 Okay, very good morning to you. It is Wednesday the 3rd of June. Hope everyone is doing well Just a reminder before I begin don't forget to like and subscribe to the YouTube channel lots more content coming Seven days a week from me and the rest of the team But just having a look then across the charts and as you can see this morning another case of relative risk on Equity index futures higher. We had a firmer close on Wall Street that Dow futures already up another hundred and fifty this morning the DAX trading up a hundred and seventy five But it's all one in the futures Consequently gold down about seven dollars teen notes down five ticks oil up a dollar So who despite what you're reading in mainstream media, which is kind of these ongoing size of protests in America And also reflected across some other parts of the Western world as well as the ongoing risk of coronavirus in a second wave at the moment market appetite remains fairly Optimistic in terms of a risk perspective and equities continue to move higher So yeah, that's the main kind of theme of this morning And I guess one of the questions I've had I woke up I had a few people just asking me on on Twitter so my handles there I mean feel free to follow and obviously ask me questions if you ever have any But questions about why are we continuing to rally? I think it does feel a little bit unusual because it almost seems counter-intuitive to the move that we continue to see and I Guess one of the things here Let's just make the S&P chart a little bit bigger to really put this into a bit of perspective I was looking on a daily chart here And obviously this was the the big sell-off that we had when we peeked around all-time highs in February And then we got to the the route on the March 23rd low Which was this huge sell-off on the pricing in of the the implications that the pandemic was going to have not just on the US But the global economy But since that point obviously we've had just this amazing rally And if I actually look from a percentage point of view now from where we were at the bottom to where we are now We're up about 42 and a half percent Technically now, I mean we're trading in the futures in the S&P. I'm looking at here 3090 Obviously if this trend continues, I don't really see much in the way of obstacles until we get up to around 31 1314 which would be around those highs that we had on the 5th of March and also some area of relevant Support and resistance around the Q4 of last year anything above there Well, then that starts to bring in you can see that wick high that you have in the 26th And that also the low on the 8th of Jan As well of this year, which would be a 3180 so on the road to 3200 once again Above that another interesting level would be those lows that we had the bounce late Jan and also a support area From early January as well of this year So this all contingent of course that all things remain as they are at the moment But I guess the question is is, you know, why are we seeing this this kind of Ongoing trend here despite these obvious risks on the table that people keep talking about and particularly now with things like the riots Obviously, I myself have talked about the potential In the future for risk of further transmission of the virus given the lack of social distancing obviously when when you're having a protest As well as other factors that might be risks such as the trade war Escalation that we've had so kind of I guess listing out these reasons There are a few and if you mean I talk about the risk of secondary waves Don't forget that has not materialized as yet. I've seen a few people using say Iran as a bit of a reference point I believe they had 3,000 cases Reported yesterday, which is kind of right back up there at the peak and they're they're kind of Bar chart if you're looking at cases has kind of gone phase one and phase two is almost mimicking the same as phase one I guess that would be a bit of a litmus test of maybe authorities not managing that situation In the best way that they possibly could have done but in the Western world at least it's continue to remain Cases plateauing in aggregate and compressed in some of the hardest hit areas So talking about the US and generally the UK and mainland Europe Italy Spain so on The other thing is manufacturing gauges have showed a degree of economies somewhat stabilizing We saw that in the Chinese data Yesterday we did have some Chinese data overnight. This was the case in service PMI and it was up sharply in May and Of course this comes after the reopening of their economy It was the largest expansion and nearly a decade for this data set to rebounds the steeper since October of 2010 So all of these things here are helping the narrative But probably underlying the main crux of the matter of what supporting markets of course is The dual fold mechanism of fiscal and monetary support. So from the government side, they've obviously fired a lot trillions in fact into the Global economy in order to counteract This downturn from the coronavirus and that's not stopping anytime soon Obviously the US going through various talks about potentially more Kind of fiscal stimulus and the same happening a second package was being discussed in Germany from Angela Merkel yesterday But then also you've got things like the ECB tomorrow where much like with other central banks The ECB is going to go that extra step further The likelihood is they're going to top up their quantitative easing program by a further 500 billion And so these are powerful forces underlying this general confidence in markets looking beyond the risks that are clear and apparent now and thinking about the Pricing in of the economic recovery that might come in future. Obviously When pricing the future that outlook though is subject to change. So don't get me wrong things can change But again, these underlying reasons of why Stocks are continuing to rally Also yesterday as a kind of footnote. We had oil prices again. You can see down here at the bottom oil continues to rally You know, it's so interesting looking at oil prices now. There was a chart here Don't if you remember about two weeks ago I shared this chart and I had marked up and the reason why I'd shared it is I was looking at this trend line of Which at the time we had broken and it was the day after when we had printed on the candlestick Managed after we broke it we retested that trend line but closed above it importantly I thought and I drawn this arrow of what I thought the future price activity might be in Yeah, it couldn't have gone more to what I was thinking in that respect and really It's hard to see now much getting in the way of us getting to the psychological Kind of $40 handle, which isn't too far above and that would also bring into play then a full reversal of where we were Around $41 looking on a daily continuation here from when we had that initial Kind of fall out where OPEC plus had that meeting. You remember the beginning of March They failed to make an agreement that was when the Saudis retaliated talked about flooding the market under pricing Competitors for new customers and that was when we are then eventually had that big Kind of pushed down into negative prices on that whole cushing storage issue in the futures market But since then we continue to recover I'll talk about all a little bit more because I do feel like oil is I Think technically yes, there's some further room and other three or four dollars on the upside I don't think would be unrealistic particularly if the general risk appetite remains as it has been But there are certainly some expectations now for oil prices built around this upcoming OPEC meeting that we need to be aware of which I'm going to talk about in a moment so yeah oil prices obviously moving higher that kind of assists the general kind of Risk appetite obviously that that very fleeting moment of people panicking about the negative price of oil which Realistically yes in some ways it it it was a reflection of severe kind of misplacement of fundamentals in respect of the Destruction of demand through the coronavirus and the the massive economic impact the virus has had also Just generally the oversupplied nature of the market with all of these competing producers who Or have their own agendas Russia Saudi America so that that created and and it was a true move lower, but then You know the mechanics of the futures market and the storage issue Is what created that that one week of volatility and oil but you know that ship sailed and left town a long time ago So that that again is off the off the table for the moment and then from brexit point of view You know cable does continue to remain pretty solid at the moment. You know, we're up there one Close to 126 handle the Dixie a little bit weaker than this morning the currency market So both major pairs on the front foot But obviously we heard yesterday that the potential compromise on brexit and this is a kind of a another Macro topic that's a little bit being on the sidelines In the shadow of the coronavirus and obviously the trade war But that is important because there's a deadline moving as we know at the end of the month Johnson according to reports will be told where the EU could potentially make concessions When him and their European Commission president meet in the coming weeks But that's as long as the UK takes a similarly Concillatory approach, but overall some kind of lukewarm signals that there could be some Degree of coming off these kind of firm stances and meeting in the middle somewhere So yeah, all of these things are a positive short-term and what does that mean for the currency market? Well, you know, this is something I wanted to look at and You know traditionally when people look at markets they tend to think of They tend to oversimplify things like a little bit in a sense that they go, right risk on you're buying equities and then risk off You're looking at, you know, potentially strengthen in the yen, for example And so from a currency perspective, you're thinking about a flight to quality and things like the Swiss E the yen But actually the dollar has been quite a good barometer of risk sentiment Just looking at a chart here dating back year-to-date of the Dixie and You can see here quite a distinct and clear pattern. There was this Big rally that came in March and if you overlaid that with the equity market, it would be the complete inverse relationship So as equities were selling off dramatically, the dollar was strengthening dramatically And although that might sound a bit strange, you might think well the US economy is going to get hammered here You have to think about in broader global economic terms This is the global reserve currency and so in times of extreme strife like that people would flock to the dollar in terms of it being the in some respects the greatest store of value comparative to the depreciation of other currencies in respect so the Dixie rallied aggressively here, but one of the things at the moment is that you've been seeing a Reflection of when equities have been moving higher generally the Dixie's been moving lower and vice versa and this morning Another case in point. Dixie is down about a quarter percent. Major pairs are up T knows it down gold is down equities are higher again And so yeah, I just thought it was quite interesting to see here then about what does this mean for other? currency pairs and started looking at the euro dollar last night and Just want to bring the euro dollar chart into my screen. So just bear with me one second here So this is your dollar and I'm going to switch it over to a weekly chart So obviously when I put it on a weekly candlestick The access you're looking at the bottom goes back to 2016 17 1819 20 to where we are at the moment. So this is bringing in a multi-year view and You know one of the things here I was looking at last night was a note out of Deutsche Bank and Deutsche Bank have said the broad nature of dollar weakness highlights the unwinding of the risk premium that Substantially benefited the reserve currency. So as we were just describing They've said the dollar should be about 10% weaker in narrow trade-weighted terms To fully take out this risk premium that was priced in so again if we go back to what we're looking at with a Dixie You could argue that if we go back to where we were and obviously we're trading around a 97 and a half in a Dixie at the moment Well, we could get back down to sub 95 at this point in time obviously if that's happening the dollars weakening well by default then euro dollar pair is moving higher at this point and For Deutsche Bank, they say that so far that move then Remember they said the dollar should be about 10% weaker in narrow trade-weighted terms to fully take out that risk premium They say the move at the moment has only been about 3% So put those together then there's still some more room to run over the medium term and their forecasting DB The euro dollar could go to 115 now 115. I've marked up here This would be this area. So if I just put a rectangle around what DB are looking at is here This would push us right back up to those March 9th highs At this point before we get there though There are certainly we're coming up to a fairly interesting point as we trade a 112 handle now So looking on the weekly 112-44 was that weekly high that we printed on the week of 16th and also resistance on in the end of December of 2019 we kind of close to it again during the October period has been a Numerous occasions. It was acting as support as well over the case of Q4 and Q1 of 2018-19 respectively So quite a key level coming up there on that horizontal just to keep an eye on but then, you know, do we come up? Kind of got this trend line here as well that I'd be keeping now But then you can see the significance of the 115 obviously psychological at the handle But then that was a key top for price activity in March and June of 2019 Also, you can go all the way back to 2016 It was a real firm area of resistance that then saw Eurodollar come Sharply lower in the in the 12 months thereafter. It's also added support before so yeah Just looking on a slightly longer time frame And about these these kind of views obviously from an ECB point of view the ECB you're going to be out Adding more stimulus in a form of more quantitative easing But at the moment, you know a lot of that is priced in don't forget if the ECB do not deliver on Stimulus tomorrow, it would be an absolute shock And so at the moment the euro dollar price that you're seeing in front of you on your screens is the real price. It's moving higher That's the markets already priced in that additional stimulus at that point. So Again, the risk appetite. It's a bit strange at the moment. It's more like the increased Assistance by the authorities whether the central bank or government helps assist the economic recovery which helps Economic risk sentiment globally which then typically sees an unwind of the risk premium in the dollar And that's lifting those dollar-based currency pairs at the moment I know it's quite quite a lot to take in but hopefully that makes a bit more sense The other thing as well I did see last night that I thought was quite interesting was this This is a graphic by the FT and It's looking at all streets performance. So the S&P 500 total returns percentage And it's looking at the performance down plays civil and political unrest So one of the things I'm quite interested in was just looking at a bit of kind of most backtesting of any other Previous time in his recent history that we've had some kind of civil political unrest and what type of impact is that then had as a consequence on the S&P 500 over that given year and This of course comes after we've had thousands of people marching in protests in New York and Los Angeles last night This comes irrespective of those curfews in place and doesn't look like any time soon that that's going to tail off So there's five different examples here some you might be more familiar with than others but Occupy Wall Street was a protest that happened in 2011 much more smaller to than compared to some of the others I'm about to describe the other was the Clinton impeachment And so this was the kind of period there of the we're looking at the late 90s Then you've got the LA riots that would be 1992 And then the Martin Luther King Kennedy assassinations of 1968 now these were all times of extreme Kind of political unrest some of them particularly 68 obviously being more in regards to a race issue Similar to what we have at the moment But as you can see here the percentage return on every single one of these occasions has been positive if not very positive illustrating then how equity prices reflect a focus on underlying economic and corporate earnings Narrative at the time rather than societal and political upheaval so Is this going to be any different? I Don't think so. I don't I don't think At the moment at least the massive support and it is massive from the Federal Reserve Fiscal stimulus from Washington is putting confidence in the the ability for the economic recovery The only you know the real risks here are as I said before I still think it warrants quite a lot of vigilance to look at these Corona virus cases as we go through the next week or so I've said this before I'll say it again And then of course you've got to keep an arm of trade war, but you know when it comes to the trade war Yes, it has escalated, but I guess it's one of those where We kind of end up in that same situation again. It's almost self-harming in a way particularly in a political Campaigning year when the economy is already depressed on the back of a pandemic for Trump to really push it too far so yes, he has to have an anti-China rhetoric in order to Cultivate his base into an election, but he knows for a while that he's got to manage it in a certain type of way And as we've seen many times before that infinity loop of kind of the trade war cycle You know, are we just going out of the negative we go back into a positive phase Well yet to be seen so yeah a couple of interesting things that I thought I'd cover Final things then are in oil Oil as I said this has been moving higher, but I'm getting a little bit of deja vu to be honest because Doesn't matter how many times OPEC say something and don't deliver and then they say this and they change it to that people still generally buy into what they say and You know, this isn't just oil moving on the back of expectations that OPEC plus are going to roll over their existing supply cut There's obviously as I've said You know a bit of a bounce back in some of these indicators particularly in China that their economy is stabilizing On the manufacturing the service numbers were pretty strong overnight. You know, these other factors are helping but Whether or not we have the meeting this week brought forward or next week The consensus at the moment is emerging around proposal to cut or to extend the cuts for one month Saudis are still pushing for three But the talk of the town is at the moment if they can get Russia still on board Which of course is imperative for the cuts to have any type of impact Then it's more likely to be at the lower end one month but yeah, just given the the kind of The move that we've had consistently higher in oil I do think that perhaps It could be one of those where an extension of one month becomes somewhat of a disappointment just given the fact that it's kind of By the rumor sell the fact type price activity because as per usual, I'm sure there's going to be some real Speed bumps along the way that isn't going to make this smooth sailing in order to get a Saudi russia compromise at this point It's something to just be aware of API oil if entries came out last night Obviously, this comes as the front run for the the DOEs this afternoon The crude headline figure was a surprise drawdown. So again another factor just helping support prices in the short term at least intraday Cruder drawdown of just shy of half a million expectations were for a build Of 3.5 million cushing and draw 2.2 million gasoline build 1.7 million. They're still at 5.9 million Looking at the calendar for today What have we got? Well, all of these service PMI numbers These will be the eurozone final readings. So probably not too much in terms of market moving potential We do have some german unemployment rate and change Coming up in just over an hour's time or so perhaps worth keeping an eye on the unemployment rate in germany expected to tick up To 6.2 for 5.8 percent got a range of 5.9 to 6.8 Uh the uk service PMI Final reading that's coming out as well a bit later This morning and that'll be at 9 30 and then you got the eurozone unemployment rate at 10 o'clock The focus then in the u.s. Session turns towards the build up for non-farm payrolls. Of course that's coming on The jobs report on friday. So today we get adp Adp is expected to show another quite stark negative reading The expectation is for minus 9 million the range minus 12 million at the low To a high most optimistic way of just minus 200 000 But remember minus 9 million in private payrolls is a pretty huge number But is actually an improvement because the prior month, of course, we had a loss of 20.236 million of jobs So something similar that we're anticipating there for payrolls So an accumulation Unemployment rate obviously is going to go up on a median basis up to expectations are just shy of 20 percent But a bulk of that had already come In the april reading remember in may part of the us economy had already started reopening Hence the numbers not going to be adjusted or not as dramatic in that sense Otherwise then other than adp you get the US factory orders coming out at three o'clock you get ism no manufacturing PMI as well You've also got the bank of canada interest rate decision Rates expected to be left on hold at 0.25 percent, and then you've got the oil inventory numbers in the afternoon So that's it. We're going to go any further than that. I'm going to let you guys get on with your day Any questions, please feel free to to leave a comment on the video and remember to subscribe to the channel And I'll see you guys tomorrow. All right. Thanks very much