DUP agree to support May - is this important?

Okay, good morning. It is Friday, 25th of January, so hope everyone is well. Quick overview, going to take a slightly different tact for the briefing this morning. I'm going to talk about the news and then I'll hand over to my colleague Sam, who's been covering the briefing last couple of days, and he's going to look over the charts because I know that he was very much involved in the market yesterday and he's probably going to be best placed to advise in terms of some key technical levels and setups. Um, but from a news perspective, let's run through some of the headlines. And well, first of all, let's get a flavor for the general sentiment for this morning and what the charts are kind of reflecting. And as you can see here, just to go over, because I know now we previously had a single chart, we've now got multiple on the screen. So just to be clear, got the EURUSD future top left, um, cable middle, gold future on the right. Got the DAX center left, NASDAQ, S&P at the bottom, WTI crude futures, and then T-notes in the bottom right-hand corner. So just so we're clear, but yeah, looking at things this morning, a couple of standouts. One is the DAX just pushing up, just had a test and a rejection of the R2 earlier, and it's just pushing above there at the moment. So pretty strong gains straight out the gate. Eurostoxx obviously following suit. Just short, finding some resistance at the moment at its respective R2. So following on from the ECB, which I'm going to recap in a second, a kind of summary, because at the moment, although EUR/USD pair is up marginally, obviously we've had quite a seesaw movement, and I'll try and explain a little bit in a review of what happened and where we go from here. Um, but otherwise a positive start for European index futures. US likewise seen marginally higher at the moment. A couple of things then in the news that people are looking at is that the follow-through from the Asian Pacific session, technology sector in particular quite firm, a couple of chip makers in particular. I was looking at the breakdown of the kind of heat map of the S&P this morning just because I wasn't on the desk yesterday and I wanted to see like what was the performance. And I can see kind of, well, two obvious things. And when you're in the midst of earnings season, uh, the heatmap can be quite good for just identifying where the, the overall kind of trends, strengths and weaknesses were. And, and chipmakers were very strong. And you see Texas Instruments up about 7%, Intel was up about 4%, but that all came before their earnings report, which was after market. So general point being a positive read across into what's happening despite what looks like still quite a far distance between the parties of US and China coming together for a compromise. And we'll have a quick glance over some of the headlines that happening, but essentially Wilbur Ross said that US-China trade deal will hinge on whether Beijing will deepen its economic reforms and further open up its markets. And it's kind of mixed bag of comments coming out of the US officials between Kudlow and Ross, kind of saying the crux of it, that some of the easier deals are getting done, like the amount of soybeans, for example, that are being purchased by China, the kind of easy fixes. But things over things like intellectual property, which is much more legally quite sensitive and a more difficult area to compromise on, still remain unresolved. But at the moment, it's, uh, equities have held up. And I guess that just— we should have a talk about the ECB and before we, we move on to things like Brexit and other subjects. So just having a look, let's put this on a slightly shorter time frame so we can see some of the price movement from yesterday. So press conference, obviously, where the bulk of the price action came, and as we weren't at all expecting any immediate changes. The statement, other than just removing the phrasing now that they finished the asset purchase program, was, was pretty standard. So the press conference initially moved lower. You can see that, uh, quite extreme wick on that particular candlestick of the half an hour of the beginning of the press conference. This was where a lot of people kind of talking about the fact that the ECB is kind of catching up to reality in some respect. The point being that obviously there's multiple risk factors out there globally, from this global trade tensions, the China slowdown, German automotive sector, Brexit. We had the PMIs as well, obviously showing the kind of continuation of this fear about ongoing weakness structurally in Europe. And so these risks are now not new, but it has forced— and what is new is that ECB's Draghi is kind of becoming more clear about the stresses in the market, and that the ECB's biggest concern now is that these risks could materialize, and he is concerned about the persistence of general uncertainty. So it's kind of like a little tip, if you like, to the fact that conditions have changed and warrant monitoring with quite high vigilance. A couple of other things to be aware of though, he was quite clear that does not exclude a more benign outcome though, and also stated the probability of recession was still low. And I think that is generally the market's consensus here, although undoubtedly there is a slowdown happening. The, the chance of an immediate recession is probably still relatively small, but that's not saying that one could definitely happen, uh, in the kind of medium to longer term. In summary, the increased uncertainty as well as the persistence of the uncertainty motivated the ECB to shift its balance of risks to the growth outlook to the downside. Now this is for the, for for the newer traders, this is when you need to become a bit of a linguistic genius to try and figure out what it is that the ECB are trying to tell you. So the subtleties of this are pretty minuscule but very meaningful when it happens. And the actual phrase that they said was, "The risks have moved to the downside." Now in December they said risks are moving to the downside. So that sounds very similar, but in fact it is, if you know your ECB policy, quite different and actually highlights the fact that the ECB are saying that, you know, things have actually moved on since that initial kind of downside risks. Now, you know, we're actually getting there. So we had an initial dip But then we rallied quite aggressively, as you guys would have seen as the Q&A went on. And just reading a couple of research reports this morning, what a lot of the strategists are saying is that the reason for the bounce was that the fact that there was a risk that more long-term or targeted long-term refinancing operations— these are called TLTROs, which essentially are a kind of 4-year low-rate loans given to the kind of major banks in Europe in order to kind of add liquidity to the system. So it's kind of a stopgap of not moving interest rates, not doing QE. It's like the in-between measure of helping facilitate the end of quantitative easing. You can provide banks with more liquidity so that it's not such a shock when you remove the stimulus that's been in the system for so long. So Teltros weren't mentioned and there was no explicit commitment to doing them at any predefined point in time. So if anything, then that's hawkish in itself as a singular thing where they could have introduced that and they didn't. And so you had a bit of a recovery. We actually went even above the commencement of the press conference itself and reversed the entire dip that we had right from the European Open. You know, one of the things, of course, was that, you know, the other point here is really important is market positioning. Remember, everyone is aware, you know, the French economic data that we had in the PMIs yesterday morning was a bit of a disaster in terms of its measurement of the economic performance of France on a service and manufacturing basis. But is that really a surprise? And so you get a little bit of market positioning confirmation after the French number. People inevitably are very much on the side of belief that he's going to be dovish. He then is dovish with that balance of risk comment, but then he doesn't go as far as introducing things like TLTROs and so on. The market reverses. Then though, importantly, the market does come back down, and net-net, we are marginally lower, but there was a pretty decent move seen at the back of yesterday. Now Obviously we're trading EURUSD, so it's not just a euro story. The dollar's got to be taken into consideration. But I think net-net, again, listening to the talking heads on Bloomberg, all the big major banks, is the fact that, you know, Draghi is right. You know, the reality of the situation is there are lots of risks which ultimately, given the market's pricing is so disconnected from what the current communication of when they're going to hike rates, for instance, is going to be. That they're more likely to be in this holding pattern. If not, you know, this tightening of policy is going to put way off, you know, it's going to be delayed substantially. So inherently that should lead to euro weakness over the longer term. So that's kind of the story at the moment. That obviously, that belief then in that latter statement means that for the moment that's an equity positive thing. If the ECB are kind of leaning on that side of thinking, moving ever more to a kind of dovish view, then that should be equity supportive from a, from a monetary policy point of view. Okay, a few other things, uh, as I said, from a story point of view, a lot of focus on the US and China. And actually, if I just quickly flick over to this chart, that's really been the major theme of the week. If you take this the week as a whole, and from a macro basis, global equities are on course for their first weekly drop in 5. Now I know it seems like, you know, you read a lot of the press, it's kind of overtly bearish and pessimistic. Actually, the equity market of course has had a phenomenal recovery after the collapse that we had at the end of last year. The point being though is that this is going to be potentially the first down week for global equities in 5 weeks. And one of the returning themes certainly that's happened is this government shutdown is kind of dragging its heels. In addition to the— what has been quite key so far is that the market seems to have been comfortable enough at this point in time to not really react too much to the government shutdown. But the renewed kind of threats, if you like, and the impasse that looks to be between US and China, that's what's really spooked the markets as the major catalyst for the week as a whole. Now, on the China side, just to give you some dates, China is basically sending a delegation including deputy ministers, and they will arrive in Washington on Monday. So I would expect quite a lot of press coverage over the weekend talking about what the latest kind of sentiment is and rumors and so on. But what's quite interesting here, of course, is that China are sending ever increasingly kind of more senior officials to these trade talks. As you'll remember, I think it's, what, 90 days until that threat of tariff increase on $200 billion from Trump from 10% to 25% will kick in. So time is of the essence, and this certainly now is getting more important, and hence the reason why the market is getting ever more sensitive to it. But these talks on Monday will be quite critical. As I said earlier, Kudlow, Wilbur Ross, and It doesn't really look like it's making much headway at this point, but the right people are at the table is what I'm trying to say. So more of this to come, and certainly from a kind of Trump tweeting and rumors and things like that, certainly this is a key narrative to keep an eye on from a sentiment point of view, from intraday. The other thing of course is this— this happened last night. I don't think really this actually As you can tell from the way the market has reacted, which is hardly any reaction, I don't think really anyone was thinking that the proposals that were being heard in Congress yesterday in the US was going to bring the end of the government shutdown. I'm going to get to a point of why I think Trump and what I think Trump is going to use as his measurement of when then the the time will come to cut a deal, but a bit of background here, the Senate voted down two competing proposals aimed at reopening government departments last night over this border wall standoff. The development meant that there's no immediate resolution to the conflict that has left 800,000 federal employees without pay. Now, one thing that you would have read earlier this week is that the dispute has forced Mr. Trump to delay his State of Union speech at the insistence insistence of, uh, Miss Pelosi, uh, and is costing the president in public opinion polling. Now, this is what I feel actually is quite important to try and have a logical assessment of when the deal could happen. Now, a CBS poll this week found that 7 in 10 Americans did not believe the border security debate was worth a government shutdown, while an Associated Press NORC poll released midweek found that Mr. Trump's approval rating has dropped to 34%, down from 42% just a month ago. So he's lost about 8 percentage points in public opinion. Now, for me, Donald Trump uses two real key things to define his timing towards his negotiation, and that one of that we know is the market. As we said before, as long as the stock market is holding up, kind of gives him enough room to maneuver in order to further push his talks and kind of bully his way through. You know, as we saw when it came to the stock market collapse in December, you get a totally different approach from Donald on many different areas. The fact that the market's recovered so substantially gives him that room for now. The other thing is important— so number one is markets, number two is his popularity. Nothing frustrates him more than obviously him doing that, but one thing— and again, Sam's gonna have to throw me the red cap because I do start to sound ever more like a Trump fan— but one thing is that this whole media witch hunt thing. He almost gets away with it. He can almost get away with low opinion ratings by now, this belief that people actually believe the fact that, well, you know, when he tweets like he did last night that corporate earnings are great, media doesn't talk about that. All they talk about is the witch hunt and Russia and all these sorts of things. He kind of— he's done a good job at brushing under the carpet a lot of things that would bring down any other administration. So yeah, point being, when it comes to the government shutdown, I think when the markets really start to move into risk-off mode on the back of this— and there is an inevitability about it because every week it goes by, it almost economically equates to about 0.08% of a GDP knock-on effect. Now, we've discussed this before. From a data point of view, as soon as a deal's done, even if there is a dip, typically things tend to bounce back. The problem is we've got a trade war going on as well, so a loss of output over the near term layered in with an unresolved and a threat of a no deal on the trade side could be highly detrimental, and he's definitely aware of this. So, you know, these are things and considerations I think you need to think about at this point in time. All right, quickly then, before I hand you over to Sam and he talks charts more, um, obviously one of the big things that you've— you would have seen, and I'll let Sam look over the, the sterling chart in more detail, the one story I just wanted to mention was this one. Um, you know, one thing for sure when it comes to, uh, news is don't let your natural belief that actually the best, the most authentic, the most trustworthy, the most timely news comes from things like only The Times or The Telegraph, just because of those public publications being more serious or more business-minded. The Sun actually has had some really good scoops and exclusives when it comes to the Brexit debate. And they've had one last night. And actually, if you look at cable on the chart— well, let me just briefly show you. This came out last night, and you can see here, this was that pop that we had in the pound upon the reaction when markets reopened, because this came out during— I'm looking at the futures chart. Spot already would have been moving, but the futures market would have been closed, the reopen, and then we powered higher on the back of this. Now What is it? Well, this is the DUP, which obviously are highly important to the fate of Theresa May and any potential deal getting over the line. And The Sun are basically saying the DUP has privately decided to back Theresa May's Brexit deal next week when she toughens it up. A major breakthrough for Number 10. Well, let me just quickly give you a summary of exactly what's happening here. Here. So what could be a crucial shift— it's emerged that DUP are willing to accept a backstop as long as it's specifically time-limited. In another twist last night, Tory grandees told The Sun that they've tabled a new Brexit plan of their own in a bid to end the Conservative civil war. So that latter one, the group led by the 1922 Committee, which is obviously very crucial— if you remember, this is the whole kind of the vote of no confidence we had in Theresa May several weeks ago. They have issued a fresh call on the PM to get the backstop removed altogether. Now, I'll give you my thoughts on that in a second. Let me read you through the other points. Now, senior DUP figures say they now fear pro-Remain Tory MPs will side with Labour to deliver a significantly softer Brexit if the PM's deal is voted down on Tuesday. Now, one of the main things that we've had here with the pound appreciation as we've gone through the last week, really. I mean, we're trading back almost to 132 handle here in cable. This is a, a very substantial move to the upside, and a lot of this has been based on the fact that ultimately it's grown in probability that Article 50 gets extended. And as things have played out so far, this could lead us down a route of a softer Brexit being delivered. Now, at the risk of that happening, this is what is quite key at the moment, and what the senior DUP figures are suggesting is that they don't want Parliament to take control, which has been this whole kind of risk factor that could happen. They want then is, they don't really like May's deal, but they could be forced to support it in that sense. You've heard actually something similar from Jacob Rees-Mogg earlier. He said that it's looking like we could have no Brexit, so I'd rather support May's deal than have that situation. And it's emerged last night that Boris Johnson reportedly is said to be close to backing a backstop time limit as what the DUP have been suggesting could be the way forward. Now, point being here, and I'll leave it with this, with this subject, is It's almost like a broken record. We've known that this Northern Irish issue, the backstop, was critical. It has remained so all the way up over the last, certainly the last 12 months. It's been the main sticking point and talking point. The fact that some of these Tory pushes from the backbenches are that we should remove the backstop altogether, I'm sorry, that's just not not gonna happen. I mean, I think Europe have been very explicit about that, and for the reasons about the peace agreement in Ireland in particular, that's just not gonna happen. So I don't know when these politicians are gonna get that. Um, the idea though that the DUP could accept the backstop on a specifically a time-limited basis, I guess that's kind of a softer version of that, but I'd be interested to hear. I would imagine Europe will come out today and say that's not going to happen either. So yeah, we're kind of still stuck on the same issues. So despite the volatility, if you go back to the pound this morning, I think people are coming to that opinion. We obviously shot higher overnight. It looks like we're going to get potentially May's deal over the line, DUP support. The technicalities remain the same. and so pound's just come all the way back down again. And this is definitely a pound movement because the Dixie really— the dollar index is not really doing much at all at this point. Okay, so that's it. Let me just quickly show you the calendar and then I'll, uh, let Sam come on. Now you do have German IFO coming up in a second. The one thing I would just quite quickly like to say is I wouldn't be expecting too much of a market move off back of German IFO. Because if I was to ask you, on the balance, do you think it's going to be likely a positive or a negative number, I would imagine most of you would say, well, given everything we've been discussing, it's more likely or not that companies, given a lot of risks out there, given Brexit, given the political situation in Germany, given trade wars, most companies you would imagine are getting more downbeat over the, their forward-looking 6-month perspective. So I don't think IFO is going to be particularly shocking, even if it is bad. I don't really see what else the market would expect. And so although you might get a little bit of movement, I wouldn't be expecting a dramatic collapse of the euro, if anything of that nature. But I'll let Sam— I'll tell him the number as he's going over some of the charts so he's aware of it and he can relate to you. Otherwise Quite a few US data points, uh, coming up in the afternoon, but as you can see, they've all got asterisks beside them because of the government shutdown. Whether or not they'll come out is yet to be seen. ECB's Coeur has spoken already in Davos and basically was saying that ECB are very clear that they really are not able to give clarity as yet until the outcome of near-term developments as to whether or not they're going to stick to the plan of hiking interest rates through the summer. But ultimately, I think people are expecting very much so that that's going to be delayed. Okay, with that, I'll wish you a fantastic weekend, uh, and I'll see you in the chat room later. I will take my Trump hat with me. Have a good weekend. Still on the ground?

Yes. Yeah, thank you, Ant. Um, yeah, just looking at a couple of this, you can see DAX is pushing up here as equities are in general. So do keep an eye on the DAX, obviously, with the, the IPO data coming out, uh, as Ant said. Uh, just having a look at a couple of them today, a couple of charts from a technical point of view. Obviously, the, the sort of the weekly close is going to be quite important on a couple of these markets. Pound is coming down a bit lower, and I was looking at this chart more on a, on a daily, um, time frame just a minute ago. If I just clear up the pivots and put it on that daily, you can see the, the significant break that we did have the back end of last week, and it has continued now. But the, the rejection that we've sort of seen overnight and and sort of buy the rumor, sell the fact headline of that. I think it will be key to, to see whether we can get another test at the high that we had back in October last year, or in fact we come back to test the, the trend that we had broken as well. I think key levels to the upside is going to be that 132, and, and the downside, 130.40, which is the high that we had initially on the 17th of Jan on the futures level. I think that as a zone is going to be pretty important. At the moment, I still do favor the upside, albeit I think we could come a bit lower before that. Oil yesterday, uh, sort of brushed off some otherwise quite bearish numbers, and we had broken out a bit of a, uh, sort of a pennant that we were in on the lower time frame. And again, you know, the strategy that we've sent out for the last couple of weeks has been Talking about this level just below 55 is very important. You've got the highs that we, we had back in the 4th of December, and even going back on a much longer time period to look into October and November 2017, you can see just how important that is. I think we get above that, the S&P is gonna get above that 12th of December high, and we look to continue on. But at the moment, we've struggled a couple of times. So whether we could have a go at that today or not, I think we'll be quite important. And that S&P level still not in reach, around sort of 2,700. The trend channel that had broken back into last year and retested as good support and resistance multiple times, you can see, held the S&P from any further down move this week. As I said, we're on course at the moment for the first down week in a while. But the last 2 days we've had higher lows. So quite key to see where we finish this week. And I think if we can, you know, just lower it down and maybe even confirm a break above the high that we had back on the sort of cash open on the 23rd, that would be pretty important as well. The euro, we've just got the data that's just come out, and you can see just a bit of a blip there. But let's have a look on the 5-minute. You know, nothing too much. The, the 240, uh, time frame for me looks quite an interesting one. I actually just tweeted this not too long ago. It's a quite a good area, I think, to, to look for the short. Obviously the data coming out, so maybe just wait for that to do its thing. But if we look at the trend channel that's contained price for quite some time, you see we've had a couple of false breakouts, come back in, and the final break yesterday following the ECB and confirmed a break below that. We're just looking to come back to test almost the top end of that, which is also the— well, would— where we just come off the, the high, uh, there today, which is the low that we had on the, the 2nd of Jan. So quite a key area. Again, looking at those daily closes, uh, and then weekly close will be pretty— be pretty important, uh, here as well. Euro pound is having a bit of a recovery. It's actually the lowest it's been for quite some time. I put this on a weekly chart. You can see again it's gonna be massively important where we close this week. You've got the, the week of April last year, which was also the May 2017 low. So we found support on there, good bounce really from overnight. If we can confirm a break below that, then why, you know, with a bit more positive spin on the Brexit? Why can't we start coming back to September, August, November, December lows as well? And as Michael just pointed in the chat, let's have a look at the DAX because that is at a high for the year, and equities across the board just helping or following the lead here. So I think by the end of the day there'll be a bit more clarity in perhaps moves for the weeks to come. I, I— it was a great opportunity a couple of days ago for, uh, the equity pairs to have taken over, and they haven't really. Oil has stood strong as well, uh, so while it may be a down week, if we can, you know, have 3 higher lows in a row for the S&P and confirm a break above— well, I think the R1 is probably a bit more important today because you've got the, the lows that we had on the 22nd— then why can't we continue to push higher into to next week really. The dollar itself has been quite choppy, uh, the whole week and really the whole year. And gold, which broke out of that, that range on the, the 18th— I talked about this yesterday— we're almost coming into a new one with those lows around there. So maybe the weekly close could give a bit more direction if we were to break above those highs. Likelihood is that the dollar is a bit weaker But if the dollar's to strengthen, I don't, I don't mind the idea of a break of yesterday's lows and S1s all the way back down to looking at the sort of end of December 26th, Boxing Day, the day low as well. So a couple of interesting charts, how they're set up. Equities pushing on. I think the pound for the moment remains bullish overall. Euro looks quite bearish, and there's some P in oil remains to be seen, but I favor the upside. Any questions, as usual, please do get them in the chat, or if you're watching on YouTube, in the, in the comments as well. If I don't speak to you, I hope you all have a great weekend and good luck to Arsenal tonight.