Will Boris Eventually Fire Cummings?

Okay, very good morning to you. Hope you're doing well. It is Thursday the 28th of May. My name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. If you have any questions for me or interest in finding out more about what we do, this is the AmplifyTrading.com website. Do check it out whether you're a trader, um, retail or professional, or whether you're a student looking for a career in finance, hopefully this is the place to come. So, so check that out when you get a moment. Um, looking at the charts though this morning, let's get straight into things. There's plenty of me— for me to talk about, from the latest kind of stimulus package unveiled in Europe yesterday to things to be aware of in the UK politically as well as economically. It's got US jobs data coming out later on today. Also want to have a quick look at oil prices as well. So let's get straight to it. And as far as the sentiment is concerned for the open this morning, I would say things are— it's relatively neutral in a sense. US equity futures are flat to minor positive, but the Dow up already about 200 points, just retesting up and around the Asia-Pacific highs contained by around the R1 so far this morning. In the FX markets, both currency pairs up a touch with a little bit of dollar weakness this morning, and consequently gold up a little bit around the R1 in the futures at $1,732, up $6. T-notes down, but pretty sideways price action honestly seen in the overnight session, down about 4.5 ticks. So touch of dollar weakness, down about 2/10 in the DXY, a little higher in the equity index futures. The DAX this morning trading up about 150, just following in step with that general theme. Oil markets though are down. We can discuss that in more detail shortly, but a quick look at the S&P here from yesterday's price action. I was just having a look at two different things really. One Looking at the, the market movement from yesterday, obviously we kind of tracked higher during the European mornings. There's a few different sequences we had here. Equities yesterday morning getting a little bit of a boost on the back of Europe finally coming together with a coordinated effort for the recovery from the economic impact of COVID-19, and that was seen as relief, if anything, at that point, and kind of global markets did rally at that point in time. However, then as we got into the open on Wall Street, we came down quite rapidly for a period of really until Europe left the market and came back down to quite a visible trend line. You can see going back to the 19th of this month, a couple of tests and areas of significance and multiple times that that has played. And you can see A lot of people were looking at the time on the break above that level that we saw at the beginning of the week. This would have been on Monday, and the snap higher that we had, as that provided a bit of an impetus to push higher again. And we came back down, tested that same level yesterday, before then a pretty resurgent finish to really the, the US session after we got to that point, you know, rallying all the way up really into the close and beyond into the Asia-Pacific session. So you know, dusting off any rising of tensions between the US and China, which we're going to talk about. And at the moment, we still trade up close towards Asia-Pacific highs. And importantly then, from— given that rally that we had late into the, the close, if we're looking at that daily continuation chart, you know, we were looking at this yesterday, uh, we failed to break or close above that 200 DMA in the prior day's session. So on Tuesday, but yesterday managing to get firmly above there. And as you can see, we were above that key critical level that we were looking at on the longer, higher time frame, which were those highs that we had back in the summer of '19 and around that kind of October-November time. Now we're above there. Then, you know, this chart and these ellipses unaltered from what we were looking at in the Monday briefing for the week ahead. So the next target here we'd be eyeing is 3069.5 and that would be up and around these types of levels. That brings in the, the price activity from support points at the end of 2019, uh, would be an obvious target, about 20 points above where we are at the moment. So certainly achievable before the end of the week. So equity markets there continue to remain of bullish kind of appetite despite some of the emerging risks coming potentially on the trade side. But let's get into a couple of the headlines and things to talk about. I'm going to start off with this one, which is, you know, what exactly was the, the detailed information that happened from Europe and why is it symbolically very important? Well, there's €2.4 trillion now in total recovery spending that's been unveiled by the EU, and it's anchored by €750 billion of joint debt issuance. Now that's the part that's symbolically very important because, you know, in summary what this means then is deeper unity of countries within the eurozone with further fiscal integration. This has been something, of course, of which many countries like Germany, for instance, have been very much pushing back against. However, given the dire state of the economic conditions at the moment, You know, it goes some way to say how bad that they are, the fact that all of these members are now coming together. And if anything, you know, as the headlines are kind of suggesting, this is a, a new European Union plan which would herald unprecedented integration. You know, this has come at a point of the last few years with Brexit, uh, north-south division that we've had through austerity and the sovereign crisis, all of these different things Uh, which is why markets were very sensitive to a lack of progression. Could Europe really come together with something substantial in a coordinated— and importantly, part of this being joint debt issuance— was questionable. So the fact that they have, the markets took a bit of a move higher yesterday on the back of it in relief, if anything. You know, I wouldn't count your chickens just yet. Um, the way this now goes through is that leaders will begin haggling over the details. That's going to happen when they convene excuse me, of June. But under the proposal, what was quite interesting yesterday, you had a bit of a disparity between bunds moving lower, Italian BTPs moving higher, because under the Commission's proposal, although not quite as ambitious as some of the reports in the Repubblica that we were covering in the briefing yesterday, Italy would be the biggest recipient of grants as part of this package. They would get about 82 €77 billion, Spain €77 billion, Greece €22.5 billion, France €39 billion. So BTPs were taking a good, good lift on that yesterday. And so that, and then overnight we've had James Bullard, who's a non-voting member but fairly vocal candidate of the Federal Reserve. He said the American economy may have bottomed. He does typically tend to be more on the dovish side, so quite an interesting comment overnight. And the Australian Central Bank chief has said that the country's downturn is not— maybe not as severe as first thought. So a couple things there overnight which perhaps are just helping kind of backstop some of that movement. As I said, with equities a little bit higher, the dollar generally in more risk appetite times or risk-on has generally weakened, a kind of reversal of that kind of global flight to quality, to reserve currency kind of move that we had seen when the opposite happens. So a couple of things in play there. But one of the other big risks that is emerging, and something I wanted to just go into in a bit more detail to explain the situation, because I have had a few people asking about, you know, why is Hong Kong so important and what role does it play and what the next steps could be and so on and so forth. So As you would have well seen on the news, lots of renewed kind of violence and protesting happening in Hong Kong. Otherwise what had been a fairly quiet period as the country had been adapting, like everywhere else, to the fact of lockdown. But this had been going on for many, many months, and this is kind of a proxy of the bigger trade war that's going on between the US and China, and I'll explain why. So overnight One of the things that we have been seeing is the Hang Seng has become a little bit disconnected to the overall global movement in, in broader equities that we've been seeing because of the pressure that we're seeing that this type of activity is going to have on their local economy. So the Hang Seng Index is flirting with the lowest levels since the big shakeout in markets happened with that extreme volatility in March when the pandemic was being priced in. The offshore yuan dipped Anthony Cheung, after the US have come out and basically said that they're no longer to certify Hong Kong's political autonomy. And this is the really important part. So as a bit of context and a bit of background, every year in Washington, basically the politicians on Capitol Hill meet to decide on Hong Kong's special trade status. This is called the US-Hong Kong Policy Act of 1992. So Hong Kong in that act is fully autonomous for trade and economic matters, even after China took control of Hong Kong from, from British rule in 1997. Why is this so important? Well, a large amount of trade and foreign investment goes through Hong Kong as almost a gateway for mainland China. And what it means then, through these types of acts in the US, is that China, or Hong Kong, gets basically special preferential tariff rates which do not apply to mainland China. But given what China are trying to achieve by bringing Hong Kong into the fold of One China policy, is that then, from the US's point of view, well, Hong Kong no longer then would have an exceptional circumstance that would warrant these preferential tariff treatment. And this is where the problem then lies, because this then puts— this is to a disadvantage of the Chinese by what people like Pompeo have been saying in the US yesterday. It also starts to jeopardize this question about the dollar peg, you know, when it comes to the Chinese yuan, which could cause quite violent movement in that respect. Trump, though, the question mark here is is he actually— as much as there's been talk about this happening and Pompeo's declaration could trigger the end to the territory's special bilateral trade status, this hasn't yet been— this hasn't happened as yet. And so Trump's got some decisions he needs to make. But the problem that he has here is that, of course, Trump has kind of put the trade deal and what he's managed to do by playing tough with China through tariffs over the last few years is his greatest achievement. You know, no longer has they been subject to uncompetitive trade terms. He's managed to forge a deal where China have upfront committed to additional $200 billion worth of purchases of predominantly soft agricultural goods at a perfect time when he's got a US election to win. And kind of this mantra of, you know, making America great again and not being victim to other countries using unfair, uncompetitive practices and so on. So can Trump really jeopardize that Phase 1 trade deal when he's classified the whole brokering of that as his great— one of his greatest achievements? It is yet to be seen. So again, it's this kind of tit-for-tat, and markets seemingly for the moment comfortable with just brushing it aside, but it definitely warrants being vigilant. And any further kind of confirmation of that going through could well be a fairly sizable event for markets to digest, because that would be quite a jump up in the escalation between the two countries. And what have China said? Well, they've said that foreign meddling when it comes to Hong Kong, China will take necessary countermeasures in response. This is kind of the regular rhetoric, I'd say, that they say when it comes to China. On Wednesday as well, not just about this Hong Kong and its special bilateral trade status, on Wednesday the US House voted to authorize sanctions against Chinese officials for human rights abuses against Muslim minorities. We also had last week, um, about trying to delist certain Chinese firms from US exchanges. So, you know, this definitely has to be monitored quite closely at this point. But hopefully that gives a bit of context. But this particular one could be one of the main ones to watch in terms of all these different narratives that are going on from the trade war at the moment. For the here and now though, I would say at this present point in time, markets— I wouldn't see this as an immediate trigger for markets just to fall over at this point. And I would say still the trend is your friend for now when it comes to the equity sentiment. One of the other things that we've had, we talked about oil a little bit yesterday, but we had the API oil inventories come out yesterday. And so let me, let me start with that. We had anticipated US crude inventories were expected to fall for a third week in a row, but quite far far from it. As you can see here from the headline reading in the APIs, the crude headline build was 8.731 million. Uh, that's a pretty large divergence from the median expectation of a drawdown of about 2.5 million. So a much larger build than expected. Cushing, there was a draw, 3.37 million. Gasoline, a bigger build, 1.12 million. Distillates, a build of 6.9 million. So quick look at the oil chart, you can see actually from where we were, which was a retest at this kind of double top that we had from last week and on the 26th, we've come down. And this move that we've had in basically the last 24 hours is about 10%. So it's not, it's not a small move by anyone's standards. But don't forget, we are up around 70% over the last month's activity. 4 weeks. And so a little bit coming off the top is not too unsurprising. There certainly are a couple of fundamental catalysts here. So we had the bullish data last night. So if I just again use an ellipse, that was when the data was coming out last night. This kind of dip here helps us to break through the bounce, the low that we had yesterday, which came— if I just quickly, you can see we initially had bounced off during the US session. This was when equities were moving lower at that low that we had on the 22nd. We came back up and quite a nice retest of that trend line that had been in play for about a day's worth of price activity. Came all the way back down, the APIs came out, and that saw the eventual low point that we have printed down here now, which on the daily pivots would be around the S1. We've had a bit of a bounce back not just the bearish inventory data, and of course we'll look out for the DOE's later, but you have had Moscow signaled, um, that it wanted to scale back supply cuts pledged under the OPEC+ agreement from July. That of course then kind of brings into jeopardy what had been otherwise a fairly effective coordinated effort in order to quickly drop the rate of production given what happened with that big run on prices we had about, what, 5 or 6 weeks ago. So that as well is in the mix. And then the final thing, of course, is any implications for some apprehension about the potential demand impact from the increasing US-China trade war kind of confrontation as well. So there are plenty to explain some of the price movement Definitely where we go from here will be interesting. One thing though, Vladimir Putin and Mohammed bin Salman have come out since those kind of Russia reports were circulating and said that they've reiterated their cooperation to the deal ahead of the scheduled next gathering of oil ministers, which is happening on the 9th and 10th of June. So a little bit of stabilization in price for the moment, and as I said, we'll look out for the a few weeks later. All right, the other thing I wanted to talk about was the pound. We did see the pound move, a concerted move lower in sterling yesterday. There's a few things I just quickly want to cover, both economically and politically. This is one. You had the Bank of England Governor Bailey came out yesterday and basically said that Britain's economy is at risk of taking longer to recover from the impact of the coronavirus than in the main scenario published by the Bank of England earlier this month. So again, breaking that down, he's basically become more bearish, if you like, on his view about the potential economic performance of the UK than where they were just a few weeks ago when they unveiled their latest kind of projections, if you like, for the economic horizon over the next 2 years. Now that's one thing. The other thing, of course, is this ongoing inability, if you like, for the government to just shake off this Dominic Cummings issue that reared its head obviously last week when it was found that, you know, the chief kind of architect of a lot of the government strategy on the lockdown was in fact questionable whether or not he had broken those rules himself. And when we're going through a phased loosening of these lockdown restrictions, having seen a government advisor who has broken apparently these rules, then is that going to mean that the general public will lose faith in the government's ability to handle this? And therefore, if they're not abiding by the rules, then no one will. And that of course increases the risk potentially of a secondary wave virus being fairly significant if people don't adhere to the government's advice. Are the government trustworthy? And so on. So yesterday we had a few things. Boris Johnson spoke to the House of Commons Liaison Committee of senior MPs, and basically he was, you know, kind of urging everyone to just move on, focus on the pandemic, let's forget about Cummings. But it is still a bit of a sticking point, and there's a couple of things I just want to kind of explore here. And one of those is that now around 4 40 Tory MPs have called for Dominic Cummings to be fired or resign. One MP resigned himself in protest from the Conservative Party given the situation. And why is this important? Well, this does come at a time where, as I said, the UK, like other countries, is going through this very gradual a phased sequence of measures to start loosening the lockdown and reopening the economy. And that does come at a potential risk of— or health risk of renewed infections. Now, for Boris Johnson, this comes at quite a difficult time politically because a couple of stats here that were released in the FT this morning, and the UK actually has the highest excess death rate among countries producing comparable data. Higher than Italy, higher than Spain, higher than the US. So looking at total excess deaths per million people, the UK is the highest. Total excess deaths, um, generally in thousands, it's second just to the US above Italy. And total excess deaths relative to historical average for the same dates The UK is second on that list. Now, why is the UK so high? Well, one of the things, of course, was that the, um, how quickly countries generally adopted a stringent lockdown has had implications for the general excess death toll. So how much of that has been reduced does have some connection to towards how quickly and how onerous a lot of these measures were adopted. And the UK was very slow, as was the US. And consequently then, both those two countries do sit quite far up on the right-hand side here in regard to the estimated lockdown day infections and total excess deaths. So what I'm trying to say here is that for the government, it's a tricky one if you're Boris Johnson. Everyone knows Dominic Cummings is critically important for Boris Johnson's government, you know, he is the de facto mastermind behind the scenes that is pulling a lot of the government strings. His loss would be an almighty blow and you— and one has to think that, you know, given the fact that he managed to curate the argument successfully for Brexit, to take back control, and then to deliver Brexit, um, get Brexit done, which won a resounding majority for Boris Johnson. You know, Boris Johnson owes him a lot. And so can he fight off these persistent kind of dogged claims to try and get Cummings to resign? For me There's a couple of different things as well, is that, well, what damage is this happening on the government? And as you probably would have seen, the government's approval rating in the UK as of yesterday, or the beginning of the week after the bank holiday, was at -2. It dropped 16 points in just one day following that weekend with the whole Cummings debacle. The Prime Minister's own approval rating also fell momentarily below zero. Having dropped 20 points since the end of last week. So he has bounced back. These data points do come out, and that's a bit small to see, but these are all basically the main cabinet officials. And it's just interesting, the, the least popular is Michael Gove, then you've got Matt Hancock, the Health Secretary, then you've got Boris Johnson's pro-level pegging, I think, with the Leader of the Opposition Keir Starmer. Uh, the most favorable is Rishi Sunak, and obviously he has come, although I feel his time politically will come when the reality of austerity generally will kick in, when it becomes apparent that you cannot just excessively spend, of which the way the government have done, which don't get me wrong is an absolute necessity when we face situation like we do, but that does come with consequence, uh, and so I'm sure he will become increasingly less popular as we go through the next, uh, period of years of this Tory existing government. Um, then you've got the actual scientific advisors. So Chris Whitty is actually the most popular of everyone, uh, at this point in time, approval rating, uh, of 37% against Boris's momentary negative reading. So yeah, the point I'm trying to make here is that, um, I don't think Cummings is going to go yet. I don't think Cummings is going to go at this point in time at all. I think he's just too important. However, if then, you know, MPs are supposed to be elected representatives of their constituents, and if constituents are very much of the view that Cummings needs to go. An MP then who's not on the front line in the cabinet, if they're doing their job, should then call for the resignation of Dominic Cummings. And that's what's happened. The number's gone from 20 to 33 to 40. If that number starts going higher and higher and higher and higher, approval ratings keep sinking, um, then one would think that the pressure then comes where Boris has got to make a decision. You know, does he just have to get rid of him? I don't think even if Boris got rid of him that, that severs ties with Cummings. I think that with everything political, this is just the topic of the now, and people will quickly forget when the next episode of something else happens. Cummings will be in the background again. And so I think one strategy that could well work, whether or not this will happen, is that Boris, uh, inevitably then gets to a point where he has to then let him go. But ultimately then, in time further down the line, he then brings him back into the fold in some type of capacity, and there's some sort of deal brokered between the two in order to safeguard his passage back in towards the governments, uh, through some sort of backdoor way. Uh, could be a way of doing it. Get the heat off the government is the point now. If we can't get over the Boris situation. The point being is, if we go through a lockdown, if death numbers, which are already for the UK particularly bad in global comparative terms, get worse, is that going to then force the issue that really he's got to throw him under the bus a little bit? And Boris, as much as he might owe Cummings, has thrown a couple people under the bus over the years. So I don't think it would be too surprising. So yeah, a couple of things I just wanted to express. Um, hopefully I won't get too many dislikes on the video. I'm not trying to convey my political view, I'm just trying to make sense of what's going on at the moment. Because I think if Cummings did go, in the short term I think that would be a pound positive to a certain degree, because I think that given that he was the chief driving force behind Brexit, and we've got some really meaningful milestones coming up for that at the end of June. Its timing certainly would be interesting on that. Not that I think that that would be a long-lasting rally in the pound, but I think certainly then if a transition were to happen with the EU, then certainly with him out the way, perhaps that becomes slightly more easy, and that takes the pressure cooker off a no deal for another 2 years to the end of 2020. 2022, perhaps. All right, finally then, just going to have a look at the calendar for today. What have we got? So a few things. German state CPI is coming out this morning. They're going to commence from 8 o'clock. Then you've got the European sentiment and confidence numbers. These sound important, they very rarely are, to be honest, so I wouldn't really factor them too much into any of any of your European-based asset strategies. Going into the US afternoon, durable goods, we get the second estimate of Q1 US GDP. We've got initial jobless claims, uh, jobless claims expected to come in at 2.1 million. That would be a continuation then of this general decline that we've been seeing from the peak that we had at the end of March. With the jobless claims, quite an interesting comment that I saw was that— now, I don't know if you saw yesterday— Boeing, obviously one of the US's major employers, announced that it was eliminating more than 12,000 US jobs after disclosing it's also planning several thousand remaining layoffs as well in the next few months. So yeah, certainly this number likely to remain particularly elevated for the time being, but as we've seen many times before, I think from a, from a trading intraday point of view, a lot of this already priced in. It does fit in step though generally with, you know, continuation of what's going to be elevated unemployment levels for a long period of time. The Federal Reserve released their Beige Book, their kind of more regionalized level look and assessment of the US economy. And on the employment side of things, it continued to say there's a decrease in all districts and continue to fall sharply in retail, leisure, and hospitality sectors in particular, which we saw quite clearly evident in that payrolls where it was the weight of the job losses at that point. So yeah, quite a, quite a US-centric session for, for a few data points coming out. The German CPI to look out for this morning, then we get the DOE's. Remember, the DOE's are at 4 PM, not the regular 3:30, always get bumped a a little bit later given the national holiday that was observed in the US on Monday. You've then got Bank of England Saunders, uh, could be an interesting one to watch. Sits on the dovish end of the spectrum, just given everything that's going on at the moment. Is speaking on COVID-19's economic impact, outlook, and risks to monetary policy implications. So that's a quite tasty topic to be talking on given all things considered. But is a dove, well-known dove. And so if he comes out talking of that nature, perhaps might not have too much of an impact, to be honest. But obviously negative interest rates has been the talk of the town. We've heard from Haldane, we've heard from Bailey, we've heard from Tenreyro. We haven't heard from Saunders as far as I can remember, so be interesting to see what he has to say. Fed's Williams, a voter, speaking on the Fed's actions in response to COVID at 4 PM London. So just to warn the European cash close, and then a couple of auctions to be aware of from the UK and the US—$38 billion in a 7-year note auction. All right, that is it. I'm going to leave it at that. Wish you guys a good session ahead. Don't forget to subscribe to the channel, and I'll see you same time tomorrow. Thanks very much.