Boris dragged back to UK as Parliament tensions escalate

Okay, morning guys, hope everyone's well. Uh, let's get this briefing started. So we are Thursday, 26th of September, 3 more trading sessions to go of Q3. Of course, Monday next week we'll round up, uh, the final day of September, final day of Q3 to move into October. It'll be interesting to see how the likes of corporate America got on as we— well, and Europe really, perhaps more importantly, as we hit that sort of Q3 earnings season. Um, but let's, uh, let's get— I mean, I'm just showing you, uh, the charts here. I'd say that what's happened, uh, this morning, and let's say what's happened overnight, market's been pretty subdued. Um, you've got a reasonable amount of sort of consolidation. If I just pull up so a quick look just to set the tone. This is the S&P 500. Let me just get rid of that ellipse. So just draw a couple of lines up here. We got this level that we have been looking at, the low from the 23rd of September that got broken on the 24th of September quite sharply. We had that low on the 24th posted, and that kind of got a really strong couple of tests yesterday, once in the morning, once in the afternoon. In the end, it kind of just about did the business, and we had a move higher into the US close last night. And that kind of got us back up above this price point, 2982. So that was 23rd of September low, and really that's formed some support throughout the Asian session, although we've kind of slipped through it in the last few hours, and it's kind of acting almost as a little bit of a Um, center point, if you like, for what's been a very tight, um, consolidation. If you think about it, let me just add a sort of fib series to— well, let's just take that, that move that we had here. You got a 50% fib of— let's just take that 24th of September sort of range going down actually to the low of 25th of September. You might I don't know, you might draw it there as well. There's a few options for where you locate the, the top of this Fib series. But either way, both of the 50 Fibs are coming in around about that low from the 23rd of September. And this is where we're consolidating. Okay. So actually pretty subdued overnight. Not really much market action to look at from an equity point of view. And when you're looking around some of the other asset classes, well, let's check cable here, which had that kind of nice move lower through yesterday. Obviously, we'll talk about that. We'll talk about Boris getting dragged back from New York early and then the showdown in the Commons. Certainly, the pound devalued through yesterday's session as a result of this and were testing yesterday's low. Just over the last sort of 15, 30 minutes. But, you know, we are still trading around about those lows from yesterday. So a little bit of weakness here for the pound, and that's looking like it may well be a feature of this morning if that level from yesterday breaks. Let's check the commodity space. Gold's been, you know, on the downside yesterday. Let me just add a level right there. So we've got a low here from the sort of back on the 20th. We almost got there in that sell-off, um, from yesterday. I'm just going to mark that up with a couple of double— a double bottom from yesterday just above that low from the 20th. And so then we've rebounded, um, somewhat overnight, but we didn't quite make it back to the pivot. We didn't quite make it to the double bottom from the 23rd of September. And so technically just kind of not quite clean, and we're just drifting lower here now for gold. But, you know, I'd say generally speaking, things are relatively quiet as we start and look at last night and we look at this morning's action so far. Let's get into the— let's get into the headlines then. What are you guys reading about as you open your web browsers this morning? And of course, if you're in the UK, then it's obviously dominated, as per usual by the Brexit latest. And so Boris in the Commons yesterday, I mean, it was quite extraordinary. I don't know if you saw any of it, saw any of the sort of Commons live action, or if you saw any of the action. I don't know if you watched the news last night. It was quite extraordinary. I don't think I've ever seen it fired up quite like that. An unbelievable session of Boris being defiant, and, you know, ultimately, as expected, I don't think I think watching last night, I don't think anything happened that was particularly surprising. I think you could have predicted it pretty clearly. Boris coming out very defiantly, saying that ultimately the Supreme Court really, it wasn't their place to make a decision on this. It was a parliamentary decision and really just ramping up that strategy of his where, you know, it's about, you know, preparing for the general election. And he's positioning himself as, you know, he's the people's champion and it's the people versus It's the people versus Parliament, but it's not even just Parliament now. He's now adding the Supreme Court, so it's really the people versus the establishment, with Boris being the people's champion, wanting to get Brexit done but being blocked on every path by the establishment. So what happens next? You know the deal here. Basically, Boris on the sidelines is trying to make some effort to negotiate a deal. Remember that he's got until the 19th of October. We've got an EU summit on the 17th of October. The 19th of October is the deadline given that new bill that was voted through Parliament a couple of weeks back. If there's no deal by the 19th, he has to legally request an extension of Brexit. But will Boris do that? Well, firstly, two things. Will he organize and negotiate a deal? Let's deal with that one first. I don't think so. I think history tells us that trying to get this deal, trying to solve this Irish backstop problem, has proved nigh on impossible. And ultimately, I think it comes down to: is Boris willing to sacrifice Northern Ireland to solve the backstop and take the UK out of the EU on the 31st of October? And even if he did that by essentially saying that Ireland will remain aligned with EU regulations, but the rest of the UK will not, and effectively putting a customs border in the Northern Irish Sea. If he did go for that, I don't— not sure that would get voted through Parliament anyway. So even if he did use that as a strategy, would Parliament vote it through? So really, I, I guess it comes down to the 19th of October. Will Boris request an extension? I don't think so. I don't think it's really in his interests to do so. I think Boris will go ahead and try and leave the EU on the 31st of October with no deal. But you saw what the Supreme Court's done this week, so you would have thought the Supreme Court would again vote and rule on that and make that illegal. And maybe that plays into Boris's hands. I reckon that's his strategy now. Leave on the 31st with no deal. It gets ruled illegal by the Supreme Court. We then have an election, um, and then it's Boris representing the people versus the establishment. That's his plan. So what's going to happen over the next few weeks with regards to the pound's value? Well, I think, you know, in the near term, I think the downside's the, the pathway. And I'm going to go to the daily chart here, and, and that's Because we've moved a lot higher in recent weeks, if we just mark up a few lines here, I mean, the 120 handle's key. We went down to kind of test that area twice in August, 9th of August, and then again on the 3rd of September, where we indeed did break it briefly. But that 120 handle's pivotal. That's the 2017 and 2016 low. Then we ramped higher over the last few weeks. As the— as Parliament, you know, got a bill through that supposedly prevents no-deal Brexit. So that's helped to lift the pound, and of course we moved up to this 126 handle area. And we've come off now this week as, you know, tensions have escalated in Parliament. Boris has been forced to come back from the UN General Assembly early. What can Parliament do in the next few days? They can actually look to try and put through a bill that actually forces Boris to request an extension earlier than the 19th of October. But will that make any difference? I mean, Boris isn't going to request an extension on the 19th, never mind earlier. So I, I'm not really sure, uh, Parliament reconvening is going to change much other than, you know, keep the Brexit uncertainty levels elevated. We've then got the Conservative Party conference next week. Normally what happens is the, um, the Prime Minister or the Conservative leader asks the Parliament to— for a recess of a few days so the Conservative Party can have their party conference. But actually they do need MPs to vote this through. There is talk that actually Labour are going to block it and that actually Parliament won't go into recess whilst the Conservatives have their party conference, enabling the, let's say, the opposition to remain in Parliament to debate Brexit further. What that means for the party conference in Manchester, I don't know, other than if it does cut the— ironically, if it does cut the Conservative Party conference short, and when it's held in Manchester, this conference, and if it's cut short, that's bad news for the Manchester economy, because these, you know, these conferences are massive, and the big Conservative roadshow turns up and they do a lot of consumption and they spend a lot of money. And if it's cut short, well, then that's bad news for the Manchester economy and Manchester's Labour. So actually, it could be ironic— Labour could shoot themselves in the foot if they block a recess for the Conservative Party conference. It's actually bad news for one of their own constituents' economies. So there's a few different angles to look at here. But in the end, be aware of where cable's trading now. That sell-off yesterday has brought us to the high that we saw mid-September. If you take the 9th, the 10th, and the 11th of September, then you got a triple top just shy of the 124 handle. We're kind of sat there now. So keep an eye there. Any kind of breach of that today, let's say, And I'd expect this market to drift down to 122, um, over the next— well, maybe into the end of the week, let's just say. All right, so that's the Brexit, your Brexit update. Obviously headline risk elevated. Um, what else is going on? Let's talk Trump. Why not? You can't not talk Trump, uh, obviously. So he's in the middle of another impeachment saga. And you know the story here, um, the Democrats are suggesting that he has been withholding money from the Ukrainians in return to trying to get information about Joe Biden's son. Maybe some kind of dodgy dealings here with a Ukrainian company where Joe Biden's son sits on the board, and somehow Joe Biden managed to get the prosecutor to step down from investigating this company. And like, yeah, it does sound a bit dodgy. So Trump's been trying to get some info on this. Uh, the Democrats have said that in a telephone conversation between Trump and the Ukrainian president, Trump threatened the Ukrainian president and said, I'm withholding military aid, $391 million, I'm withholding it unless you give me information on Biden. That's what the Democrats are saying, and they're saying it's an abuse of power, he should be impeached. Trump's obviously been, been just brushing it off. And obviously the transcript of this telephone conversation was released to the press yesterday, and it's kind of, you know, as a neutral, I'd say the— what you see in that transcript is kind of in the middle ground. So in that transcript, and if I scroll down on the screenshot here, I'll highlight what he said. He said— Trump said, there's a lot of talk— this is talking to the Ukrainian president There's a lot of talk about Biden's son, that Biden stopped the prosecution, and a lot of people want to find out about that. So whatever you can do with the Attorney General would be great. So that's Boris's quote. So he did bring this topic up with the Ukrainian president. However, I mean, from the transcript, what he did not do is threaten to withhold funding in return for this information. So you kind of got this middle ground here. He's kind of stepped over the line, maybe. But I don't know, maybe he hasn't. I don't think there's actually— I don't think the Democrats have much of a case here, personally. I don't really, you know, I'm not a Democrat, I'm not a Trump fan, so I'm kind of a neutral. And I don't really think that the Democrats have got much on this, and it's purely just an election process scandal that they're trying to exaggerate and blow up. But ultimately, the— in terms of impeachment risk, I don't think there is one. Now, what Trump did do, in Trump fashion, was try to throw out another snippet of, of a headline to try and distract people. So he talked about China, and he said yesterday that actually we may get a deal done a lot sooner than you might think. Think was his kind of throwaway comment. Now, being a skeptic when it comes to Trump, I personally think this was purely thrown out there like throwing a dog a bone, if you like, um, to distract the press from the Ukrainian impeachment situation. So I don't buy too much into his comment. What is important on the US-China trade war risk is next week's negotiations. You've got China representatives delegate a delegation coming to Washington for further talks. That's, that's where we're going to get some proper news. Trump's throwaway comment yesterday, I don't think particularly relevant. What else is happening before we look around the markets? Interesting, here's one. FT reporting ECB's Lautenschlager has stepped down. Why is this important? She's— well, two reasons. Number one, Perhaps more importantly, um, well, I don't know, um, number one is she's the German representative on the ECB's governing council. So she stepped down. She hasn't been quite clear and forthright about the exact reasons, but most likely it's because of her opposition to the dovish, um, direction that the ECB have taken at their last meeting where they cut rates marginally from -0.4% to -0.5% on the deposit rate side. But they also restarted their QE program. Remember, they're going to start printing €20 billion a month, open-ended, so there's no deadline. They're going to print it until it's not needed anymore. Who knows, that's probably forever. But anyway, um, Leitenschlager has stepped down. That just shows that there's a lot of division up at that top level at the ECB Council. There's a big fracturing And it's not just Lautenschlager that's been voicing her opposition. I mean, to the point where she's now stepped down. You've actually got the German, um, representative, Lautenschlager, not that she is anymore, she's resigned, but you've got the Austrian representative, you've got the Belgian representative, you've got the French, um, ECB representative, all saying we're opposed to this move. Now what's critical, what's interesting about that, those four economies make up more than 50% of the eurozone. So you've got effectively monetary policy representatives representing more than half of the region opposing the ECB's actions. Now, Draghi's done it. He's cut rates and he started QE. But where does this put Lagarde? Remember, Draghi, whilst he obviously tries to maintain a neutral stance, he's Italian, um, You could say therefore being more sympathetic to the, let's say, peripheral southern part of Europe that does require stimulus. Lagarde is French. Lagarde is taking over from Draghi. Does that subtly shift, um, the sort of dovish, um, sort of dominance at the top of the ECB? And will Lagarde be less dovish Will there be political influence on Lagarde from France that then sees the ECB step a little bit further away from this dovish move they've taken? I don't know. We'll see. So this is quite an interesting development. Obviously, Germany will replace Leuthenschlager and they'll go like for like. The other point was that she is— she's the only single female on the entire 25-person ECB council. So they are now without a female. Until November 1st when Lagarde comes in and she'll be president and obviously female. But most likely Germany will replace Lagarde with another female representative. But it just caught my eye this morning and just, just shows you that there's division. There's not a consensus on that council, and that just ups the ante and makes things a little bit more uncertain as to where the ECB might go in the future. Couple of stories to finish on before we look at the markets. Chinese economy weakens across the board. This is early indicators. So Bloomberg have this economic gauge aggregating the earliest available indicators from financial markets and businesses. They kind of gather together a whole bunch of different metrics, and I'll show you which ones in a minute. But this is their gauge, this is their speedometer, if you if you like, and the economy is struggling. We're into— we're across down into number 3 now. That means that the economy is cooling. Um, uh, so this is a 5th month in a row. So they're using indicators for trade, factory prices, small business confidence, lots of different— they're using, uh, stock levels in iron ore, iron ore prices, and so on. So about 10 different metrics, all of which are thought to be a lead indicator towards economic activity going forwards. And again, Bloomberg reporting that it remains in the blue for a 5th month in a row. Um, final point on the headlines, you saw this yesterday, I assume. Saudi Arabia's oil output bouncing back. I was talking about this on the start of the week, having been in Saudi last week. This is not a surprise. They're back to 8 million barrels a day, and as The Saudi energy minister said on Monday they expect to be back to full, full capacity by the end of next week. So, you know, this story is very quickly, um, drifting into the ether and, um, perhaps not something we should be too concerned about from an oil supply risk point of view. So let's finish by having a look around the markets, then just finishing on the data calendar for today's session. So let's Given that I was just talking about oil, let's have a look in here at the crude oil situation. As I speak, it's just hitting new lows for the session. Um, let's just mark up a few levels here. Other than I've got the pivots on, on this chart, but, um, if we put a couple of levels in place, you've got this low point that we had from yesterday. That's the low of the week so far. And, you know, as those headlines hit the wires yesterday, obviously that was a negative as the supply comes back online. I'm gonna pick out that low here. Not that I don't think it's not going to be important today, but the 23rd of September low, that got broken on the 24th, and that really set up this downward trend that we saw going into that low from yesterday afternoon. We bounced. I will put in this level, which was— what's the day. Tuesday's low, kind of roughly a bit messy, but formed some resistance last night. And we're drifting lower down through the pivot. This looks bearish. And I'd say we'll be drifting down towards the 56 handle probably over the course of the next hour or so. Yesterday's low ultimately being that key price point on the downside. But if we look at the daily chart, it's definitely a different picture. I mean, so much— well, actually, let me just draw a trend line here. And let me just get rid of that one and draw a new one. This is a daily continuation chart and you do have some— why, it depends where you draw. I'm going to draw it roughly here, but you do have somewhat a trend, upward trend support coming in, which might, you know, as not today but like tomorrow, if we were to get down to yesterday's low tomorrow, 5555, you may well see this double support then. That's the low of the week plus this trend line coming in. So just be aware of this trend line. This extends back through August and September. Okay, so just be mindful of that. But when you look at this chart, we're kind of bang in the middle here, um, of the range of the last few months. And, you know, we've now retraced most of that Saudi drone strike spike to the upside. And if Saudi oil production gets back to full capacity next week, then we will retrace the whole lot. We'll get back to worrying about things like the US-China trade war risk and the demand side negative risk that that presents. Um, so that's your crude chart. Um, let's have a look at the euro dollar. You know, I spoke about Lautenschlager and the ECB there. Um, And the euro right now, you need to be conscious of the fact we're testing yesterday's low. So this is an important level. Of course, I'll just mark that out. Yesterday's low. We had some downside throughout yesterday's session. Let me mark in the low point from back here earlier on in the week on the 23rd of September. So we broke that and that coincided with S2. Nice technical break setting up an extension lower. Almost down to the 110 handle here. So we're testing yesterday's low now, uh, the 110 handle just below there. I mean, yesterday's low is at 110.03, so it's basically on that 110 handle. And if I go to the daily chart, um, that was the low point on the 16th of September. It's obviously a psychological level, but do be conscious that the— perhaps the biggest level now is the double bottom from— of 2019, which is the 3rd and the 12th of September's lows. So we have had a couple of forays down below 110 this month already. Looks like we're setting up for maybe another one. So keep your eye on yesterday's low, really important support level being tested on EURUSD as I speak. Uh, as that euro is weakening, you're actually getting a bit of upside on the DAX. Um, so stocks are okay. You're seeing upside on the S&P as well. It's trying to get up towards the high point from yesterday. Um, let me mark the level here for the DAX, which was, um, the high going into the close yesterday. Really is yesterday's high. We're almost there. So a little bit of upside here for stocks, uh, mild. It's, it's mild, but the euro weakness perhaps helped helping with the DAX just pushing higher. But it's quite quiet on the headline front this morning. I mean, we've had a bit more Chinese news. I should just say, 3 minutes past 8, Chinese Commerce Minister says US and China are closely communicating and preparing for making trade talk progress next week. So slight positive. You know, upbeat comment from the Chinese about next week. So that's maybe helped here, just edge the sentiment positive for stocks. But do remember, the proof is always in the pudding, and we'll find out from the, um, the, the trade delegation next week, of course, exactly how things go. Right, I'm going to finish the briefing by looking at the headlines. And so let me switch up my screenshot and we'll finish off here. Um, so we've got US— I mean, this morning nothing really of note. Okay, so we've got some data at 9 AM, money supply, annual growth of M3 money supply out of Europe. We've got some loan data, but really this afternoon we're looking at US GDP. Now do be aware, this is the final reading for Q2. Remember, Q2, that's April, May, and June. We're now at the end of Q3. This is so old, this data, that it's actually not particularly relevant. Okay, so whilst this is in bold on my data calendar here, I personally wouldn't have it in bold. I don't know who put it in bold, but I wouldn't have done. It's very old news. Okay, I know it sounds important, US GDP, but it's Q2, not really relevant. Initial jobless claims then coming at 1:30, pending home sales coming in at 3 o'clock. So from a data point of view, it's not that interesting today. We'll have some retail sales— I know we'll have more interesting— we've got some inflation-related data tomorrow. So from an economic data point of view, nothing major. But check out this speakers, um, chart. I mean, you got— I can't— I mean, you don't see many more speakers than that in one day. So there are headline risks on the central bank front Kaplan's getting involved. He's dovish, but he's a non-voter. ECB's Dick Guindos, he's dovish. Cunliffe from the Bank of England, he's also dovish. Bullard's dovish as well. Fed's Clarida is kind of neutral. You've got Daly. I mean, it is crazy in here how many speakers you've got. So we're probably going to be spoilt for monetary policy-related headlines. But to be honest, um, just understand the Fed made their move last week, okay? They cut rates. Uh, the ECB have made their move. Um, so actually, really, the Bank of England might be more interesting, um, from Cunliffe. Are the Bank of England going to cut rates at their next meeting? Uh, but I'd say by and large, whilst you got a lot of chat here from central bankers, I don't think much of it is going to be particularly market relevant. Um, That would be my feeling. All right. So I guess it's just listening. Well, you know, the fallout from the Commons, maybe. But otherwise, it might be more of a technical day, I would say, just seeing the DAX sneak up through yesterday's or just testing yesterday's high. Now, the euro-dollar testing yesterday's low. So we're at some interesting price points. Cable testing yesterday's low. All right. That's it from the desk for the briefing, guys. Um, enjoy your session and, uh, we'll catch up tomorrow morning.