Bank Of England Hold Fire On Rates

Okay, very good morning to you. It is Thursday the 6th of August. Hope you're doing well. Uh, two things to mention first before we begin. Firstly, on non-farm payrolls tomorrow, we're going to be covering that myself and the team live. We've got the head of trading, Piers, is going to be with us. Obviously Sam North, who you know, Alex, Will, will all be online to help tackle that event and also talk about it in real time and answer any questions you have. So go to the registration link in the description of this video on YouTube and you can sign up. Secondly, don't forget to like and subscribe to the channel. Really appreciate all of the engagement this week. Any questions at all that you have as we go through, just let me know. But let's just have a quick look at what's going on this morning and focus on a couple of different things. We obviously just had the Bank of England interest rate decision come out just a short while ago. Did create a little bit of upside movement in the sterling currency, and I'll explain why. In a moment. But just giving a general overview, pretty quiet overall in the index futures. Perhaps a slight mention for the DAX because one of the larger market cap components, Siemens, did come out pre-market this morning with their earnings, and they are called up in excess of 3% ahead of the open. So do be aware of that if you're looking at the DAX. Otherwise, elsewhere in the precious metals space, there was a target that we had put out on silver less than 48 hours ago for a call on $28, and our objective just being hit this morning. And so gold— excuse me, silver, which was a really key test and rejection and a retest that we saw back on the 3rd at $26, which is that low on 2011-12, has been breached, and we've just continued to accelerate up. And this has kind of been the type of price movement, momentum-based technical-based that I've been talking about a lot with silver specifically, which has kind of outperformed gold. It has moved on in sympathy, if you like, on a lot of the same reasoning of that of gold in the yellow metal space. But what we tend to see with silver is much more violent movement from point A to point B, targeting then clear technical levels, which we're looking back now to several years in 2012-13 type price activity. So With silver prices now, if we continue to move higher, probably the next stop I'd look at would be up and around those cluster of highs that we were printing back in kind of mid-March of 2013, and they would come then just ahead of that $30 handle on the upside if we, if we remain bullish in the way that we have done of late. But as you've probably seen before with silver, you know, when we hit $25, we had $25, then a bit of a pullback, then the break 26, pullback, then the break. So it wouldn't be unsurprising to see perhaps something similar here, and then just be mindful of the pullbacks can be quite violent. So if we came back down to 26, sure, perhaps that could be an opportunity to reassert long and then push back up to 28, and perhaps then multiple tests before then a break eventually does come and we, we power on up again. But for the moment, uh, that, that move pretty swift. And then in the gold market We continue to trade up in close proximity to the highs that were seen yesterday afternoon. Looking at the gold future, we hit $2070 and we're up now trading at $2064. So after a bit of a pullback after hitting that initial push-up, we're right back up there again this morning with a gain of around $15.50 on the session. Any further pullback on this price, probably be looking at around that $2060 mark Um, you can see here you've got that previous push on the high that we had yesterday morning, and then you've got the, the floor to price activity this morning when Europe has come in at around 2060. Any further beyond that point, then the pivot level sits at 2050. It does bring in some of that price low that we had in the overnight session in Asia that it responded to. Then anything below there, 2042, would then start to bring in the, the low point from yesterday's session on that initial pullback on the all-time high, uh, and then that previous resistance point we had back into the, uh, that big rally that we had on the breakout through $2,000 at the beginning of the week. So definitely a couple of interesting areas if we did get a pullback, uh, on that point. So on around $2,060, $2,050, and then $2,042 in gold is what I'd be looking at. And obviously on the upside, 70 for the previous day's high and the, the all-time high in, in gold. Elsewhere in the crude market, so just having a quick overview of the charts in the crude market, big run-up yesterday, but then has just pared that going into the kind of European exit. And then we've gone into a kind of relative period of consolidation here. Quite a nice area though of support where the market has responded to throughout the overnight session, which is around that initial high we had on the 4th. So around this kind of area, which gives us a nice kind of round figure of 42 as well. Um, in the context of things, the upside rejection on the level that we had on the push yesterday makes a lot of sense. You can see here on the daily continuation, uh, 43.32 does coincide with around that March 2nd low that we'd already had marked up when we're monitoring for any upside potential breach on those previous levels around 4236, we were anticipating we would see quite a quick run-up but find some stern resistance at that point. That's exactly how the prices has played out this far. And then just a quick look at equities in regard to the NASDAQ. Let me just reshape this chart for a second. Not too exciting at this particular point in time. Obviously it's had a, it's had a good push up onwards more recently. I guess this kind of area here, these previous highs and now lows at around 11,072, would be quite interesting to watch going forward. Now, um, we're not particularly in anywhere too interesting right at this point. On the bigger picture, of course, if you have to excuse my markups here, we were just talking about some hypothetical price movement here and the continuation of the trend line perhaps brings in that $12,000 on the upside. And obviously it's not just a one linear clean move up to the— to retest that point. I'm sure there will be an ebb and flow to the price movement. But now we've got this really strong floor for price, and this is what I was trying to indicate to some of the guys yesterday in some of our discussions, that, you know, that $11,058 level, looking at the daily continuation on the futures, which was that retest, we had the eventual break And now you can see in yesterday's price, uh, in the session, that provided a nice platform, a floor now, as it has done today so far in the price activity, which really, I guess, coincides with around this type of level we're looking at here in the shorter 30-minute candlestick chart for, for supporting price. For if we're going to continue to grind this out and move higher from a, from a technical perspective in the S&P, again, nothing really exciting for this morning. What I would say though is the pivot level is probably a pretty decent level near term on the support area, encapsulating not just a pivot but the late US session and US afternoon lows. Obviously a bit of volatility amidst some major data that was coming out yesterday. But on a daily continuation, again, we were looking at that, that gap down that we had on the coronavirus first outbreak outside of mainland China at the beginning of the year. That was what caused that gap down in price from around the 21st to the reopening on the 24th. And that level has been watched as quite a key level. And you can see that level as well itself is providing a pretty decent floor to the price so far today. So be interested to see if that holds. And if it does, technically, obviously barring any fundamental shifts that we see on things like trade war or Congress negotiations, then this could act as a nice floor as well for price, which ultimately then doesn't see really next resistance coming up until we get quite a bit higher. So the technical picture is kind of set perhaps for a little bit of an extension of these moves, but obviously there are quite a few big things to monitor, uh, not just on the, the trade war front, not just on the Congress front, but we've also got some major economic data still to come, obviously with jobless today and then non-farm on Friday. On a currency perspective, a couple of things I'm watching here is— and we can just bring in, actually, let's focus on sterling for a second. Seen a bit of renewed dollar weakness, but if anything, we had an ejection. The catalyst being the, the pound just fired up a little bit on the back of the Bank of England. Nothing really super spectacular there, but certainly from a, from a daily candlestick point of view, looking at the sterling futures here As you can see marked up, we're right back at quite a key technical level year to date for 2020, that being the resistance that we had pre the pandemic on two occasions, and then the recovery high that we had not that long ago, back last week, at the end of last week. And we're right back up there again testing with the handle at 32. So definitely worth watching here on how it behaves. And you have to kind of overlay that with the euro currency, which on the weekly is still kind of tussling with that, that long-term trend line going back. This is kind of a 12-year picture on that retest in 2014, and then not that long ago where it got rejected initially on the first attempt. Uh, that coinciding still at around that close proximity to that summer or September '18 high that we had, which is around that kind of 119 marker. So So, yes, still interesting to watch certainly how we finish this week on these key levels, because certainly if we get a kind of a data play out where the dollar weakens again, continues that kind of deterioration trend that we've seen of the greenback, and we get a firm close technically on the week above these key levels, well then it does open up the prospects of perhaps a further extension in these euro moves. The next kind of big level that I'd be looking out for then is kind of a push up 1.2050 50 starts to encapsulate that low 2012. The high that we had in September of 2017 would be the next kind of targets there on the upside. So currency markets still at these big long-term key levels that warrant monitoring. And so let's get into the news and talk about a couple of things. It's kind of the charts and the general summary, and I wanted to quickly just mention the, the data that came out yesterday A bit of a mixed picture. ADP, as you can see here, 167,000 was well below market expectations of 1.5 million. So we were expecting a deterioration in July from the prior readings, which peaked in June at 4.314 million. However, not to the degree of what we had, and that actually did breach the lower bound. However, for anyone new to trading, and I was expressing this to some of our junior traders, there are some quirks to certain economic data points. ADP is certainly one of those. And the point being that there's, there's actually two readings really when you actually think about the practical execution around ADP. And that is you've got the actual reading against expectations, and that's the most obvious one of course, and that's the 167,000. But then with ADP, you've got to be aware of the revision. And yesterday, despite the large significant miss on the headline, the actual previous saw a sharp upward revision. And so the timings of that revision is what's quite key to be aware of if you're not used to seeing that, that data come out and how markets react. There normally is a slight lag effect where the newswires can be multiple seconds before they report the revision. So what you can often see is move 1 can be counteracted very similar to what we saw, uh, kind of the case yesterday. You get conflicting signals, bad headline but a positive revision, and you can get this type of movement. You can get caught out if you commit to a trade quite aggressively without getting the full picture of the release. It's nice to just be aware of. So ADP was, was on the weaker side overall but somewhat neutralized by the revision. But then we had the ISM reading, and you know, if I look at the headline here, 58.1, The reading indicates the service sector grew for the second consecutive month after 2 months of contraction. And certainly this was a strong figure, beat expectations. You can see the sharpness of that V recovery here in the service PMI for America. But one of the things as well I was explaining to some of the newer guys was, you know, when you, when you read these PMI reports, it's quite important to really digest the full picture and look at the constituents of what comprise of these reports to get an underlying sense of a bit more detail behind just a superficial kind of headline. And it is a bit of a mixed picture actually, which does take some of the shine off perhaps then, uh, the, the general positivity from that 58.1. And this, the, the positive signs are the fact that business activity was up, new orders was up. However, on the flip side, what was slightly more suspect was the fact that the employment component— and this will be obviously particularly key for the medium-term recovery of the United States, particularly with all this, um, toing and froing of negotiations happening on Capitol Hill at the moment— but in employment, it actually contracted to 41.1, which was a 1-point decrease from what we had the last time out. And then if you actually look at new export orders, that actually declined rapidly between June to July. There was a loss of nearly 10 points. And then you can see imports, inventory sentiment were also both contracting. So yeah, quite a few things there to be aware of. And it's always good— when ISM came out yesterday, well, that was a particularly positive number. The initial reaction was pretty much zero, and that's because a lot of people look at these underlying metrics to get a bit more of a granular sense of what is the information telling us, because it's not just about one reading. It's about the underlying particular interest in certain other areas as well that are quite telling for the overall situation. So yeah, that, that's just a brief overview. But other headlines I'm looking at this morning, um, Democrats are demanding more Republican concessions to meet an end-of-week deadline for the deal on pandemic relief. To just keep running you through what the latest state of play here is, White House Chief of Staff Mark Meadows and Treasury Secretary Steven Mnuchin suggested further talks may be fruitless if the two sides can't agree soon on a general outlook for the stimulus package. Trump, the president, has said he is considering executive action to prevent evictions and also cut the payroll tax if they're still far apart by the end of the week. The White House has offered $400 per week in supplementary unemployment benefits through to the end of the year, essentially middle of December. Which the Democrats have rejected. They are still insisting on the reinstatement of that $600 level, according to people familiar with the matter. The talks are set to resume today, so continue to monitor the situation with some interest. There's no really set timings around it. You just need to be keeping an ear out as we get in towards— in London this afternoon, so morning on the East Coast. Senate Majority Leader Mitch McConnell said the Senate will be in session next week, postponing then their kind of scheduled August break. The House is now out, but members have been told they could be called back within short notice, 24 hours, to vote on any virus relief legislation. So yeah, still, um, they're negotiating hard at the minute. Seemingly there is some signs of concessions that are happening ahead of these kind of deadlines looming at the end of the week. So still needs to be monitored if we're going to continue this kind of grind up in these equity markets, uh, as we have done of late. Then what supporting factor to continue that would be them coming to some kind of compromise deal so they can then move forward with this additional stimulus packages as well. Elsewhere, the US-China trade front, Pompeo has been out. It's kind of more, uh, more assertive tone being continued at the moment by the, the Secretary of State. He's urged American companies to bar Chinese applications from their app stores, signaling US effort to banish Chinese technology from US computers and smartphones. So I wouldn't read too much into that. I don't think it's, uh, an elevation to a great extent. I think if anything, and the— from my experience of monitoring this trade war over the last couple of years They do tend to play a little bit good cop, bad cop. If you actually notice, people like Trump tends to be quite superficial, top level, you know, the Chinese virus, these sorts of things. But then he kind of utilizes his members of his team, and the Secretary of State Mike Pompeo is probably the most outspoken in his rhetoric being anti-Chinese. And then you have some of the others like the trade advisor Peter Navarro who can be quite out there And I think that this all gets deployed strategically so that, you know, you can kind of talk firm one hand, and then, you know, Trump has the ability from the top then to kind of unwind it and talk about, actually, you know, we, we would like to talk. And we saw that in a journal yesterday, and that was also a net positive force for, for sentiment short term as well, uh, in Wednesday's session. The fact that they're looking to meet to discuss face, um, well, face to face or virtually, um, the Phase 1 trade during mid-August. So yeah, to be aware of, but again, I don't think it's going to be meaningful in terms of strategy development this morning. Just pointing out Siemens, uh, they are, as I mentioned briefly in the introduction, a major component of the DAX index. Profit beats, a software unit makes up for industrials, adjusted earnings climbed 8%. That was quite a bit, quite a bit higher than market expectations. Uh, just looking at the pre-market indications, Siemens shares called up as an outperformer, up around 3.12% ahead of the opening bell in the cash market. And then just having a look at the session ahead, you have already had the Bank of England. As I just showed you on the chart, the pound did respond in a slightly positive fashion. So just a quick summary here, unchanged on the interest rate and the asset purchase facility. The, the vote split was 9-0, so all of that as expected. They have released their monetary report, monetary policy report, which is their outlook. They're slightly more upbeat than their previous issue of that report back in May, particularly on the growth front for this year. Not quite as pessimistic as was before, but that was also partly expected by the marketplace. They said the door is open to negative rates, but they'd rather put other existing policy instruments before that, and that would be their preference before turning to that option. So the Bank of England, for me, continues to kind of— it's kind of like just having the option here. I don't think, um, at this point the Bank of England seriously wants to entertain the actuality of moving interest rates into negative territory. I think that they're trying to utilize this, this, this verbal rhetoric and forward guidance in order to just put it out there enough that the market responds in kind and actually they never actually have to utilize that tool in itself. But perhaps then that's why the market, the pound, has seen a little bit of a mildly or moderate positive response. The fact that they're slightly more upbeat than May in general terms in some of these projections, but also negative rates is not a definitive course of action. So they're kind of saying there's several layers left yet of other policy easing to come before we get to that point, which in itself would be deemed as slightly more— well, less dovish, more hawkish in that respect. Otherwise, on the calendar, looking forward to the US afternoon, you've got jobless claims. And I just wanted to mention that briefly. This is a look at the last 12 readings of US jobless claims. As you can see here, the last 2 readings we've actually seen an incremental increase. We were on a persistent consistent decline from the peaks that we had, obviously post then the major shutdown that we had in North America in April. The slow reopening in May has meant that jobless claims have deteriorated, or the situation has improved— less people claiming benefits. However, we've seen an uptick, and this is quite important actually, and I'll talk about this more tomorrow ahead of non-farm payrolls, because payrolls obviously comes up to a reference period of the, the middle of the month essentially in July in terms of the survey period. So actually, payrolls isn't going to capture this latest pickup in jobless claims. And that for me is quite telling about the real, um, how important payrolls is going to be overall. Of course, it's going to cause, as it always does, some short-term volatility. But overall, payrolls is capturing this period here, which actually the picture was quite different from the uptick we've seen since that cutoff of data period has happened, where if anything, this picture would indicate the job situation's got slightly worse. So for the jobless claims, yeah, interesting. It will be for how, you know, how much is this trend continuing? Is it just leveling off at around this mid-1.4 million marker, or does it start to move higher again or not? Will be something to look out for this afternoon. Other than that, from a Bank of England point of view, It is a closed-door Q&A actually the governor Andrew Bailey is having with the press, and his comments then do not come out publicly on the newswires until 10 AM. So I would keep an eye out for that. Likelihood is going to be some more clarity perhaps about this negative interest rate situation. So that'll be at 10 o'clock for any sterling traders. I would be mindful of that if you are in any position. And then going Going further forward, Fed's cap plan, a voter speaking on economic outlook at 3 PM this afternoon. And then from the rest of the earnings perspective, again Adidas, for example, if I look at the leaderboard, they are caught up slightly, slightly higher around 0.2% this morning. So still a lot of German European earnings to be aware of ahead of cash market open. But from a US earnings perspective, nothing really of great substance from an index trader's point of view. Okay, that is it. Thank you very much for watching. Again, don't forget to subscribe to the channel for more coverage, uh, from myself and the rest of the team over the coming days and the weekend. But have a good session ahead, and hopefully I'll be seeing you all anyway live for the payroll session tomorrow. All right, have a good day, guys.