Dominic Cummings Quits, What Does This Mean For Brexit?

Okay, very good morning to you. Hope you're doing well. Hope you had a good week, and happy Friday. It is Friday the 13th. Um, so just having a look at generally what's going on in markets, looking at the close on Wall Street where we finished lower once again, a little bit more even in terms of the percentage increments. The S&P Dow down about 1 the Nasdaq down about 0.6%. But once again, economically sensitive cyclical stocks and some of the small caps, which of course were rallying quite aggressively at the beginning of the week on the back of the initial vaccine news coming out of Pfizer and BioNTech, have suffered some of the steepest losses now in recent days. And pretty much when we cycle through these charts, that's very much what's been happening, is a reversal pretty much of that first half of the week move. Has been just grinding away over the course of the last 2 sessions or so. So hopefully the briefings, um, this week have been particularly useful because we've talked predominantly just about the virus and we've been pretty pessimistic, I'd say, as a desk from the beginning. And generally speaking, now that narrative started to feed through into most people's opinion now of the current state of play with that situation, specifically with Pfizer. So the The US 10-year yields continuing to decline now as equities have softened up. And generally then the dollar has weakened a touch, which has helped gold recover in the major pairs, both in euro-dollar and cable, which were both breaking higher earlier in the week, have hit their respective highs already about 2 days ago and continue to edge it at lower, albeit cable's had a little bump this morning, which we can talk about in a moment. Equity index futures then, as I said, lower close. On Wall Street and the cash has led to then a fairly flat performance overall for US futures right now. Asia-Pacific markets generally followed suit of their US counterparts. Japan specifically did see a little bit of underperformance. They've had a record spike now in infections themselves with coronavirus. And also as well, you know, Trump is still around. Although he's been a little bit vacant in terms of any commentary in regard to COVID-19, he has signed an order prohibiting US investments in Chinese companies determined to be owned or controlled by the country's military. So that trade situation is still there in the background. And actually stocks like China Mobile and China Telecom, very large companies in mainland China, overnight did slide on the back of that development. So just keeping an eye on that as well if tensions were to start to flare once again, going into what is, as we'll review and have, has been all week, a continuation of worsening numbers across America with COVID-19 cases. So elsewhere then, oil continues to drift south. We're down about 65 cents here in the futures as well, just playing into that theme generally of realization about where we're at. with a number of different things. And, um, one of the other things, of course, to mention, which is also to throw in the mix, is stimulus. And the latest on this was last night the Trump administration said they're stepping back from talks on a relief package and leaving it up to Congress, uh, to revive negotiations with House Speaker Nancy Pelosi, according to people familiar with the situation. Uh, Pelosi and Schumer on Thursday reiterated their support basically for a package size of $2.4 $1.5 trillion, that they, they're kind of reverting back to what they proposed earlier in the year. Now, if you remember, Steven Mnuchin was kind of the Treasury Secretary leading these negotiations with Pelosi going into the election. That conversation has gone cold now given what's happened with the outcome of the election. And so McConnell at the moment backs a roughly $500 billion plan that is even less far less than what Mnuchin was, was getting to, which was more around $2 trillion at the time, getting closer to a deal. So they're even further apart on stimulus at this point. And as I've mentioned many times, the COVID situation in America currently is getting materially worse. Lockdowns are already being evident in the state of New York like we saw, we discussed just yesterday. So stimulus is needed. A lack of stimulus worsening COVID, inevitability of then more stringent lockdowns, which is going to impede then mobility and overall activity in America, and therefore have an economic impact. Uh, that overlaid then with the realization that Pfizer is not the silver bullet, as we've said many times this week, I think then it's just leading to a little bit of this general reversal of the earlier weak moves that we've had. So yeah, quite a few things there to digest. I mean, I guess just looking at the Dow for one, I think it's quite a good representation of where we're at at the moment. And here's the Dow future, and this was that really explosive move, of course, when, when the initial news came out. But where we are at the moment, there's a couple of interesting technical levels even for today's session. Session. Just looking here at the trend taken from kind of midweek Wednesday, had a retest of it in yesterday's session and also then this morning at the European entrance. Just above here then, this rectangle, you've got the low from what was Tuesday afternoon on some of the reversal then on that initial pop that we saw at the beginning of the week, and that's kind coinciding then with an area of support and resistance over the last 24 hours in, in the Dow Future, with the pivot level seen just above and around this 29,000 level. So worth keeping an eye on that as a, as an area here of technical relevance for today. Any further breakdown, and obviously you've got this double bottom quite clearly with the S1 residing just below it, any force and push through that more likely, of course, when the, when the volume picks up going through the NYSE open later. But any breakthrough that technically then would be anticipating a further decline back down to where we were, basically to reverse the entire move from what we had at the beginning of the week, which would be that down towards 28642 type area. So yeah, that pretty much sums it up. If I was looking at the US 10-year I mean, basically it's, you know, combination as well with fairly tepid inflation numbers coming out the US, a lack of stimulus. So obviously there's not that reflation kind of pressure that perhaps then would have been evident in that blue wave scenario under Joe Biden. So here again, you can see the Pfizer news was this move here, and we've pretty much reversed now three-quarters of that move. Quite a key area then coming up of resistance here for the US 10-year as we continue to edge up. If I just put a horizontal line here, you've got that low point of where we initially were declining back on the 6th, so toward the end of last Friday, this time last week. That comes in at 3812, and just above there at 13, you've also got the, uh, R1 on the day, as you can see there. Then above there you then start to bring in some of these other key areas of technical support and resistance, and that would come at 15. So two spots really there I'd be keeping an eye on, on 10-year, that, uh, of upside resistance, and would then constitute pretty much a full retracement of the move that we saw in an initial kind of euphoric response on the Pfizer news. So let's get into a couple of different things then. I'm going to just give you an update on the COVID situation. Um, this is focusing on the US where coronavirus infections and hospitalizations are rising in 49 of the US states compared with a week ago. Now, according to the COVID Tracking Project, deaths, a lagging indicator, are climbing in 35, lagging by what we were talking about yesterday with around a 3-week period. New York City prepared for a possibility of closing its schools was reported last night. While Chicago issued an advisory urging residents to avoid leaving home except for work and other essential activities. As far as the UK is concerned, reported just over 33,000 new cases of COVID-19 yesterday, 563 new deaths within 28 days of testing positive of COVID-19. So a lot of these numbers, uh, still particularly elevated at this point in time. Particular emphasis though on America, as we've been discussing throughout the week. Jerome Powell, he was part of the discussions at the ECB forum, spoke yesterday with Christine Lagarde and Andrew Bailey from the ECB and Bank of England respectively. And he said, we do see the economy continuing on a solid path of recovery, but the main risk we see is that there's clearly further spread of the disease here in the United States. And Fed officials, their next meeting comes in around about a month's time, 15th, 16th, and September, middle of deck is when the next meeting is for them. So again, reiteration, if anything, of what Powell has said recently, just increasing downside kind of emerging risks coming on the back of particularly developments with COVID-19 and a seemingly lack of response that we're seeing in a fairly decisive manner on a coordinated front from the administration at this point, which inevitably means we're going to be behind the curve and the these numbers are going to get worse before they get better. The other thing then this morning that we've had, you've probably already read about— well, actually, before I jump to that, one final thing that I wanted to mention was firstly this. Had quite a few questions about the vaccine. So one of the things— well, two things here I want to show you. For one, I'm in conversations with one of our guides internally, and he is particularly good at understanding a lot of the, the background information about these different vaccines. And so him and I are going to put together hopefully a short video interview where we're going to explain, you know, what are the differences behind these different trials that are ongoing, what do you need to look out for, what are the market implications, what are the timings, all these types of things. So that'll be coming out soon. But a couple of things here. This is a hot list of who are kind of the people to follow if you really want to be on top of what is the definitive driving force of markets right now, which is COVID-19. I strongly suggest— I pinned it to the top of my Twitter account. If you just go through and follow these people, it's going to help build out and broaden your understanding of this particular situation. Then also, I just saw this morning Goldman Sachs' latest research. I'll share this as well with our community. But here, one of the things I was talking about yesterday was about how long it's going to take for full inoculation of a population. This is irrespective of the logistical and kind of distribution issues that putting a virus into society is going to inevitably create. And one of the things here is about the hierarchy, who's going to get the virus first, and at what point then can you start to see then greater numbers of vaccination in this kind of tiering system, to the point of which then economies can start to reopen back to a degree of normality prior to the pandemic. And obviously that's going to help accelerate the recovery and so on. And so, uh, yeah, I just thought this was a nice summary, and this was looking at Goldman's expectations as they stand today, and they're looking at kind of 4 phases. Which is Phase 1, high-risk health workers, first responders, these types of people, elder demographics aged 65+ in crowded settings, so one would think nursing homes, things like that. Phase 2 then would be those with certain conditions, so obesity, diabetes, things where they've probably got— they're more susceptible to COVID in terms of their current health status. With underlying conditions. Then, you know, essential workers, food production, construction, utilities, transportation, things that help just generally the, the system function from a societal point of view, I guess, as well as economically. And then Phase 3, which Phase 3 they're not anticipating really until we start getting towards the summer of 2021, and that's when then we start talking about young adults, workers in important industries, so factory workers, restaurants, and then the rest of the population, um, which would actually constitute probably the smallest amount because most people would fit into those previous three phases, uh, that wouldn't happen really until towards the back end of next year. So hopefully that gives you a bit of context around that, uh, of timing-wise. But yeah, away from COVID let's talk about elsewhere. We have seen a little bit of a bump up in the sterling currency, and if anything, a bit of outperformance I'll just show it to you here, which is pretty, pretty decent move lower actually in cable over the course of the last 2 days, of course. And that does come after rejection of a, of a fairly interesting technical level. We were talking about this. This was when we initially hit the high, which was the 4th of Sep high. Technically, it has had other periods of relevance as well at around that level, as you can see here back in towards the end of last year, the gap up that we saw on the 13th. So it is a technical level at 33.20 in the sterling futures, but that was when we then started this material decline of cable after it became clear that the timetable of this Sunday of striking a UK-EU deal is not going to happen. But this morning we've just seen a little bit of a move higher. We've gone through the pivot already and we've come back up to I guess an area of short-term resistance, which would be, um, if I just put that here and then extend out this rectangle, quite an interesting area. You've got that previous low that was seen on the 10th, so midweek, and support and resistance on the previous price action, so around here. But an acceleration this morning, and in the news you probably would have read already Everyone's favorite chap, Dominic Cummings. Uh, the headline suggesting quits as UK Prime Minister's top aide. Now, a couple of things here. Dominic Cummings has said he'll quit as Johnson's aide and will leave by the end of the year, according to people familiar with the matter. He's been quite explicit with this. I think he spoke with Laura Koonsberg. She was sharing it on Twitter last night. This does come after apparent tiff because of the communications director Lee Cain, who obviously announced his resignation just a few days ago, and the split of about some other appointees that have happened in the close inner circle. Now, um, it's difficult really to, to delve too much into why or what this implications are. I'm sure more will emerge over the weekend, but my initial kind of feeling on this is that perhaps some of the reason why the pound has risen Dominic Cummings was obviously the chief architect behind the, the vote to leave campaign, the whole e-referendum. He's kind of a lifelong anti-EU kind of critic. So the fact for me, I think, and again this is just my opinion, is that it's inevitable that the UK now must strike a deal. As the Prime Minister, COVID is heaping a monumental amount of pressure on, on the government and the economy. And so Brexit kind of is secondary at the moment to dealing with this major crisis that is happening. It far outweighs in the immediate term that of Brexit. And I don't personally think Dominic Cummings has any will to deal with COVID It's not really what he's about. It's not really what he was there for. And so he had already stated in one of his blog posts at the beginning of the year that he would indeed leave at the end of this year, which as we know is the legal end date of the transition, because as far as he's concerned, it's job done. And so this is a reiteration of that. It just so happens to come at a point where obviously the government's under quite a lot of pressure at the moment to deliver on multiple fronts, given the economic situation largely born out of the pandemic but compounded by the uncertainties of Brexit, of course. So Perhaps then this brings about— again, my main point with Cummings though was that a deal is gonna happen. I think it's inevitable because it has to economically for Europe and the UK. I don't really think Cummings wants any part of that kind of compromise deal, to be quite frank. That's not what he would want his legacy to be, I'm sure. So I don't think it's massively surprising, but from a Brexit negotiation point of view, Does this now give Boris a little bit of wiggle room to perhaps then get closer towards a compromise? Perhaps so. I mean, the sterling price reaction might suggest that, that actually, you know, Brexit talks at the moment— well, let me just scroll up— we basically ended this week and nothing's happened. But, you know, I just want to remind you, this is exactly what we said would happen on Monday's briefing. Our expectations were low of a breakthrough despite these kind of self-imposed deadlines. So I think just ignore those deadlines. I don't think it was that surprising. The main point here though is that going forward now, this is the timetable that we're working to with Brexit, which is effectively here. So to the end of October, mid-November was the original 3-week window to intensify talks. That's now passed. So the week of November 16th 15th, Monday, talks in Brussels are already set to resume now. So it's not like they've ended this, far from it. They continue on, and the EU has suggested it is prepared to continue to deliberate into December if necessary, according to people familiar with the matter. So here then, let's skip over the EU leaders' conference on the 19th, the European Parliamentary meeting on the end of November, You know, I think we really start talking turkey, literally, as we get towards mid to late December. You've got another EU summit happening on Dec 10th and 11th, and then you've got European Parliament meeting for the last time this year on the 14th and 17th. Personally, I think a deal gets done between the 17th and 31st. We do know that despite the gravity of Brexit, politicians obviously don't want to miss their Christmas lunch. Anthony Cheung. So I'm sure that they'll wrap it up before Christmas, but even between Christmas and New Year's, I wouldn't be surprised if they're still at it. This whole idea of ratification in time for the transition— there's always time for legislative change to be put into place in order to just roll that out, in order to get this, this through from a legal process, and that as long as the initial framework is agreed. So Yeah, my thinking on this really hasn't changed, and if anything, then if Cummings is removed from having control, let's say, behind the scenes, then I think Boris now will want to get this wrapped up. And really, his priority is dealing with the COVID situation, which ultimately is getting worse at this point in time. Brexit is creating more of a distraction than a benefit at this point. And it really does no longer matter or carry the same political weight as it did because the general public is more, I guess, it's more weighted towards the government's response to the pandemic at this point. So yeah, that's the latest on that. So wrapping things up, having a look what's on the calendar for today, you've got Eurozone GDP preliminary numbers for Q3 is coming out shortly later on this morning. From the US point of view, PPI data, a couple of Bank of England speakers, Tenreyro and the Bank of England Governor Bailey speaks again. He's been particularly prominent this week but hasn't really said anything new. Tenreyro keeps reiterating the kind of success of what negative rates has created for other areas that have adopted it, but None of that talk is particularly new. We kind of know her, uh, her stance and her being fairly favorable to that as a policy tool. So overall, Canada is pretty quiet. So I think that markets could well continue to focus on, on the coronavirus situation, the vaccine situation. I'd be interested to see whether or not we finished the week and, and actually comparative to the the more, uh, kind of optimistic state of how we started, we actually finish on a fairly sour note and overall pretty flat from where we started. And such is a week in markets, uh, in that respect. So yeah, that's it from me. Um, Tim and the other guys are going to go through all the technical charts and the setups obviously on the live stream throughout the day on Amplify Live. So I look forward to seeing some of the guys in there. Otherwise, have a fantastic weekend. As ever, stay safe, and, uh, I'll see you on Monday. Thanks very much.