Your Guide To The Week Ahead In Markets

Okay, very good morning to everyone. It's Monday the 11th of May. Hope you had a good long weekend if you're based in the UK. My name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading. We have a small proprietary trading arm. We also specialize in trader development, and we have some proprietary technology that we've created that's been, being used by business schools and corporates all around the world in in regards to financial market simulation training. So if you'd like more information about that, then on the red bar at the bottom of this video, there's a link. Do go and check that out if you have time. And remember to like and subscribe to the channel. So daily updates I'll be doing every morning, and also my colleague Eddie, which you might have seen, will be releasing videos over the weekend where he talks about some other subjects of interest as well in a bit more detail. Macro Menu, this is a piece I write just to remind you every Sunday, and I'll issue it via my Twitter account. There's my handle. and I talk about generally the week ahead. So what's my role? Well, I specialize in kind of market fundamentals, so I don't look at any charts. I'll leave that to you guys. But what I do talk about are some of the things I'm going to expand upon in this briefing this morning, and that is then hopefully getting you in the best possible position for you to be able to trade successfully throughout the week. So without further ado, let's have a look at the charts this morning, and it's a fairly muted open, all things being considered. We obviously had non-farm payrolls on Friday, and that figure came in at -20.5 million, the rate of job loss in April. So one singular month basically eroded all of the job growth that we had seen since the global financial crisis going back to 2009. So quite an historical moment. However, As you can see on the charts, stocks rallied, uh, T-notes initially fell, and gold came under pressure. So completely the counter move to what you would logically think would happen. But this, of course, as we know, uh, has been very much expected to have been the case. And if anything, uh, the unemployment rate was slightly lower than expected, 14.7%. Expectations were for 16%, could have been as high as 25% as far as some of those analyst ranges were concerned. And the actual headline reading at -20.5 was actually slightly lower than expected and also well off the worst-case scenario of 28 million some analysts were calling for. So all in all, it's been a bit of a, a kind of continuation of that disconnect between Main Street and Wall Street, which you've probably heard people say before. And that's pretty much being reflected this morning. There's not a great deal of new developments over the weekend. Yes, the some COVID-19 updates as governments look to unveil more of their loosening of the restrictions over lockdown. I'll talk about that in a moment, particularly from the Prime Minister in the UK last night. There's also a few other things about potential for negative interest rates in the US. Is that a thing? Could we see that? And like what we've had in Japan, in the eurozone, we can discuss. And then there's a few other pieces to be aware of for the, the week ahead as well. So Let's get into things and let's start with this. This is a graphic that I saw that I thought encapsulates in a different way how markets have been reacting, because obviously economically we're in incredibly stressed times at the moment, and that probably is not going to change anytime soon. So this week, some of the major data points we've got coming out of the United States include things like retail sales, for example, US retail sales are expected to fall 10% in April. This comes after the previous month of March, which we saw just 4 weeks ago or so, came in at an 8.4% decline, which was the worst on record. So retail sales gonna get worse in America. We've got industrial productions anticipated to fall 11.5%, again, much worse than the prior month. So things definitely bad, actually, from a real impact at the moment on the economy in the States. However, as we know, equity markets keep, keep rallying. So what we're looking at here are two things. One, the green is the S&P 500, and this is going over the course of the last two months of price action. So where we bottomed out, of course, on March 23rd before we commenced this pretty awesome rally that we've had since then. But on the flip side, then, the red is something which quite a few people in markets tend to look at. It's the Citi So as in Citigroup, the Citi US Economic Surprise Index. So simply put, it's looking at what is the median expectation and how much does the actual figure derive from that point. And as you can see, then 0 would be an inline reading, anything below 0 would be a negative surprise miss against market expectations. And as you can see, they've been big misses to the downside. And yes, we've had a slight recovery of late, but still it is depressed substantially at the moment. So even though analyst expectations are low, we continue to see even worse outcomes more often than not, perhaps payrolls, as I explained, just being a bit of an exception. But despite that, equities keep rallying. Now, one of the things that we've seen, and a few obviously points that lead to this, are the, the monetary and fiscal reaction that we've had. This is a look at the context I wanted to show you of the current rate of unemployment in America. And on Friday we saw that coming at 14.7%. Um, wanted to put it in context of the global financial crisis, which you can see we got up to around 10%, which was similar to the peak that we had in the '80s. We still got quite a way to go, but it could well be the case that we test or perhaps breach then the, the unemployment rates that we saw in the Great Depression of the 1930s. Because don't forget that we're going to see continued layoffs over this period. Remember, even though we've had 5 consecutive weeks of US jobless claims decreasing, they've still been to the tune of 4-3 million. So we can anticipate that this is going to move north, most likely to potentially above to the 20% region. One of the things then that we've had over the weekend, a couple of speakers, uh, in particular Steven Mnuchin, the Treasury Secretary, he said that the staggering US unemployment rate report on Friday amid the coronavirus lockdown may get even worse. So kind of prepping the ground for what is yet to come. And this has led then to the White House has started apparently informal talks with Republicans and Democrats in Congress about the next steps on a coronavirus relief legislation, according to officials on Sunday. So don't forget though, since early March, Congress basically has— Capitol Hill has signed off approximately $3 trillion to combat the pandemic so far. So they're looking at further ways and means to top that up. And one thing that I thought was really interesting— let me just see if I can bring this up. If I just quickly search it, there was a really excellent graphic. Actually, I posted it in my, my macro menu, which is here. And this is looking at Essentially, obviously, we can't forget we've got a US election coming up, and obviously the, the severity of the economic implications on people's livelihood is going to be probably a key point of what's going to be important consideration for those that sit within a toss-up state. Do they believe then that Donald Trump has acted appropriately in the measures that he's taken? And what other ways and means would have Biden gone about business if he were at the helm. And what we're looking at here then is mapping out the United States, i.e., the various different states, and workers in toss-up states among those hardest hit by COVID-19 lockdowns. And there's some particularly interesting ones: Michigan, Pennsylvania, Nevada, considered key battleground states for Trump and Biden that they would need to secure in order to win the presidency. And as you can see So here, Michigan, Pennsylvania, Nevada, they have been some of the hardest hit in terms of the seasonally adjusted weekly unemployment insurance claims. So yeah, definitely something to, to keep an eye on. Trump remaining pretty resolute that, you know, really this is not his problem, it's a problem taking out of his hands caused by the Chinese and so on, which we've seen. But this definitely will be something which I guess will need to be tracked as we go through the, the months to come. Of how this is playing out in the political polling. Um, going back to then, uh, another graphic, and we were talking about there this disconnect between Main Street and Wall Street, and this has got a lot of people asking questions about, you know, this— the, the significance or aggressiveness of the bounce that we've had is pretty unprecedented. And you can see here, uh, this is a chart that's been made by analysts at SocGen, the French bank. And basically it's looking at the cumulative returns from market bottoms for bear markets from 1870 onwards in terms of percentage. So here the blue line is the 2020 pandemic price movement, then all bear markets is the kind of red line, and then all bear markets including the Great Depression is the blue line. Now one thing you can see in terms of observations here is if you X out the kind of V on any of these, then if you look at the blue line, you can pretty much draw a straight line. So we move back on track to the pre-event trend, probably within about 20 months or so after the event in itself occurs. So if you apply that rule of thumb, in about 2 years' time or so, markets then return back to where we were because of generally the measures that are taken in order to counteract that economic situation. Situation. The difference here, and what has a lot of people mixed of opinion at the moment, is the sharpness of the recovery. I mean, if you look at this, I'm not sure if you can even call that a V. It's almost like an X. It's happened so quickly, um, you know, it's almost vertical in a sense. And so here then, the recovery has been just so much more quick than it has in the past. It's usually taken approximately I would say from that downturn, I mean, you're looking at about 10-15 months before we'd get to a similar point to where we are at the moment. So some side of the table questioning is that, you know, is it just too fast that the market overstretched itself here? And certainly a few banks like Goldman's we've talked about before anticipating a bit of a decline before then the eventual push-up. Or is this truly a new new reality that we live in. You know, the, the size and scope and reach of the measures taken, not only by, say, the Federal Reserve and other central banks globally, but also the size of the fiscal packages that have been unleashed, uh, absolutely dwarf anything that's been seen in the past. So is this actually a fair reality for that, what's been deployed so far? I guess we'll find out soon, but Yeah, I thought it was quite interesting, uh, graph, and I'll share these, um, later, and I'm going to tweet a few of them as well, so do check that out. Um, quick move back though to the COVID situation, uh, because obviously this is still one of the main things we're looking at at the moment, because— and something I talk about in my macro menu that I released yesterday was that yes, there's this big disconnect between the kind of severity of the economic reality comparative to the pricing of financial instruments at the moment, particularly the equity market. And we've got some data to look out for this week. But overall, I think a lot of the market is more focused on still COVID-19 and the government's ways and means to get back to some degree of normality, because this is obviously a key— one of the key components of why markets are reacting like they are. We're anticipating then that the loosening of these restrictions is going to allow economies to gradually reopen. And this, of course, is very important then for current pricing because it means that then the kind of the economy can get going again and jobs can be found and an income can be recovered and so on. Now, what we've got here are a few different things. France, Spain, Denmark, Norway, and the UK will all lift some measures New York, in terms of the state of New York, they're due to release some more information today. The UK, the Prime Minister spoke, you probably would have seen last night, they've kind of switched now to being alert rather than stay at home as their new phrase. However, I believe Wales, Scotland, Northern Ireland have not followed suit of England in adopting that type of situation, so there has been a bit of a splinter in that sense. Uh, for the UK, if you're not already up to speed, uh, from today they're actively encouraging people to go to work if you can't work from home. But they're being more explicit and saying this is regards to construction, manufacturing, those types of jobs, not kind of office-based work. And from Wednesday, unlimited exercise, sitting in parks, playing sport with families, driving to different locations can be allowed. Um, the the earliest June 1st reopening of some shops and primary schools. I did see Dominic Raab talking this morning saying the absolute earliest that it could be for pubs and restaurants would be around the 4th of July. And I'm afraid, gentlemen, for anyone who is awaiting a haircut, no haircuts, I'm afraid, until earliest of July according to Dominic Raab this morning. So you're going to have to get your clippers on order from Amazon for the time being. Um, but elsewhere though, it hasn't been complete smooth sailing. And I guess if anything, we can use places like China and South Korea perhaps as a bit of a litmus test of just the precarious nature of unwinding of lockdown too quickly and the significance that that can have on a secondary wave of infections. And so over the weekend, there has been small But new outbreaks in South Korea, China, and Germany, just to be aware of, that they're having to kind of bring in some new measures again to counteract that from becoming more significant. So definitely worth keeping an eye over this week. I would say it's probably more of the coming weeks. I'd say actually what the UK government is proposing is very graduated, but I wouldn't have expected anything different. And net-net, there's been absolutely no impact on the currency markets. This morning on the back of the latest reports. The PM though is due to publish, I think, a 50-60 page document about these measures in more detail in Parliament later today, and he's going to be taking questions later on this evening, just for those interested. Moving on though to a couple of other subjects I want to wrap up before we finish, and this is one where what I'm looking at here are— I'm looking at Fed Fed funds rate, or the effective Fed funds rate, which is the light green line, and the darker line is the December 2020 future. So we're looking at kind of short-term interest rate futures here. And interestingly, at the end of last week, we had quite a symbolic thing happen. And looking at the profile here, it shows that negative rates in the US taking hold from the end of this year. This is where we are at the moment. So December futures are now pricing negative, or were just by a few basis points at the end of this year, hitting the deepest negative territory by mid-2021 and subsequently returning to positive territory by early 2022. So in the futures market, there are some positioning now potentially for negative rates in the US that could well kick in a few months' time and then stay that way before then coming back up in early 2022. Now, for those who are unfamiliar with the notion of negative interest rates, obviously it is something that has happened in other developed markets around the world. But in short, negative rates would punish banks for leaving excess cash with the central bank and thus forcing them to lend, which in turn boosts investment, um, in terms of business investment and also consumer spending. And so then, for— by default, you're just looking to get the, the grease the wheels of the economy, if you like, get things back in motion. What I'm going to do is, rather than go into that in more detail, there's a great article for anyone who is unsure about these types of things from Reuters. I'm going to pop that into the video description and you can read that in your own time. Now, what does this actually mean? Well, I think it is, um, pretty symbolic in a sense, but how, how clear is it as a reality that it's going to come to fruition? I would say from the bank reports I was reading the weekend, probably highly unlikely. Negative rates would punish banks for leaving, uh, what, which would squeeze their, their margins in a sense. That'd be very problematic for the banking sector, would be forcefully pushed back upon, uh, I guess, onto the Fed to discourage them from doing so. Um, but also if you look at the likes of the eurozone, uh, with the ECB or the Bank of Japan who have adopted negative interest rates, they've, they've not really had a great deal of success. I think the Fed will be more looking to put the pressure on the government to provide something that's much more definitive to help boost them through the fiscal measures and increases. What we've seen with like what's been intonated by press on Capitol Hill over the weekend would probably be the more appropriate action, I would say, at this point in time. One thing to be aware of though, um, Fed Chair Jerome Powell has now scheduled in a speech on current economic issues, and obviously this will be a big one he's going to talk about. They haven't really gone too much into this in any greater detail. It doesn't look like anything that's going to happen anytime soon, but I'm sure he's going to be questioned on that. And that's going to be, I'd say, one of the main events of the week when it happens later on Wednesday. Okay, a few other things. Um, just following on from some of the press coverage it got last week, the European Commission at the weekend said they could open a legal case against Germany over ruling by its country's constitutional court that the ECB had overstepped its mandate with its bond purchases, according to the EU executive arm at the weekend. So again, this comes after that German court last Tuesday said that the ECB had 3 months to justify their, their bond buying program, otherwise the Bundesbank might have to quit it. Um, so yeah, when I tweeted this on Saturday night, a lot of backlash obviously about the longevity of the EU, um, and people's thoughts on that. It's quite— it's always very interesting when you talk about politics anything to do with Europe or Brexit, the virus included, people get very emotive about it. All in all, I would say, as per what's reflected in European assets this morning, this is not important at this point in time. It is important overall, of course, but in terms of an intraday Monday morning, I don't think this is a great deal of surprise. Now, I kind of base my reasoning on a few different things, but mainly to do with the fact that usual legal process is to respond then in kind to something that arrives at your door in a sense of a legal contest. So I don't think it's that surprising that the EU are going to formally come back with something. And I've read a few other pieces this morning talking about that, look, the EU could have just blindly ignored this, but that obviously would have raised more questions than answers. And so the fact that they're willing to give this due process is actually quite a good thing. The other thing as well, from an EU point of view, of course they want to be sure that they're taking quite a definitive and firm stance in order to stop other national courts that sit within the Eurozone umbrella from doing the same. So there's a few other pieces going on here politically. I don't— I think, I think people are making a bit of a mountain out of a molehill with this, but certainly it is a an issue that does need to be resolved, obviously, by that stop clock of the 3 months which the German court had placed on them. I guess from a more market perspective, the important thing here is at the moment Christine Lagarde, the head of the ECB, has said the ECB is undeterred in supporting euro area economies. So at this point, while the courts are kind of sparring it out, as the headline's saying, the ECB is just going to push ahead with their stimulus program. And so they should at this point, because there hasn't actually been any definitive legal change that's happened, as yeah, these things take time. A few other final points. Oil, just wanted to show this. Firstly, what I'm looking at here are on the bottom axis is June, September, December, March. So just putting into context the last kind of year or so. And the bars are representative of net bullish wagers. So these are kind of speculative open futures contracts, which we can derive then for how bullish or bearish markets are by their kind of speculative positioning. And then we're looking at the overall price on the axis on the left of the West Texas Intermediate future. So here, looking at the front month, which is trading this morning at around $25, $26. Now, hedge funds boosted their net bullish wagers on WTI to the highest of the year, as you can see here, going all the way back to on the far left-hand side, in the week ended April 28th, according to the latest data on Friday submitted by the CFTC. Uh, US drill rigs dropped as well by another 33, so actually below 300 now. So that means US rigs are now at their lowest level since September of 2009. So again, the, the idea of getting another, uh, kind of run on these futures contracts pushing us into negative territory, I think that ship has sailed now, uh, for various different reasons. The USO spreading out the average durations from generally those cuts now kicking in from the OPEC+ and G20 oil producers. Uh, that's going to alleviate as well just generally some of the calmness in markets and the reopening of some of the areas, like in what China— what we've seen should help just alleviate some of the pressures on Cushing in terms of getting near to that maximum capacity. And so markets are getting a little bit more bullish again. So, um, you know, I wouldn't over-interpret this and think, right, I'm just going to get into now and get long the oil market. I think the point I'm trying to say more so is that I think the, the days of the negative price have probably passed now. Um, and so at this point you'd be looking technically at different levels of downside support to help keep this price, which has been relatively in consolidation really since really the 6th. So going back to midweek last week, we've kind of been holding around that $24.50 level in the futures market, kind of contained between $24.50 and $27.50 has been the price range in the front month future for the moment. The final things here I thought were quite good for, from a trading point of view, just to be mindful of. Obviously we have seen an increase in the tit-for-tat between China and the US. However, it did seemingly appear to just ease a little bit the tensions at the end of last week, as despite the kind of verbal rhetoric being very aggressive from Trump, the talk was towards the end of the week that the two parties were in fact looking to hold dialogue in order to get this Phase 1 implemented, which was more positive and certainly has helped underline some of the instability in markets. But going forward, quite an interesting assessment from Goldman Sachs. They're saying that tariffs are a key metric for yuan in the US-China rift. And one of the points I want to make with this is that they see related news moving the currency more than anything else. So what they're basically saying is if you want to really track the market sensitivity to any of the trade war headlines that come out, the best thing to do is look at the yuan price movement as to ascertain then, well, how spooked or not are the markets becoming. Now you can see here this extreme weakening of the Chinese yuan through the summer of 2019 when the trade war was really in full swing and in escalation mode at that time. And we, we obviously crossed that really symbolic 7 level, if you remember, and that was the first time that had really happened ever before. And, you know, previously they defended that level, but that then opened up quite a gradual push higher before things have calmed through, through the back end of last year. However, things have ratcheted up a few notches more recently. So one of the things here is, you know, going back to having a quick look at that, that kind of, um, the price activity from overnight for the Chinese yuan, uh, how is it form could be quite a key metric to just identify then the broader market sensitivity to these developments moving more, uh, more positive or more negative going forward. Interestingly though, that being said, yuan volatility has now fallen to its lowest level in 3 months at the moment. So I think goes some way to show that, you know, despite this kind of bluff and bluster coming out of the president, you know, saying he's got you know, evidence about the origination of the Chinese virus and all this type of thing. And as I've said before in those briefings a week ago, I do think a lot of that is just political noise in him trying to make a point and also detract from the economic domestic situation that he knew was going to come in the form of payrolls. And if you think about it, he's kind of come out of it pretty scot-free. No one's really pointing the finger at Trump with payrolls, even though we lost 20.5 million jobs in America, and the US were one of the slowest in the world to respond with their global lockdown and isolation and social distancing and so on. You know, that's the, the art of the Trump management in that sense. All right, well, that, that's pretty much it on the macro menu. Just to finish, if you do scroll down— so let me just show you— if you scroll down to the bottom, there's a few other interesting things, charts and so on included in that, but there's a weekly monthly calendar. So in here, not just economic data, I do include speakers. So I mentioned Jerome Powell speaking on Wednesday, which will be a key one, but there are a lot of Fed speakers throughout this week. You've got Bostic today, tomorrow you've got, what, 5 Fed speakers in total before Jerome Powell on Wednesday, more Fed speakers to come on Thursday as well. But all the other things you need to be aware of can be located at the end of that All right, that is it. Any questions for me, just leave a comment on the video. Be happy to help. And then remember to subscribe to the channel to get access to the updates throughout the week. Okay guys, gonna leave you with that. Any technical questions, just feel free to reach Sam North on Twitter. Just search for his name and his handle @snorth19. All right, thanks very much guys. Take care.