Draghi & Trump to rescue as markets await FOMC

All right, very good morning. It is Wednesday, 19th of June. Hope you are well. Joined here by, as you can see, the kind of chain effect, two special guests, two men that caused a large degree of market movement yesterday. Donald Trump, and Donald Trump pointing the finger, of course, at Mario Draghi, tweeting that Mario D unfairly propping up the German DAX and weakening, manipulating their currency. But yeah, what we had yesterday was obviously a really interesting day. Lots of large movement derived on the back of a surprisingly, to start with, hawkish— excuse me, dovish Mario Draghi, where he came out and effectively said in terms of ECB policy, they've got the options available to them such as cutting rates restarting quantitative easing, changing their language. You know, there was lots that came out that caught many by surprise and obviously created quite a meaningful move in European assets, that being a lower euro, supporting of not just European but global equities. You know, the, the eurozone area being so pivotal, and does that set the stall out now for the Fed to follow suit and move in sympathy with making equally dovish noises. We'll find out later on tonight. But that was then followed by, of course, the US President kind of playing his usual flip-flop on the China, the way he feels about them at this particular point in time. And obviously equities have had a bit of a rough time of it of late. So help propping it up and giving it a second injection, if you like, to the upside yesterday, and also helping at least short term mitigate any growing demand concerns for commodities, because we saw a very strong move as well in WTI crude oil. Talks with China seemingly progressing again ahead of the G20, where there was some speculation around whether or not the two would even meet given the recent fallout over Huawei and the technology names and what has been happening with Mexico. But the point being is that Both sides have confirmed that they've had a telephone call, it was positive. They're going to look to have an extended and at-length discussion at the G20 coming up at the end of the month. And in fact, they're even going to go as far as having preparation kind of discussions ahead of that as well. So yeah, firm close yesterday, quite positive moves of course. Now one thing that has come out since that point, this is a Reuters exclusive, and I believe the comments that came out, just given the tone of this article from Reuters, I would imagine it was indeed Bloomberg that broke the source story or the initial comments in regards to Mario Draghi. And so Reuters have come out and they've taken a slightly different perspective. They've basically contacted their sources, and the sources are saying that Okay, we've had some of these discussions about the options of easing in various different forms, but we're nowhere near any type of consensus. And actually, we've been caught a little bit blindsided by the fact that the president, Mario Draghi, has even started talking about this yet. So I guess this is a little bit of— this isn't the sources criticizing or talking out against Mario Draghi. This is definitely much more a case of the ECB looking to just realign things a little bit. It's kind of normal mechanisms of how they communicate, uh, so that all options are left on the table and the market doesn't run away with itself, that the ECB are in all-out assault dovish mode. But yeah, quite interesting that they've reined it in a touch, you would say, by the— what this Reuters article has been suggesting. So euro's kind of steadied out. If I flip over momentarily to the charts, you can see euro top left it's kind of flattened out, it's consolidated, if anything, holding on to a large portion of the loss from yesterday. Equity markets, you can see the DAX, uh, equal kind of price movement after the aggressive rally yesterday. We're kind of again being in a sideways range. Similar case for the US indices as we kind of await the next cue, and that ultimately is not going to come until this evening when we get the, the FOMC announcement. So oil, the same Bund's the same as well. If anything, where we left off from the European close yesterday, we've kind of remained at around similar levels. A few other things then to have a look at. Um, this of course was Donald Trump's tweet that moved the market yesterday. This was that conversation where the extended meeting next week at the G20 in Japan— respective teams will begin talking prior to the meeting. What was very interesting actually was that even though he made this quite conciliatory tone in his tweet, he actually had a campaign rally where he formally announced his running for the 2020 presidential race. And in, I think it was Orlando, Florida, he then started criticizing China again. So it's just quite such an amazing era that we're in. He kind of— equity's looking a little fragile, he gives it the Trump bump, and Up it goes, and then he gets in front of the Joe public in America. "I hate China. China are taking advantage of us." And so there very much is a Donald Trump who communicates in order to appease and influence financial markets. And then there's the Donald Trump that communicates to the public in America to try and, you know, kind of cajole sentiment around his, you know, his policies and his agenda and so on. But markets haven't reacted to that, what he said last night on Orlando. We know that effectively when push comes to shove, more likely or not, he's gonna wanna manage this situation. All about timing, of course. And as we're gonna discuss, it's this idea about generally market consensus of the belief that Trump, it's a necessity for him to manage this in an appropriate way so that equities don't collapse and the economy doesn't suffer, that has led to many big Wall Street banks— Goldman Sachs being probably the most notable name— all thinking that the Fed will not cut rates this year despite the market pricing, because of the management of these types of big top-level risks. But we'll get to that in a second. Talking about the Fed, of course, uh, this really is the main event of this week, you know, this month, kind of trade talks aside. This really is the major influencing factor for markets. So definitely there's plenty more to come for the rest of this week for sure, on the coattails of whatever we hear tonight. So just to stress, I'm going to be covering this live on our YouTube channel. Coverage will commence at 6:30 PM. So if you subscribe to the channel, turn on your notifications, you'll get an alert push on your phone and also an email as soon as that session goes live. It's going to have a chat facility. So me and the team, I'll be covering— I'll be giving you a full briefing. I'll analyze it in real time as it happens, post-analysis, both myself and then technically from Sam. And there's going to be an ability to chat to the team as well as it's all happening. So hopefully you can join us. You can do it on the move on your mobile as well as your desktop, so hopefully that suits everyone. But I'm going to go into that, uh, the kind of Fed preview in much greater detail later on this evening. What I'm going to do here is give you a brief overview of some of the key points that we're looking at. So really it is kind of decision time. Markets, we know, we've discussed this many times, are priced quite aggressively for interest rate cuts. Not so much an interest rate cut in this particular meeting. Federal funds rate futures are priced at about 20% for this meeting, so possibility but low, but very much so priced for a 25 basis point cut in the next meeting, which is at the end of July, and then possibly subsequent cuts thereafter. So what are we looking out for within this? So there's a couple of graphics here One is the kind of statement. Now, the statement could be particularly important because the types of words used around the descriptive nature of what Federal Reserve members are describing for the US economy could be very telling for the future course of action. So, you know, let's stick with the base case here. They don't cut rates. But the question is then what happens next? And so a couple of things. One, downside risks. You can see here, you know, the economy has, as far as economists' views to the risks to growth and inflation, have soured since the last time that we got the Summary of Economic Projections. As you can see here, the black bar has got increasingly larger over time, and we've kind of had a distinct shift from where we were in September before the kind of real Q4 rout that we had in markets to where we are today. So with that being said, then we are expecting some downward revisions in the likes of growth going forward. Inflation, that's been one of the main reasons why, kind of tepid inflation, of why people have been pricing in these cuts. Now interestingly though, this is a, uh, what I saw on Bloomberg this morning, a traffic light policy conditions. I can't say I've seen one of these before, but I kind of like what it's suggesting. What it's looking at here are a couple of different indicators, you know, possibly that the Fed will look at in terms of market pricing. But it gives you an idea of where they're at, where the economy is at, and why or not there is a need to take action. So let me just quickly explain. Going from left to right is time. So if you go all the way back, this is when interest rates in the US were sat at 0.75%, and this was then when interest rates— the red ones are when interest rates have changed, and in this case gone, gone up. So here you can see, as we've raised interest rates, the S&P's been, you know, really strong. Now how these color codes work is the more red it is the more indicative it is that the Fed should be tightening policy. The more green it is, the more the Fed should be loosening policies or cutting. So here you can see inflation was the only thing that was relatively soft at the point of which they were raising rates. Still though, given the strength of the stock market and given some of the other areas like the unemployment rate that was dropping at the time, the financial conditions index was picking up, warranting that they were showing the economy was improving and heating up. So rate hike, rate hike, rate hike, we take us all the way to where we are at the moment. Now you can see here the stock market is quite a notable, noticeable difference. Every time, and what has been a very clear pattern, there's been this pretty one-dimensional and consistent stock market increase. We had the wobble at the end of last year, in the beginning of the year, but then a really significant turnaround pretty flat at the moment. The other thing is here the unemployment rate remains particularly low. And one thing is, if you actually look at the stock market as of now, just given the rally we had yesterday, and as I said, the belief if this China trade war gets managed correctly, well then that would all suggest then why the need to be so aggressive in the action you're taking now. A lot of the commentators have said that why would you cut right now in this meeting? Some people believe that might be the case, but the risk here is that if they were to cut now, that would be very preemptive action. And the question marks— even though you might get an initial quite positive response in markets that the Fed are being proactive, I think in the medium term, once the dust settles, the market will start asking the questions: why have the Fed felt that they've needed to take such drastic immediate action. What is wrong? Why are they seeing this? And I think that in itself would instigate a degree of more uncertainty and more panic. And I think that would backfire as a strategy, uh, in terms of how the Federal Reserve will want to manage this. And hence the reason why I believe they won't cut tonight, but they will be signaling a July cut. So yeah, looking at here It's the inflation figures and obviously the inversion of yield spreads or pushing towards that. They're looking at the 2s, 10s here. That would all be things that would say that not only is inflation conditions low and low unemployment isn't really influencing that in its traditional sense, but these indicators that have been good precursors of impending recession have also been kind of flashing that the course of action is probably going to be prudent to loosen policy. The thing then that this will come down to in terms of the initial headlines that we're looking out for could well be just the numbers associated with the, with the dot plots. Obviously, this is the March dot plot. Now, this looks significantly out of date because of how things have changed. The purple and white lines here are basically overnight index swaps and the Fed funds futures. And as you can see, they're much more dovishly priced, i.e., interest rates could be a touch lower at the end of this year and then dropping thereafter at the end of 2020 and 2021. The big question mark here about how hawkish or dovish the market will react is about if this is the current market pricing and this is where we are in the Fed dot plots, how far does the Fed come towards where the market is. There is a distinct risk, I feel, that the markets have got too carried away with this dovish pricing, and what's going to happen is the Fed do become more dovish, but not just quite as much as the market were looking for. As a net result, it's not that they're hawkish, but you get a kind of hawkish reaction, if that makes sense. But again, we'll go into this in much more detail in specific assets and how they'll react later on this evening. This is those major banks. I just wanted to give you a bit of a flavor. You can see here Citi, Goldman's, MS, UBS, they're all expecting no rate changes at this point for the rest of this year. Quite on the contrary though, Barclays, the most aggressive Barclays, are looking for multiple rate cuts and they're looking for the big one. They're looking for them in July. Barclays believes the Fed are going to pull out, you know, the 50 basis point cut and then follow it up with another 25. Um, Bank of America, JP, Deutsche looking for more graduated type moves, but Deutsche and Barclays looking for an end game with a much lower value by the end of the year, looking for 3 rate cuts. Uh, Bank of America, JP 2, the rest on the top line none. Okay, well that's it on the, the Fed side. One thing I would say is a word of caution for any of the new traders you probably will see relatively, barring anything unexpected, quite quiet markets this morning. That will be largely in anticipation for what has become now a very important event for financial markets. 2 months ago, this was seen as a bit of a non-event. The world has changed quite rapidly, market expectations have changed then accordingly, and now it's up to the Fed do they meet those, you know, those kind of lofty dovish expectations or not. Elsewhere, let's have a look at something else. We had, of course, the second ballot of the Conservative MP race for who's going to replace Theresa May, and you saw Boris Johnson has even improved further. I think it calculates out about 40% of the vote that he's capturing at the moment. Dominic Raab, the most hard Brexit guy, the chop, so he's gone. Sajid Javid just barely made the cut. Rory Stewart's had the one with the greatest momentum, going from 19 in the first round to 37, but he still resides back in 4th place. Now, we did have the televised debate, of course, last night. Um, let me just give you a flavor of that. I'm not sure if anyone watched the BBC debate last night, but It's embarrassing, it's all I can say. It's— I don't know, I don't want to get too political and start giving my personal views, but yeah, I'll leave it at that. But the one thing I think that was quite clearly evident, there was no real standout performance. And importantly, Boris Johnson, who appeared really for the first time facing questions in a live environment and against his competition, didn't put largely a foot wrong. He didn't make a big mistake, and I guess that's just a crisis averted as far as Boris Johnson goes. So all things remaining equal, I think Rory Stewart didn't put in such a kind of surprising performance of strength that he did before. I thought Sajid Javid did a better job this time of asserting himself a little bit better I thought Hunt and Gove were pretty much repeat performances of the first time round, and Boris Johnson didn't make any mistakes, not that he was particularly strong. So all things remaining equal, I would say if there's going to be a cut here, I still think that as much as it seems like the social media space has really rallied behind Rory, I really do think that he's going to get the the cup sooner or later, as too will Sajid Javid. I really think it goes then down to Johnson, Hunt, and Gove in the end, and then I think it's going to be Hunt and Johnson still, is my, my kind of base case view, because the necessary puppet masters behind the scenes will make sure that it's not a Gove-Johnson, which I think Gove is generally a little bit more pressing as a character and a little bit more aggressive in his debating skill, and that will be something the Johnson camp will want to be severely avoiding, because if you poke Johnson enough, I'm sure he'll come out with something that he shouldn't say. So I think it'll be a Hunt-Johnson story. The process we know now is that basically there's going to be another ballot that's going to happen, and then another ballot the day after, all the way until we hopefully by the end of the week should get down to the point of where we have the final 2 candidates. That then takes another couple of weeks. In the end of July, we have our leader. So again, as per the case, what we saw yesterday, the pound's not reacting to any of this. I mean, if there were a risk event, it was that, as well as describing this time yesterday that Boris was going to make an almighty mistake. But that just didn't happen. He's kind of reined it in and tried to stay rather quiet. It's probably the best tactic if he wants to keep his hopes alive. Other things, final headlines, then I'll hand you over to Sam. Oil markets, you know, definitely had a decent move to the upside yesterday, some good technical breaches of levels on the upside, nice momentum behind some of the movement when it was breaking those points. In addition to the fact that monetary policy stimulus helping mitigate global growth concerns, this kind of whatever-it-takes sentimentality, coupled with of course Donald Trump easing trade war tensions in the short term. So oil moved higher. Now obviously we continue to monitor the situation in the Gulf, particularly between Saudi and Iran. We heard yesterday that, you know, new US troops are going to be deployed to the tune of 1,000, 1,500 to keep peace in the region. The latest thing that's happened that's being reported from overnight A rocket hit an area of Basra, Iraq's oil and gas hub that houses several global oil companies earlier this morning, coming amid rising tensions between the US and Iran. So, you know, just more potential destabilization in the, in that area is something to be aware of. That's all. I mean, this headline itself not having a one-and-done kind of reaction in markets, but you know, things are definitely simmering away. And obviously having just more US military presence in the region should, should create more stability. But obviously if you're from the other side of the table, you could be seeing this as a hostile move and activity, and therefore it could ignite things even further. So definitely a fluid situation that needs monitoring very closely if you're an oil trader. Okay, quick look at the calendar. What have we got coming out? Because before the main event, the FOMC, there certainly is a few other things that are going on. So just have a look. You got UK CPI, um, that's going to be at 9:30. Now we are expecting year-on-year CPI to fall slightly, 2%, back from 2.1, a range of 2.2 at the high to 1.8 at the low. This is just a quick graphic of year-on-year CPI in the UK. And, you know, this is why when we hear from the various central banks this week— we've got the Fed, we've heard from Draghi, we've got the Bank of Japan, we've also got the Bank of England, of course, tomorrow— and it's actually the Bank of England are probably going to sound the least dovish. And one of the main reasons is, is that if you're X-ing out the impact and uncertainty surrounding Brexit, which obviously is the main focus, then actually the unemployment rate, the job situation, the wage situation, as a consequence the inflation situation— these would all be on the balance more hawkish indicators for policy. So yeah, definitely going to be a lot more even-handed rather than being dovish like we're likely to hear from some of those other, uh, central banks of late. But overall, from a market reaction point of view, if you're trading sterling, I wouldn't be looking for too great a movement on the back of the CPI. Traditionally a tier 1 release, but As for the aforementioned macro risks, predominantly focused on Brexit, it's hard to really put too much weight on these economic indicators. Um, if anything, I would say you've got to be looking at numbers pressing down at really 1.6 on the lower bound or 2.4 on the upper bound for it really to be something of more magnitude where you might get a bit more of a decent run in the currency, I would say. Back to the, the calendar. Other than that, other than inflation indicators out of the UK at 9:30, uh, it's pretty quiet for the European morning. We then get into the US session, again equally pretty quiet. We get the DOE all-infantry numbers. So while Sam is on the mic doing the technicals, I'll populate the chat with the API numbers from last night. But I believe it was a drawdown, if I remember what I saw last night before I went to bed. And then you've got some Canadian numbers as well for the currencies. Speaker-wise, the ECB forum in central Portugal continues. I believe this is the final day, so again, I'll post the schedule of when any major speakers are going to be talking. I'll pop that in the chat room as well after this briefing. Otherwise, uh, it looks like on the calendar the closing remarks are going to be given by Mario Draghi at 3 PM, so I would be mindful of that event. ECB's Coeur also speaking, and Mautenschlager throughout the day as well from that same meeting. The ballot vote, if it's going off the same process for the elimination round of the Conservative race, that would be at 6 PM. And again, I wouldn't really see that as a market-moving event, to be quite honest. I'll just update you again tomorrow morning in the briefing. All right. That is it. Let me hand you over to Sam. He can talk you through a couple of the charts. And as I said, I'll pop a few things in the Trading Live chat room in the meantime. Okay, thank you very much, guys.

Hi guys, hope everyone has had a good morning so far. I'll have a quick look over the charts at how we're trading and some levels to be aware of after yesterday was a pretty good day opportunity-wise, certainly into the afternoon as we saw stocks really push on. So just having a quick look at today, I wouldn't get too excited trading stocks in really up until the build-up for the FOMC, likely to be pretty range-bound trade. I wouldn't be too aggressive looking to get in really unless we maybe came back down to the pivot, to be honest, which is obviously quite a key point as you can see see here, other than being the pivot, it was previous high from yesterday, and of course the previous high that we had back on the 11th of June. So unless we were to really come back to that, I wouldn't be too interested in, in getting in. And historically, when we have had a day like that where we're up, you know, I think whatever percentage it was, only the day before a FOMC meeting, only 2 of the 10 times that happened did the next day finish positive. So read what you want into that, but likelihood is we just drift sideways really in stocks. And I think there'll be, you know, better opportunities later on if at all. I just, you know, while sentiment right now favors the upside following yesterday, whether you'd want to get too aggressive or not, I'm you know, before the Fed. I'm not too, not too sure. A couple of, uh, interesting markets on the, the longer term. You can see just how great the support level here was on the Aussie. Let's bring this into picture. The, the low of the, the year, the flash crash low, pretty much to, uh, the tick, the bounce off that. If you remember Australian dollar going back, well, a few, well, a couple of years, 2007, 2017, 2018, pretty much the same as a double top there. Really strong resistance turned here now to the lows, looking to the lows, sorry, a decent level of support. Really, you're going to want it to get above 69.19, certainly on the daily chart, for, for this to be a sustained recovery. But a decent hold here off that, that first test of, of those lows and a really you know, nice, um, nice move higher following that, and helped I guess by, uh, just a bit of profit taking as well. It's having a look more intraday, uh, see, looking and favoring that 69.19, also the, the previous low from the 13th, you could argue the high of the, the 14th morning as well. That's certainly a point that I would keep marked up. To the downside, any potential targets should we, we break that low would probably be, uh, best targeting. Let's have a quick look trendline-wise. Yeah, I reckon not a bad way here. You can see you've got your, your free test of this around towards the S1, and this trendline could certainly be, uh, something to, to focus on there for, for the Aussie. Uh, but the key level remains near that R1. That's certainly where I'd be be looking at. Having a look at the, the yen as well. Pretty range pound overall, despite having a really strong push in the morning yesterday. And then as the equity markets soared higher, we did come lower, but those lows have held firm. You can see here the S1 and yesterday's low. It was certainly talked about, a good level for a range trade in the morning. Whether it could have got there or not was anyone's guess. It did, however, held firm, and also the high of the day marking at the top end of that range. And maybe for the better opportunity here, it's just going to be waiting for either of those to come into play or to break. Midpoint here, pretty much you could argue the pivot, previous resistance from, from yesterday evening. You can see just below as well, so you're lining the sand for maybe a move higher or lower, this sort of zone here where you had the previous high of today, the high of yesterday evening, and the pivot as well. Acting as a bit of support potentially. Now the pound, obviously you've got the data coming, uh, coming out. The, the high of the, the day, pretty much the low that we had back on Monday morning as well. So I'd still be keeping a close eye on that should we get through. And certainly there's some good opportunities technically anyway for, for the short a bit higher up. You've got the breakdown area here on the futures, 1.2639, and of course the R1— R2, sorry— and the high that we had from, uh, well, from the week so far. Your line in the sand, if you just have to have that drawn up, probably 125.88, just a bit below the pivot, uh, could be somewhere to keep an eye on. You can see how we found support, uh, from what was previously a resistance level around that 87, 88, 89. So if we were to get a break below there, then we can start looking at pressing towards yesterday's lows. Euro, which obviously weakened following Draghi's comments, has been pretty range-bound since. Uh, I'm not that I'd necessarily think we can get up to R1 without a reason behind it, but if we were to have a slow gradual grind and before the Fed, it technically looks quite a nice place to get in. But for now, range-bound, because we're keeping an eye on that, that double bottom from yesterday. If that was to to break, a quick run down to the S1 is always, uh, you know, one to keep a, you know, uh, an eye on. Also, just making this onto a 15-minute chart, you can see the trend lines, uh, here, well respected from yesterday evening to today, this morning, uh, and then to just, well, about 39 minutes ago, uh, on the hour, the top of the hour there, uh, for Euro. So above that, could get a bit of relief back towards the pivot where we saw decent enough price action yesterday, a bit wicky, but along with that pivot could offer some resistance going forward. Gold as well, which, uh, did the similar move to the yen, but what an opportunity it was for anyone that fancied the pivot or around that yesterday to get long. That has obviously pushed through as well. If we were to have a strong push higher at any point today, and of course ahead of the Fed, we'll be on the that might go through these levels. But you can see this trend line perhaps matching up near that R2 as well as a sort of a, an extremity for this move. To the downside, uh, really, uh, the— it's pretty range-bound on that low. If we were to get below that, another good opportunity for that range-bound long around S1. Yesterday's low still remains to be a half-decent trade. Let's have a quick look at 17th low on that trend line. Here you go, you can see we just found this trend line here that obviously have already just come into play. You've got your third test of this, this is quite interesting. You've got the low here Monday, Tuesday afternoon, and then just now as well, along with that low of the day. So one to keep an eye on if we do find support and push higher. If we were to break this trend line, you can imagine there being a faster money move targeting really down towards the S1, the pivot high of the day, uh, containing price for now to the upside. Let's have a quick look over European equities following, uh, you know, a decent push over here of the open. Pretty range, man. That summarizes what is most likely to be the case in the build-up to the central bank meetings today as well. Have a quick look at oil following the, the draw yesterday, not as, as big as expected, but still a drawdown for the headline number there. We are stuck within a bit of a range as well. Failure to push higher, be keeping tabs really 54.08 to the downside, maybe even calling it 54, and then 54.50, 54 to the upside. Unless we were to get a breakout of that, not too interested in getting involved in this market ahead of the DOEs later. Any questions, as usual, please, uh, do let us know. Obviously 8:40, so in— just going back, you've got 50 minutes now until the UK numbers. And, and, and as Ant mentioned, not expecting too much in the way of, uh, significant movement from that, just considering everything that's going on. And even with the Bank of England tomorrow as well. I hope you all have a great trading day, and I'll catch you all in the chat.