Well its been coming right? Markets have been ignoring the macro tensions but the reality is that deep down, we all knew China wasn’t going to stay quiet for long. The US had been threatening China for many days now and China retaliated with the same stone (they ordered the US to close their consulate in Chengdu). Asia traded lower as a result (Hang Seng closed down 2.2% on high vols – +34% vs 20d AVAT) and European equities didn’t have any other choice other than to follow. All indices and sectors are down at least 1.2% (Oil & Gas the only exception up until recently –  helped by Equinor’s messy Q2 beat,  EQNR NO +4.5%) and we are seeing some conviction to the move with higher volumes across the board. Note the Stoxx 600 is heading for its first weekly decline in four (down -1.3% vs last Friday’s close) and somehow disappointing, the DAX is back trading below its psychological breakout point of 13000 (next support 12000, then11600).

Although it looks like todays earnings have slightly boosted EU equities throughout the morning, we should consider that it has actually been a quieter day overall. Volumes remain low across the board with not a single index trading above their AVAT. Feels like investors are taking a bit of a step back, mainly trading around numbers while leaving the macro tensions aside (for now). One thing to note is the Stoxx Growth/Value (STGP/STVP) –  growth made a new all-time relative high earlier today. Also keep an eye on the VIX, which has been ticking lower since yesterday – key support at 23.54.

I have been off for the past two days getting some Vitamin D! Seems I missed the EU Bill finally being signed and a few earnings but not much else. European equities pretty much flat vs Friday’s close with the Stoxx 600 currently +0.1% and the Stoxx 50 +0.3%. Germany still the clear outperformer (DAX up +1.5% vs Friday’s close, still holding above 13000 and it made a new all-time high vs SXXE again earlier today) and the UK remains the laggard (FTSE -1.2% Fri close too). We are seeing lower volumes across the board so hopefully tomorrow’s busy earnings session motivates investors a little more.

Nothing like a breakthrough to trigger a breakout.

Last night, the EU Council managed to put aside differences and come to an agreement over the Covid Relief Fund structuring. There were no surprises in the make-up with €390m in grants and €360m in low interest rate bearing debit. The deal is foremost a win for the integrity of the European Union. Peripheral Banks are outperforming strongly today, as are risk assets generally. European indices have broken their recent ranges to the upside, with the DAX, SX5E and FTSE MIB all above their June highs. While the announcement has certainly boosted sentiment, our house view remains that this crisis will need more debt mutualisation. We also believe that the fundamentals of the euro is an impediment to successful stimulus of the periphery economies. Note that the euro is trading marginally weaker vs the dollar today.

If a watched pot never boils, does a watched EC never come to an agreement?

After a weekend of long drawn-out discussion, we are beginning to hear positive murmurs around the Covid-19 relief fund emanating from the continent, though no tangible agreement as of yet. It seems that the ‘Frugal Four’ are softening their stance around how the relief package is funded, with an apparent agreement of €390m in grants, and the remainder facilitated by low-interest loans. As mentioned, the deal is not over the line yet, but there is a chance we get further clarity after they resume talks from 4pm today. We see peripheral banks as one of the main beneficiaries of an agreement, as well as risk assets more generally. The Euro climbed to an 18-month high against the dollar earlier as well, however has since faded slightly.

Oh my – what a roller coaster ride it’s been! We literally spoke about every possible scenario throughout the week and although EU equities are trading pretty much unch today, we are still set to finish the week just about up (SXXP +0.4). For the bulls out there, worth noting that the FTSE MIB made a new 3m rel high and managed to close above its June high yesterday. It is not quite yet through the June peak of 20399 but it is for sure getting close (last at 20358). The DAX is currently trading above its June highs of 12913, next resistance is at 13000. And for the bears, I will give you volumes. Despite seeing better vols than yesterday across the board we still do not have a single one trading above its 30 day AVAT. It remains very quiet. Elsewhere we have the EU summit kicking off today. Emmanuel Macron and Angela Merkel have both signalled that a deal is not likely until the end of the month so let’s see if that changes throughout the weekend.

I can’t help but draw a comparison between the market these past days and the bumpy journey waiting for the cricket ball in England’s upcoming test vs the West Indies. It’s going to get thrown in all directions, probably rained on, pounded into the ground and smashed beyond the boundary into the stands (causing sadness and happiness depending on your side). By the time day-5 comes, pause for breath, because next week we will do it all again!  

After a few days of discussing market positioning and factor rotations (what bliss!), COVID and the hope of a possible vaccine has bullied its way back into the spotlight.

As I’ve occasionally been known to exclaim on the desk…Holy Moly! So much to talk about all of a sudden but, unfortunately, not much of it positive. The Nasdaq clearly the main story – it rallied 2% to make a new all time high and then closed down -2% overnight. The last time this happened was in March 2000 (I was 6 and probably learning how to ride a bicycle back then!) so lots of people debating whether this is the beginning of a summer rotation? Plenty of moves showing us a parallel with the Dotcom crash of 2000 (Tesla up +50% in the past 10 days – irrational exuberance anyone?) and although our charts team conclude it is too soon to call it, this is something that we will be watching closely in the next couple of weeks. Summer time is always a tricky time for a major change in market themes hence lots of nervousness (or even excitement?) around it today.

Well someone out there definitely likes Mondays. A very similar start to the week as we saw last Monday with markets around the world better bid. Again China led the way (CSI 300 made a new 5year high – see chart below). Again though, not huge amounts of conviction to the move. Volumes quickly faded as the market drifted and are running at c10% lower than Friday and down 25% on the 20 day average. EU indices remain in the well-established ranges and Germany remain the winner – the Dax making a new all-time high vs the SXXE this morning.