Dovish Fed in focus while Brexit drags on

Okay, very good morning to everyone. Hope you are well. Hope you enjoyed the FOMC from last night. That's going to be where we start the briefing, bit of a recap on what exactly happened. Going to talk a little bit about Brexit, of course, and then we're going to look at the calendar for the day ahead. One thing before I really get stuck into the news, and obviously Sam will come on and talk about charts afterwards, is cable's just come under some pressure here. Just really quickly, just to say, because there's a piece of news that's just come out, cable managing to break out of that kind of range that was price action sat really above the pivot level for the majority of the overnight Asia-Pacific session. A bit of a rundown a tweet out of The Telegraph citing a senior EU source last couple of minutes: "EU27 will reject the June 30th extension date and insist on May 22nd to avoid EU Parliament election clash." And obviously we're going to talk about this a lot more, June 30th being the date of which Theresa May has requested upon only if her deal gets accepted by Parliament, of which Europe had previously said that they would accept But before we really get stuck into that, obviously the biggest kind of reflection on market prices this morning ultimately is still the digestion of what happened with the Federal Reserve from last night.

Yes, that's true.

So as you can see, the EUR/USD pair still sharply higher. So again, this is more a pound reaction just now because EUR/USD really is not moving. The dollar index is up, but do bear in mind, step outside of short time frames and look at the bigger picture. The dollar got absolutely killed last night on the back of the Fed, so a little bit of natural retracement I think is probably warranted, just given the depths of how far the dollar fell last night on the kind of surprise out of the Fed. So EURUSD still holding up. Obviously sterling's got other major considerations for the day ahead. Brexit, of course, the EU Council meeting happening in Brussels today, it commences, and then you've got the Bank of England later. Otherwise, as you can see, what's, what's quite interesting here, you've got gold still remaining very elevated, top right-hand side. You can see the very explosive move we had on the back of the announcement. It kind of drifted back south toward close to the high that we had yesterday late morning, and it's just pushed on through the Asia-Pacific session. Uh, and then if you look at T-notes as well in the bottom right-hand corner, we just bring that up, you can see it's quite a similar distinctive price pattern where, you know, a really explosive move to start, and we've held on to those gains. The one thing that hasn't mimicked that same price action, or sustained at least the move, has been that of equities. If If you look across all major US futures, this was the initial move that we had, and as you would expect, a dovish surprise, equity markets should be supported. But what was quite interesting was once the press conference came out and once kind of the storm passed and people started to digest what exactly had happened, by the close of Wall Street last night, we had effectively reversed the entire move. And net-net, where we are trading at about 2823 this morning in the, the S&P future is exactly net neutral to where we were. So despite the rally that we had of a good 30 points or so, we've already given it back. Now let's just discuss briefly what exactly it was that happened and why we had the response that we did in markets last night. So this was the main headline. So Federal Reserve Chairman Jerome Powell said that interest rates could be on hold for, quote, some time as global risks weigh on the economic outlook and inflation remains muted. Importantly though, this was the part where obviously it starts to get a little bit more interesting, and this was the main thing that people were looking out for from an initial reaction point of view. And this really did ignite the quite aggressive reaction, and this was the shape of the trajectory of interest rates over time. If you remember the previous dot plot we were looking at yesterday, obviously that was back in December when they were issued, so it was inclusive of 2018. But the shape of the curve was much more, I guess, kind of pronounced, and it has become way more shallow. If anything, if I was to use my mouse as the kind of a pencil to draw, the previous shape of the curve was kind of like this. We were expecting something more like that. And we got something a little bit more flatter than that, i.e., the Fed, you know, I was going through the preview and myself, just like the majority of other analysts on Wall Street, was looking for a kind of more subtle move from 2 interest rate hikes or a pledge to do so for 2019, as they previously stated, to move to 1 to keep kind of options on the table for the Fed. However, they went to zero, and that was the first kind of cue, if you like, for the initial trigger of the move. Also, I think, I know these dots might not, you know, still quite new to some of you. You might not be familiar with it in terms of mapping the dot structure, and what I mean by that is the spread between the top and the bottom, the most hawkish and the most dovish outlook. But what surprised me as well, and I thought was quite a telling dovish sign, is that actually the way that the dots, i.e., the Fed members, are quite clustered in their view, I thought was very telling as to that there is, you know, it's quite a firm, nearly thorough, full stance of the central bank by all reserve districts that they share this common view. Uh, the other part of course which was, was very important, um, was that of the, uh, the balance sheet runoff. Uh, you remember yesterday I was talking a lot about the different ways of which they could have tackled this, whether it was to put a definitive end date, whether it was to put a definitive nominal kind of target in terms of value like 3.5, 3.75 trillion, after which point that then they would stop. Most people were probably looking at somewhere towards the end of the year for this to happen, just given the economic fragility, if you like, at the moment. Yes, markets have stabilized since the kind of crash, if you like, or mini one that we had at the end of last year. Markets are still quite sensitive to ongoing developments, particularly things like a trade war and still concerns about global growth. Actually, the fact that the officials last night decided to slow the drawdown of the US Central Bank's bond holdings starting in May, then to end them in September, that was a far earlier date than most of the bank research I was, was reading. It's quite explicit. And also, the quicker that they stop that, well, then that's the more amount of QE that's still in the system, essentially. So not only are they getting quite dovish on the interest rate side, you know, paring back their expectations, flattening out then the curve going forward, you're also getting this kind of dual mechanism of them holding back with being aggressive on quantitative tightening. Now, the thing that I think is interesting with equities, certainly T-notes, even as I'm speaking here in the top or bottom right-hand corner, T-notes having another look at the intraday high that we had yesterday on the initial wake of the announcement. Gold as well, keep an eye on the R1. But equities reversed it, and I guess there's a couple of things here. I guess really two important points. One is, you know, a lot of people questioning at the time and still this morning, well, why have the Federal Reserve had to take, you know, such aggressive action? What is it that they're concerned about, you know, how to go this far. You would think, well, are they panicked? Do they— for all— they particularly pessimistic about the future? And ultimately then, is that bad for corporate America in the kind of medium to long term? So after you get the initial kind of knee-jerk responsive monetary policy play, the realization comes in, and equity in actuality for corporates it's not going to be a great environment because by taking this action, the Fed are basically telling you that economic conditions are deteriorating and this, this action is needed. So the other point, the second point, is really the trade war, and ultimately that's a really big one. And let me just give you a quick flash update of what exactly is going on on that side, because that is really important for the moment. And that in itself is also looking a little shaky at the moment. So that definitely supports the Treasury play and the gold move, but for equities it's a little bit more testing because this would affect corporate America in the sense that it could damage them through higher tariffs in retaliation for the likes of China, Europe, and so on and so forth. And what's been happening, and it's covered this morning, is that Trump says he'll keep tariffs on China until he is sure Beijing is complying with any trade deal with the two nations reach. So where we were at before was we were making progress and so on. What's happened now is a breakdown really on two, two points again. One is China are pushing back on the, the very contentious issue about intellectual property, which is absolutely pivotal in regards to what the US want out of this deal. And then secondly, as well, you've got this idea about what markets were looking for was Trump to roll back once a deal has been signed and inked, the tariffs were going to be rolled back. And now what he's insisting on is not actually rolling them back, but keeping them in place as they are for a considerable period of time just to ensure that China are actually going to be compliant. So you can see how we've stepped back a little bit from what looked like we were making progress towards the kind of endgame on the trade side. So this is quite— I mean, actually, I think Trump is playing this quite well from a tactical point of view to get what he needs from a trade deal. But for market sensitivity, this is worrying, certainly from an equity perspective. So I would bear that in mind. So again, the Treasury move, the gold move, I think the narrative is set for that. But for equities, it's a little bit more complicated. Okay, let's look at a couple of other things. I mentioned the pound was taking a bit of a dip, and so let's jump onto the Brexit side.

You—

I'm not sure if you caught it last night, but I was watching it on my phone. Theresa May, the Prime Minister, obviously spoke last night. Here's a shot of her in in her delivery as a national address. Absolutely, I thought, as expected. I give very little credence to her— rumours of her resigning. I think this is all absolutely part of the plan that she's going for. Now let me get you up to speed with some of the headlines that have happened as to prepare you for the day ahead. So, under pressure from Eurosceptic Conservatives, the Prime Minister formally proposed now delaying Britain's exit from the EU until June 30th. But the bloc warned if she cannot persuade members of parliament to vote for her deal in the next 9 days, the choice will be a prolonged extension or leaving without a deal. So we know this, this is pretty much the status quo. Theresa May, let me just read to you what she said last night. She said, I am not prepared to delay Brexit any further than 30th of June. The fact the UK will not leave the bloc on scheduled March 29th is a matter of great personal regret for me. She said, of this I'm absolutely sure you, the public, have had enough, and I agree. This is— again, try not to get too warped into the media. This is Theresa May absolutely positioning herself accordingly, I feel, for her meaningful vote, which she'll present to Parliament next week. All of this is to appease 2 things. One, the— what she needs, which is the Eurosceptic Conservative members to support her, because that's where the major numbers come from, from the shift for her to turn around the €149 deficit she had from MV2. And then secondly, she needs to also convey to the public that she is committing to the will of the people. And so in this sense, as I've been saying for many weeks, I think Theresa May is playing this absolutely perfectly because ultimately I think Parliament will take this off her hands. And the only way is to have an extension, and if that, a prolonged one at least. I think actually what's going to happen, if you want my opinion, is I think that she will go to the European Council meeting today and tomorrow. I think probably probably by the weekend, if not Monday, Europe might come back with a slight sweetener in order for her to bring it back to circumvent the Speaker's request that she needs to have a new deal to bring forward to be heard, debated, and voted upon. And then at that point, I do think, failing that, Europe will give an extension. Now, Europe have talked about behind the scenes potential an emergency summit, which they've yet to commit to on the March 28th. I actually think what might happen here is that Europe will grant an additional 2-week extension, taking us through to mid-April, because that's the definitive deadline for them where UK needs to say whether or not they're going to participate in the parliamentary process in Europe that's going to be happening in the summer. And so they need to give that commitment by the 12th of April. I think then that gives Theresa May a little bit more time. And then at that point, that's the official, for me, D-Day of when Brexit, no deal, or long extension will happen. Or obviously her deal could be accepted, which I think actually is the base case scenario for me. So I still think an orderly Brexit is the end outcome. I actually don't think it's going to happen. I actually think March 29th is a dead date. I think it has close to zero relevance now, because I think actually what's going to happen is we're going to go over that date, Europe will give another week or two, the meaningful vote will then be heard, and at that point I think all the politicians then will fall in line and she'll get the backing that she needs and we'll have a technical extension. Some of the other things that are happening here, and Conservatives upset as going back on her word. This is the Remainers within the Tory party. They see this, what she said last night, which obviously was very kind of pro-Brexit delivery of the kind of nation's vote. The Remainers getting upset because they feel as though she's going back on her word. She did actually say a few weeks ago that she didn't have a deal by now. Then she would request a long extension. So again, this is all Theresa May trying to manage the situation, and fair play to her, I think she's doing a good job of that. Jeremy Corbyn, the opposition leader, just so you're aware, he is also going to Brussels today to present his case for an alternative to May's plan. The government has promised MPs that it will put forward a motion in the House of Commons on Monday which they can use to explore different models of Brexit. And a government official indicated a third vote on the Brexit deal may be heard on Tuesday or Wednesday next week. So obviously this is going down to that wire where probably going to be necessary that Europe are going to have to have another gathering the day before the March 29th deadline. Michel Barnier obviously doubling down on his insistence that basically a long extension could only be granted if there was a new major event in Britain. By that, Europe have always stood by the stance that means a new political direction under the kind of second referendum, new general election type of avenue. So yeah, that's, that's where we're at at this present point in time. One thing obviously to look at is the agenda. Let me just put this link into the chat room now. So this is, um, the structure of the meetings that are taking place as part of the European Council. Let me just make this bit bigger so you can see everything. So this is the chronological hour-by-hour schedule. So you can see actually today they don't start arriving until this afternoon, so we don't get down to the working dinner which is when they start having working sessions, going to happen at 3:30, this is Brussels time. 7:30 is working dinner in the evening. And then tomorrow, more working sessions, and then the actual press conference from the European Council President is going to happen about mid— just after midday tomorrow. So definitely worth having all these noted down as additional timeframes. Obviously, if your execution of any trades within sterling, you need to be fully aware of when potential comments could be coming out. Uh, the other thing of course that's happening today, uh, are two things. Well, look, let me do this in, in the right order. Firstly, 9:30, you're going to get UK retail sales. Now, as you've seen with inflation data yesterday, it really is just a bit of a non-event, just given the context of this unprecedented era that we're in with the deadline for Brexit just a couple of days away. So retail sales, I think, will probably follow a similar suit to what we had with CPI yesterday. We're not expecting really a great deal of sustained price action. That's not to say that markets might be responsive very quickly, but any move would likely be just a fast money, uh, kind of speculative in-out type trade, if any at all. No one's going to want to sit in a position of any duration at this point, I think, uh, with a greater risk of getting stopped out. Uh, this is the month-on-month retail sales performance of the UK, and you can see it's been quite jumpy as a data set. Uh, the expectation value— I mean, the previous was 1%. We're actually looking for a month-to-month reading today of -0.4%. So taking us back down to the numbers we were printing in September, October of last year, and obviously a back negative from the positive reading previous. The range that we have is -1.6 to +0.5. So +0.5 is really not too shocking looking at the data set. -1.6 though, let's have a look. Last time we got down to -1.6 in UK retail sales, I mean, you've got to be looking at the depths of the initial post-EU referendum result, if not then going back to 2013. So if you did want that more reactionary move with a little bit more force, you'd be wanting to see UK retail sales month-to-month come in lower than -1.6. If that did happen, looking at the fact that our— that cable's already been tracking lower this morning, well, definitely that low print that we had amid some of these rumors about May's resignation yesterday, I think you could definitely see that 132 challenged and even broken. You've got around there kind of a cluster— yesterday's low, the 32 handle, and 31.95 being the S1 level. Break of that might open up a little bit further weight on the downside. And then just bringing in the other price action, 31 handle, and then following it further down to the low that we had back on the 12th, uh, would all be targets probably to be looking for. Bank of England, of course, that's the final thing on the docket for, uh, UK today. This obviously happening at midday, and I'm going to spend the grand total of about 20 seconds talking about this because it's most likely going to be an absolute non-event. We're looking for unanimous decision 9-0 in the vote split. There's nothing interesting going to happen with interest rates, or I would say commentary, because what can the Bank of England do at this point? Obviously we're on the cusp of making a very important decision which will have an economic impact for sure about the medium-term horizon for how our economy can perform, and subsequently the actions the bank will need to take. So at this point this is absolutely just a wait and see. Obviously you do get the minutes alongside the release with the Bank of England, and the one area that you need to be locking in on if there's anything of interest is about what is their view about Brexit and its repercussion on the UK economy. Final things to have a look at— this was— I know quite a few of you look at the Aussie currency. Australian dollar was up overnight. If you actually look at the Australian dollar, I mean, let's just quickly jump back to this. This is the dollar index from last night, and you can see here this is a longer trend line from the Dixie. This is the Bloomberg Dollar Spot Index going back to April of last year. You can see at the fourth touch and the break catalyst being that the dovish Fed and weakness of the dollar. We did break that, so obviously the Aussies had a dual-fold supporting factor. The Aussie spiked on the dollar weakness last night, and then the Aussie also got a little bit of a kick to hit its R1 in the futures after unemployment fell to an 8-year low overnight. Has pulled back a touch and now actually finding a bit of resistance at 0.7171 in the, in the futures, but just worth bearing bearing in mind. All right, quick review of the calendar then, and let me hand you over to Sam. So other than the UK retail sales, I know some of the live guys might be interested. Just so you're aware, you do have this Swiss National Bank, the SNB, interest rate decision that's coming up at half past 8. Uh, you've got the Norges Bank, so Norway Central Bank, giving their rate decision as well. Looking further on into the afternoon, weekly jobless claims, Philly Fed leading index from the US. You do get European consumer confidence, the flash reading at 3 PM. I would say maybe Philly Fed could be quite interesting given how weak some of those data points have been of late. So see whether or not there's been now a bit of a flatlining and bottoming out of the kind of rut of recent US economic data. Could be quite interesting. But overall, I still say still keep an eye on anything updates on the trade war side. That's still very important. Markets are still hypersensitive to developments on that front. And then you've got the EU Council meeting obviously taking place, so I'd be expecting more and more commentary in regard to potential outcomes and obviously keeping an eye out for rumors around Theresa May and her deal going forward. All right, I'll leave you with that. Let me hand you over to Sam, and I wish you all a good day, and I'll see you in the chat room. Thanks very much.

Hi guys, good morning. I hope everyone is doing well and enjoyed last night if you stuck around and traded that couple of markets. Looking quite interesting already today. We'll bring in the, the currencies to start with before going over to the equities, which are just coming to their lower levels. NASDAQ actually quite an interesting one, but that euro having broken out quite some, some key levels. Imagine this, uh, pink trend line here is, is on that 240, and you can see that breakthrough happened a bit yesterday, retested it before going on. And obviously the dovish Fed helping, uh, a fair bit. Uh, we are actually just pushing a bit lower. The dollar recovering a touch. And you know, if we look at the ECB, uh, Bank of Canada, last two meetings you've had that reversal in a couple of days. Is that going to happen? I mean, honestly, I wouldn't be too surprised. Is, uh, is the euro much stronger than the dollar really at the moment? I'm not too sure. But yeah, today anyway, let's have a, a look to sort of see what's, uh, what's going on across couple of those currency pairs. I think with that, that euro, if you've got a bit of sort of support going back to the high that we have back on the 3rd around that pivot level, I'd almost only use the pivot level as a profit-taking point. Probably worth, for those that are interested in, in the fibs, to get one from the sort of the bottom of that yesterday. You can see the 50% around that level as well. Probably not a bad area to look for some potential potential support. Uh, one market that really didn't buy into the dovishness last night obviously has his own thing going on, being the pound. And you can see that has just drifted low this morning, a break of a trend, uh, in the early hours as well. If we just put this back, you can see it was a decent opportunity, uh, just after 7 o'clock, and that is now just testing some of those lows from yesterday. Uh, levels below, obviously, other than yesterday's low, you've got 132 in the futures, but quite a key zone, um, as a whole. Going back, if I just take that around there, you can see we had some decent price action here on the, on the 13th where initial high broke through, found some support as well. So as a zone goes, you know, it's one to keep an eye on, uh, for sure. And as well, with any sort of potential profit points, if we were to break through, this trend line would also come into the mix around there. So Yeah, I'd be, uh, focusing on, on that sort of— let's call it 77, about 30-tick, 25-tick range for pound as a strong level of potential support. But really, this market, you can see, it hasn't done overly too much compared to the other dollar pairs. As Ant mentioned, that Aussie dollar was, was higher overnight and still relatively elevated. I think, you know, looking at this to— if you wanted to get a similar reaction to, say, the euro this morning where it has come down, I mean, the, the low of the morning, 71.51, and if that was to go, you still probably want the previous high of, uh, last night to go as well at 71.58. I think if that was to go, then you can get a bit more of a recovery down for sure. Equities, well, last night was, was a pretty pretty up and down, uh, reaction. The 2850, I remember talking about it and at the time had been a key resistance, just couldn't break through that. But also the, the low of sort of the, the S1. Yes, then if I put this on the longer time frame, you'll see why it's important just as a zone, was the previous high going back from, uh, the month. We tested it a couple of times, couldn't break through, uh, and then we're sort of retesting that level to the downside now. So really important sort of little zone on the S&P that I'd be, uh, be focusing on, uh, especially where we sort of closed the day. We had a couple of times where we did test that lower part of it, 2825, but only to reject it. But another test of this now, uh, worth keeping an eye. I think if we were to close the day below that, then a bit of a drift down to sort of around, you you know, the 2800 level, which I think would still be a good level of support, wouldn't be too far-fetched to think that could come relatively quickly. The, the NASDAQ, which was soaring last night, new high for the year on a really key level. Now you've got yesterday's previous high, overnight support, and the pivot all in the mix now. So keep a close eye on that and how that, that sort of holds or doesn't hold. And a break below that, then the, the low of of yesterday and the day before and previous highs, really strong level support that would sort of be potentially attracted to for anyone looking to sell this market. If, uh, you're only really interested in, in buying this market, probably worth getting a trend line on from those highs, and this probably would be something that you'd be focusing on later on in the days to see it sort of get squeezed in, and then you get that push above 74 4.21, a key level potentially just to be aware of as a resistance point. Uh, European equities, obviously we had a, a poor start to the day yesterday, but we are also continuing that now. I just— this is a— if anyone is short, probably not a bad little profit target just a bit below where we're trading now. You can see this would be the third test of the, the trend line. Now if we also draw a bit of horizontal line. Got some really key lows of the day, previous highs going back to the mid part of this month, about 10, 10 or so days ago. So yeah, really key area of potential support for the DAX there. But equities just under a bit of pressure this morning, understandably, following that reaction. It was definitely the DAX from yesterday, but also in US equities. But some support levels coming up, so one to keep an eye on. Oil with the rally yesterday post-DOE. Let's have a quick look how we're trading. Uh, if everything starts to come down, you've got to imagine oil is a bit too overpriced at the moment. Got a zone marked up here from, from yesterday with that $60. That's a previous high as well, so really key. Did chop through it late last night, but still got to imagine that should offer some sort of support. I think I wouldn't really want to be getting short in this unless we were to get under that previous high that we had back on the, on the 19th, so on Tuesday. And if that was to go below there, I think, yeah, quick move lower. However, I might want to take, um, the sort of the key that that's gonna— the signal, if you like, that that's gonna happen from other markets, uh, as well. As with any sort of day after, uh, the night before 4, uh, I'll just be a bit careful in looking for, you know, consistent, uh, moves to follow, especially in the dollar. Um, you know, the move yesterday was big. You know, euro has already come down a touch. Obviously the pound is doing its own thing. The Aussie dollar is, is higher, but still no, not on yesterday's high. So I'll just be a bit careful about getting too aggressive in these markets. If we just have a quick look over at gold, however, that is probably the one sort of dollar-related, uh, market, if you like, that is really pushing on. Got a couple really key resistance points just above today's R1, going back to, to previous days. And put this onto that 4-hour chart, you can see this, the significance of this level here. Really good, uh, support resistance. I'll be keeping a close eye on what happens around this, this level should we get there. But the break above the, the high that we had back on the 13th is obviously quite a key one as well. Just have a final look over the calendar just to remind ourselves what's happening, uh, over the sort of time of the day. 9:30, so for UK numbers to come out there, probably worth— well, it's an hour 20 away— looking to sort of exit positions you know, 15 minutes before that if you were currently short. US data 12:30 and then 2 o'clock and 3 o'clock for some EU consumer confidence. So afternoon looks a bit more promising data-wise, but would just be a bit careful about getting aggressive on, on the dollar looking for any continuation of this weakness. Hope you all have a good day ahead of you. And I'll catch you in the chat with any questions that you might have.