What's Behind The Recent Rise In Equities?

Okay, very good morning to you. It is Tuesday the 19th of May. Hope you're doing well. Uh, first of all, my name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. If you're interested in anything we do, from the proprietary trading to the trader development programs to our student internships that we run, just check out amplifiedtrading.com. And remember to like and subscribe to the channel. This is our website here, as you can see, and you can navigate down and see the appropriate sections, uh, whatever your interest might be. But let's just go straight into the charts in the briefing for this morning. And yeah, a positive day yesterday, kind of optimism on economies perhaps reopening sooner than perhaps some had anticipated. No real huge signs of a significant second wave as yet, but still obviously monitoring that situation very closely. And then that kind of early results for an experimental vaccine, uh, Moderna vaccine testing showing immune system responses in humans, uh, just helping just lift things yesterday. And, and just having a look this morning, not a great deal of new information has happened. There's some interesting comments about a joint EU fund, uh, backstopped by predominantly Germany and France. That's definitely something that's been— we've been awaiting for quite a while, so that has happened. But otherwise, not too much. So it's kind of more a little bit of a continuation, if you like, from yesterday. Asia-Pacific session was generally positive following the, the positive session on Wall Street, and that's kind of fed through, and we've basically stabilized and held those gains thus far. So equity index futures, the DAX, I can see here on the left center. It's just creeping up to retest around the highs that we saw going into the, the late US session. So the futures did continue to rally as we went into the close on Wall Street, and we're just testing that now on the DAX. US indices moderately positive. So gold, again, don't look at the fact that on the session change it's pretty much flat up to $2. Generally speaking though, it's held what was a substantial move lower yesterday, which I don't think comes as too much of a surprise just given some of the recent run-up in price. And we've which we've had. But T-notes, similarly, uh, similar type price movement, up 5 ticks, but finding some resistance, a pivot in the futures overnight, and is still down quite significantly from yesterday's session given the renewed kind of optimism. For crude oil, it's pretty uninteresting at the moment. It's just kind of just above its pivot level, trading a $32 handle. So definitely is not seeing, and it's not expected to see, any type of same degree of volatility as we go into that June future expiration later today. And then in the currency markets, there's a continuation of dollar weakness. Dixie down about 2 tenths. I mean, there has been some UK data out earlier this morning, which we can talk about now actually. Well, let's just have a quick look. Here's cable looking on a, on a 60-minute candlestick. And you can see here we've just had a bit of a breakout in price activity over the course of the morning. You have had the latest employment change data, so not unemployment, employment change came in at 211,000 against expectations of 50,000. But don't forget, this is for the month of March, so it is a little bit backward looking. We have also had some other commentary coming out alongside that this morning. I know this looks very busy, but it's kind of bottom up is the priority of the headlines. And UK International Trade Secretary Truss has been out this morning and basically unveiled new proposed global tariffs that will benefit UK consumers and households. One of the main ones here is that the UK removing tariffs on £30 billion worth of imports from entering UK supply chains. So perhaps that getting a little bit of a look in as well, just given some of the renewed Brexit uncertainty that was circulating on the risks from those penultimate deal-making discussions that came to an abrupt kind of close last week without no real definitive movement. So cable has broken above this area here of the high that was seen around the, the fix yesterday, and so we pushed up and we've kind of found the next logical point of resistance. You can see here quite a strong level in the futures, at least at 122.45. This trend line as well, the, the pound finding quite a nice bounce off that trend line that's been in play really since the 8th, multiple tests. And it came back down to test that quite nice before this push-up that we've had. Any further appreciation here, and, and largely led by the dollar as well as it continues to weaken at this point, then I'll probably be looking on the further push-up towards R1, just above there starts to bring that 7th low and some of that consolidation of the price on the 13th. So be targeting these kind of levels up here if we, if we continue this move. Um, similarly in the, the euro, obviously benefiting from some of the dollar movement. I was just looking at the euro on a bit of a longer time frame. This is a 90-minute candlestick, and I was really looking at the, the range that we'd predominantly been in throughout the month of May. Which had been defined by this kind of area down here. I've got with the, the rectangles on the, the bottom and upper levels of really 107, kind of 80, up to just shy of the 109 handle. We've broken above there this morning, and so had a bit of a test already, which was up at around that high that was seen on the morning of the 5th. It's just looking to push on now from above that point. If we do be looking to target up and around those highs that were seen on the 1st of May. They would come in about 15 or so pips above the current price. So definitely things livening up a little bit in the, in the pairs. And the sterling movement, of course, coming, you know, where we are at the moment in a reversal of basically this price movement that we've had of, you know, continuation of talks about negative rates. We had Andy Haldane, of course, over the weekend talking about The Bank of England are exploring all options available, and that does include then things like negative interest rates as well as other unconventional measures in terms of tweaking their existing QE program. But then you've had Tenreyro— you probably read— another MPC member yesterday evening talking about quite favorably the impacts that the negative rates have had in the eurozone. And so definitely intonating towards being open to that idea, but I think a lot of that's just being brushed aside for the moment. And I think I wouldn't read too much into those comments at this point. I think it's probably logical central banking to be able to have all options on the table. But at the moment, yeah, some nice movement in the currency pairs. Yeah, and then that equity move yesterday, I mean, certainly for one, it caught me by a bit of surprise how persistent the buying was. I'm just going to remove my my camera feed for a second so you can see everything, because I've got this kind of running chart which you've seen many times, um, that I've been annotating as we've been going along. And yeah, I got, got caught a little bit blindsided. I thought the market naturally would find a pretty strong area of resistance. I know Sam was in the long, and I think he closed out his position on that trend line. So look, let's not, let's not detract from the point that that's an excellent trade, you know, from the morning. Breaking out of some of that previous area of kind of technical support resistance that we've had. The market sprung up. You had the kind of Powell suggesting he's got additional ammo at the weekend in that CBS interview, uh, chronic cases easing, reopening beginning. Then you had the positive vaccine drug news, and that really gave it a shot in the arm as the US came in on the crossover. But then we got to that trend line from the, the 30th, the retest on the 11th, and you You can see a lot of people were eyeing that up because the price had a period of consolidation but then just pushed up higher again through the open on Wall Street, up to those highs that were seen on the 11th. And we eventually did, and pretty much literally to the tick, tested 65 there. You can see that was the April 30th high, and then the market just faded after that point, just going into the close. So it's quite interesting, just a general behavior of this market at the moment. You can see that last half an hour, hour worth of price action on Wall Street does tend to be quite interesting. They'll push up, hits that target, and then just absolutely fades into the close, albeit still a very strong update. And so here we are just consolidating now really around this area. Um, interesting to see where we go today. You know, the market Well, we'll look over the calendar. There certainly is a few other positive developments, particularly on the European side, which I'm going to discuss now as we go through the news. So interested to see whether we can kick on from here. Um, and let's just go into then some of the headlines. So first things first, let's have a talk about these two guys. And this comes as Jerome Powell is due to speak on, well, a virtual hearing before the Senate Banking Committee. This is one of his regular appearances. He will be featuring alongside this chap, Steven Mnuchin, the Treasury Secretary. And today's the day when they basically get grilled by the senators about how they're dealing with the pandemic response, both from a monetary policy and a fiscal policy side of things. Now, this event, I think it kicks off at 3 PM London time. 10 o'clock Eastern, and it's very much a political-driven event. It doesn't really move markets a great deal. It's not a platform where typically Powell would come out and say something spectacularly new, and it goes on for a particularly long period of time. It tends to be a little bit more politicians trying to, you know, manage their own agenda of just being quite critical of what they're doing, what could they do, what have they done better. It doesn't really produce anything of new perspective on where monetary policy might go going forward. Second to that, the actual comments have already come out. The statement last night was released in terms of his, his kind of prepared text, and Powell basically said the central bank is prepared to use its full range of tools and leave the benchmark lending rate near zero until the economy is back on track. But again, It's that kind of full range of tools. They've got more ammunition. This has kind of alleviated perhaps a little bit of market concern that the Fed might have been running out of bullets, uh, to some respect. So I guess that's the, the comments coming out, the backstopping of Powell continuing to say that they've got lots of options, economies reopening, um, the experimental vaccine, albeit I think the markets has overshot that a little bit on that particular piece of information have all been positive catalysts in the short term. This is that European story though that I was referring to, and this is talking about Merkel finally coming through alongside the French president and agreeing to a support package of €500 billion to assist the European Union in their recovery from the coronavirus pandemic. Now, this is— this has been such a contested issue, obviously, when it comes to formulating a package of this degree Germany is the one that needs to contribute typically the most, and the biggest beneficiary of course tends to be countries then like Italy. And on that note, let me just bring in a shot of the BTP futures, which is the Italian bond market. Um, let me just switch over here. Let me just put my camera back on. So here I'm looking at BTP futures, and they've, you know, let me just quickly put it back on a 30-minute just so you can see the, the kind of the aggressiveness of the bid that we saw yesterday as some of this information was coming out late in the afternoon. And then if we look back, totally, you know, big breakout of some technical relevant areas here for the BTP from those highs that have been restricting a lot of the price through much of the month of May, and then certainly taking out that late April-May high now to where we are at the moment. And they continue to push higher this morning. On the back of some of these latest comments. Probably that area now where we're testing, uh, is quite key. And then those previous highs that we've seen back up in on the 9th of April as a target perhaps. So we're already trading up nearly 2 points in the BTP future this morning. So again, what exactly is this? Well, crucially, Merkel said bonds issued by the European Commission would be repaid from the EU budget. The lion's share of which, of course, as I said, comes from Germany. Italian bonds then, that rise, the biggest jump that we've seen since March. And why is it so meaningful for Italy? Well, the EU Commission projects that Italy's public debt will be close to 160% of GDP by the end of this year. So they're the ones, of course, that, that will benefit the most by being backstopped by predominantly Germany in this case. Obviously the Germans have been very resistant to the idea of this going through, but the fact that now they're now coming together would be seen as a positive for the economic recovery in the euro area, or at least it gives some degree of certainty about having enough funds there to, to help the recovery. It's not exactly a done deal though. The final deal needs the backing of all 27 members. Austria has been one that signaled immediately that it remains opposed to the direct handouts, as they term it, to some of these other Southern European nations. However, now Germany is on board, kind of think that the deal would go through in that respect. The other thing this is leading to then is, you know, what's Christine Lagarde saying, the head of the ECB? And this is the headline: she said QE to continue despite the German court ruling. Obviously, this was quite a hot topic about 2 weeks ago when that German Constitutional Court passed a hearing or some investigation into has the ECB got the appropriate right to be able to kind of fund, if you like, other sovereign states by purchasing their bonds. But as largely expected, Christine Lagarde saying, look, we're just going to continue on as we see fit. And so I don't think that comes as a great surprise, but if you think about it You know, Europe, Europe finally getting their act together in a coordinated fiscal response of a large degree led by Germany, which is very important. And then Christine Lagarde continuing to say that monetary policy is also going to continue its period of expansion. So these kind of dual forces, I guess, in combination with now heading very slowly and cautiously into reopening, is what's being perceived as quite positive. Elsewhere, Trump threatens the WHO with permanent cutoff of US funds. Um, yeah, I mean, this is just the latest, I think, in the, uh, the kind of rhetoric. And if it's— if he's not blaming China for the origination of the virus, well, then he's blaming the World Health Organization for their handling of it and the fact that they must demonstrate independence from China. I don't think this is really a big deal, but I just wanted to point it out because I think it very much fits into that distractive tactic deployed by the administration in order that they know to take some of the political heat off of Trump going into this campaign period. I don't think— I wouldn't read any more than that into this type of headline. The other thing though that has come out is— this was quite interesting, came out on Reuters was that the NASDAQ are set to unveil new rules on initial public offerings. Essentially what it means, it's going to make it more difficult for Chinese companies to list on the exchange. Now why? Well, the main point here is that the NASDAQ plans to set a fundraising limit of $25 million, and most of the Chinese IPOs come in lower than that level. So that would be a real hindrance to them. So it's kind of, you know, this isn't the NASDAQ consciously looking to go about that, but certainly you know, all of these forces behind the scenes will be talking. And this is another kind of prod, if you like, in that ongoing trade war that we need to continue to monitor. Other news that I've seen this morning, um, it hasn't really impacted the Aussie, but there has been continuation of perhaps some further stress in the relationship between China and Australia. And obviously that's a critical one as a trade partner for the Aussies. Australian exports of wine, seafood, oatmeal, fruit, dairy are in danger of being targeted by China if Beijing decides to escalate a row over the calls for an investigation to the origin of COVID-19, according to those familiar with the matter. So yeah, something worth just keeping an eye on here. As I looked at with that Economic Observatory website a few sessions ago, you know, definitely I would say do your due diligence, work out what is the most exposed products where Australia could be impacted by further kind of restrictions of importing by China on certain products. But for the moment, the Aussie is pretty happy with life. We did have the RBA minutes that stated that a package has been introduced only recently. Of course, they've done multiple rate cuts in recent months. Their members assessed the best course of action was to maintain current policy setting and monitor economic and financial outcomes closely. And so, yeah, status quo, I guess. And the Aussie, for the moment, just feeling the benefit of a little bit of a continuation, the weakening of the dollar, and just coming up to test the Asia-Pacific high, the R1, in the Aussie futures. Um, otherwise, for the, for the session ahead, This is what the calendar looks like. So we've already had the RBA minutes and the UK data. Um, the German ZEW economic sentiment comes out a bit later. It's for the month of May, and if anything, we are actually looking for a mild improvement, albeit a significantly large range. How important will that data be? Uh, I'm not so sure. I don't think a great deal, to be honest, but worth keeping an eye on. That'll be at 10 o'clock The ZEW, for those unfamiliar with it, is the economists and analysts' kind of expectation about current and future expectations. Then US session, you've got some housing data, building permits, housing starts. You've got the weekly API crude numbers, and then as, as mentioned, you've got Jerome Powell testifying before the Senate Banking Committee on the Coronavirus Aid Relief and Economic Security Act alongside the Treasury Secretary, Steve Minuchin. Separately, Fed's Kashkari, a well-known dove on the Fed, is speaking on the economy at the same time, so 3 o'clock London, 10 Eastern. And it would be particularly interesting, given his general disposition of being quite a far-reaching dove, what he has to say about negative interest rates. So just keep an eye out on that. You've got Fed's Rosengren, non-voter, speaking at 7 PM. Earnings-wise, There are two names just to have half an eye on. You've got the brick-and-mortar kind of champions, if you like, in America— Walmart and Home Depot, both reporting at 11 o'clock this morning. So pre-market open, Walmart EPS expected $112, Home Depot at $227. Um, so if you need these numbers, again, just take a screenshot here. I'll put these in the chat room as well so you've got them to hand. Uh, but that is it from me. So any comments, please feel free to, to leave a comment on the video. I'll be happy to respond. Otherwise, I wish you guys a good day ahead. I'll see you tomorrow. Thanks very much.