 All right, very good morning Thursday the 9th of September. I hope you're doing well I'm gonna focus predominantly on the kind of news and fundamentals this morning rather than the charts from a technical perspective A few things definitely I want to get my teeth into which is the growing pessimism among some US major banks about the Direction for US stocks going forward. I want to talk about Asia. We have some inflation data overnight Chinese PPI 13 What are the implications for that for the stickiness of US inflation and why is that not impacting? Consumers in China. I also want to talk about the Fed as a whole batch of Fed speakers this afternoon And it comes on the coattails of what we heard from feds Williams yesterday And we'll have a look at his comments because they're particularly important because he was speaking explicitly about the economy and policy And he is very closely aligned with the Fed share Jerome Powell a lot of focus of course on More details on tapering. We also had the feds beige book last night. We're also going to talk about the energy market We've had the delayed release of the API infantry's last night We've got the DOE's obviously this afternoon Nat gas futures trading a seven-year high and why is that happening we can discuss and then of course we've got the ECB Interest rate meeting and subsequent press conference with Christine Lagarde as usual with also their latest economic Forecasts so all of that coming out later on today, and we're going to discuss a little bit more at length But let's just have a quick review of the charts as they reside this morning dollar index pretty much unchanged That's reflected in the major pairs top left both trading in euro dollar and cable pretty flat US 10 year the same as far as other Products the equity index futures Marginally lower however, just gone through 7 a.m Slight bounce off their lower levels does come after a lower close on Wall Street And what we saw was the S&P and Dow finishing down point 1.2 percent each respectively a little bit of underperformance in the Nasdaq 100 down point three five percent But yeah pretty pretty steady this morning overall not too much to talk about from a sentiment perspective right here right now So let's get straight into the headlines and let's talk about this Bloomberg R score that came out yesterday Now we're talking about investment banks turn sour on the US equity outlook and two names You can see cited here being Morgan Stanley and city group And as I always say you know if you are a student and you're applying to these banks or indeed Preparation for interviews. You definitely should know what the house view is for these types of institutions It's going to it's going to definitely give you a little bit of an edge in Understanding their view as well as constructing your own so city group strategists. They've said that positioning In particular has become ultra bullish and what they're talking about is longs on the S&P? 500 outnumbering shorts at a ratio of 10 to 1 which is pretty extreme And it means that half of those bets are likely to face losses according to their calculation on a drop in the index of as little as 2.2% and even a small correction could be amplified because of the notion then that it would create forced Long liquidations you could see that kind of very quick unwinding in markets that could promote then on any one day quite a significant drop Morgan Stanley they've slashed US equities to underweight and global stocks to equal weight on Tuesday Citing outsized risk. They called it going through October. It's not unusual I've seen a lot of Wall Street banks saying a similar type of thing about a near-term perhaps Spot of weakness before then we resume the upward trend the upward trend generally has been fairly one-dimensional So some would suggest that perhaps it's a little bit overdue anyway credit Suisse the final bank They said that it maintains a small underweight on US equities due to region reasons such as extreme valuations and regulatory risk as well They also Morgan Stanley noted which I thought was quite interesting from an analyst who works in their Cross asset Division he said we're going to have a period where data is going to be weak in September We've already kind of seen that right in US equities where the rate would be the jobs report But more broadly US kind of the idea of the peak recovery these sorts of things We've we've seen clearly evident in US economic data in recent weeks Went on to add that there's heightened risk of the Delta variant which we know across Pockets in the US but that again exacerbated somewhat by the fact that we're going to go into the seasonal school re-opening as well in the US and obviously the Possibility of further greater transmission of the Delta variant of course, so a couple of things that I thought I'd summarise Again, if you're a trader you need to take this all with a bit of context, of course This doesn't mean that right. Let's just pile in today and and reassert short positions I mean the market has been drifting lower throughout the week and so, you know technically I think the S&P perhaps it's trading at the moment on a daily chart below quite a key area of support So it's on the south side of that which does give some scope perhaps for a deeper move But overall, I think it's just to be aware of I don't think anything that's being said is particularly new information And we saw Goldman Sachs come out with a note downgrading US GDP a few days ago Again context is super important Goldman's were always more super bullish on the vaccine rollout and the impact that would have on the economy and them Downgrading growth forecast is actually them coming back in line with the street. So it's not quite as bearish as it might sound on the surface But let's move on. There's a couple of other things here that I wanted to talk about One was this idea about seasonality in September a lot of people were talking about that of course going into the month Bloomberg kind of featuring it in this article talking about these pessimistic bank comments September is the worst month of a year for stocks in the last two decades You can see here kind of negative months over a 20-year period would be February June and September being quite clearly the outlier Which is the worst which on an average basis finishes down 0.8% as far as the S&P's monthly changes concerned Again, good thing to do when I you know when I look at this sort of thing the first thing I think being curious minded is So what's the deal with September? And so I thought I'd share is yeah Yes, that the everyone's best friend Particularly if your student investopedia, but they had a couple of good points about the explanation for the September effect Which I thought was quite interesting So importantly the September effect is not limited to just US stocks So that's point number one is associated with a phenomenon that happens associated with all global equity indices Most analysts considered a negative effect on the markets to be attributed to seasonal Behavior biases now a couple of things to be aware of there Another reason could be that most mutual funds cash in their holdings to harvest tax losses Another particular theory points to the fact that summer months usually have light and shade volumes and so then when those market Vacationists come back then in September They kind of come in and start to readjust then more actively their portfolios And then once the fall season begins those people who are on holiday exit positions They've been planning on selling When that incurs obviously increases the overall market selling pressure and then finally many mutual funds experience their fiscal year End in September manager or mutual fund managers on average typically selling losing positions before year end The trend is another possible explanation behind that September seasonal bias So there isn't kind of one thing, but all of those factors just mentioned seem to make quite logical sense and something to just be aware of All right, let's jump elsewhere geographically and talk about China Why well we had some inflation data overnight the latest CPI number came in at 0.8 percent Expectations were for one that the PPI perhaps as per the headline the more interesting China factory inflation surging to add pressure to global prices and that year-on-year PPI number came in at 9.5 percent Versus an expected 9 percent that does mark a 13-year high Interesting points here that Bloomberg points out. Let me run you through it China's exports to the US through the end of August are up by a third compared with 2020 the boost to US demand from stimulus recovery combines with Rising commodity costs and faster factory prices in China to drive up the value of goods trade Now here's an interesting graphic. So this is looking at the white line I did share these on my Twitter account if you wanted to review them in more detail these graphics by the way The white line is Chinese producer prices So as you can see just peeking up here nine point five percent We saw overnight we're then looking at the blue line, which is import the US import price index specifically for goods from China ticking up and therefore Consequently the pass-on effect then the trickle down on what that then means for US consumer prices Which we know elevated up at around the five percent mark moment, you know The other thing here that's it's interesting is in addition to what I've just mentioned The you've also got shipping costs have soared due to container shortages Shuttered ports remember particularly that main one in China because of covert outbreaks We've been seeing amongst other factors have all been adding to the cost of moving goods From China to the US or elsewhere and so as producer prices are going up That's then causing import prices for the US to China to increase and subsequently then does give that bit of a Further support and evidence to the fact that US inflation might be that little bit more sticky than perhaps this full transitory pullback In terms of how far that argument has gone back and forth over recent months again I would say the transitory effect outweighs the sticky nurse But it does mean though the inflation is not just going to disappear overnight and hence the rationale why on these Factors alone the feds probably right to start tapering Before year-end The other thing here though is having a look at China in itself interestingly The gains in PPI are not being passed through to the Chinese Consumer inflation reading the CPI and but we've got very big divergence typically between PPI and CPI Now the reason behind that is that the consumer price inflation is remaining subdued due to lackluster demand Remember there has been COVID outbreak Through many provinces in China There's also falling food prices There was some time ago that whole kind of African swine flu cull of pork in particular which is causing price to be very elevated So from a year of comparison it's down quite sharply and also drop on travel services As I mentioned after the government imposed stringent controls to curb the virus outbreak through the month of August She further amplifies that division or divergence in those numbers So that's hopefully explains a little bit about context of China What they're confronting at the moment? Implications for US inflation, but why that isn't actually feeding through into China in itself Also where overnight in Asia It's probably worth being aware of the fact that the Hong Kong the Hang Seng actually underperformed down over one and a half percent But the mainland stock index was relatively flat now the Hang Seng has a lot of tech names in particular And names like Tencent came under some quite significant selling pressure overnight again after the government and cyberspace regulator summoned gaming companies to instruct them to implement measures Against gaming and entertainments of putting pressure on them to do as the government is saying otherwise the government literally warned of severe Punishment for those not implementing regulations whatever that might mean All right elsewhere. I did say there's a lot of Fed speakers coming out later So first things first let's get up to speed was what feds Williams This was kind of one of the things I highlighted on Monday for the week ahead to be watching out for on Wednesday He said assuming the economy continues to improve as I anticipate could be appropriate to start reducing the pace of asset purchases this year I will be carefully assessing the incoming data on the labor market and what it means for the economic outlook as well as Assessing risks such as the effects of the Delta variant. So overall, I'd say that's very balanced Very much then the status quo of what you'd expect from Jerome power himself and someone aligned with him Such as Williams in that kind of small center ground position So certainly nothing near as hawkish as the likes of Bullard and Kaplan and all of those guys And I think that still speaks to the core of the Fed message at the moment And certainly why as we discussed in previous briefings, I don't think it's going to be a case of seeing tapering beginning as soon as next month The other thing you had overnight was the feds beige book So very briefly the beige book is this regional representation of the 12 reserve districts across America and essentially it gives you a health check of these different locations and US economic growth downshifted slightly to a moderate pace in early July through August according to the beige book kind of top-level summary The deceleration of economic activity largely attributed to a pullback in dining out travel Tourism in most districts. So again, this is all reflecting those safety concerns to do with the latest outbreak We've been seeing over that period of the Delta variant in the US. So nothing too surprising there Fed speakers though continue in earnest today. So just brushing aside the guard for now Later on this afternoon, you've got feds Evans and feds daily both who are voters speaking at just after 4 p.m London time and you've also got bowman a voter and Williams again at 6 and 7 p.m respectively and then you've got Kaplan Kashkari and Rosengren at the closing Wall Street So at 9 p.m. London time So a whole load of feds speakers to keep an eye on today and of course just sensitive to the idea about any details on tapering On the speaker front while we're here, obviously Christina guard later And you've also got bank of Canada's Macklin speaking as well later on late afternoon Um quick look in the energy market. I just thought I'd mention this. This is a multi-year look at natural gas futures And the reason why I've brought this up is that we are as you can see here this dotted line We've just yesterday got our heads above the peak in late 2018 Which puts us at a seven-year high amid escalating concerns about tight supplies heading into the winter Heating season. I remember we're going into September now and towards the fall And a confluence of production and processing disruptions are running headlong into robust demand For the fuel in some of the world's biggest economies and This separately the other thing is in the u.s Sector of Gulf of Mexico About 78 percent reports are suggesting of production remains offline More than a week after offshore crews fled for safety concerns because of hurricane Ida at the time's arrival Meanwhile, European energy executives are warning of a difficult winter as already tight supplies are stretched By post pandemic economic Reopening this as well And this is all fueling this latest uptick that we've been seeing quite aggressively In natural gas futures of late Away from that in the energy complex You also had the delayed as per usual due to labor day holiday api inventories Um, I think really not that interesting to be honest um, perhaps the gasoline number A little of a standout we had a build there of 6.4 million expectations were for a draw of 3.6 The headline not too dissimilar from expectations a draw of 2.88 million And of course we'll get those dobs later No real definable impact really on the price of crude oil Which in context still trades up close proximity to Is weekly high at the moment And trades are flat this morning 6940 All right to finish things off just a quick word on the ecb The market Certainly has recently been a little bit more doubtful on the ability of the ecb to remain Very much of a dovish disposition and the reason for that It comes in the context for one about a lot of central banks talking about tapering Of course led by the narrative coming out the fed And also we've had a couple of other things specific for the ecb. One is we've had a Rising eurozone inflation seen the other week to a level much higher than many were anticipating Secondly as a byproduct of that we've had a number of kind of more northern based geographic Eurozone nations so typically your germans austria nedlands talking about this idea of sounding much more hawkish And and playing to the tune of the at the moment. We are seeing excessive monetary stimulus ING analysts they expect the governing council will try to keep any tapering speculation at bay And I think that definitely is an important thing for the guard to Kind of convey today because she definitely doesn't want to spook the market And should refrain from front loading of asset purchases, which would would likely be interpreted as a de facto tapering So a couple of things the meeting marks the beginning of a crucial period of course for the ecb And this is why that whole bomb buying question is emerging Is because that 1.85 trillion euro envelope that was created in order to then counteract the covid-19 crisis Is on track to expire in march So Unlike the fed which is generally unlimited and open-ended with ecb to have a definitive deadline As we've discussed before a lot of times this is how monetary policy works It's very much sending the signals now in september For something that's actually not finishing in march because the journey to get there the communication forward guidance needs to start now In order to make sure that markets can cope with the withdrawal of stimulus in the future Economists polled by bloomberg still expect the ecb because separately we're going to get forecasts So economists still expect the bank's upgraded growth projections for this year while keeping those for next year 22 and 23 Roughly unchanged. They also said the inflation outlook will likely be revised up for this year That I don't see it will come as any surprise given the figures we've already seen um, and so As per usual i and g have issued their normal Kind of bingo card crib sheet Really useful, of course to determine the kind of what is the base case What needs to be said on things like inflation growth rates qe taper these sorts of things And what combination of these might constitute a more dubbish i.e. Euro weakness or hawkish euro strength type move And so again, I tweeted that if you wanted to have a look at that table in your own time um, all right, but Other than that quick jump back on the calendar The only other things to mention are from the us this afternoon. You've got your regular us jobless claims coming out um, and That is it so going to leave it there let you guys get on with the day Hopefully that was interesting and useful any questions at all feel free to leave me a comment If you're watching this and you're not subscribed to the youtube channel Really appreciate it if you hit that subscribe button Turn on the bell icon and you'll get a notification every day when these videos go out All right. Have a good day and good luck