Brexit delay and stopping no deal

Okay, good morning, Tuesday 26th of Feb. I hope everyone is good and enjoying the sunshine so far. Quick look overview then of the, the main market news and some analysis for this morning, and then I'll hand you over to Sam. We'll look at the charts in more detail. So obviously I wasn't around yesterday, but I was certainly just keeping an eye on some of the tweets and news that were coming out. So Everything from, from Brexit to the trade war to Trump tweeting on oil. So we're going to have a look at all of those different things, and then we'll have a look at the calendar for the day ahead as well. So just a quick overview of the charts. Probably the one standout at the moment is cable having another gap up overnight. So looking at the sterling futures here in the center top chart, we've continued to push higher, so up around 40 pips and already trading up at its R2 today, 131.63. So we're going to go into that in more detail in a second. Otherwise, the dollar index is, is, is flat. So it definitely is a case of some sterling further strength. Equity markets, I can see here again, having not been in yesterday, but the reaction effect to obviously Trump confirming the delay of the trade truce, yet to be defined on for what time horizon, but that's kind of feeding through. I can see yesterday we kind of continue to push higher in US equities before then ultimately fading towards the rest of the second half of the US session. The other thing to be aware of as well is that after such a monumental rise in Chinese equities, I think, was it not last night, the night before, the CSI, so the bigger Chinese listed companies, and that index rallied, was it 6%? So the strongest one-day rally we've had in the best part of what, 4 years. And so some profit taking overnight. There was a couple of stories about now Chinese regulatory authorities requesting some information about how leveraged certain trade situations are with exchanges and some, and some questions about certain margin levels and so on. So a bit of profit taking to be expected, I guess, after such a, a strong move that was seen the day before. So a little bit negative overnight on those points. Otherwise, it's relatively, I'd say, neutral at the moment. Slightly softer equities. These T-notes up 4 ticks. Oil still down about 23 cents, just holding on to the loss that we've seen yesterday, as I understand, inspired by the Trump tweet. But let's kick things off with the news then. Let's, let's begin with The never-ending story that is Brexit. And where are we at the moment? Well, remember at the weekend we had that report talking about a Bloomberg source potentially that Brexit could be delayed by 21 months. That was one thing. Now we've got Theresa May is considering a plan to delay Brexit and stop the UK leaving the European Union with no deal next month. This is the kind of latest Bloomberg exclusive headline this morning. And so we're all pretty familiar with this situation now. There's the, obviously, the amendments which are going to be heard later on on Wednesday this week. And this is when there is that one in particular, Yvette Cooper leading it. It's kind of her V2 version of this removal of no deal. And Theresa May said to be kind of warming to this. Now, on that front, something to be aware of then is why is she being forced into thinking this way? Well, this is the BBC this morning, and Theresa May is facing the threat of a revolt by Remain-supporting ministers ahead of the crucial cabinet meeting that's actually happening later on this morning. So 3 have said that they will resign unless the PM agrees to take no deal off the table, and there are suggestions that more are prepared to follow. Some of these, of course, have included quite senior ministers as well that could also look to, to follow suit, which would obviously be to the detriment of the slim working majorities that government holds. The other thing that's come out then from overnight is this one, and this is the UK opposition party leader Jeremy Corbyn has done basically a U-turn after Even though his party themselves at the recent Labour Party conference has said they would have backed the idea of a second referendum if we were to go down that route. He himself though obviously has been quite anti that stance, but he's had to concede to the overall kind of Labour base, if you like. Then also the increased pressure, of course, given that that new independent group that has splintered away and the kind of resignations that have followed and the threat of many more that could also come on the back of that. So he's now said that he's bowed to pressure from his members of Parliament and agreed to support a new Brexit referendum. So I actually think, tactically, I was thinking about this this morning, and I was thinking for Theresa May, well, a couple things. For one, Theresa— let's go back— saying that basically UK leaving the European Union with no deal next month. So essentially she can somewhat distance herself from it because she can basically go to Parliament on Wednesday, and if Parliament then as a majority look to back the Yvette Cooper amendment, and then that means that no deal is taken off the table, well, how much of that really is accountable to her? When it's Parliament having their say. Now the other thing is, of course, is that this is obviously going to hugely frustrate and annoy the Brexiteers, so the ERG predominantly. But then you've got Jeremy Corbyn, who's now said he'll back a second referendum. So if you were to go into a long delayed period, the threat of this then increases that the whole delivery of Brexit i.e., exit, removal from the EU, starts to fall, and the prospects of a second referendum probably start to increase. And the risk then is that you, not only do you get, basically from an EIG point of view, it's either you accept May's deal, or there's a threat of a real credible risk now of a second referendum, a general election, and no Brexit at all. So it's kind of still very similar to what we've been saying in recent weeks. I think this delay till March 12th of now when she's reportedly going to come back to Parliament with a deal, I personally, I still think that that's a push. I really do think this is going all the way down to the wire before then ultimately we do get an extension. I strongly believe that. But that March EU summit that's happening, I think, on the 21st of March, I still think— and we've been saying this for a number of weeks— is going to be when that's the definitive details start to come in. But yeah, some interesting headlines for sure this morning. The prospect then is just ever more increasing that Brexit's going to get delayed. The question then is by how much, of course. And so the pound has responded in kind and started to move higher already this morning. Now, in terms of timings for today, it's obviously— if you're trading intraday, you need to be aware of this. So this is to— I would get a pen and I'd essentially just write this as an addition onto your calendar, these times, because this is when you might start to hear squawks come out, tweets from various UK political journalists and so on. So we've got May is chairing her cabinet discussion on extending Brexit at 9:30, so that's due to begin in about an hour's time. She'll then update Parliament on the Cabinet's decision after 12:30. This is all happening today, of course. The government will propose a motion on the Brexit state of play by Tuesday night. So really, tonight could be quite interesting. There's no set time for this, but do we get another extension, confirmation almost, of the, the positive move that we've had up this morning? If she does say that actually the government's going to change their stance and actually 'Now we're going to take a no-deal threat off the table.' That means then the House of Commons will debate and vote on May's Brexit motion on Wednesday if that was the case. So all of this is kind of the background preparation work for, is the government themselves going to bring forward an amendment in order to kind of put forward their own rather than going down the opposition-led Cooper one? Okay, oh, actually, just quickly before we— to wrap up the Brexit side of things, there was an interesting article on FT. Just going to run through a couple of the main comments here, just in short form. So with this idea of an extension, as I mentioned, it's unclear on what the specific time frame would be, and there's been varying different reports. Senior diplomats are discussing delays ranging from basically 2 to 21 months. The latter, of course, is what we heard in that Bloomberg piece at the weekend. Now, the shortest one would be what's being classified as a technical extension, which could be a few weeks up to 3 months. Xi has acknowledged, the prime minister, that a, quote, few weeks extra might be needed to pass related legislation. And so that would be this kind of side of it that people would be looking at. One adviser though to the EU leader said it was hard to imagine because it'd be too close to the European elections. And should ratification prove more complicated in Westminster, another Brexit crisis could overshadow that campaign. The other side of an extension, of course, could come amid a no-deal extension. If the Commons reject her Brexit deal, EU negotiators fear Mrs. May and will respond by asking for more time to negotiate a better Brexit package, opening another phase of seemingly endless talks. Apparently this is the one of the least appetite that European politicians have because they don't want to go into this open-ended kind of no idea of when this is going to conclude. And as we've just discussed, a lot of the press this morning suggesting that on the British side, no deal could soon become something of a distant memory. The other things here then are a strategic extension. So this could be up to 9 months. Probably means the bloc will be willing to give the UK more time to allow for a change of government, an election, or another referendum. So such an extension under those circumstances, i.e., a strategic extension, would allow for a decisive shift in British politics and could run for at least 9 months. So this is when you start going down the kind of parliamentary and legal process of being able to deliver those significant changes of the direction of Brexit. So you've got to have a second referendum or a general election. That in itself though has come under some criticism by some in Europe because they're just saying, well, if you had a general election, what good is that going to do? Because we'll would just be in exactly the same situation that we're in at the moment. So a lot of people on the European side quite reticent to go down that path. The final one is obviously the long, what would be called a blind extension. If Britain lacks a convincing plan of how to deliver Brexit, EU leaders will probably examine one of the most controversial options of all, insisting the UK takes longer to deal with what one senior EU figure called a Brexit identity crisis. One option then, extension running to the end of 2020. This will avoid then the necessity of going into these 3-month kind of extensions on a rolling basis, but it remains an extreme option which is not widely supported among EU member states. One EU ambassador liked it, or likened it to scare the Brexiteers tactic, principally aimed at marshalling support for Mrs. May's deal, making the main alternative a long extension. So this is where I think Theresa May actually might be in a fairly good position here, because you've got on one hand Jeremy Corbyn, Labour Party, now backing a second referendum, which could now jeopardize overall delivery of a Brexit, full stop. Then on the other side of this, you've got the idea that we could have a prolonged extension of 21 months something of which would be absolutely against what the ERG have been saying was the will of the democratic vote. So it's kind of like, well, if you don't want to support either of those, well, support my deal, and then I'll deliver you Brexit, albeit it's not completely on the terms that you might have envisaged or wanted in the first place. It's better than either of those two scenarios we've just discussed. So, you know, is this actually— despite all the extension talk and so on and so forth— is May able to get support from those Brexiteers because they just don't want any of the alternatives? So again, this idea of, is she forcing them into a corner in order to get them to back and support her? Okay, moving on from Brexit though, let's have a look at a few other things. This was obviously yesterday, and this was Donald Trump: "Oil price is getting too high. OPEC, please relax and take it easy. The world cannot take a price hike. Fragile." One thing I did do this morning, because I thought, wow, Trump's really tweeting quite a lot at the minute, so I went back and actually counted how many tweets he did yesterday. Now, to give you a bit of context, when he first became president, one of the first things I used to do was I used to, I used to make quite thorough notes about the specific time that he tweeted in order to generate then, once the data sample was big enough, a bit of a roadmap of his activity during the day. Now, he used to tweet at the beginning of his presidency about 6 times a day. Anyone know how many times he tweets now on average? Or how many times did he tweet yesterday, for example? What do you reckon? When he first became president, he used to tweet about 6— well, actually it would be technically speaking 6.4, but who's counting? Say 6 tweets. Anyone know? Yeah, Charlie, 14. Sam? 18. Yeah, so Sam and Martin, absolutely, he did 18 tweets yesterday. So this is literally 3 times more than he's doing. And the interesting thing about yesterday was that he commented about Russia and the witch hunt, he commented about the border wall and immigration, he commented about North Korea and Kim Jong-un with the summit in Vietnam, he commented on oil prices, and and OPEC. He commented on China and the trade war. It's just a phenomenal day when you look back on it and look at the type of things that he's doing. I mean, who needs an official presidency kind of platform to speak on where you talk about specific things when he just literally opens up the machine gun and fires away on Twitter? But interestingly though, with this oil one. And this was a graphic that I saw on Bloomberg, and I know some of the guys were sharing this in the chat room this morning. And this is a historical look at the price of Brent and WTI crude, and you can see these little spots here of where Donald Trump has tweeted before. So obviously a very familiar thing that we've had in recent History. Oil prices are too high. OPEC is at it again. It's not good. Reduce pricing now. The OPEC monopoly must get prices down now. Now you can see there was quite a dramatic, obviously, shift in prices. And obviously Trump very quiet because oil's effectively going in his direction, lower in this extent. This was obviously when this, the The point of which then, there was many different things going on. Equity markets were collapsing at that point at the end of last year. Growth prospects were diminishing, so the demand side was falling away. Then of course that was when the friction politically with Saudi picked up with the death of that journalist and so on. One interesting thing I thought when I looked at this was yesterday when he came in, he tweeted, and the prices were trading in this area here, if we were looking at Brent and WTI down here. Now, from a pricing point of view, what's quite interesting, I thought, was that he tended to intervene— I mean, if we were just looking at Brent here, for example, probably around $75. If we were looking at WTI over the period of '17-'18, about $70. The thing is, he's moved that reference point about $10 lower, if not a little bit more. And this is something that people will often do when they're monitoring central bankers. So one of the big things a few years ago was when the euro against the dollar was incredibly high, and at what point then does the euro-dollar currency pair need to get to before certain type of terminology is used and referenced by Draghi and the ECB in order for them to be talking about that this is becoming a problem. The interesting thing here is that the verbal intervention, if you like, from the president is getting lower. He's getting more and more almost restless and jumping in to try and quell the, the kind of recovery that we've seen obviously quite rapidly in the market since December. The interesting thing here is obviously with Trump is his definite timing around political situations. You'll recognize here where all these pre-comments were, and particularly that last one this was all ahead of the US midterms, of course. And since the midterms, it's been silent up until what we had yesterday. So yeah, quite interested to see. And definitely he did knock the price yesterday. How far is he going to follow this through at this point? Other things quickly for me before I hand you to Sam. This was overnight, Fed's Clarida says US economy in a good place now. The reason why I've, um, he— I feel is important is because he's the vice chair, and so by default tends to be fairly aligned with the chairman Jay Powell. And he said the economy is operating at near full employment and with inflation near the Fed's 2% goal and upward pressures muted. He's basically saying the point of policy now is to keep things on track. So he's a little bit more kind of neutral rather than some of the dovish comments that we've heard of late. Now, one thing that we've got later on today and is probably the main market event of today's session is Jerome Powell testifying on US monetary policy in the economy before the Senate Banking Committee. That's going to happen at 3 PM. I'll confirm because sometimes the text comes at 1 um, and he speaks at 3. So I will confirm that later with you guys, but that's really important event because other than the 8 standard interest rate meetings that the Fed hold in a typical year, this is the next kind of suitable platform that's used historically where the Fed give you a real insight as to what they're thinking right now about domestic and external issues and subsequently what they're going to do with monetary policy and how they see the economy performing. Now, one thing I think that you are going to hear today from Powell is financial markets, in terms of short-term interest rate futures, are actually pricing in a US rate cut. Now, I think a rate cut, um, is unwarranted. I think the market's got a little bit ahead of itself. Absolutely, the data has been deteriorating but to think the Fed are going to go from 2 rate hikes, as still is currently the communication, the projections, to now cutting, I think the market's getting way too ahead of itself. And although the Fed have sounded increasingly more dovish, I think actually, I think markets are— and market expectations have gone too far that way. And I think not that Powell's going to be hawkish, but I think Powell's going to be more toeing the party line, a bit more neutral if you like, and that might upset some of the doves and so consequently cause a little bit of a soft hawkish reaction. So that's my kind of take, and I'm using Kluwida as quite a good reference point given he's the vice premier and what he was saying last night, as I think the Fed will want to manage the markets in their minds, probably mispricing at this point thinking there's going to be rate cuts immediately in 2019. Another thing is the trade war. I did see a quote from Trump yesterday. He didn't just say trade wars are progressing well, he didn't say they're progressing very well. In Trump style, he said they're progressing very, very well. So you know it's definitely making some movement when he starts adding the verys. If he does 3 verys, Well, that's very, very, very good then. So we'll see how Trump rolls out the next line. But I thought I'd share this tweet because this is diplomacy at its finest, I thought. This is what you call 101 negotiation tactics, Donald Trump. So whilst he was cutting a deal with China and everyone was kind of shaking hands, congratulating each other, patting on the back, US Navy sent two Navy ships through the Taiwanese Strait on Monday as the US military increased its frequency of movement. Now obviously, any of those who know Chinese politics and this idea of One China policy, Taiwan is a very sensitive issue, and the US sailing two large Navy ships through that strait is absolutely a surefire sign of just, you know, just reminding China, you might have a military that's growing quicker than ours, but ours is still the biggest, so let's get this trade war done. But yeah, I just thought that was quite interesting timing-wise. These things don't happen by surprise. This is absolutely strategic on behalf of the president, I'm sure. Another thing as well that I thought was particularly interesting on the trade war front, I saw Safe shared this this morning. I'm not sure how many people day to day are checking soybean purchasing stats, but one of the things is we know that what's been a real pivotal point on the trade side specifically has been about the fact that US is basically the biggest seller of soybeans, China's the biggest buyer, and because it's used as kind of a staple ingredient for basically pig feed. And what's been happening here, quite interestingly, is to the disbenefit of the US, by China reducing— what they have done in recent months as this trade war has escalated— their purchasing from the US. Canada's shipments of soybeans to China, obviously the world's largest buyer, have surged to a record 1.23 million metric tons last month, 4 times the amount a year earlier. And actually, the biggest comes from Brazil. So whilst the trade war has been going on, and actually China have committed to buy, I think it's an additional $30 billion of agricultural goods from the US, which would include soybeans, they can go elsewhere. So it is quite interesting to see these types of things unfolding because you start to see the different types of leveraging within each side of the argument. So China bought record amount of soybeans in the country last month, and you know, well, good for Canada in that respect. So yeah, I just thought I'd point that out. So it was an interesting stat to be aware of. And then finally, this is for any of the guys in the trading live room. Um, there was just— I saw this tweet this morning and it was just referencing a lot of the option expiries in the FX market for later on this afternoon. Particularly large one, uh, 113.30 to 113.40, $2.4 billion. I can't remember seeing one of that sort of size for quite a long time, so it might mean that EUR/USD is relatively confined in its price range. This is reflecting, uh, the spot price, um, given the size of that, that rolling off today. Other large ones you can see here, and I did pop them in the chat earlier, so I'll leave you to have a look at that your own time. Calendar for today, what have we got? Very quiet this morning. In fact, from an economic data point of view, there's hardly anything. The one thing that you do have is Mark Carney and his senior kind of MPC team, a meeting with the Treasury Select Committee. This is part of the regular political process of appearing before the Treasury Select Committee, the TSC, where he just basically explains the decisions that we're taking in the recent Feb inflation report. Very rarely is this market moving. This is completely different to, let's say, Jerome Powell's testimony before the Senate Banking Committee. Um, with the inflation report, it literally is a copy-paste repeat just in verbal form as he explains things through. The Powell one is when he can come out and say actually brand new things. So that undoubtedly is a much bigger event today. On the sidelines of this, you do also have Trump meeting Kim Jong-un, but quite frankly, I don't really see that as a market-relevant event for for today, to be honest with you. If anything, the one thing that it could mean is that Trump is otherwise engaged and not tweeting 18 times about a whole manner of different things. US data in the afternoon: housing starts, building permits, not much of a, of a big focal point. US consumer confidence though could be quite interesting, just given the recent run of economic data we've had. This is actually anticipated to have gone up, uh, from the prior month, for the month of Feb. Um, and then you've got the API inventories later on this evening. All right, let me hand you over to Sam then. He can look over the charts, but otherwise I'll catch you in the chat room, and I wish you all a good day. Thanks very much.

Morning everyone, hope, uh, all had a good morning so far. I want to start off with, uh, the Euro Pound, which is— this is more, well, potentially actually a daily opportunity, but more of a potential sort of longer-term, medium-term trade. We're coming to a level— I'm just gonna put onto the weekly chart here, um, just give me one second— to a level we tested, well, at the back end of January, but multiple times we've failed to really break below here. So I'll be keeping an eye on, on, on how we close the day. Opportunity-wise, my thinking here would be if we can get a close below this level support from the 22nd of Jan, from the 16th of April, and, you know, arguably if you want to go back this sort of 20th of March and, uh, early June last year level, so we can get close below that, I'll I'd be looking to get in sort of a third of the position and then the other two-thirds if we were to come back and test it as a level of support. So something like that, and then really looking to target this trade down to the sort of December '16, April '17 levels. And I think, you know, it's the— obviously risk-reward would, would look quite good, and maybe stop replacement. If we just bring that into picture, you know, above the sort of 22nd of February high is, is not a bad level that I would be potentially looking at. Um, just on that intraday perspective, we can see that the low of today is the low of the year, uh, or matched the low of the year that we had on the 25th of Jan. So one to keep an eye on later on, the pound obviously, uh, against the US dollar gapping higher overnight. And, and I think, you know, again, short term, you gotta, you gotta favor this just to look to continue unless we really come back down to test that, um, that high that we had from yesterday, which is sort of a good double top previously as an area of resistance. Uh, Aussie dollar was, was tweeting about this this morning with, um, let me put on a 15-minute chart, with the, the sort of the break of the trend line that we had overnight just roughly quickly just draw this on. You can see, um, we've— since then we've drifted lower. And I think, well, at the time I said as long as we stay below the pivot and below this trend line, I think the bias has to be short. Oil and equities lower yesterday, um, you know, just to sort of drag on this, this pair a bit. So potentially now I guess you could say we're waiting for price to sort of retrace a bit higher before getting in. But Aussie dollar, I think you've got to be favoring that short. Um, US equities, as I mentioned, were down and really into the sort of the close. Uh, they're looking for that continuation potentially, uh, throughout the day. Again, probably worth getting a bit of a trend line on those lows. You can see respected already this morning. So if that was to go, maybe the volume needs to be a bit higher. Again, not a bad opportunity really to have a look at. Um, Into just the overview of a few other markets, you can see the DAX— if I just bring this into picture here— has recovered a bit following the sort of overnight push lower that we saw, and coming back— or came back, I should say— to quite an interesting level, which was a solid level of support that we were talking about quite a lot yesterday. You can see it did finally break into sort of 9 PM last night, but that support level acting as a resistance now, so it would be one to keep an eye on there. Oil as well. Let's have a quick look over at how we're trading. The, the lows of today were nicely contained by this, this trend line, so definitely one to have on should we look to come and retest that later. Probably not far from potentially making a third sort of test of this trend line here as well on oil, not too far from $55.50. Obviously quite a significant move we've we had to the downside. Gold as well this morning, um, just pushing a bit lower, similar to Aussie dollar and going at the same time. Not that the dollar is, is too strong really at the moment on the day, but a decent push lower. And you can see these, these opportunities. This one really, you'd have to be on in the market around 7, but the way gold can move is it sort of builds up that trend either way and you get that push. And you can see here, really nice opportunity once that had broken to come back as a level resistance for that push lower. Yesterday, however, was a tricky day for gold. There's no denying that. A couple of decent opportunities, but you would have to have been quite quick to have taken profit on those as well. As I mentioned, obviously Theresa May speaking half 9, so any pound traders, you've got 27 minutes that. So something to just to be aware of if you are in a position. Equities, I would have those trends from those lows just to see if we can continue. And, and oil as well, the trend line that we just talked about coming down, uh, and from the, the upside as well, just to bear in mind. Euro pound, we'll be looking to see where that finishes the day. Maybe there is the opportunity on the breakout intraday, but I like the idea of, of a formal sort of close below, retest, and then continue lower. Would need a bit of potential Brexit luck, but the risk-reward of that trade is, is, is quite good. But yeah, we'll wrap it there. Obviously be on the mic throughout the day. Any questions to myself or Ant, please do get them in the chat. But if not, I hope you have a good day ahead of you and enjoy the sun. Rumors of 19 degrees in London later today.