Why Are Stocks Selling Off?

Okay, very good morning. It's Thursday the 19th of August, and for any students— that's university, college, school students— who are interested in financial markets or financial roles in general, check out a link I'll drop if you're watching this on YouTube in the comment section below to see the registration for our new Amplify Me platform. You might have seen a video go out from Eddie and I about changes that are happening at Amplify. So this is going to give you access to take part in a completely free financial simulations that we use at all of the big banks in our training that we do with corporate clients, university business schools from around the world. But not only the simulation technology, it's also going to give you exclusive content within a brand new platform. And then, as I said, all completely free in our attempt to try and democratize financial education. So check it out. If you're interested and you're a student. Otherwise, let's get straight to it and let's talk about markets this morning. And certainly an interesting open for the, the trigger point coming from the minutes last night, which we'll talk about in the moment. But in summary, I would say you've got FOMC minutes showing that most officials see tapering happening this year, which is a little bit more specific on the timing and perhaps caught a little bit people offside in the notion of some still anticipating Q1. So obviously a little bit more hawkish this This has constituted then a quicker tightening of financial conditions possibly ahead. So equities have weakened, the dollar's bid and the dollar strength has weighed on things like crude oil and gold. The latter, so crude oil also down trading, just testing the $64 handle this morning. And that's the lowest levels we traded in a couple of months. COVID still ever present in the Far East, and now there's been the latest Oxford University study questioning the efficacy of some of the vaccines, particularly the robustness of the Pfizer and BioNTech vaccine over a multi-month period. Then we've got China still continuing its crackdown. This comes amid economic momentum stalling in that country, that as well just having the demand consequences as well on crude oil. And then stocks, of course, we were looking at some of those charts the other day, which having gone up 100% from the lows, History has tended to repeat itself going back to 2002, and we continue to see what has been a lower close on Wall Street once again following the low finish we had on Wednesday's or Tuesday's session. So the S&P Dow finished down about 1.1%, the NASDAQ was down fairly similar margin, down around 1%. But let's have a quick look around these, these charts and to put into context the kind of summary of those major points I just covered. So The dollar index is pretty firm this morning. We're trading up about 0.35% in the Dixie. So just having a quick look here on the daily chart for the Dixie, you can see we're at a very meaningful level here. We're trading around 93.50 at the moment, which you can see here was the March peak that we had this year. But any breach above that, then we'd be looking at the highest levels the Dixie's traded since November of 2020. So definitely worth keeping an eye there. And that comes in the context then, if we flip that onto what does it look like on the likes of the EURUSD pair, um, it does look certainly like there's some technical room now here for a potential extension of downside. And you can see here you've had the break, the pullback to that level, which was that previous low that we had in March, uh, and then we've had a bit of a run lower as European participants have come in this morning. So trading 1.1681 in the futures, down 37 pips this this morning, perhaps then a bit of room on a continuation here given the lack of real credible technical areas to support this price until we get lower down to really that double bottoming out that we had in September-November of, of last year. And that would be a good 40 pips down lower from current price of where we're trading at the moment. Very much a dollar-led move, so cable very much mimicking that similar EURUSD pattern. Bit of pressure this morning. Again, a breach that we had in overnight Asia-Pac trade with the persistent dollar strength on the handover from the US move from the FOMC catalyst. And then we've come back up briefly towards back that low and then trended back down as Europe has come in. On the daily, again, perhaps a little bit of room here to the downside in a similar fashion to the euro by a similar margin as well of around 35 to 40 pips. Until we get back down to that similar area of that double bottom. Cable, of course, did break down through there momentarily to test back down to the early Feb '21 lows. But any reversal of that then, or the reversal of that, puts that, that kind of line at 136.72 back in play before then any continuation back down to those lower points that were seen a few weeks ago. So yeah, as I said, very much a dollar play. That dollar has weighed on gold. So, you know, don't think of gold as a flight-to-quality instrument on the pickup and concerns over COVID or questions on vaccine efficacy. It's very much more a dollar play at the moment. Technically, on the daily chart, it's been quite interesting for gold. We've had that hawkish FOMC spin, and that we had back in the June meeting. We thrashed out an area of resistance around $1,833 in the futures. We then had the good NFP just a couple of weeks ago, uh, and technically a really nice response that we've had this week to around that 1791 level, which you can see was the peak in the price and recovery of resistance back on the 23rd of June. Nice area of, of consistent support through much of, uh, mid to late July, and the market's just pivoted at around that point, failing to breach that. And so on the downside here, perhaps gold as well has a little bit of room to just pare back a little bit after what had been a really sharp recovery that we had seen over the last course of the last 10 days trading or so. Oil as well, then I briefly mentioned, again, demand implications, of course, over the kind of difficulties in controlling the outbreak of the coronavirus in, in pockets of the Far East in particular. Australia still seeing some of their worst cases at the moment, same in Japan in terms of tackling the outbreaks presently. A little bit better developments apparently reported in, in China, but nonetheless oil still remaining quite heavy at the moment. And obviously this comes amid the dollar strength and resurgence that we've seen, which at these points, like I said in the Dixie, any further breakout could impart more downside pressure on these commodities. On the daily chart, quite interesting from a technical perspective. WTI crude, there was that long-term trend line going back to April that held up really nicely, and then we've come back up in the overnight, um, or yesterday's session to retest exactly at that same trend line, and then this latest push down. So definitive breakthrough really, that horizontal line 50 or 65.47 has seen then a bit more of a coordinated breakdown now in the price going into this European open. So this kind of area being breached, um, during yesterday. And so now the next kind of area I'd be looking at would be down to that 24th of May low, which is, is— I'm looking at a daily chart here, so does mean potential for a bit of a deeper move. We're trading 6421, that would be 6363 on the downside, and then obviously deeper targets on any more negative developments would be down on that 21st of May low. So you've got the 62 handle, 61.56 there would be more medium-term targets. Okay, so let's, let's have a look and get stuck into some of the news stories then, starting off with the Fed minutes. So what exactly did they say? Well, actually there was a bit of whipsaw price action in the dollar initially. My understanding is, having not watched the minutes live, is that you had an initial blip lower, then the dollar move ensued because they were talking about there's still not all the conditions have been met on the progress that they need to be seen. That would be tantamount to tightening, particularly with emphasis on the labor market. A lot of that is being recycled, of course, what we've heard before. The main point here was that most officials see tapering starting this year. Year. And it's this year, I think, that came with a bit of surprise, and just the— how specific the wording was around that in general, and that, that created that hawkish reaction, has got the markets a little bit spooked in the context of some of these other factors as well that's just weighing on equity sentiment going into the European Open. Um, several participants noted that an earlier start to tapering could be accompanied by more gradual reductions in the purchase pace, and that a combination could mitigate the risk of excessive tightening of financial conditions in response to the tapering announcement. So I do think that that's quite an interesting point. And so, you know, the, the secondary question beyond the actual timing of tapering is really twofold. It's the composition and how they're going to break down the actual purchase rates— more MBS or Treasuries— but also the pace of which they're going to decrease the, the volume of monthly bond purchases. So as the market gets over that timing announcement, it could be then, as several participants are suggesting, you could soften the earlier timing with doing a smaller, more incremental, gradual withdrawal of the, the pace of bond buying. So there's something quite interesting to just be aware of overnight in Asia. Um, the The sentiment obviously was soured by the weaker handover from the US, but Alibaba shares, they were down around 4% overnight. We're talking about, you know, Alibaba is a big company, record low they've now printed in Hong Kong trade. They've extended the sell-off, of course, of the Chinese technology giants after Beijing hit the industry with a fresh round of regulations. The latest is that China is said to be studying separate proposals to ensure the rights of drivers who work for online companies and to step up oversight of the live streaming industry. So yeah, continued pressure there in, in what we have been seeing over recent weeks. But again, another facet that's adding to some of the bearish developments of late. Um, the other thing we've had overnight to be aware of is some Australian labor market data. Despite the jobless rate falling to its lowest level since 2008, and outbreak of the Delta variant, of course, which we know of the coronavirus, has shut in a lot of Sydney and put people off looking for work. Unemployment rate fell to 4.6%, but analysts have noted that it's been driven mainly by the fall in the participation rate. A deterioration in both employment and hours worked is likely to really come to the forefront over the coming months due to the ongoing lockdown that we're observing currently in Australia at the moment. So the Aussie The Aussie is weaker quite a bit this morning. We're down about 61 pips in the Australian currency. So it's a combination of despite the kind of headline positivity, the underlying nature is that we shouldn't really look too deep into those or we should look deeper in those numbers and not take them on the surface value. And so in actuality, labor market is probably going to soften. The full impact of that delta situation really looms. And China is generally losing a bit of economic momentum. These are all negative developments for the Australian dollar, uh, and the country in the midst of a lockdown COVID outbreak at the moment. So the, the Aussie's remaining pretty weak, and of course this comes amid perfect fundamental divergence with the dollar strengthening on the back of that, that hawkish catalyst from the minutes last night from the FOMC. The other thing to mention is about COVID And COVID vaccines are less effective against Delta according to a large study. So what exactly is this? Well, here's a graphic to represent, uh, an Oxford University study published today, and it's found that the efficacy of Pfizer vaccine against symptomatic infection almost halved after 4 months. So you can see here on the timeline on the axis on the bottom, um, 1 month, 2 months, 3, 4, 5 and you've got the efficacy rate in percentage terms on the left-hand side. So we've always known that the Pfizer-BioNTech efficacy rates is higher than that of AstraZeneca, but actually pretty much after 3.5 going to 4 months they flip, and 4 months after full vaccination AstraZeneca may actually offer greater protection against symptomatic infection than that of Pfizer. So what does this all really mean? Well, it just certainly increases the calls for booster shots, for one. We've already heard from President Joe Biden yesterday that the administration will start offering those booster shots as soon as late September. The UK likely to do the same. But of course, it means though that countries around the world are still— a lot of them haven't even had their first vaccine. And so if a lot of that manufacturing and, and distributed supply of vaccines is going to booster shots in the more wealthier nations like the US, UK, and the Western world in general, then, you know, the, the full control of, of COVID on a global scale is unlikely to come for a long period of time, given those less wealthier nations that won't have access. And the manufacturers are likely to prioritize that of the likes of these booster shots in those nations that can afford it. So yeah, it's quite interesting. To think about it from a slightly more longer-term perspective. And certainly then does rise some complications about then, certainly if efficacy rates over time are not apparent, but then there's always going to be the emergence of perhaps coronavirus mutations through the fact that many countries globally in underdeveloped countries have not really vaccinated or have that under control. then there could be more long-term repercussions of that on a global economy scale. The other thing then is the calendar. What can we expect from today? And so, yeah, pretty quiet for the UK European morning. So very much a sentiment handover this morning, keeping an eye on the technicals and the general bearish tone. Then into the afternoon, we get— look out for the weekly initial jobless claims. Last week saw the figure drop for a third straight period, and we're expecting that to happen again to 363,000 from 375,000. You've also got the Philly Fed number coming out later on. That'll be at the same time as jobless. It's expected to see a slight uptick, as you can see here, to 23,000 from 21.9. That would be a slight break of what otherwise has been 3 consecutive deteriorating numbers on that headline figure. European supply coming out of France this morning. You've also got a 2.57% and 2-year floating rate note refunding announcement out of the US at 4:00, and then $8 billion in the 30-year TIPS coming out of the US at 6:00 PM this evening. But that is it. So again, remember to check out that link that I mentioned at the beginning of the briefing if you're a student and you want to take part in one of our simulation technology exercises that will generate some real interesting performance data about whether you could make it as a sales trader, an investment bank, or, or as an asset manager managing a multi-asset class portfolio. I think you'll enjoy that. Otherwise, um, on YouTube, please feel free to subscribe. Lots more content coming. And with that, I'll let you guys get on. Have a good day ahead. Catch you tomorrow.