Bank of England Preview

Okay, very good morning. It's Thursday the 2nd of May. Hope you managed to get at least a couple of hours rest from the, uh, action from the FOMC last night. We do move on though, another central bank decision of course coming up which I'm going to talk about. A nice picture here at the Bank of England. That's going to be coming out later today, midday. So we're going to talk that through in the briefing. I'm going to review though what happened last night with the FOMC, just give a bit of a kind of top-level assessment of what happened. There is, if you would like to kind of rewatch the event unfold, we do have the recording up on our YouTube channel. So if you just go to the categories on the YouTube homepage for Amplify and go to the live sessions, it's the the most latest one. I've also kind of put chapters with timestamps so you can jump to each point from the preview to the actual release to Sam's technical review and, and so on. So yeah, always useful to almost have, I guess, if you're a new trader, a bit of a catalog of these big news-driven events so you can kind of rewatch these. So we'll accumulate them on our channel over time. It could be very useful from a learning point of view to see these play out in real time. But Bank of England, we'll get into that in a second. We've also got updates elsewhere on the kind of Brexit side, how the talks going between Theresa May and Jeremy Corbyn. Of course, today is the local elections, so I can talk about that as well and any implications that could have. And then also got an update on the US-China trade talks from a breaking headline that came out actually yesterday. But Getting into what the charts look like this morning, and really the charts tell a story for sure, particularly after such a, you know, an important macro event. You definitely get a good sense of what happened last night. If you weren't there, then actually it was a bit of a twofold affair rather than such a one-dimensional kind of hawkish reaction which the charts would suggest. And by that, what I mean is that the dollar is way stronger now, but it did actually move the other way initially at the, the first 7 PM London time release of the statement, but we saw quite a radical reverse when the press conference began. So, you know, in summary, Jerome Powell played down recent weakness in U.S. inflation as possibly transitory and gave no indication officials were weighing an interest rate cut. So again, remember what I was discussing in the preview, how the markets are positioned quite heavily for interest rate cuts towards the latter part of the year. The fact that, you know, inflationary conditions have been very benign in the US, and was that going to force the Fed's hand? In the background, you've got the pressure from Trump, of course, to kind of at least lay maybe conditional hints towards what would be needed in order for them to cut. That in itself would be one step closer to kind of becoming ever more dovish, but As we thought here at Amplify, um, that, you know, there's no real need for Powell to change course. The US economy is a lot more balanced than just that one isolated area, and if anything, inflation has been in some other measures returning, kind of stabilizing rather than this persistent fall. So the Fed's emphasis on subdued inflation did prompt a knee-jerk buying of government bonds, selling of dollar, equity rally However, the initial rally reversed pretty quickly as the press conference got underway. I mean, one of the things that we were observing and quite, I guess, an easy way that I find to kind of balance this is the number, pretty much the number of comments that he uses to describe the economy where he's being quite optimistic comparative then on the balance to pessimistic. And what I found was pretty much from the off, as soon as he started speaking, Apart from the, the kind of awareness of the inflation conditions, nearly every other comment was talking about the fact that data is stabilizing offshore on, on the external risks like China and Europe, the tightness of the job market and economic growth will lead to then staying on course, higher inflation in the future, the fact that they see a healthy US economy going forward throughout the rest of 2019 it was really stacking up one-sided toward him talking up the economy, not down the economy. And hence it gave a pretty clear, I think, hint quite early on about that change. And then the fact that he went on to talk about that a policy is appropriate, and he said that, you know, it's transient inflation, i.e., it's just for now, a period of time, but it will return given if the economy performs as it is at the moment. So yeah, I mean, this headline from Bloomberg really summarizes it, I guess, quite nicely. Powell downplays tepid inflation, showing no bias to hike or cut. So in essence, it's not that he was so hawkish, it was just the fact that he's just toeing the line and, and holding course. And I think that's exactly the right play from him, um, and it just disappoints those where the market always typically is quite dovishly placed against the Fed's communication. And so inherently you get this kind of moderate hawkish reaction to these types of communications from the Federal Reserve. There was a technical tweak to the excess reserve level, but again, technical, I don't really think that needs to be factored into it to a great degree. I'll leave Sam to go over the charts. There was a, you know, really nice kind of trend line and previous resistance level and the respective R2 in the euro pair, which we got up to, and it pretty much was a real big obstacle on the upside for those 3 kind of technical points. And then it came crashing back down as soon as he started the press conference. So yeah, I'll let Sam get into that. But you can see now, uh, EURUSD lower, cable was lower, gold came off from the press conference and trickled down in, uh, you know, don't forget the overnight session is very light at the moment. Remember, not only is Japan out for the whole week, China is also closed now for today and tomorrow. It's Labor Day holidays in China and it's the Golden Week period in Japan. That does mean if you were considering holding an overnight position tonight, I definitely wouldn't be doing so, basically, because the probability of a potential flash crash given the illiquid conditions— now China and Japan are out I would say it's probably increased. So yeah, um, going back then, just having a quick look, T-notes, you can see in the bottom right, initially moved up, the bigger prevailing move down. So all of these asset classes reflective of this more kind of hawkish reaction to what we saw. All right, well, let's move on. This then is getting into the situation of where we are at the moment with with Brexit talk. May and Corbyn, they are signaling that maybe edging closer to a Brexit deal. The Prime Minister, of course, we know aiming up— aiming to wrap up talks next week. We're looking at the dates for one big final meeting on the May 7th, May 8th, so after these local elections. So this would be basically next Tuesday, Wednesday. It's kind of her deadline to get it through so then they can do what's necessary with legislation in order to then pull out of these European elections at the end of May. Now, a couple things to be aware of here. Yesterday we did see the pound actually appreciate. This was pre the FOMC. Now, Theresa May did signal she could move on one of her key red lines. Now, this is quite a big deal because she's been pretty resolute that she's not gonna budge. These are the red lines, this is the negotiation starting point, and that's final. But we're starting to see a little bit of flexibility on this as she's kind of trying to pursue getting this deal through. And what this movement is, is to allow the UK to sign up to some kind of permanent customs union with the EU, that being enough to give a bit of mild support to the pound yesterday. Now, for Theresa May, the key to any compromise on a customs union is likely to be whether both sides can agree to call it something else. Now remember, that's because May's promise to take the UK out of the EU's customs union and pro-Brexit members of the Tory Party would regard revising this pledge as obviously a major betrayal of trust and what the government said they were going to do in delivery of Brexit, so on, so forth. So one of the important things here then is if you're going to You're gonna deliver basically the same thing, but dress it up with a different name. Is that gonna be enough to persuade MPs and also get the public on side that that's the deal? 'Cause we would be effectively in some way, shape, or form remaining tied to the customs union. Now, a Labour spokesman, this is the other side of the deal and whether it can go through, has said that what a customs union is called is not the most important. So if Theresa May is looking for that name change in order to be a kind of a minor tweak, Labour may be receptive to it. And could that be enough to kind of get some kind of compromise cross-party deal signed off? Now, a couple of the other things we're looking at here, and I'm gonna jump over to this, which I'm going to talk about now, and Corbyn, we know, has been resisting demands from within the Labour Party. His kind of, you know, deputy Tom Watson, if you like, has really been quite outspoken about this idea of a second referendum. It's seen fairly influential members like Chuka Umunna splinter off into this new independent party because his full backing for this second referendum idea. We know Corbyn's been fairly resistant to it. Now, similarly, allies of the Premier say she's fiercely opposed to putting the question of Brexit back to voters. You know, if you were going to go between the two, do you have a second referendum or do you join a kind of customs union 2.0 renamed? Probably the latter is more palatable than going back to the public when it comes to management of your own internal party politics of the Brexiteers. Now, Corbyn Corbyn also has an eye on potential electoral threats from Nigel Farage, of course, the new Brexit Party. Because, and if we look at this, this is a graphic here that I thought I just wanted to show you. And a couple things here that are going on. So Labour also needs to deliver Brexit. This is the point. Now, there was 158 constituents during the UK referendum in 2016 that voted to leave. Now that does, as an, as a constituent area, obviously this isn't, this is X-ing out the population of each individual area because obviously London much larger, um, but there was only 104 constituents that voted to remain. Now obviously we know the kind of demographic or the, the geographic mix, if you like, of of the voting patterns. Typically, the Midlands and the further north we go, the more likely the vote to leave. London, obviously heavily in a Remain area. Now, the point being here is then that there's a lot of people in the Labour Party that voted to leave, particularly in the Northwest and Northeast. And so if now Corbyn decides that he wants to back a second referendum, Well, he is distancing himself from a large amount of the people that would back a Labour Party. Now, who's there to sweep up these people who are disenfranchised from the Labour Party? Well, it's our man Farage. "Come join me in the pub, here's a pint of ale, come vote with the Brexit Party." You know, and it will be an absolute dream for Farage. So this is the balancing act now. Does Corbyn, to cut a deal, also loosen a little bit on his own red lines, meet Theresa May in the middle on this customs union light kind of idea to deliver Brexit at this point. And his management needs to be, can he do that and not, you know, provide the detail of it's a necessity to have a second referendum, which of course would be again going against what these people want. So as per usual, in summary, it's highly complicated, very messy outcomes. I would say are nowhere near a kind of clear distinct path going forward, but you can see hopefully with that explanation there could potentially be a bit of movement. Um, if the cross-party deal kind of goes through, at least you have a little bit of, of clarity at least. And, and I'd probably see that as a pound positive positive at that point in the short term. Moving on, Bank of England, of course. What's going on? Well, a couple of charts here just to show you, and then, um, I'm going to recap the ING graphic, the crib sheet, which I shared yesterday. And then also I want to look at the hawk-dove spectrum of the Bank of England because I think this could be important. So this is one of the things here. This is a, um, a number that quite a few people in markets look at, and it's called the City Economic Surprise Index. Now they have this for the UK, they also have it for the US, for example. And basically it's a measurement of all economic data and how far data points come out away from its median consensus. So on balance, you can get a feel for how— are we having upside or downside surprises to economic data? And one thing you can see here through the period of basically February through March to where we are today is we're seeing increasingly, um, more and more— so the balance here is zero. We crept up to zero pretty much by the beginning of March, and now we're seeing quite a consistent pattern of surprisingly stronger than expected UK economic data. So again, this kind of all doom and gloom, Brexit is what weighing on business investment, consumers are losing confidence, spending's going down. Well, yes, this is true to a certain extent, but maybe not as dramatic or immediate as some economists at least have believed. I know I'm making Sam very happy by talking up the strength of the UK economy here, but the point being is then, is, you know, it can be quite, uh, easy to think that everything's doom and gloom, but actually the UK economy is functioning despite these political risks. And now you've kicked the can severely down the road till the end of October. Well, is this room for some MPC members? Might think so, particularly when we start to look at the underlying wage employment situation, which consequently could lead to inflationary conditions, then do we need to hike at some point going forward, even as soon as today? We shall see. Another kind of thing that to look at though, and this will be how the— I guess potentially one area of which the doves could counteract that kind of hawkish assessment, and that could be of course like the Fed, uh, the Bank of England are also inflation focused. They have this 2% target of course, for headline CPI, and that has kind of leveled off. Inflation has weakened to less than the target. Well, let's not detract from the point, it's not too far from target, but it has been declining. And you could—

is it—

there's kind of two chains of thought here. There is this economic slowdown which naturally should lead to lower demand, but is that counteracted by this tightening labor force argument and the fact that wages are so robust at near decade highs in the UK. So it's almost as if, um, a lack of confidence hasn't dismayed the UK consumer because ultimately they're getting paid more than they have done in many years. And so that's kind of propping it up and mitigating that weakness. And you saw the house price data yesterday, even though UK housing markets seems pretty precarious at the moment, the first-time buyer market's pretty hot at the moment because these people are now, you know, they've got a decent wage comparative to inflation, very different from about 18, 24 months ago. And, you know, there's, there's decent, you know, um, properties on the market if you have obviously the income for it, uh, at that point. One of the things a lot of people have spoken about is you know, on the balance, I would say majority are looking for a unanimous 9-0 vote amongst the Monetary Policy Committee. That's a 9-0 vote to hold interest rates. Now, to be very clear before I go into this, today is a multifaceted event because we're in the month of May, and the month of May is a quarterly inflation report, uh, release. So it means we get the interest rate, it means we get vote split. It means we get the minutes, and it means we get the full report of growth and inflation, and subsequently an idea of what the Bank of England think for interest rate policy over the 2-year horizon. That's all coming out today. So just like last night, two-part event, uh, so it's going to be midday for the first section, and then Carney and Co will speak half an hour later to talk us through, and there's a Q&A session as well. Now, one thing that a few people have talked about, and just given some of the top-level arguments economically we were looking at in the UK, a few people have isolated this guy on the right-hand side, uh, Mr. Michael Saunders. He is now the kind of sole— you can see there's a little bit of distance here between him and Andy Haldane, the chief economist. So basically, Michael Saunders is the most hawkish member of the MPC. And is there the possibility that with that vote split, which can often be, you know, if you think about it, there's no way interest rates are going to change even if the split is 7-2. That means that it's still heavily outweighed that the best course of action is no rate change. So they're not going to change rates. So that means then you can eliminate that out of one of the variables to monitor. The next thing then for the initial knee-jerk reaction in the immediate release will be the vote split 9-0, or I think the next potential 8-1. I find it hard to think that Haldane or Fleggo are going to join Saunders. So I think if there's an isolated dissenter from the group, it will be Saunders and Saunders alone. If that happens, I think you could see a little momentary pop higher in the pound, but Don't forget you've got the minutes, and overlaying the minutes will be this cloud of political uncertainty where, on the balance, I think would be pretty neutral. There's not a lot they can do really. And so, yeah, how sustainable the, the potential 8-1 vote split could be for the pound just to carry on, I'm not so sure. Because think about the context— you've got a stronger dollar today. Because of the way that the dollar's reacted to the Fed. So again, I'm looking for— I'm actually looking for a fairly neutral stance here from the Bank of England today. I think on balance it's kind of a repeat of the Fed. I think they just got to stay the course of what they're doing at the moment. They can talk the market either way. The point being is that rates can't change for the foreseeable future, not until at least well into 2020 when there's more clarity on Brexit. That's the bottom line. Line. Here's the, the crib sheet again. I won't go through it, uh, in detail. I will share it with you in the Trading Live chat room. But again, really nice crib sheet to look at what potentially then would be the most dovish top to most low hawkish scenarios. So 1 being most dovish, 4 being most hawkish, and then kind of chopping up the event into 4 distinct clean categories what the situation is and the description through the communication on Brexit and its impact on the economy, growth implications, inflation, wage implications, and rate hike path. Now, just reading some of the Bloomberg articles this, this morning, given this surprising strength of the UK economy comparative to when we last had the quarterly inflation report, which was February are the Bank of England actually going to see subtle potential changes to upgrade growth and inflation? Again, if you got a dissenter of 8.1, minor tweaks up that actually were a little bit too pessimistic before, again, a little bit hawkish in that reaction despite this kind of obvious political, um, situation of negativity that we're in, of uncertainty at the moment. All right, moving off of that, the final thing I wanted to mention this went a little bit under the radar because it came out just before the Fed announcement last night. But this is a website, if you, if you're not familiar with it, you might not be if you're in the UK. It's very much a US-based publication. It's called Politico, absolutely hot on the political side, particularly at the US. So this will be a particularly good source of information as we get into the political campaigning for the president run presidential run and campaigning for the rest of the year. But what they reported was this, and obviously in the background, something that traders are very mindful of monitoring still is the outcome of this US-China trade deal. Now we know it's been relatively positive, but the little tweak here was talking about the fact that how Trump and the administration could roll back a portion of the tariffs that it has imposed on more than $250 billion worth of Chinese goods, according to two people familiar with the talks. Now, this definitely would be somewhat more of a concession. Before, it was talking about just keeping it kind of froze, if you like, and then reviews in future about that they're adhering to the plan. This rolling back is a little bit more new, uh, in that extent. The two sides have also reached an understanding on how to enforce the agreement. Remember, that was the sticking point of where we were at, although sources cautioned that the details still need to be worked out when a Chinese delegation arrives in Washington on May 8th. So remember, um, the, the team, if you like, from Washington are in Beijing right now. It looks like they're continuing to make progress. Then the Beijing team will return back to Washington as of what, middle of next week, and still looking to kind of get this done by the end of the month is the target. So again, very well worth monitoring this. Still a key risk, albeit still moving in the right direction for a positive outcome. Okay, that's it from me. I'm going to hand you over to Sam, let him review some of the charts. I'm sure he's got some good levels that he's looking at and definitely some insights for for how you might look at the pound as well for the BOE later. Okay guys, see you in the chat room. Thanks very much.

Yeah, thanks, Ant. Uh, just seeing the, the dollar still against a few of these pairs near pretty interesting levels that we had at the back end of yesterday's session. So it's going to start with the euro here, and you see that trend line still on actually. Anthony, but I'll just clear it up and start from the, the beginning here. Looking at the, the reaction yesterday in, in euro and gold is pretty simultaneous in that they both pushed higher to then come down pretty much exactly the same time, as you would expect. But the, the trend line— and make sure I've got this in the, in the camera here— going from the, the high that we had back on the 26th up to the high on the 30th, and then yesterday you can see that failure to break ahead. But quite interestingly, the, the trend channel of that— and you know I love a trend channel— from the low of the 26th, we broke through that late last night, and since then it's offered really good resistance. So going forward, definitely something I would look to have on the chart. Any retracement, uh, to the pivot at the moment would look like a really good resistance point. And if you want a line in the sand for for today, uh, well, it's just going to be, uh, at a, uh, an angle instead of horizontal for now. I think for the euro, looking, you can see decent reaction once on the retest, twice on the retest as well. So that coming back up to the pivot, uh, that'll be— or wherever it comes later on, that'll be of interest for sure. If it was to get back above that, you've got some decent support from yesterday which would act as resistance for that push through now. Um, but we're not too far away from making a test of yesterday's low. If that was to go, then it can of course push on, and you're looking down at the lows of the, the week that we had on the 30th, and a bigger move down to the 29th. But that trend channel, something I would have on for the euro. The gold did push higher before coming down. You can see a decent push lower failure again to break above that trend, and also going back to some pretty good highs from the beginning of the week on the 29th there. We have pushed lower again this morning, actually taking out yesterday's low. On the gold, I'm sure you've all got it marked up on those longer charts, that trend line going back from the, the low that we had last year in August. I'm just going to bring that into picture here, just away from the camera so you can see I'll just draw that quickly on. You can see how that's coming into play any moment. So yeah, whether we can get below there today or the end of the week will be massively important. Nonfarm payrolls may have something to say about that, and potentially, well, I don't necessarily think the data today could lead to a massive move off that, but you might get the sentiment really confirming this push lower. Really started from that failure to get back above 12, uh, or that should say the, the highs that we had of the lows, sorry, from January and March and April. The close, the failure there to close above there last Friday really has led to this, this move, move lower. Key levels to the downside should that break, we can see why we found support back in the 23rd of April, was previously the higher the 7th of December, then the low of the 27th of June and going back is also important. So break of that, you'd imagine there'd be a quick run, run down through that and then could open the door. And I know people have been talking about 12.50 on the futures coming into play. So something to bear in mind is the dollar potentially just looking to strengthen up again after a few days where it had been under pressure. For, for the pound, and you can see here, uh, we— if I just draw this trend line on and we'll look, uh, more intraday, you can see that, that break of that trend line earlier in the week had led to a further push higher. Of course, the Bank of England could change things up very quickly, but I'd still have it on. I'd still have it on as, as a sort of a guide, much like the euro, uh, trend channel would be. And if that was to, to come down and push low, a bit of dollar strength or dovishness from the, the EC, uh, for the, the Bank of England, then yeah, why not look to get in around here in the 130? Also really good price action point from the 23rd as well. So while at the moment you're looking about 70 ticks to the downside for it to get there, not completely out the question and would be a level that I'd have marked up on the, the chart. For now, trend line from yesterday's morning's lows up to today. Had a brief fail test lower there just as volume started to pick up. Um, but for now, holding strong. I think if we were to get a confirmed break below, then, then, uh, the possibility of that trend line coming back to retest is, is, is real. Um, S&P, we're talking about where it could be a nice opportunity to buy the dip yesterday during the session, as in more of an intraday trade. And we were saying, you know, 2915 look quite good. I don't think you could have really argued to get in literally right on the close, but it has worked pretty well and the bounce there has been, been, been strong. And despite the, or the move from, from its high 61, you know, decent almost 50-point move to the downside, it has recovered quite nicely here. I think I'll be keeping an eye, just can we confirm this, this breaker above the, the high that we had of the morning. So you can see 2926 and 3/4 on the futures, what was the, the previous high of the day, just coming back down to retest that now. If that was to hold, then sentiment really does, uh, continue to push to that upside, and you can imagine then a bit of a recovery for, for this market. Other key levels just above the pivot, uh, 2933 and then 39, which would be key barriers to stop this market going higher. But for now, as long as it holds above what was the high, I think sentiment this morning is just, you know, going to continue that sort of buy the dip mentality. Uh, NASDAQ came back down and did test, uh, yesterday— what would have been yesterday's— or yesterday would have been yesterday's low and made a new one. But again, probably worth having this trend line on here. You got 1, 2, almost that third test overnight, uh, so keeping an eye on that should that come into play. But with the S&P and the Dow just having pushed higher this morning, just be a bit careful about getting too aggressive. Although key level, not just for the S&P on the pivot but also the NASDAQ, you can see marks up quite nicely with the low of the early morning on the 30th and early morning of the 26th. So that would be somewhere I would have marked up 70 or 7,770. 79 on the futures. For oil, we have a quick look, uh, DOE, relatively contained to be honest. I mean, yes, the, uh, the push lower, then the recovery was, was of note, and there were some good opportunities I'm sure within that, but obviously it's not in the grand context one of the, the bigger moves that you will see. Uh, just seeing this morning it, it drifting lower would— wouldn't really get too excited for now as the volume is, is still relatively low. If I just put this on that longer term chart, you can see the level we were talking about for a large part of the year around those previous sort of lows of— when was it— August last year, and then the top end of that range didn't quite get reached I said the range, uh, the low of the 23rd of October, 67, uh, 27, I think would be the next real key resistance point for this if it was to, to get through. So where could be a place where people might start talking about, you know, getting in long again? Well, you can see the lows that we had back on the 4th of April, uh, would be pretty good, uh, good point to, to get in. Uh, also if we can get back to for a retest of the, the highs that we had back on the 21st of March, just above the $60, $60.50 level would be a point of, uh, of interest as well. Just starting to see a possible trend develop around those levels as well, going back here to beginning of February and beginning of March. Where could that third test come in? That would be somewhere of interest that might start to see oil recover from this move that really started at the back end of last month, just drifting lower. But if we are to see oil, you know, break through these levels and the S&P and the NASDAQ start coming off those highs, sentiment can quickly turn. And maybe this trend line and those previous levels of resistance to act as support will be pretty key as well. Europe back in the market today, so you can see the, uh, the DAX just gapping lower. But what has it done this morning? As of a few minutes ago, it has already filled that gap. Um, a bit of a false breakout on that. If we were to come back down, I, I do like the, uh, the DAX when it gets that break to come back to where did that start. You can almost see that on the previous day, a couple of days ago, we get that breakthrough and it does find support back on those levels. So should we get a bit of a push lower, which you can expect from this resistance point up here. If we were to come back down to what was the previous high early in the Asian session, for that level to find a bit of support for potential push higher as well. Any questions, of course, to let us know. With the— if I just bring in the, the calendar one more time for sort of just to reiterate, likelihood is, you know, after we get this, this data that's coming out of Europe in Germany, uh, and well, in the UK early on, it will probably just drift sideways until we have the, the Bank of England, uh, and then some half-decent data, uh, in the afternoon out of the US. But really, with Non-Farm tomorrow, uh, likelihood is to the back end of today's session, it's just gonna, uh, well, the market will be waiting for, for tomorrow. But any questions, as usual, please do let us know and and hope you will have a good trading day ahead of you.