Why Lockdown Extension Is A Positive For The UK Outlook

Okay, very good morning to you. It is Tuesday, 15th of June, and going to run you through and get you up to speed on the closing Wall Street, what happened overnight in Asia, and then some of the highlights for what's on the calendar for the session ahead. And overall this morning, just looking across the charts here, things are relatively quiet. One thing that you probably can observe though is a bit of a late ramp here in Wall Street on these center charts here, which is the NASDAQ 100, the S&P 500. And actually, we've just added to that a little bit and then faded off those highs during the Asia-Pac session. But these are all-time fresh record highs as far as the NASDAQ, the S&P is concerned. On the actual print on the close, continue to see really a digestion of that more rotational play albeit it's moderate, but definitely evident in post-CPI trade, which is what had been yields generally depressed. And that's been helping large tech. FANGs were outperforming again yesterday, and the NASDAQ was up around 0.9% compared to the Dow, which actually finished down around 0.25%. We've seen that pretty much consistent pattern of tech outperformance since that CPI figure came out on Thursday. So the last couple of sessions One thing I would say is though is that things are relatively flat for the moment. There's not really a great deal of real meaningful information overnight, although I do want to update you on a, on a few things. So maybe just a little bit of a light profit taking from those highs in Asia-Pac session. But if you're looking at the S&P 500 here this morning, it is still sat around those highs. So you can see here, and that was that late ramp going into the final half an hour of trade on Wall Street. One thing to say is that that looks like perhaps a news catalyst has created that move, but I wasn't at my desk at half 8 last night. But from what I can see on the headline feed, it doesn't look like anything. And very much often the case going into that final half an hour of trade. If you have a look at the market on close, the MOC, if you're not familiar with that terminology, if you just check it out on Investopedia, for example, but market on close can often see a fairly significant imbalance on, say, buy side or sell side. And you do tend to see quite large fluctuations going into the final half an hour of trade. So perhaps that was a little bit at play. And, and now technically we've got that previous high and we've got a bit of a platform from where we hit that initial high, um, just after or at the closing bell, then pushed through it and used it as a support area during the Asia-Pac session. So kind of confined by there, 42, 48 and a quarter, and the R1 which is just above the all-time high and Asia-Pac double top that we've traded so far, around 4254.55 at the moment. Otherwise, elsewhere, one of the other things I guess to have a look at was gold. Um, I have seen gold come under some considerable pressure yesterday, and it was a bit of a continuation of the move that we're seeing at the end of last week. Popped higher, um, shortly through the COMEX open and when the US started to really come into market. And short term, I'm just keeping an eye on, uh, probably this kind of range at the moment of what we were trading in the Asia-Pac session before a brief move lower that we saw. Again, pretty light in the way of any real catalysts for that move, but obviously liquidity fairly thin in the overnight session. And as such, then we've been responding to a short-term trend line marked from the low from yesterday when we were trading around the 1845 area, and it's been used a couple times and responded to on the Asia-Pac trading hours. So around there, increasing up towards through the pivot level here going into the European open this morning. So near term, just having a look at that trendline pivot on the downside, 64.5 And then the upside, APAC high at 69 for the time being. Any breakup above there, then you've got 1870 kind of 2 area, which was that high seen yesterday afternoon and also the low print that we had towards the back end of last week. And any push on above that, then be looking up to this area here of support and consolidation that we saw around 77, 78. Gold though, under a bit of pressure. Of late overall. And that has come as yields have seen a little bit of movement. So the US 10-year, you'll remember, was just on a pretty one-way train moving higher as yields continued to back off last week. And obviously yields broke through 1.5%. We actually saw a move to the lowest level since March. Um, but yesterday saw a bit of reversal of that, perhaps a bit of profit taking on that fairly one-dimensional move that we saw last week. It just faded a little bit. And just having a look at US 10-year yields, this is looking— it's a bit of perspective here on, on the chart and time frame. This is going back over the last 2 years or so, and here you can see this is the move that we had during the onset of the pandemic. This is looking at US 10-year yields, and just wanted to really emphasize the importance of the area that we're trading at the moment, which is 1.5%. You can see here that really was the low of that move that we saw when yields were declining going back into the summer of 2019, came back to it towards the autumn, and then had another test of going back in early part of 2020. Before then, the eventual breakdown that ensued when yields collapsed on the onset of the, the pandemic and obviously coordinated response in monetary policy and fiscal policy and so on. Now we've come back through that. You can see again it acted as an area of resistance, and now we dropped through it. We're sitting back on there. So this is quite a key area around 1.5 in the US 10s. And definitely, as far as today's session is concerned, I think it probably could be quite quiet now. We probably just want to wait for the Fed meeting, although not expecting perhaps quite as much from that Fed meeting as I was couple weeks ago. Um, seems like the can's going to be kicked a little bit before the real heated discussions around tapering. But nonetheless, probably the 10-year might trade fairly muted today as we await then more information coming out with the latest projections and the dot plot and so on in tomorrow's session. Otherwise, finally, with the charts, FX markets pretty quiet, dollar's pretty flat. And if you look at the pound just having a little break above an area of short-term resistance here at 141.21. As you can see, as far as yesterday evening was concerned, absolutely zero reaction to the extension, of course, of the lockdown measures. This was very well telegraphed in the press and comes in absolutely no surprise. So PM Johnson last night confirming the 4-week extension to lockdown The government's expected to put the delay to debate and vote on Wednesday in Parliament, and it is likely that Johnson's going to face anger from Conservative colleagues for backtracking on what they were dubbing as Freedom Day. A couple of points that I mentioned in my morning notes on this, and if you want to check those out, you can find them on my, my Twitter account or in the Amplify Live community. But my, my point really being that irrespective of the political headache that Johnson's government's likely to face from a number of internal Conservative members. I actually think that, you know, logically you would think, well, delaying reopening is going to be a net negative for sterling, for example, because it's going to impede economic activity. I actually think the opposite, because a lot of the mathematical modeling that I was following from various different people who have much more um, uh, intelligence than I were coming out with some pretty interesting and very frightening, um, estimates of what this wave could look like if we were to go ahead and reopen on the 21st, predominantly based on lots of different reasons as well. The ones that we talked about, about still some remaining over-50s to get fully vaccinated, time for that vaccine to kick kick in in terms of its full level of immunity from it. And then also as well, the fact that we're still in the school year as well with the transmission amongst the young. This all coming, of course, because now 9 out of 10 cases in the UK are the Delta variant. And so that being more transmissible than the Alpha variant and that of then the original COVID. So much more ability to transmit and therefore For me, I think that this actually— this delay could end up being a net positive overall. I don't mean just buy the pound this morning, but I definitely don't think it's a negative. And actually, I think it's a positive step economically because although there's some short-term pain, obviously, from not fully reopening, I actually think that you're mitigating the risk that what could have been much more stringent, onerous restrictions that would have had to have come in if, as some of the, the scientific modeling was suggesting, we could have seen a wave to the same proportion of that of what we had in the spring of 2020 on the original onset of COVID-19. So I know this is a very contentious issue. There's lots of people that would say we should have reopened, but for me, the scientific evidence is pretty compelling, and acting on that, I think, then safeguards us from having a more contained latest wave, which will inevitably allow us to open sooner rather than what would have been later if we would have reopened, it would have spread and we would have had to have gone into a firm lockdown thereafter. So for me, this is actually a positive rather than a negative. I guess the other thing is that as much as there's Tory members that are going to be really annoyed and frustrated by this, and that's going to be evident in the Commons vote on Wednesday, I'm sure. The latest YouGov poll, which came out last night after this was confirmed by Johnson's government, showed that 71% of English adults supported the move to delay the reopening by 4 weeks. So the overwhelming majority. So as far as that is concerned, I think Boris will be able to bat off any of that internal infighting because the public seemingly agree with that move. The government will review the date again on June 28th, with the possibility of easing restrictions on July 5th if it looks better than expected. But in honesty, this is considered as pretty unlikely at this point. So it will go ahead as, as per the statement last night. But as I said, pound hasn't reacted at all to this. Um, in other news, Biden continues to do the kind of rounds, so to speak. So this time he's been at NATO and NATO leaders designated China as presenting a systemic challenge in a summit communiqué on Monday, taking a forceful stance towards Beijing. It was Biden's first summit with the alliance. Beijing has responded and they've said that NATO needs to stop exaggerating the threat theory. This, of course, comes after pretty similar rhetoric that we have from the G7 in Cornwall at the weekend. So Biden, as we were kind of talking about, doing his best to go to all these kind of unifying groups to try and bring together this collective stance against China at this point, which is something we knew that was high on the Biden agenda with this latest tour. President Biden also stated that Russia and China are looking to drive a wedge in the transatlantic solidarity. And that we will respond if Russia continues harmful activities. While he added that Russian President Putin chooses not to cooperate in cybersecurity and other things, then the US will respond. And of course, all of this is very much the optics around the fact that Biden is going to be meeting Putin tomorrow in Switzerland. So there's a lot of flexing of muscles, you know, kind of a posturing and these types of things. Again, as far as the Putin meeting is concerned, we're not looking or expecting anything in terms of tangible results. It's more about the atmosphere that surrounds the discussions that they have. Does that then conclude their conversations in a joint statement, which is deemed to be a positive, rather than them two just at loggerheads and going their own ways? And do they then commit to having further dialogue in the future? It's probably the best case scenario. In that sense. So yeah, again, nothing really actionable intraday, but something to be aware of. No let up from the US on China at the moment. There was a few other small things overnight which probably just warrant a mention, but again, it's more of an update to be aware of than something that meaningful. The RBA minutes from the June meeting stated the board agreed it would be premature to end or consider ending the bond buying program, and policy needs to remain highly accommodative in order to achieve full employment. No real reaction seen in the Aussie overnight. Again, these are the dated minutes. And then from a US stimulus perspective, you know, is this thing ever going to get done on the infrastructure side? Well, the latest there is that Senator Manchin said further bipartisan infrastructure talks are coming this week and a group of senators will set a proposal out by the end of the week. And obviously Manchin being quite key because he's that particular, um, senator who's really on the fence of not— is he going to support Biden's agenda on this infrastructure bill? And is seen as a real power player in these talks. The other then is U.S. Senate Majority Leader Schumer, who has said the Senate will move forward with another infrastructure package via reconciliation even if it doesn't have bipartisan support. So trying to put some pressure on that they'll look to use reconciliation to get around it. if so, if necessary. So I think that's more targeted at just trying to keep some momentum behind the dialogue at the moment. So nothing really too much to comment on there, uh, for the time being. As far as the calendar is concerned for today's session, um, we've just had some UK data come out since I've been talking. So just to get you up to speed, the UK employment change, 113,000 versus expected 150,000. The unemployment rate, 4.7%. In line with expectations. The UK average earnings ex-bonus, 5.6%, touch above the expected 5.3%. So not really too much of any type of immediate reaction here, but Cable has managed technically now to get above this rectangle area I've got of previous support and resistance. And you can see after the breakthrough, it's come back to use that as a bit of a launch pad of support to now just eke out a more progressive move up towards the R1 here. So yeah, with that data, nothing really too surprising. If anything, the average earnings number is a little bit higher than expected with inline unemployment. So perhaps some, some moderate wins in the sale to help this move higher. And as I said, I actually think the delay, it's not a negative. Even though it does have some short-term repercussion on economic activity, I actually think it's a positive move. And that's how I think the market will see it in controlling the potential more severe case outbreak due to the transmissibility of the Delta variant. Otherwise, other than that, pretty quiet for the morning. And then you've got a really jam-packed 1:30 data set coming out, and that's because you've got 3 real figures: New York Fed Manufacturing, US PPI, and the latest US retail sales figures. They're all coming out at 1:30. So whenever you see a calendar quite packed at one singular moment, it does tend to add to then the kind of mixed signals that you get on the back of data points, because obviously it's going to be multiple variables. They could be conflicting signals. Probably the ones I think that the market will look at with a bit of clarity will be retail sales. That has seen some flip-flopping as we've seen kind of stimulus check impacts go in and out through the January-March figures. So we'll be interested to see how that is performing. Um, PPI is of course, um, on the more inflation side, and then on the manufacturing side for the New York Fed figure, um, as well. But that's expected to remain fairly consistent at 22 from previous 24. So 1:30 is going to be interesting for sure. I'd say that will likely act as then probably the main catalyst for subsequent price movement for the rest of session ahead of the open then on Wall Street an hour later at 2:30. As far as then later in the session, there are a few more things. Industrial production from the US coming out, cap utilization at 2:15. You've got business inventories and NAHB housing market index at 3 o'clock. And then you've got the oil inventory data from the API, usual, much later in the evening at 9:30 if you're looking at it London time. So quite a jam-packed day actually after what was quite a quiet calendar obviously last week and yesterday to some respects. So things should pick up pace on that front, certainly going forward. Now, speaker-wise, the chief economist from the ECB, Philip Lane, speaks at midday. Bank of England Governor Bailey speaks at 1:15, and he speaks— Panetta— just before 3 PM. The two ECB speakers will have no text, according to the media office at the ECB. And Bank of England Governor Bailey is going to be speaking at a Citi AM conference on financial services. So I'm not expecting or anticipating any meaningful comments on either the current economic conditions or future monetary policy, but nonetheless to be aware of. He is speaking UK supply, UK, German, and then $24 billion coming in a 20-year bond auction later on this evening at 6 PM. But that is it. So I'm going to leave you with that. 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