uncertain the COVID situation is and its implication for the UK economy. A couple of interesting bank comments I saw at the weekend. Citigroup said the Bank of England could pave the way for negative territory in terms of interest rates by removing the guidance that the lower bound is close to but a little above zero at its decision, whereas HSBC, I thought, came out with quite a a good pun. They said that the BoE could rely on the rhetoric of negative interest rates without actually having to do so, the so-called Maradona effect. And I actually think that they've got a point. It's almost one of those things where people talk about it enough, it almost becomes self-fulfilling, and do you get the actual policy response of taking such action already ahead of time before even doing it, meaning then that you never actually have to pull the trigger on such a move. Certainly the markets do think that the BOE will go into either an expansion at the end of the year of the asset purchase facility again and negative rates perhaps in the spring of next year. So be interesting of course to see what— and I'm sure the journalists will be in the Q&A asking them about that, that particular policy option. The other one is the RBA. I'm not expecting anything here either. They meet on Tuesday, so they have to keep their overnight cash rate and 3-year yield target unchanged. This comes after a number of the things that they've already done so far. Realistically, are they going to have to do more? Well, it's kind of a difficult one that they face now. They've come to the lower bound and the governor's kind of ruled out the use of negative rates, which doesn't leave deal of options left on the table. And at the moment, the longer and tighter the Victoria lockdown, the more harder it's going to hit the RBA's forecasts and, and their local economy. So really, the COVID situation is quite key at the moment in Australia. Remember, Melbourne, highly populous area in the state of Victoria, so that is going to have stark implications for them. And so again, quite questioning about them. How do they see that playing out is going to be what most people will be looking at, but no actual definitive policy changes are expected. On the oil front, oil's a touch softer this morning. Obviously it did bounce. I'm just gonna have a quick look technically. There was a few things I was looking at on Friday, which was— if I look on a daily, I've got it kind of zoomed in a bit more closer here. This is looking at the last 2 months of price activity here. And we got the 50 DMA with the 10th of July low, which was around 3854. We came right down to that, that kind of dual signals there for a bounce after we saw a bit of a breakdown of the move through the 21 DMA, which came in what, last Thursday's session, and a bit of a breakout from what had been an area of consolidation fairly tight price activity around the $41 to $42 handle prior to that in the beginning of last week. And so that's a definite key area there. And in the near term, you can see market finding a bit of a floor around that 20th of July area as well. But overall, crude perhaps a little soft. Not only are we tracking this global COVID situation, one thing we did have overnight was Chinese, um, Cajun market manufacturing PMI. And actually that came in at 52.8, which was continued increase on the previous reading. It's the sector's third consecutive month of growth and it's the biggest jump since January of 2011. So these would all be positives, you would think, but the problem here is that the rest of the world is suffering at the moment about this second phase of the coronavirus. So despite some of those positive signs coming out of China, the rest of the world is looking quite fragile on the demand side. On the flip side, the other thing that you have here is, of course, that OPEC and its allies last month agreed to start tapering their cutbacks from 9.6 million barrels per day to 7.7 beginning on the 1st of August. Now, Russia, often a laggard in these previous OPEC+ deals as far as compliance is concerned, was almost fully compliant in May and June. However, reports the weekend suggested that they had slightly increased its oil production in July ahead of the scheduled plan, which is slightly, uh, disconcerting given how crucial that they are and their adherence to this deal in order to help support prices. So at the moment, you've got a slight relaxation of the stringency see on the supply side, with some demand apprehension at the moment, which does provide a bit of an interesting situation for crude. So for the moment, I do feel like perhaps we'll be capped now on the upside by some of those higher areas that we have had of late, which is around that 42-type level. So not getting up to the, the 200 DMA just yet. So if I'm just looking at this chart here, uh, the kind of red line, the DMA with the low that we have on the 2nd of March, can't see us getting above there anytime soon. And in fact, probably around that previous high we printed around 4236 would be an area of key resistance for, for the week going forward, um, barring anything unexpected on the supply shock side. Um, US Capitol Hill, what's going on? This is still definitely a thing to, to monitor for sure. Um, the latest here that we have is that White House Chief of Staff Mark Meadows said on Sunday that the two sides are still far apart despite progress over the weekend following the expiry, of course, of these emergency enhanced unemployment benefits. The failure to reach a compromise by the end of last week has left more than 25 million people in America, in the world's largest economy, grappling with sudden austerity after the expiration of those benefits worth around $600 a week. So definitely this needs to be kept an eye on. The longer it goes without them striking a deal, the more negative then the repercussion for markets in respect to the fact that it's going to have more negative connotations for its economic impact on the recovery of the United States. Elsewhere, earnings— it's been a couple this morning. HSBC have come out, their profits fell short of estimates. Europe's biggest lender signaling worsening loan loss weighed down by the global pandemic. The lender raised its estimate for 2020 loan losses to 8 billion, um, or to 8 to 13 billion. So moving it up to 13 billion. Their adjusted pre-tax profit was 2.59 billion below the expected 2.94 billion. You've also got SocGen losing streak with surprise 1.5 billion loss, uh, the French bank taking large charges after a review of its global markets. Division. Now from an earnings perspective, if I just quickly jump to here, from a US point of view, I think US has kind of seen peak earnings, so to speak. Um, actually I haven't— I didn't tweet the earnings estimates, so let me just bring it up here and you'll see Earnings Whispers is the best account to follow for tracking these, these US earnings. But it's a very busy week for earnings in America. However, it was kind of the crescendo of earnings season was last Thursday evening when we had that mega-cap earnings evening. Now that that's passed, most of these companies are much more small, medium-sized market caps. So definitely important for the individual stock, but for us as macro index-based futures traders, this really isn't going to shape then the potential or disrupt market direction in the likes of the NASDAQ or S&P S&P. So earnings season definitely takes a bit of a step back. But in Europe, do be aware though, there are a number of key earnings coming out. I think it's the likes of BP's coming out this week, a number of the big European banks. You've got SAP out of Germany as well. So definitely UK and European earnings still to be kept half an eye on pre-market-wise. Okay, payrolls. We do have payrolls, of course, it's Friday. So just be aware then from an economic data slate this week from the US. We get the normal string of events: ISM Manufacturing, Non-Manufacturing, ADP. All of these things of course will be important. And then payrolls will be live, covering that on Friday. Employers are likely to have added over 1.5 million jobs to payrolls last month, or about a third of the prior month's pace, according to the latest Bloomberg survey of expectations. The jobless rate is projected to drop by 0.6% 0.5 percentage points to 10.5, compared with a 2.2-point decline in June, and still triple, of course, the pandemic— pre-pandemic level of 3.5%. So overall, we are expected to have created jobs, but remember, with payrolls, always that there's a reference period. So this only goes up and to capture up into around the week of the 12th of July. And actually, most of the intended job losses that came due the second wave situation in the likes of those Sunbelt states in America were captured in the last half of July. So actually, how important is payrolls? Well, it always creates a degree of, of drama in the intraday trading environment in terms of volatility. However, actually, it might be somewhat artificially more positive than perhaps then what is actual reality, given it doesn't capture some of those more job losses that were squeezed into the back end of July. So yeah, it to be taken in context, I would say, in that perspective for payrolls. And then yeah, the week as a whole, as I said then, key data coming out of the US throughout the week. You've also got US factory orders coming out on Tuesday, a couple of speakers today, Feds Bullard and Evans. And you've got Fed's Mester on Wednesday. Um, the weekly jobless claims of course will be watched still quite closely, just given the, this slight pickup that we've seen. So again, it goes in contrast to payrolls— payroll being backward-looking, and there were weekly jobless claims coming out week to week. As we've seen then, where the cutoff reference period is with payrolls, pretty much since that point, jobless claims have been coming back up again. All the more reason why payrolls fairly dated and backward-looking in that respect, and therefore might not have such a massive big impact on markets beyond the actual moment of its release. All right, that is it. Spoken for quite a while, obviously a lot of things to get through. Don't forget you can get this whole macro menu of everything I've kind of discussed in more detail, uh, it's just on my Twitter account. Just go to the pinned tweet and you can click on it and have read in your own time. That is it. Don't forget to, of course, to like and subscribe to the channel. Of course, we really appreciate all your support, as always, and good luck for the week ahead. And I'll see you same time tomorrow. Thanks very much.