Your Guide To The Week Ahead In Markets

Good morning, my name is Anthony Cheung. I'm the head of market analysis here at Amplify Trading, and it's Monday the 18th of May. Going to look at the— not only the session ahead, but also for the week ahead as a whole. My job here to bring to you some of the main fundamental themes that I'll be looking at, talking over the calendar, some of the news that's been in play over the weekend. And all of that is summarized in this, as you can see on my screen. This is the macro menu that I write every Sunday evening and I post on my Twitter account. My handle is here if you want to access it and read in more detail. But it's a good way to prepare for the week ahead because most of you guys I know will be doing your own technical studies on your charts, looking at potential trade setups. So this could be a nice complement to that, just giving you a bit of a fundamental flavor of some of the main things to be aware of. Also, you might have seen— some of you might be watching, in fact, this briefing on the Amplified Trading YouTube channel— and a couple of things or changes I've made here. And I've recreated 3 different playlists on our main Amplified Trading homepage on YouTube. One is my market briefings, so I'll be doing this every weekday, and usually these get published early in the morning. My colleague Sam North, which I know many many of you are familiar with. He is now going to be doing this new weekly trading setup video on a Sunday, and he's only going to do it on a Sunday but look ahead for the entire week. So definitely something which I suggest that you watch because he'll make clear all of the main cross-asset levels you need to be aware of, which is a nice addition then to complement the fundamentals that I cover. And then you might have seen as well a couple videos— we dropped one over the weekend which was explaining this idea of negative interest rates. So my colleague Eddie Donmez now has his own playlist where every Saturday he'll be releasing a video explaining one of the hottest topics in markets, simplifying quite complex subjects like negative rates, for example, in more detail. So don't forget to like and subscribe to the channel and absolutely feel free to engage. We'll be happy to help. But let's talk about the, the week as a whole. And starting off then with how's the week begun, and a little bit of general optimism, you could say. Equity index futures are trading on the front foot. The DAX is up about 187 points this morning. US futures, the, the S&P is up 33. Despite that, gold though is up about $15, $16. You can see in the top right here has found some resistance around its R1. The initial push during the Asian Pacific session So despite some general moderate risk appetite, there still is this kind of necessity to hedge, if you like, in regards to potential future inflation, for potential then of a, of a virus second wave pandemic return, if you like, as the number of countries start to loosen their lockdown measures. Now just that general Diversification to gold seems to be helping support the price at the moment, and there's some comments out of Powell who appeared on CBS yesterday also helping just lift the price of yellow metal as well. Elsewhere though, oil prices— we'll have a look at that in a bit more detail on the news side, but you can see elevated up about $1.35 and north of $35 or $30, excuse me. And this comes ahead of the June futures contract expiration, which we'll get tomorrow. So fixed income futures, a little bit more reflective. So just X-ing out gold from the traditional kind of correlations, then down marginally with the general move higher in equities, and also in addition that move higher in oil. And in the FX markets, the Dixie is pretty flat. If anything, sterling perhaps a touch underperformance, but any of that more firm underperformance has been eradicated from what we've seen at initial opening overnight. And we'll have a look at some of the reasons behind that as well. So let's get into some of the news stories. Um, first off, starting with this. Now I know this is quite a, quite detailed infographic, but basically what I wanted to draw your attention to here really is this is the commencement of the coronavirus to where it is at the moment. And you can see this is encapsulating all of the daily deaths of patients diagnosed on a 7-day rolling average. And the main thing is here is the shape. It's almost like this kind of bulb shape that you're seeing at the moment, but importantly, the tailing off of the, the, the back phase of the bulb, if I can use that analogy, uh, is what is being seen as a slight positive at the moment, at least in most countries. And looking at the global picture, obviously not quite the same if you're looking at areas like India, for example. I saw Goldman Sachs who said that given the lockdown that they're seeing in India at the moment, as they're still in somewhat the acceleration phase of the virus, given they were quite, um, later down that, that kind of incubation period, their GDP could be hit by nearly 50%. So it's going to be absolutely decimating for their economy. But overall, globally, that these distances are continuing to narrow, and Italy's shops, bars, restaurants, even barbers will be allowed to reopen on a regional basis. People will also be able to move within their own regions starting Monday. There was a decree passed by the Italian government at the weekend, and so people can now freely move about the country again. So Italy, which was obviously one of the main land European hotspots starting to try and get back to some degree of normality. Germany, which if you remember at the beginning of last week actually saw a renewed flare-up in cases, well, on Sunday they reported their third lowest increase in new coronavirus cases since late March. Um, separately, Spain of course is the other country a lot of people have been looking at. They recorded their smallest number of fatalities in 2 months. So overall then, that's helping sentiment to a certain extent. However, elsewhere we still need to be monitoring some of the other areas in the US, and we're going to talk about that a little bit more when we talk about some of the risks associated what Powell was highlighting. But just going through some of these news stories from a more, um, a sequence if you like, to explain some of these moves we've had this morning. One is oil. Oil prices have been moving higher in the overnight session. Obviously a lot of people were a little bit apprehensive going into the futures contract roll, the expiration of the front month. We've already switched in terms of the volume into the July contract, but a lot of that risk when we had the, the expiration of the, the previous contract on the back of the idea then that a lack of storage at Cushing was forcing people to basically you know, I'd pay you money in order to take this, this contract off my hands. That negative price scenario, very unlikely to unfold now. Talked about this many times, about this idea of the, the United States Oil Fund, which held a lot of these speculative positions generally in the oil market, had already averaged out their kind of duration further out down the calendar curve, if you like, meaning that there wasn't going to be such a pressure point like what we saw just a few weeks ago. So I don't really anticipate too much fluctuation on the back of that. And why are we generally being supported in oil? Well, it hasn't really changed what we talked about at the end of last week. US oil production generally is decreasing at a fairly rapid rate because active drilling rigs in the US continue to fall quite sharply. I think it was around 55% now since mid-March in terms of the number of rigs that have come offline. So that does mean that obviously production rates are decreasing sharply. Stockpiles at key storage hub in Cushing shrank for the first time since late February. Elsewhere on the OPEC side, Iraq, who typically would normally be the second largest of the OPEC producing nations, said it plans to halt output from one of its oil fields due to a protest. And these American cuts that we've been seeing come on, on top of almost 10 million barrels a day of curbs from OPEC+. So this is also including then extension of Russia, uh, that kicked off at the beginning of the month. So overall, remember we had that report as well and one of the energy agencies last week talking about perhaps the hit to demand not quite as bad as they initially might have feared, in addition then to this recalibration, if you like, on the supply side, meaning that we've got a nice supportive theme going on in oil at the moment. So continuation really of what we had of last week. And in context, that, that active rig count, what does that look like in a historical sense? Well, those of you who were trading back a few years ago will remember you had that really quite spectacular move in oil when, back in late 2014 going into 2015, this is when the price of oil was trading well north of $100, but we ended up getting below $30. We actually traded at, what, $26 or so in February of 2016. This came with a combination of a few different things. Here was around, you know, if I was to put a dotted line of the production rates of shale in North America, it was basically moving north on a fairly steep gradient at that point. And so what was happening was OPEC, i.e., the Saudis, could definitely see this competition coming from America. And so what they decided to do was just generally flood the market and continue to pump oil despite at the time what was then some fears emanating from China about a hard landing. And it was a misjudgment, and the US industry had the flexibility to weather the storm. And although we saw active rigs in the US drop substantially, actual production rates and efficiency levels per individual site meant that their productivity levels were really not dented, uh, that much at all. And actually it was Saudi that was suffering. And then we got the OPEC deals obviously kicking in and we've had a bit of a global recovery. However, since that point, the pandemic has seen an almost immediate drop-off here to the magnitude, if not steeper, than what we saw back in that 2014-15 period. So you can see here we're now lower than that trough. So if you think about the active rig count now, you know, this is when oil was trading at $26. We're now trading around $31 at the moment. To give it a comparison's sake, The other thing that a lot of people obviously have looked at from the weekend was this, um, a lot of Fed commentary last week. You had Fed commentary at the weekend and you've got more Fed commentary coming, um, this week because Jerome Powell is looking at taking questions on the scale and time of additional fiscal relief when he appears before the Senate Banking Committee on Tuesday. And no doubt he's going to be pushed once again again on this idea of negative interest rates. So, so basically he spoke in an interview on CBS 60 Minutes program on this idea of negative rates. He once again said that they're probably not appropriate or a useful tool for the US, but didn't go as far as completely ruling them out. Pretty similar to what other central bankers like Andrew Bailey at the Bank of England has said. Powell did say that assuming there's not a second wave of the coronavirus, I think you'll see the economy recover steadily through the second half of this year. But he said that a US economic recovery may stretch deep into next year, and a full comeback might well depend on a coronavirus vaccine. But the Fed has more ammo. So he was, yeah, a little bit cautious, if you like, about the economic recovery. A lot of people suggesting that that's what's helping fuel this kind of further support for gold at the moment, given the fact as well that a full recovery hinges on a vaccine, and we know that that's not going to be, uh, anytime soon. One of the main risks here, of course, then, is, uh, the idea about the implications that the second wave could have. And this is a map of the United States, and the different colors define, um, different phases of the unwinding of the stringency of the lockdowns. So here California, their economy is now roughly about 75% open according to data collated by the New York Times, while upstate New York is also set to reopen. Parts of New York, Virginia, Maryland moved toward lifting lockdowns on Friday, and Connecticut, Minnesota set to ease their restrictions, restrictions in the coming week. So once again, you know, just given as well the kind of mixed opinions here, the administration obviously quite quite keen to get the doors reopened. However, that Fauci, that chief medical advisor in America, just a week ago or so was, was very much bringing to the, to the table the notion of getting this wrong could have very severe consequences for American citizens in terms of their health, but also the broader economy. So yeah, definitely still keeping a close eye on this. And it does come in the context, of course, of a continuation of this, this kind of tension simmering on the trade war side. Uh, just giving you this latest one, it's quite unbelievable comments actually that came out of the weekend from the White House trade advisor Peter Navarro, who spoke on ABC News. He basically suggested that not only did China create this virus, but they then ordered and sent airline passengers purposely to places like Italy, to the United States, in order to spread the infection worldwide. So some pretty bold accusations flying around out of the White House at the weekend. Trump then— this is what you do tend to see, whether it's the trade advisors, whether it's Trump himself, but they tend to have this kind of almost coordinated effort where if one sounds quite aggressive, the other sounds much more conciliatory. They tend to balance each other out. And Trump said that while he suspects the outbreak may be connected with the Wuhan lab, he said it's unlikely the Chinese deliberately unleashed the pathogen. So saying pretty much just tempering back what Navarro was saying. But the point is the idea is out there and everyone's quite clear what the US is thinking by making these two statements. US lawmakers and officials are crafting proposals, apparently, that American companies to move operations or key suppliers out of China, including tax breaks, new rules, and carefully constructed subsidies. On the flip side, China's Commerce Ministry said on Sunday that it is firmly opposed to the latest rules by the United States against Huawei and will take all necessary measures to safeguard Chinese firms' rights and interests. So yeah, definitely this continues to be a subject to monitor throughout the week. And again, another reason why to be positioned accordingly in gold, and what's probably further helped that price movement. Because if you think about the period of the months ahead, it's probably more than likely that this anti-China rhetoric will continue to ramp up as we go in towards the election at the latter part of this year. This of course is that infamous trade war cycle. I guess kind of pick where we're at at the moment is kind of around this sort of phase. I guess the market not quite at the point where it's in sheer panic that they've pushed too far on this kind of aggressive rhetoric, but this administration certainly talking tough about China at the moment. How long they can do that before then the inevitable kind of downturn might take place is yet to be seen, and then we go through that kind of infinity loop of them, them hinting towards a potential resolution. The market kind of breathes a sigh of relief before then it becomes evident that a lack of progress is being made and we go full circle again. So definitely worth bearing this all in mind. Yeah, as I said, gold continues to be supported by a lot of this type of price movement. If you think about gold as well on the longer time frame, you know, we are trading up at levels that haven't been seen for a very long time. And if I actually just switch over here, this is looking at a monthly candlestick. This, this chart completely unaltered from what we were looking at when we were initially seeing some spikes of price activity through the beginning of the year. And you can see now we're retesting up and around on the, on the monthly where we were back in April. Any push above here, then the real key levels start to come in really around that $1,800 mark. Looking at the futures here, so $1,795, that would be that kind of triple top— November 2011, Feb, October 2012. So you're going back several years, of course, the last time we were up this high. But also comes as well, increases, you know, big pickups in money supply with the Fed doing copious amounts of new QE, and that being a real global situation at the moment. So yeah, those who have been in that long gold position for a while, obviously quite happy with the developments and how that's unfolding at the moment. Just going back then, putting all of this together, what does it mean for Fed policy? I did actually put a poll out yesterday. I'm always quite interested to see where the general sentiment lies at the moment, and thankfully, just given the kind of volume of responses, I think this is quite a good reflection of where people's heads are at the moment. I asked the question, will the Fed eventually adopt negative interest rates? And 62% of you said yes, 38% of you said no. I guess some of you might be thinking, well, what does Ant think? Um, at this present point in time, without getting too bogged down in the technicalities, um, I actually do think that the Fed moving negative is, is quite a high probability. I think that they've tried to fight back against the notion of the market pricing at this point, but it almost— if the markets continue to price this way, it becomes almost a built-in expectation. And if the Fed doesn't respond, then at a point in time, not sure what exactly, but there are multiple catalysts that could create that on the macro side, then the Fed could be forced almost by the market's positioning to be able to do this. Now, Obviously the Fed doesn't like to respond in that way, but if it becomes self-fulfilling, then I think it is seemingly becoming somewhat inevitable that we could well be heading down this route. The idea that the Fed, you know, historically having never gone negative, is that a barrier? Well, symbolically, yes, but, you know, having lived through the financial crisis and seen the advent of things like quantitative easing and lots of other weird and wonderful unconventional measures from central banks, I don't think the idea of going negative in the US would be a shocking one to that extent. So I'd be leaning on the, on the yes camp for now. All right, final things that I wanted to have a look at were kind of UK-based. Quite a few things to look out for this week. Firstly, just talking about the political side. This was obviously the speech that was delivered by the PM probably around 8 days ago now. It's not this weekend, the one before. And reports over the weekend how Boris is accepting frustration over lockdown rules. He's really come under some pressure in the media about the lack of clarity from the, the phasing of the general unwinding of lockdown. And one of the things that came out of the weekend was this, which was an Opinion Observer poll, and it did show then, when asked in this poll, to what extent did you approve or disapprove of the government's handling of the coronavirus situation so far? This is the chart on the left. You can see then through really the last month or so, particularly at the beginning, there was a really positive response by the British public towards going on quite onerous lockdown. You know, being told to stay at home, save the NHS, and so on really did resonate quite well with the public. However, as we've gone through the last, I'd say, 3 or 4 weeks, the uncertainty, I guess, about the specifics— the UK has been generally, was very slow about putting the lockdown on in first place, and equally it's been a little bit slower than what we've been seeing in mainland Europe, albeit the virus has been in a slightly different period of its development, but the telegraphing, if you like, of real details about how we're going to get out of the lockdown has been a little bit lacking. Almost polarised then by that recent Boris speech, and for the first time since really the outbreak has begun, the government approval rating has now turned negative. Disapproval is now at 42, approval at 39. And to what extent do you have confidence about the government's ability to handle the situation as it develops going forward? And again, people are starting to lose a little bit of confidence. And you know, how much is this relevant for markets? Well, really you've got to look at it more of the translation into politics, because it does heap more pressure onto the government to make the right calls. They're at a real pivotal point in their a period of history where they've got to make that judgment about getting the economy back reopen as quickly as possible in order to offset what's going to be one of the worst economic downturns in the history of this country. And so doing that though comes at the precarious nature of the cost and casualties of life. So yeah, really tough at the moment for the government to strike that right chord, which if anything I think could have negative implications for generally how the, how the pound might react. But the pound, not only is it really down to the virus, the other thing is, well, first of all, on the political side, which is also going to be in the spotlight this week, is economic data. This week we get a couple of data points coming out of the UK. There are retail sales and there is inflation data, both of which cover the month of April, so the full entirety of the most strict part of the lockdown. So as you can imagine, both numbers are going to be very negative reading from a, from a media point of view. How much of a surprise is it going to be? Not a great deal. So again, I don't think it's going to have a massive market-moving impact, but you know, on the retail side, specifically. If you think about it, shops aren't probably able to reopen, not until around the end of June in Britain, and then even so it's going to have social distancing, there's gonna be lots of rules and things like that. And so, you know, it's gonna be a real tough time for retailers going forward, and all of this again is going to put more pressure on the government politically. On the, on the flip side, there is also Brexit, and we saw Brexit kind of rear its head last week on the penultimate talks going into that end of June deadline when the UK needs to make a decision about requesting an extension beyond then, the end of this year. Otherwise, we face the prospect again potentially of a no-deal Brexit. And what I was looking at here are a few different things. This is from the analysts at ING, the Dutch bank. And then we're looking at here, Sterling volatility curves don't show any, any kinks. So basically, I mean, this is looking at Sterling at-the-money implied volatility term structure. And I know that sounds awfully complicated, but think of it quite simply as what we're looking at here is trying to look out further in the future as to identify when people could see potentially an area in the calendar of potential volatility forthcoming. So generally speaking, if people were a bit apprehensive about the request or not of an extension and the risk of a no-deal probability materializing, you should see this reflected in this volatility curve. And at the moment, what this curve would suggest is that the market is still relatively complacent about the idea then of that happening, i.e., Brexit, you know, two sides not finding agreement the UK not buckling and asking for extension, and the real tangible prospect then of already on the back of an economically devastating period of the pandemic, you're then going to throw in the idea that we could have a no-deal Brexit to boot. Now, I actually see that as an unlikely scenario at the moment. I think the UK government has the political wiggle room to blame the pandemic for the, the not delivering Brexit to the timetable they previously said, but You know, what ING are saying is that on previous occasions, there was basically, um, 6 or 7 weeks before the October 2019 Brexit deadline, the March deadline— these were the previous deadlines— there was a distinct pickup reflecting that about 2 months ahead. And if you think about it, end of June is about 6 or 7 weeks away, and the volatility curve does not show that type of hedging for the potential pickup in volatility in the pound. Now the secondary one here is then you can also overlay that with looking at the cable speculative positioning as a percentage of open interest. So again, in plain English, how many people are long and how many people— how many people are short in these open contracts? And generally speaking, then that's fairly neutral. It is very ever so slightly negatively positioned but nowhere near as much as on previous occasions on this Brexit kind of narrative. So there's plenty more, I guess, sterling short positioning potentially to take place over the next, next 6 to 7 weeks is what I'm saying. If that comes alongside this continued pushback against negative rates, and as long as equity markets remain stable, and then if the US government comes forward and the Republicans are able to tweak and then pass another sizable stimulus bill, you know, I think you could see some interesting moves in cable with the risk being to the downside over the coming weeks. Okay, that is, that is pretty much it. So just finally, at the end of the macro menu, you'll find a full economic calendar. Today is pretty quiet overall. We've got a couple of speakers, Bostic, de Coste from ECB, the Fed. And then you've got Bank of England's Tenreyro speaking on Monday. Um, Tuesday you do have a few different things. Probably the interesting one could be Fed's Powell testifying the Senate Banking Committee on Coronavirus Aid Relief and Economic Security Act. Uh, from an earnings perspective, it is pretty quiet. You get the kind of brick-and-mortar retailers out the US this week. So you've got Walmart on Tuesday, Home Depot, and you've got Target on Wednesday. Um, on Wednesday you do get the FOMC minutes, probably the highlight on that, on that day. And then Thursday you start to see the various manufacturing service PMI numbers alongside some housing data coming out the States. And you've also got quite a few Fed speakers as well— Williams, Carida, and Powell once again, with Bank of Canada Governor Poloz also speaking on Thursday. And then on Friday you get the European-based manufacturing service PMI data, that UK retail sales number as well. So yeah, if you want to check that out in more detail, I'll put the link to this report in the top line of the description on the video. It's got Sam's video on the trading setups as well, so it's your one-stop shop for everything you need to kick off the week ahead. Any comments, of course, just feel free to, to drop a comment and I'll be happy to respond throughout the day. And otherwise, remember to subscribe to the channel, and I wish you a good week ahead. Thanks very much, guys. Take care!