Are Markets Too Complacent On UK General Election Outcome?

OK, very good morning to everyone. It is Wednesday, the 27th of November. So everyone's doing well. I'm going to talk about a few different things this morning. Going to talk about some Chinese economic data from overnight. We're going to talk about the reason why equities keep punching up to fresh all-time highs. Record again in terms of the S&P. It's continued to move higher in the Asia-Pacific session. We've then got an update from Trump on the trade deal. We've got a few polls that we can look at and a few thoughts there to potentially share with you in terms of going forward of what I think about the British pound over the coming weeks into the run-up to the election. And then as per usual, I hand you over to Sam and he can look over the charts from a technical perspective. Perspective. But kicking things off, just having a look at the overall market sentiment, and it is relatively quiet. It's almost like we've just continued this grind, as it were, in equity index futures. Just looking at the S&P 500 here, so following on from the positive close on the Dow last night, we finished up around 55 points or so. And you can see here, just as Europe's come in this morning, the S&P 500 futures just touched fresh all-time highs again. And looking at the much longer-term picture, I mean, this is looking at the, the kind of chart from here year to date in terms of the S&P. And you can see, I'm sure Sam will talk about this, that importantly we closed above on the daily candle that trend line going back from the May and July test, and the one of which we tested as well just around 8 days or so ago, and we're managing now to close above that and finding a bit of a floor from the price action so far materializing today at around a similar level. So again, with all these lines on my chart here, horizontal, is just the idea that I still don't see much in the way of reasoning of why we should have some sort of sharp correction in equity markets despite the overall elevation or the nature of the, the move becoming somewhat exhausted, you would imagine. But even so, like we had yesterday when we were looking at that spike overnight, you remember that was when that positive Bloomberg article came overnight about the discussions that they were having were moving in the right direction. It spiked, it faded, came back down to what was a technically sound area on the day, which was close to its daily pivot and the previous support following the previous day's session, and it just continued to push higher. So For the moment, I still think the same kind of strategy applies depending on how, um, aggressive you want to be with the amount of risk that you're taking. But again, it's kind of all of these areas here, whether you can see it's kind of a push consolidation, push consolidation. And so if we did get an opportunity on any further pullbacks, I'd probably be looking for the same thing again. And good areas here are the the morning low that we had because that acted as a period of overnight Asia-Pacific resistance before the eventual break that came during the kind of middle of the, the Japanese session. And then beyond that point, then any further pullback would bring into play the low of the Asian session and then the respective high late seen on Wall Street after some of that initial volatility before the close. And then beyond that point, down to around the daily pivot, and you can see where it's acted there as a bit of a support point So yeah, the reasoning remains largely the same. There's a couple things I just want to show you on this point, uh, that's probably helping this equity move. And firstly is with China. This is a headline on Bloomberg, and it's basically talking about how domestically China is continuing to see significant issues, and China's economy slowing for 7th month early indicators show. So Bloomberg, basically you have this, this kind of economic indicator where they take in an aggregation of different financial markets and business measurements, looking at trade, sales manager sentiment, factory prices, and so on. And it has this kind of swing meter of how, how it's looking, and it is certainly moving toward the negative side at the moment. And then if we look at this graphic here. This was some data that came out overnight. It was quite interesting. It showed that profits at Chinese industrial firms fell the most on record in the month of October, dropping about 9.9% from a year ago. Um, these falling prices indicating then that domestic demand continues to remain weak. And as you can see, the industrial profits nearly always sits above the Producer Price Index. And the fact that industrial profits have, have tanked so aggressively to where it is in this last month's print, then you would think then that producer price index is also going to continue to move into this kind of deflation period with the slowdown in manufacturing activity we've seen evident in China. Now, the one thing that I'd say, though, and it comes into that whole monetary policy play, but it's almost— you could extrapolate that out into the political negotiation going on with the US I do think then the reason why we've been hearing a somewhat more— I'd say a softer tone from the Chinese, a little bit more looking to make a deal has been quite evident over the last week and a half or so. And predominantly, I think it's based on the reasoning that their economy is suffering and they do need to kind of nip this in the bud before things get even worse. And that's not to say that they're not able or capable to step in, whether fiscally or monetarily, in that respect, to prop up their own economy. But of course, just like with any other central bank in the Western developed world, that's kind of the, the measures of last resort. And so cutting a deal certainly could help mitigate and offset a lot of the, the current weakness that's being seen in their economy. So it's almost like the worse it gets the more I think the consensus becomes that a deal is going to get done because it has to get done. Whether it's from a every day that passes, a, the kind of clock is counting down towards where Trump is going to manage this ahead of the election. So again, looking to get a deal done at some point. But then with the Chinese as well, the economic stress starting to mount again, the would be indicative of a deal being done. And perhaps that's why the VIX has traded at these particularly low levels of late. Volatility is diminished and equity markets continue to just, you know, grind out these all-time record highs again. What is Trump saying? Well, again, on the trade front, from the US perspective, things remaining relatively positive. The one thing he's kind of saying at the moment— but don't forget, you've got, as I always say, to put it into context. He was speaking at a campaign rally yesterday, and he basically was saying that, look, we're in the final stretch now to get a phase one deal done. I'm just holding it up because I want the best deal possible for the Americans, and we're playing catch-up because we've been taken advantage of for such a long period of time. So, you know, this is the, the usual status quo, I would say, from the president. I don't find it particularly unusual. So all things remain equal for the time being. Just before I move on to the next story, I have seen the DAX here just taking a bit of an aggressive move on the downside, but I can't see any headlines that have come out or any tweets or anything. But just looking at the way that that candle's just moved in the last minute, I'd say just a break and then some momentum triggered on the break of the pivot level. You can see it came down, had a few minutes at that level, and then we've just had a bit of an extended push on the downside. So I'd say it's probably more technical flow related than it is anything fundamental in terms of catalyst on that DAX move. Just going back then, talking about the US and Trump, one thing I always find distinctly telling is whenever there's a trade deal about to be done, the one thing that seems seems to happen with the Chinese is this type of headline: North Korea, their leader Kim Jong-un bolsters nuclear threat to the US as Trump talks stall. But the, the main thing here is that North Korea has started test launching a new lineup of solid fuel missiles, which gives them basically more flexibility of the way of which they could maneuver their military arms and also could then fire missiles more, basically in a more prompt fashion, without then the, the kind of alert for Western forces. So this doesn't really mean that, you know, of course, that North Korea are going to start aggressively ramping up this type of activity, but it almost feels like whenever a deal is about to be done, the Chinese almost by association. It seems like they lean on North Korea just to up the ante a touch to get a deal over the line. You can call me a bit of a conspiracy theorist, but I think that's a pattern that's been quite distinct ever since this trade war has begun. So again, I don't see this as market moving. It's just all fitting the regular narrative that we've been seeing. But again, so supports the notion of getting a deal over the line. The other thing I want to talk about is, um, polls. There's going to be a particularly important UK election poll coming out tonight at 10 PM this evening. Uh, essentially there's going to be a latest YouGov poll which uses this MRP kind of methodology, the one of which then was the very same methodology that correctly called for YouGov the 2017 election, where every other pollster was looking for a massive Conservative majority. YouGov's MRP poll, which was pretty much unspoken of at the time, it's essentially a slightly different approach using a much larger sample size than the regular standard polls, akin to around 50,000 instead of 1,000. It also starts looking at different demographic groupings as well and extrapolates that out against different areas and kind of cross layers it to give it a more in-depth analysis. But that's coming out tonight at 10 PM. It's been commissioned by the Times newspaper, but obviously there's going to be a lot of people looking at that. And the reason why it's been so interesting is that the pound obviously weakened and underperformed yesterday. And this is because the most recent string of opinion polls that we've had have shown a narrowing in the Conservative lead. So just to give you a bit of a flavour of what we've had, the Conservative Party holds an 11-point lead over the opposition Labour Party, down 1 point. That was according to YouGov yesterday for The Times and Sky News. That marked the third poll in a row that was narrowing of the Tory lead. Kantar poll earlier on Tuesday showed an 11-point lead down to 7. While the ICM poll on Monday showed a 7-point lead, down 3. And this goes— this is in stark contrast to the opinion poll which came out at the weekend, which had a 19-point lead for the Tories. So in terms of the ICM one, that's now down to 7. And so a lot of this, I think, is a little bit of— there's a number of things going on here. Actually, and I did make a post, a tweet on this, but I think I was a little bit more comprehensive of a post I made on LinkedIn last night. My wife again having a go at me, going, "What are you doing? It's 11 PM. Why are you looking and tweeting these things?" And I was like, "I've got to! I've got a new thing I'm looking at." And this is my view, and I think that the pound is going to come under more pressure over the next 2 weeks, and my reasoning behind this is I think that the narrowing in polls will continue. I am fully aware that Jeremy Corbyn pretty much did his best effort last night, it would appear, to try and throw me off track with his somewhat questionable handling of the antisemitism in the Labour Party. but a couple of points here I want to just go over. And one is that Jo Swinson, the leader of the Liberal Democrat Party, ever since the election was called at the end of October, the Liberal Democrats' popularity has just been falling away day after day. And I'm not sure if you've seen any of the televised debates as yet, but she hasn't really performed particularly well. I think one of the main things with the Lib Dems was this move from a second referendum, which had been their stance for a number of years, to then revoke Brexit. And I think revoking Brexit has backfired slightly, because the idea that, you know, more than half of the country, when you're looking at the people who did vote, voted to leave, I think revoking it is just it's just a step too far. And I think she's losing a lot of support to the Remain voters who are disengaged now and would prefer a confirmatory second referendum under the kind of dual options for Brexit that Labour are offering. And so you're seeing, as per the average poll of polls, a movement back into the two established parties. So Brexit Party is falling away. Obviously, we've seen this deal cut between Nigel Farage and Boris. So Boris continues to move ahead, but Corbyn also continues to move ahead as that Remain vote shifts back into Labour. Now the other thing that I was reading from a stats point of view I found particularly interesting yesterday was the fact that the ability to enrol, to register to vote, ended last night. And the data suggests that enrolment, comparative to the time of the election being called, to the enrolment deadline finishing is up nearly 40% comparative to the 2017 election. And of the 3.19 million people extra that have registered to vote, more than 2 million are under the age of 34. Now, you know, I won't need to go into the details because you know that the younger demographic tend to have a more left-leaning kind of political stance. And certainly on the Brexit issue, would be much more heavily in favour of a second referendum on the balance. So this youthful demographic I think is another favourable element for Labour. And for Tories, I do think that there's a credible risk that we see a little bit of almost this Brexit fatigue as we go into the actual last couple of weeks of campaigning. What I mean by that is, I think, as I've said before, So it's a good strategy to talk about Brexit because that is what, you know, this election has been polarised by, that singular issue. But the point is, is that Boris is, you know, when you watch Boris, he's going to have a television debate on, I think, Sky News on Thursday. He's going to have another one on BBC on Friday. And it's just, it's getting a little bit boring, just him not answering any question. He circles it back to Brexit and he says, Oh, it's all about Brexit, and it's just getting— I think it's just starting to grate a little bit. But the problem he has is there's still another 2 weeks or so to go, and I think that that's going to be quite a tough one because he has proven so far, in my mind— and I'm not putting any biases on this— I think of, of the appearances he's made, he's, he's done okay, but he certainly hasn't been like a resounding confidence of a guy who's going to secure a majority in that respect. And so my net conclusion here is that I think that markets have been a little bit overtly complacent about the likelihood of a Tory majority. And I do think for those aforementioned reasons, the polls are going to narrow, which means that the pound's got to come lower. And fundamentally, when I'm looking at the pound and the dollar, I just think for these reasons the sterling currency will weaken. But on same token, I think the dollar will remain pretty resolute in the current economic environment because the Fed are on hold now. There is no more rate cuts, you know, the December 11th meeting. We're not priced for another rate cut or rate move, in fact, from the Fed until 12 months from now. So the Fed are on hold, US economic data is starting to somewhat stabilize. That keeps a fairly neutral, if anything positive dollar story with a trade deal getting done, well then that's dollar positive going against these increasing, what I feel, a fundamental negative for the, for the pound. So I've got a bit of a, a directional bias of, I think, I think cable's got a little room to, to pull back as people start to price in the reality of, you know, could we get a hung Parliament again, for example. So yeah, just a couple of thoughts Thought I would share, but the main point is, is that you've got this YouGov poll that is going to be particularly followed by the market. So you're probably likely to see some decent moves late evening into the overnight session, and consequently tomorrow morning we'll be talking about it because that, that YouGov MRP poll was very accurate last time round. However, I would like to stress that YouGov themselves have said, given the complexities and size of the sample size of that poll, it's very difficult and arduous and time-consuming to complete. So therefore it does not capture or reflect late swings in opinion. Now, if you remember what I just said, the opinion polls that were concluded from the field work end of last week showed a massive Conservative lead. The latest opinion polls, adding on a couple more days, have shown a distinct shift moving into, uh, almost a halving of that strength for the Conservative, um, party. And so what I potentially think could happen here is the MRP poll might show a, a Conservative majority, market might react, but then actually you get a bit of a move that reverses course and fades quite quickly because of the idea that it doesn't capture or have the flexibility to capture this nearest swing in sentiment that we've seen. So something to just bear in mind. Okay, final, final article then, or two I just want to mention, was this. Whilst all this general election noise is going on, there is still actually a Brexit to negotiate, by the way. And Michel Barnier was talking the lead negotiator on behalf of Europe last night, and he's got a piece in the FT talking about wanting to prioritize a UK trade deal post-Brexit. So quite optimistic. The point being here though is that if Boris does get a majority, we managed to get his deal in principle kind of confirmed and ratified in Parliament to move into the transition phase. The transition phase actually ends at the end of 2020, and the idea here is that really that's not enough time. To get the necessary legislation in terms of the line-by-line tariffs related to a full conclusive trade deal done. And so, um, this is just talking about that in a bit more detail. So something to be aware of. And then the final thing was I wanted to mention was a Fed speaker we had late yesterday evening, Fed's Brainard, who is kind of neutral, slightly dovish, but overall summary very much reiterated what the Fed Chair Jerome Powell said, um, at the beginning of the week. She said that while downside risks remain, the Fed has taken, quote, significant action in response by lowering interest rates 3 times this year, noting that it will take some time for the cuts to take their full effect. And she said, quote, I will be watching the data carefully for signs of a material change to the outlook that could prompt me to reassess the appropriate path of policy. So this is the really the Fed line, and that's what is kind of supporting my fundamental view about that dollar, which I described when talking about the dynamics for cable, where at the moment, if all things remain equal, the Fed are on hold. And so that in itself, with the deterioration in the fundamentals for the pound, that I see over the coming 2 weeks. I think that— I think there's room for a bit of downside there. I'll leave Sam to talk out or talk about the levels, perhaps not just on an intraday but from a medium-term perspective as well for the pound to supplement that view. All right, calendar-wise, finally, just so you're aware, today is the final day really of trade for our friends across the Atlantic because markets are completely closed in, in America tomorrow for Thanksgiving, and then it's very unlikely that traders will come back to their desks. They tend to book off Friday. It's an early close as well on various different markets on Friday to accommodate for that holiday. So today's really the final flourish for, for North American activity. For the calendar then, it's very quiet in the UK European morning. You've got US data You've got the second estimate of Q3 GDP out of the US. You've got durable goods. You've got the weekly jobless claims pulled forward a day for— or to accommodate because of the holiday. You've got personal income spending. You've got the oil inventory data. I'll pop the APIs in the chat in a moment. So there's just a lot going on throughout the session. And then of course that important YouGov poll is coming out at 10 o'clock. Speakers-wise, ECB's Lane and Da Costa speaking later on this morning. All right, that's it. Gonna hand you over to Sam, and I wish you a good day. Any questions, feel free to leave a comment on the video. And if you're not, or have not already done so, remember to like and subscribe to our channel for more updates in future. Thanks very much, guys.

Yeah, hi guys, good morning. Uh, start off with a couple of the currency pairs just on the, uh, the 60 minutes. Anyway, they're all at a decent point of support just below where we're trading, so worth keeping an eye on. So I know we're going into Thanksgiving tomorrow, so if it's going to go, you feel it has a possibility to do it today. So we're looking here at the lows of that 14th, and, and also the lows from, uh, what day we on, Wednesday, Monday, Tuesday as well, just been touched again today along with the S1. So worth keeping a watch on here of the euro, just how it's trading around this, this point. And it's the same if we have a quick gut look over at Aussie dollar, you've got quite a lot of support just over the last couple of days, but also the 14th as well. And you can see each time we've tried to come back down to there in the last couple days we've been met with some decent buying pressure. So watching, uh, what happens around there. If we were to get, for example, uh, a big move below, you could really sort of see an extended push down. And the pound as well, you can see, well, certainly over the last few days it's got that level. And then when we scroll back, you've got the 12, 13, and that magic number 14 as well. So for all those markets, certainly watching, uh, to the downside there for the dollar pairs. Back to the euro and looking a bit more intraday, you can see really we're in a bit of a range. If you called it up to the, the top of that R1 and, and the highs that we had on the back end of Monday around, uh, 1.1040, keeping a watch on that. And then of course those levels to the downside, uh, as well. As we were to push back up, probably worth seeing a bit of a trend line on from the high of the day just to have a bit of a guide to where price could, uh, could go if it gets above there. Back towards the pivot is somewhere I'd be looking at. But really, uh, you know, considering, uh, the week as it is, I'll be looking at the R1, potential break of those lows and the trend line, and towards the pivot as the main points of potential entry, shall we say, for the euro areas to be aware of. Much the the same for the pound, in that, uh, from the highs of last night down to today, you've got a well-respected trend line that I would definitely have on for the pound there. And if it was to get tested, uh, in the short term, you're looking there at the, the previous morning low that would be coming in. So definitely keep a watch on that. A break above the trend, yeah, sure, price could perhaps drift towards the area last night which comes— coincides with the, the pivot today, uh, around 1.2874. Bit of resistance trade there, uh, as well. Above that, we'd be looking towards 1.29 again. Didn't quite get the retest of that area at any point yesterday, uh, but that would certainly be one to, to keep a watch on, uh, as well as the high that we had back on the beginning of the week, uh, on the 25th, uh, around 3:15. 1.2920 was also breakdown area that we saw on Friday. So those would be the key resistance points that we're keeping an eye on. Above where we're trading, the support, as mentioned, really key level just below here because you've also got key support from the 12th, 13th, and 14th. So like the euro, like the Aussie, keeping a watch on that area because if it is to go, it could well be a further push to the downside. Gold, a market, um, that had a decent second half of the day. Uh, it was very choppy in the first, and we had a chance to try and confirm that break above the pivot. It just couldn't do that, couldn't get above this level that we had, uh, marked up around— was that 1465? Uh, it then broke through, broke a trend line, and then snapped back after a big order must have gone through, uh, and then reversed all way back up towards, well, the, the high that we had from the previous day as well. And we are drifting lower now, so worth keeping a watch literally where we're trading now because there was a good area of support late last night. You've also got the pivot today, so keeping a watch on that as a line in the sand. We've tested it once, twice on the 15-minute timeframe already, so another one would be less convinced that you're— it's gonna hold. You probably want a bit more confirmation before looking to get long if that was to come back down again. Not really got a trend from the, the top, but worth having that on as well. And then with that push lower that we saw, almost making it through to the low that we had on the, the 12th of the month, understandably a good area of support tested there as well. So for gold, really looking at that pivot to be the, the key line in the sand. Would also pay a bit of attention to around 1460, some decent price action there over the last couple of days. So would expect something similar. And then worth having a look to the upside just to see if we can respect that trend or not. Having a look over the S&P, just grinds higher and higher and higher, so keeping a watch on that to see how long that could last. Um, having a look as well on the daily chart, it's going to remove the pivot there. People starting to talk about the RSI divergence, God knows why, because we know it doesn't work on the S&P when it goes higher. But just worth pointing out because if it does, uh, if they do have a big fundamental headline, people will say it's because of that, but it's not going to be. Um, so I'm going to remove that, I'm going to right-click, remove, and let's not talk about that again. Having a look on the, uh, the 60-minute, then let's put the pivots on, uh, to see where we are trading intraday. And, and worth having this, this trend actually, which we've hit quite well. We've almost getting up to 31.50, uh, so worth having this on here. Looking on the 60-minute from the higher the 19th to yesterday early morning, and then to this high as well. Lowering that time frame down And I think it's still got to be a case of just looking to buy because this market is grinding and grinding and grinding higher. Uh, if we have a look there, around 31.41 looks to be a decent enough point. And then the S1 today as well, we had some decent price action around that area from yesterday, around 31.33, 34, give or take. We are just getting squeezed from, uh, the, the bottom. So if you are looking for for maybe that correlated move in DAX and Eurostoxx to push lower, a break of that trend could come into play. But I think with this market pushing on and on, it might just be worth favoring those moves to the upside. Oil yesterday relatively choppy when it comes to look at it now. And if we put it back on the 60-minute, where, you know, it seems like if we— whenever we try to get away from one range, we're just coming into a new one. And, uh You can see over the last 1, 2, 3, including today, 4 trading days, it's, uh, pretty hard to decide which way this market's going to go. The R1 today is an important point because you've got the highs from the 21st and 22nd that I definitely have marked up as an overall zone. Uh, $58, which was that key point previously that we're looking at, you know, it's a bit messy, uh, as well, but you still got to have it marked, uh, for the daily chart for for sure. And then to the downside, be looking at, uh, that high of the 20th, low of the 25th, around 5732. Of course, there's going to be some other levels to be aware of on those lower time frames. S1 today looks pretty good, you have to say, as an area, as a line in the sand that I'd be focusing on, uh, as well. Quick look over the DAX, trying to continue that push below the pivot. Euro stocks not following suit just yet. So you can see has reversed more of that move. So keeping an eye on the DAX, if that is to push lower, then the S&P could well break that trend line that we had on as well. Dollar pairs all at interesting levels of support just below where we're trading, so keep a watch on that if we are to see some dollar strength come through, as there could be bigger moves on the break of those levels. As usual, any questions, please do let us know. I hope you'll have a great trading day.