Brexit Optimism From Yesterday's Talks - Can It Continue?

Wednesday the 16th of October, just gone 8 o'clock here in London. We'll have a quick look over the charts, how we're trading, some stories from overnight, and how we look going into the rest of the day and the session. Yesterday, a pretty, pretty interesting day across the board, has to be said. Equities pushing higher as we had the first real earnings of the, the quarter come through JP Morgan, Chase, uh, improving and beating their estimates, while Johnson Johnson raising their sales and earnings forecast for the year. These all helping push stocks higher and getting back to the 3,000. So get your S&P 3,000 hats at the ready because we just reached there last night. However, we have just drifted a touch from those highs, just under flat for for, uh, the session so far. There's been some trade comments overnight which we'll go through, um, and we'll also have a look at the Brexit situation as well. As you can see, the pound still up relatively close to yesterday's highs. We hit 128 on the futures yesterday. The euro benefiting from some positive, um, Brexit talks as well, or the, the ongoing talks that have been happening overnight as the optimism of a deal coming together closer looms as well. So we'll have a look into those in due course. As you can see, the, the picture on my right, you know, no surprises where these negotiations are taking place— the only room in the building with the lights on as overnight Brexit negotiators working into the night to try and get a deal through. The rumors today going through that around 1 o'clock this deal will be put forward. Of course, tomorrow we do have the, the EU27 meeting, so time supposedly running out if Boris is going to get this deal done from October the 31st. Um, the aim would be to present the draft to national delegations on Wednesday morning, uh, the rumor saying that EU diplomats are saying— so what exactly is this, this deal that's looking to get through? Because again, it was a situation overnight where you're having comments backing it, supporting it, denying it, um, and it's always a tricky one. I think over the last, uh, you could say a lot longer, but certainly over the last 3, 4 weeks, it's been a very tricky one to trade the pound in that there's been these comments that have come out and you just don't know whether to believe them due to the fact that over those last weeks that any, any push higher has just been met with a denial. However, over the last— well, we can call this since the 10th, so last week, uh, on Thursday, there was no real denial, uh, of any headlines that were coming through as such. And if they were, they weren't met at all with any move lower. So from 122.50, we're now trading up just below 128. So really big push higher. The optimism certainly there. The no deal looks like it's completely off the table for now. But what is this deal? So here, a good article from The Mirror just explaining, uh, the, the new Brexit plan which was sent, uh, to, uh, the EU, uh, to replace Theresa May's 585-page withdrawal agreement. It would keep a transition period continuing EU rules of payments to December 2020, but it would scrap the Irish backstop insurance policy designed at preventing a harder border between Northern Ireland and Republic of Ireland from 2021. In the backstop place would be two borders, so this is potentially where this issue is gonna, gonna be. Northern Ireland and Britain would share a customs territory, and Northern Ireland and Republic of Ireland would share EU single market rules. Custom checks across the Irish border would only take place on a very small number of goods away from the border itself to avoid new physical infrastructure. Um, so this is gonna, well, supposedly be put forward. Brussels sources indicated that the draft treaty could be published in London as early as this morning. So I'll put the— keep the scorecard just in the background, and it's certainly going to be a morning and afternoon of comments coming through. It's going to be incredibly volatile day, I would say, for, for the pound. So just be careful. Don't feel just because there's volatility, it's one that's needed, uh, to, to be traded. However, some of the, uh, the comments, uh, from people on either side, uh, Tory Brexiteer Steve Baker said he believed a tolerable deal he could vote for was in sight. His hard Brexiteer ERG group of Tory MPs, however, will not pass final judgment until they have seen the legal text of any deal. So comments regarding this, who's going to back it, who's not, these rumors will start to appear from now, I would imagine. And with the pound, just, you know, it's, it's relatively unmoved, you would say, compared to previous days. However, literally right on the, uh, the sort of the open, uh, we have just come back down to test those lows. You can see here a bit of a push lower through 128 this morning. The pivot holding up things in around 125.50, along with some support from yesterday, would certainly be an area I'd be keeping an eye on. And you can see that zone really coming down to 127.22 as well. Mr. Johnson, Boris Johnson himself, reckons he will have a few votes from, from Labour as well. Hoping as many 30 Labour MPs, but The Mirror saying that they only reckon that would be fewer than 10. So obviously would still need some backing elsewhere for this deal to actually pass through. And this has really been the issue, of course, as we know, for a long time. Any deal Theresa May got was just shot down immediately. It has to be said, it does feel a lot more positive on the Boris Johnson side of things, and the idea that we could get some sort of deal by October 31st is certainly you can see reflected in the markets. However, of course, any further delay, any rejection of a deal, um, basically no ground made, the pound has got to come back down. And if we have a look from where we were trading, yes, you've got the idea of the, the no deal, uh, in the mix there. But certainly the way Boris Johnson has been going, that if they were not to get any sort of deal passed through, whether that be Parliament or with the EU, Some of this has to unwind, especially if he comes out talking saying we're going to leave on the 31st no matter what. Well, why can't we come back down to 123, 122 area, uh, off a very bad day, uh, today, and then that follow-through for the, for the week ahead. Looking technically as well, you can see over the last few sessions we've been trending nicely higher. You've got the low of the 11th, the low of the 14th and 15th. Technically looks, you know, really, really good here. So let me just remove that circle there, and you can see where does that come in today, right on that level we were talking around from yesterday morning's high. So really key trend line to, to have on the, the charts there, one that I'd be, be focusing on. Uh, if we were to get below there, chances are there's been some negative headlines that have come through and we're going to drift down. Uh, if we just have a look at the previous days compared 2. So if we look at yesterday, day before, and so on, going back to the 10th, and then the size difference in, uh, well, going back here to the 26th, very volatile days. We're doing, you know, multiple points a day, uh, across the board here for, for pound-related assets. So just, uh, be careful is what I would, uh, would be saying here. Um, also comments from, from Barnier yesterday. He told EU ambassadors yesterday that the PM's Brexit proposals were not yet good enough. So as mentioned, you've got comments either side, uh, that are just going to spike price action to the upside, to the downside as well. So just be careful. Elsewhere overnight, uh, stocks continued in Asia to, to push on, uh, to the upside following Wall Street's, uh, move to the upside. That really coming yesterday in S&P and, and the Dow and the NASDAQ just after the cash open So earnings were coming out, filtering through, we pushed higher, and, uh, that was replicated into, uh, Asian equities as well. Just bringing in the Nikkei here. Sorry, that took a while to bring that up. You can see here, once it loads, the Nikkei making a new high for the year yesterday. We briefly just come back underneath it. You can see here, pushing on from the last few days, and of of course looking quite similar in price action to recent days too. US equities also helped by the fact of a positive trade war development over last week, but also the earnings coming through and, and equity pushing higher, and in Asia's case making some new highs for the year. However, I would just be a touch careful today of expecting equities to continue to push on, and just before my reasons why, I'd just be very careful here of looking at these lows of the, the day for— and certainly the S&P, uh, the Dow Jones is testing it, and the NASDAQ as well, uh, on that pivot, uh, in this case. So just be slightly careful about getting, uh, too far ahead of ourselves. While yes, the earnings were, were good yesterday, and we do have some more out today, we also had the 5th straight downgrade from, uh, the IMF to global growth. So the world economy according to the IMF will grow at 3% this year, down from 3.2% seen in July, with the 2020 estimate lowered to 3.4% from 3.5%. So a couple of downgrades there. The fund said yesterday, uh, they are in its latest World Economic Outlook, and the forecast for this year would be the weakest since 2009. When the world economy shrank as the fund chopped projections from the US, Europe to China and India as well. What that looks like in a chart, just bring this into picture here, you can see slowest growth since 2009. If we go back to when they first started, uh, lowering and cutting projections, it was kind of around this time last year, and it was just adding fuel to the fire after the midterms and everything else that was going on. in stocks that led to a further push to the downside. So I'd just be slightly wary of this filtering through. We also had some comments, uh, overnight from the trade talks and how that— how China were urging the, the US to stop interfering and threatening to retaliate with strong measures, uh, after the US House passed a bill aimed at supporting Hong Kong protests. So these comments coming through are certainly not positive, uh, and it does feel, just looking at stocks, that we could be, you know, after making a 4-week high, it might just be time for a bit of a breather. Your lines in the sand are, for now anyway, I'd say, just having a look at the NASDAQ here, the high that we had from last week. So just bringing that picture into here, 79 to the bottom side, 18. If we stay above that and the pivot, then fine, I don't see why we can't push on. But certainly below there, I would expect a further move to come down. So one just to bear in mind and keep an eye on. Speaking of those earnings, uh, it helped us push higher in stocks. As I mentioned, JP Morgan and Johnson Johnson both led, uh, well, both had better than expected, uh, estimates, results from third quarter. And as I said, Johnson Johnson raising sales and earnings forecast for for the year. A really good Twitter account to follow if you don't already, uh, is @earningswhispers. So they put this out every week when there's obviously key earnings. So you'll get one of these from Sunday as well, and just goes and shows the, the main and most anticipated earnings for the session ahead before the open for the US Open and after the US close. So today you can see some, some pretty big ones, and those NASDAQ traders keep an eye after closing. And Netflix coming out usually around UK time, 9 PM, 9:30, you can expect to, to see that. Also got IBM coming out as well and Bank of America before the open. So a couple of the, the banks, as mentioned by Anthony yesterday, are all going to be reporting this week. So certainly one to bear in mind. However, I had— and I said this to, to the guys last week— it was It seems to be the first earnings season in a while where it's not expected to be the worst since X, Y, and Z. So, um, yeah, stocks higher for now, but how long can it really, uh, last will be the interesting thing to keep an eye on there. Having a look elsewhere, um, just at the calendar as well. So while Brexit is going to dominate the morning and afternoon from a a UK perspective, it is just worth keeping an eye on the 9:30 inflation numbers. There was comments as well from Bank of England members of the MPC saying if Brexit's delayed, they're going to have to lower rates. And if there is a— and on the flip side, if there's a deal done, it would only be a steady increase of rates anyway. The inflation numbers, you might get some small volatility that comes through, but I would wouldn't be too sure of seeing an overall reaction. Just seeing some, some comments come through for the pound. It's already going to start, and the pound just drifting lower. Just bring in the pound here. You can see coming down to test that level we, we had marked up. Uh, the comments come through. UK official government downbeat on chances of Brexit deal. Bloomberg sources: UK official DUP holding up progress, deal chances are low. If this is the case, we have to come lower. Keep an eye on that trend line, keeping high an eye, uh, on the high of the 11th from yesterday. Below there, uh, you've got to imagine as well you're getting that psychological shift of that, the sellers being in control. So obviously keep an eye and ear out for, for comments, following the right people on Twitter, having the Squawk on. I can't stress on a day like today how important that would, uh, would be. Back to the calendar, as mentioned, 9:30, you've got the UK inflation numbers, we got the EU inflation numbers, final reading, uh, from September at 10 o'clock for that year-on-year figure. But also worth keeping an eye on that as well. As we go into the afternoon at 1:30, we've also got the, uh, um, Canadian inflation numbers. So UK, EU, and Canadian inflation numbers, and also the US retail sales, uh, which are expected for month-on-month at 0.3 as usual, pretty big range for the low to the high, 0.1 to 0.7 there as well. Due to the bank holiday, we've also got the API out in the evening, 9:30, that is expected. That comes after the US business inventories at 3 o'clock. Also got quite a few speakers to keep an eye on. ECB's Lane at 3, so you can see the afternoon, as if we didn't have enough comments coming out of Brexit, we've also got EU speakers. We've got Bank of England speakers, Carney, Haldane also coming through, and then a couple of Feds into the back end of the session. But we've also got Carney speaking at 11 o'clock over in the States, so maybe one just as we go into the back end of the day to keep an eye on there as well. So overall, just having a quick look at the markets, how we stand opportunity-wise. We've gone through the, the S&P, and I would, would would say that is the, the sort of the line in the sand, certainly to the downside, that I'll be keeping an eye on. Yes, you do have the, the highs from yesterday, that could be a target should we get that breakthrough. So around 2982, I'd be looking to the downside. If we were to have positive earnings, if we were to have positive trade talks and all of this come through, I'll be looking maybe to get long on a break of a trend line. So rather than trying to buy low or sell high on a day like today for stocks. I'd just be letting the market tell me what's going on, um, and go with the flow. So selling below here where maybe the sellers come in, or a break of the trend line and previous highs to get us to 3,000. Uh, again, the, the move yesterday in S&P in the afternoon saw safe havens come under pressure— bonds, yen, and gold. As we have here, you can see all all coming lower, uh, and you know, my favorite level— you probably bored of me talking about it— 1492 acted as great support in the morning. We then got below there, acted as an opportunity to get short. Uh, you can just see here on the 5-minute chart, it's incredible just how good this level has been opportunity-wise. If you just traded off that when it broke and retested, you'd be a very, very a wealthy person. But, uh, yeah, break of that, came back to retest, and since then we are below. However, if stocks obviously do come under pressure, keep an eye on that higher of the day and the pivot, which has been tested multiple times as well, and maybe even looking to get a retest of that. To the downside, last few lows of the days, you can see starting to, uh, come together here. Be keeping a watch on that break of that, be looking down to possibly the low of the month. Not saying it's definitely going to happen to today, but these are the areas that I'd be looking at. This potential trend line to the downside, if that was to, to break and close below here, I'll be looking therefore at the low of the 11th and also those lows for the month. Above the pivot, be looking down up towards 1492 as just the, the key area, as it has been, uh, just to reiterate how many times it was offered a good opportunity just over what we can see on the chart. And this isn't even going back to previous months. Just fantastic for, for gold there as well. Oil relatively flat yesterday, it has to be said, even though some decent opportunities— S1 offering a good place to, to have got long. Also the, the break of the morning lows, you can see here around 10 o'clock, led to a good push pivot along with the highs from yesterday, previous lows from the 11th. Really good range-bound trade fold false break to push higher, but we finished relatively flat as well. However, we have this popped to a new low. No comments, uh, as of anything coming through. Seems more technical, I would say, on that, um, as well. But obviously worth having a watch. European stocks will probably be the driver, uh, you have to say, for the, the US. And at the moment, those pivot levels over in the US are not in danger, as the DAX still buoyed, uh, from this morning's sort of open relatively, uh, nicely, I would say, above that pivot, which also you can see just below is yesterday morning's high. So that would be the area I'd be looking at. A break of that, then I would expect US stocks to push down as well. Just this morning, the Bund has been pushing higher as we have come to test— and look at that beautiful level here, traded from the the low of the 11th, acting as resistance. Speaking of the low of the 11th, you've also got that in the play right now for T-notes as well, which have just technically reversed the touch. So a slight bit of risk-off this morning, however, a bit of profit-taking now as equities just seem to find a floor. The pound is getting a bit more volatile. You've got Laura Koonsberg tweeting, uh, a lot. There's always something to keep an eye on. You can see just testing my trend line there as well. So I'll be looking to see, can we get a close below that? If that's the case, I do believe we will push down quite, uh, quickly. Um, but for now, just those comments that really driving price— government officials downbeat on chances of Brexit deal and the DUP holding off progress as well. Any questions, as usual, please, uh, do let me know. Obviously be on the chat throughout the day. I hope you'll have a good trading session, and I'll catch you all in the chat.