Yellen Goes BIG As Biden Gets Sworn Into Office

Okay, very good morning. It is Wednesday the 20th of January. Let's get straight into it and get you up to speed on what's been going on from overnight, and then an outlook and major things to be aware of for the day ahead. And just having a look across the board, equity index futures generally higher here at the European open, the dollar weaker, DXY down 0.2%, so consequently both major pairs in the top left being supported by price in close proximity to their respective R1s in both EUR/USD and Cable. Gold up $13. T-notes having moved up really through yesterday afternoon post-Yellen speaking and just kind of going sideways in the overnight Asia-Pacific session. Then oil's up about $40. So some moderate risk on, and it came after a higher close on Wall Street, of course, yesterday, where we had the S&P close from about 0.9%, the Dow up 0.4%, and the NASDAQ 100 outperforming a touch up 1.5%. So what was the main thing and rationale behind some of this market movement? Well, she's back with a vengeance. Uh, Janet Yellen, her Senate hearing for her new kind of position now as US Treasury Secretary, and she came out and said, quote, with interest rates at historical lows, the smartest thing we can do is act big. Now, this wasn't particularly new information. This has already been kind of drip-fed into the press, as per some of her comments about the dollar being market-determined rather than being influenced by the administration, as per previous in, in Trump and Steven Mnuchin. But for me, there's a couple of things I was thinking about and discussing with a few of the traders yesterday, and I think the reselection, if you like, of Yellen back into a major influential position is is a very important thing. And I was talking about this a number of months ago when she was first kind of spoken about for this position. And for me, it's about the combination of having her at the helm of the Treasury and Jerome Powell at the head of the Fed. Now, to me, that's a well-oiled machine and very collaborative, I think, in terms of the way that they'll approach not just the general coordination of activities on the fiscal and monetary policy side, but this idea that definitely Yellen would want to be supportive as much as she can, given her kind of more dovish disposition. And then the idea now that they're also in favor of printing and spending. So, you know, Powell's already kind of had that commitment for unlimited quantitative easing, even though there's been some recent talk of tapering. I think that gets put to bed now that I know Yellen isn't involved with Fed decision-making, but It's going to be something where the two, I think, work well in unison and would definitely be a supportive combination, I think, going forward. So feel quite, quite actually bullish about that relationship going forward. But obviously there's other risks to factor, mainly centered on things like the COVID developments, the vaccination program. But all things being equal, the main thing is I don't see any near-term policy tightening type discussions like taper, tapering happening. And if anything, uh, Yellen's going to be an advocate of keeping rates low and also pumping, going big basically, which obviously is a good situation for equities. And hence consequently we finished high yesterday. An interesting thing though, just to add to this, because I was talking to a couple of students actually the other day and they were asking me about US-China and the ongoing trade war, which obviously has been developing over the last couple of years. And just wanted to make clear to them really that the Biden administration, um, there's this kind of misconception about them having a slightly softer hand in regard to China. And I actually think, um, it's very much a case of continuity. If anything, the unity amongst now them forming a tighter relationship with some of their allies in, say, the the UK or mainland Europe, I think if anything brings about even potentially more confrontation than the more isolated approach that Trump was trying to embark upon over the years gone by under his administration. So this was a comment that I thought was worth just touching upon. This was that Janet Yellen said yesterday she's prepared to use a full array of tools to address actions such as dumping products, erecting trade barriers, giving illegal subsidies to corporations. Now, just to give you an idea, Biden told the New York Times just last month that he would not make any immediate moves on Trump's tariffs on the $350 billion worth of Chinese imports. And as, as I just said, Yellen has also committed to work with allies rather than unilaterally. So again, something which a lot of talking heads in the market were commenting on about 12 months ago was this idea that actually from China's perspective, perhaps a Trump president is actually something that's just better for them, even though that sounds rather, um, confusing or back to front. And it's the idea that having isolated themselves through this extreme protectionist push, having distanced themselves with these other partners that they would have normally have in the Western developed world, Biden brings back a form of somewhat unity and a coordinated effort amongst, say, the eurozone and the US and others, it's definitely going to be much more trickier, I think, for China to handle. But again, this is very top-level macro rather than here and now for the, the session ahead, but worth commenting on. The other thing there is a quick word about COVID both in the US and in the UK. And starting off with the US, and US has gone 3 days without a single state reporting a record level of coronavirus hospitalizations. So a little glimmer, I'm pleased to report, of some more positive COVID news for a change. And that has added to the kind of relative encouraging trends of declining number of patients and new infections and case numbers that we've been seeing in the US. California, obviously one of the most influential kind of economic states in America, yesterday they reported the smallest daily increase in cases in 6 weeks. The number of people in California hospitals with coronavirus fell by a net 26 patients. Doesn't sound like a lot, but that's actually the lowest level in about 3 weeks. One thing I always encourage people to do though is, you know, never take statistics on face value. You've got to think about context and you've got to look at any kind of, kind of short-term patterns that might occur with the reporting nature of these numbers. To, to get more of an accurate or valid understanding of what the underlying trends are. And actually though, one thing to be aware of with the California figures— the devil's in the detail— they might be lower than might be expected for a typical Tuesday. Why? Well, of course we had a bank holiday for Martin Luther King Jr. Day, so which has kind of delayed then the onset of the numbers. So it could have been artificially suppressed in that that way. But nonetheless, cases and hospitalizations generally have been decreasing. That has been a bit of a pattern of late for the US. In the UK, very different story. The UK yesterday, I'm sure you read, the highest number of daily coronavirus deaths since the actual onset of the pandemic, so just over 1,600 fatalities. However, despite hospitals being overwhelmed, the spread of the virus as we know, has been showing some relative degree of, of, of slowing in regards to new infections. And so I think at the moment the way cable is trading is, despite these kind of doom and gloom headlines— and obviously the reality is, is, is a shocking one and one that definitely is not a good situation on the deaths— however, obviously markets are forward-looking And with the new— the combination, I think, of cases somewhat declining from recent peaks in combination with the vaccine rollout going relatively successfully so far and ramping up in the near term, I think markets are taking some solace out of those things. That's overshadowing then the kind of reality of the here and now of what's happening with the number of fatalities. So in terms from a market perspective, And again, you know, I talk about these subjects with a heavy heart and with every sympathy for the people affected by this, but from a market perspective, um, cable really is not fazed by some of that negativity. If anything, they're focusing more on the positive elements, as I just discussed. So it's a, it's a non-issue at this point. And EURUSD and cable very much so supported more by a weaker dollar narrative this morning post-Yellen, which is helping support the major dollar-based pairs. It's very much a dollar move that's, that's prevalent across the market this morning, rather than something so much euro or sterling or Aussie related, uh, in that respect. All right, quick look at elsewhere, other headlines to update you on. Italy, uh, he survived, uh, the Senate vote. However, he fell short of a majority. Premier Conte. So what this means then is it reduces the prospect essentially of his resignation, which would be then going through the kind of arduous process of trying to reform new coalitions. It would probably mean that there's going to be some kind of government reshuffle, but this moves even further away from the risk of a snap election. So if you were looking at BTPs this morning, BTPs are higher, so Italian yields have backed off So a little bit of a relief, if anything, but still not a concluded matter, I would say, as far as Italy is concerned. ECB, um, we've got ECB meeting on Thursday, but this is something that's a little bit different. It's quite an interesting article. I did tweet it from the Amplify Twitter account earlier this morning, but the ECB is capping bond yields, but don't call it yield curve control. Obviously yield curve control is when central banks like the RBA or the BOJ have been very explicit about saying, right, we're going to pin down yields in the 10-year at X percent. And so therefore, when the curve starts steepening, if we start to see some degree of normalization economically and inflation expectations start rising and so on, then they know then if they pin down the long end, they continue to provide a fairly accommodative environment, irrespective of any economic improvements that are being seen. Now, a couple of things why this was quite interesting is basically the main crux of this story is that the ECB is buying bonds to limit the difference between yields for the strongest and weakest economies in the eurozone, according to officials familiar with the matter. One person saying the central bank has specific ideas on what spreads are appropriate. Now, the important thing to understand here is that unlike the BOJ and the RBA, for example, the ECB can't really adopt yield curve control. The main reason for that is something called monetary financing. So the ECB, under EU law, has basically a remit where they're not allowed to directly finance governments. So they can't disproportionately be buying over a certain threshold, say Italian debt, for example. But definitely they do buy Italian debt, probably more than others, in order to then offset, let's say, current political instability. And so therefore it's a little bit more targeted in that way, in order to circumvent some of the legal restraints around this, this program. So this is something which is quite well known, I'd say. Yellen— Lagarde often gets asked about this during press conferences, and it's always a very soft touch and a very loose answer in regards they're not driven by spreads and so on, but this is definitely what they do. And the other obvious thing here that makes it quite complex for them is the fact that unlike, say, the UK or the US or whomever, say the BOJ, rather than one central bank to govern one nation, they're obviously trying to manage quite wildly different economic and fiscal situations across the board, which for me then would, would mean that targeting a specific yield is going to be particularly difficult in a certain, certain respects because it would have to be unique cases across every single country and it gets particularly complex then. Um, all right, well, the other thing to talk about is Netflix, and just going to touch upon some of the main kind of features from their earnings report. They did trade up over 12% last night and they're always a name that kind of captures a bit of attention. They generally do see quite wild fluctuations after earnings. Their EPS was actually a miss. Their revenues exceeded expectations, but importantly, their Q4 streaming paid net change, so subscribers, came in at 8.51 million. Expectations were for just over 6 million, so they massively outperformed there. Company also passed 200 million subscriber mark for the first time, and they also came out and said that its cash flow will allow it to stop relying on debt to fuel its growth going forward. And consequently, their shares moved up considerably on the back of that. Um, looking forward to today, what other earnings are on the agenda? Well, we've got P&G, UnitedHealth, MS, some of the pre-market names to be aware of. UnitedHealth cover coming out after market, so not index movers per se, but perhaps those 5 may be worth keeping an eye out on. In terms of the calendar for today, what have we got? Well, we've already had the UK CPI figures, and actually the year-on-year came in at 0.6%. It's a touch above expectations of 0.5%. The core year-on-year, 1.4% against 1.3%. So looking at sterling, yeah, there's a little— there was a little bit of fluctuation, but underpinning that currency pair's rise really is in tandem with what we're seeing elsewhere with these dollar-based pairs, which is prevailing dollar weakness now. And the DXY trading down about 0.2% at the moment, so continuing to reverse some of obviously the solid gains that had seen over the prior couple of sessions in, in last week. Moving further forward, the eurozone CPI numbers are final, so there will be unmarket moving. And then going into the US session, pretty quiet, no major US data really today other than the API oil inventories we'll get after market. And you've got the Bank of Canada rate decision I'm not expecting any real significant changes there in terms of the actual policy side of things. Rates currently at 0.25%. Then obviously the other thing we're looking out for today that will likely be a main subject matter that will capture most of the airwaves will be Biden's inauguration. Very much symbolic as he gets officially kind of sworn in. The timings of this it's going to be our midday Eastern time, so around 5 PM London. And again, it's all very ceremonial. Wouldn't be expecting any type of market move on the back of this. All right, that is it. I'm gonna let the guys on the Amplify Live stream, um, in the community talk about the technical levels and the setups, trade setups for the day. But hopefully that was useful. Hopefully you're up to speed, and all the best for the day ahead. Thanks very much.