EU expects a 3-month Brexit delay

Okay, very good morning, Friday 22nd of February. Hope you're well. Going to go through really two main things from a fundamental perspective, and that is, well, three things. Got to talk about Brexit, quite a few news stories out this morning. And then we talk about the updates to US-China trade war because Donald Trump is meeting one of the key members of the Chinese envoy today on the trade talk side. And we're gonna look at the economic calendar, of which predominantly is based upon central bank speakers today. It's going to be really critical to keep an eye on the timeline of when they are speaking, particularly the latter, which is ECB's Mario Draghi, given the context of some of the economic data points we've had throughout this week. So that's what's on the agenda from me, and then I'll hand you over to Sam as per usual to look over the charts. So just to give you a bit of a flavor what's going on sentiment-wise this morning, I'd say it's It's pretty neutral overall. There's no real kind of definitive big moves that have been seen overnight. I've got a bit of an update to give you on the Aussie, just continuation of the chart we were looking at yesterday. But currency pairs, well, let's have a look. Let's get the euro. I'll just switch it over on the top left. So things are pretty steady, marginal gains. Both majors up about 10 pips. Euro-dollar cable comes with a basically flat dollar index. Gold flat. Equities, minor positive in the European bourses. US futures pretty flat overall, if not minor gains, sub their pivot at the moment. And Treasury markets particularly quiet. So fairly quiet, but certainly a few things that I can update you on, starting with Brexit. What is going on? Well, this is the headline that's being run on Bloomberg this morning. And as we get closer towards the end deadline, of course, on March 29th, now it's about, well, what's going to happen not just now but beyond that date if we were to get there, and that being without a deal. Now, the European Union, they've come out and said they expect Prime Minister May to be forced to request a 3-month delay to Brexit, according to 2 EU officials. So as per usual, these are unnamed so you don't know the seniority of the comments, but, you know, these are very tactfully done and probably signed off from the top, so I would say are legitimate. Now, that technical extension, because that's essentially what it is, would be to give British Parliament time to pass necessary legislation. So don't forget that it's not just Theresa May one day says, "This is what we're going to do," and it happens. Actually, it needs to go through the parliamentary process and go through the lower and upper house and become new then law. And so quite a lot of things that have got to be done, and hence the reason for a technical extension in order to get these things done. Anything longer than 3 months would put the UK under pressure to take part in European elections. That's at the end of May, 23rd to 26th, and that is something definitely that Europe, well, and Britain have wanted to, to avoid. Um, Europe for the UK kind of being at the table, and then from the UK point of view from them prolonging a period unnecessarily, uh, to the dissatisfaction of a lot of the Brexiteers, of course. Now, a few other things to be aware of. Remember I was commenting on that piece earlier in the week in the FT, and it was talking about Philip Hammond being called the spineless chancellor? Well, he's kind of semi-come fighting back. He said, uh, issuing a veiled threat that he will quit the government if the UK ends up hurtling into a no Brexit. Um, this then leads us into another thing here, which is this story, which is there's been a, a group of 100 moderate lawmakers in the Conservative Party who have signed a letter warning that they'll vote against the Prime Minister to force her to delay Brexit and take No Deal off the table. That was according to The Telegraph this morning. The Prime Minister also reported to have— and this was yesterday— to being put on notice by 4 cabinet ministers that they're prepared to vote for a motion to effectively prevent a no-deal departure. This, of course, is after it comes from yesterday— Stephen Barclay, Geoffrey Cox, and Michel Barnier, the kind of 3 major kind of policymakers around the negotiations, did not reach a breakthrough. And so this then leads to the prospect of these 100 lawmakers being speculated here, could coordinate to back Labour Party's Yvette Cooper and Tory Oliver Letwin to force a delay to Brexit if there isn't an agreement. On the flip side of that, obviously this more and more likelihood, and what we've been saying for a number of weeks about this extension, or at least a removal of a no deal. And obviously the Eurosceptics, the Brexiteers, have got to fight back. This is kind of their last chance saloon now to be heard. And they have warned that they will seek to end the government if Theresa May delays the UK's departure from the EU. As you can see from this, this picture, removing no deal is a betrayal. There's definitely sentiment of that, I would say, nationwide to some degree. And so the Eurosceptics looking to kind of leverage that up against the Prime Minister. These, of course, predominantly coming from the ERG, the European Research Group, which has been their quite strong stance from the beginning. Now, the ERG members obviously very concerned that come next Wednesday, which is the 27th, where it's looking like highly unlikely May will have a deal to vote upon, in my opinion, at the beginning of next week. We go back to Parliament, and this is when, now that you've got the formation of this new independent group, any more resignations that might come either today through the weekend, early part of next week, plus now these 100 Conservative MPs which may be ready to force May's hands to get rid of that and support Yvette Cooper's amendment. This obviously is what the Brexiteers are fearful of. Now, numbers-wise, some members of the ERG, which consists of as many as 90 Eurosceptic Tories. But the mathematics here is that if she says she's going to extend Article 50, apparently the rumours are that there's about 20+ ERG members that would take their bat and ball and basically head home. Another MP belonging to the ERG said that number was more like 10 to 15. Obviously This does create its own issues to a certain degree because if you remember Theresa May has a working majority which was reduced to 9 on Wednesday when 3 Europhile MPs quit the Conservative Party. So, you know, numbers are definitely on the balance, but I'd say the ERG in the end I do feel will concede and this is just kind of their last kind of bluff, if you like, to try and force the Prime Minister. But ultimately, there's so much stacked now from not just internally but also opposition and cross-party kind of will to get a no deal off the table that I think that's probably going to be the base case at this point. So yeah, that's the Brexit situation. One interesting thing I did read to finish in the FT this morning was was talking about the kind of legal process then of what would happen if we had a no deal. And if Britain leaves the EU without a deal next month, Europe's Brexit negotiators will not end talks but reset the clocks to a new cliff-edge date of April 18th. So 20 days. By April 18th, according to the European Commission contingency plans, Britain must confirm whether they will make €7 billion of net contributions to the EU budget for 2019. And, you know, long story short, if they don't, well, that means, well, there's not going to be any trade deal for you going forward on any type of near favorable term. Quite the opposite. And so this would obviously come as well after the markets would severely react to obviously a no deal occurring, XYZ. So yeah, quite interesting to just know these timelines if that were, you know, lowercase scenarios to materialize. What does this mean for the pound though as of today? Because that's all very much the political update, I would say. What's happening in markets? Well, we're kind of used to this Brexit circus to some degree by now, and so movement this morning is relatively little. However, we are at the bottom end of a range that kind of held, I would say, through the best part of, well, you really yesterday's session and overnight we had a retest and failed to break it just a short while ago. Just looking at the sterling futures here, so worth keeping an eye on this. I would say probably more Brexit commentary to come, I'm sure. And as per usual, the weekend press, Sunday papers, will probably be quite key to see an update on the stories I've just mentioned, and any further resignations and support in that independent group could be quite interesting. All right, the other big thing of course that's going on at the moment is the trade situation. Well, let me just go through the kind of stories here. Uh, Trump plans to meet with China's top trade negotiator this afternoon. So I'd 100% be on the lookout for this. That comes after the articles yesterday that there were several kind of, uh, memorandums of understanding that were being thrashed out yesterday, which was perceived as a net positive. Not only that, I mean, we've been saying this on the desk, and it seems then the latest survey out of Bloomberg shares that view of major analysts on Wall Street, and that is that all surveyed analysts see an extension of the March 1st deadline. So this isn't like a, a definitive cliff-edge scenario. Well, I guess it is, but the point being is that Every economist thinks that that's not going to happen and it's going to be rolled over. The majority say though that China and US won't totally resolve the trade war, and I absolutely agree. There's just— this is going to be a long protracted affair. It's just about averting the worst-case scenario at the moment. Now, just to give you an idea, a majority of economists think the US tariffs on Chinese goods will rise eventually. So there was 29 economists surveyed. So again, zero expect that to happen, there to be a definitive end, if you like, in tariffs going up come, what, another week or so. There's only one thinking by the end of March, which would be obviously an addition of an extra month. The majority though are clustered towards 3 months plus, or potentially 1 to 3 months, some actually even going as far as never. But if you combine those two the 17 kind of outweighing it, then the next quarter the tariffs eventually will still go up at this point. Now, an interesting thing that's been happening— this was yesterday, and I just wanted to add some context because I've done a bit of fact-finding— and there was a news story yesterday that China said it would buy an additional $30 billion a year of US agricultural products as part of a possible trade deal, according to a source. Now, at the time, there was a momentary move higher in equities, but nothing really sustained. But this might help to give you a bit more an idea of, of numbers. So in 2017, China imported a total of $24.2 billion in American agricultural goods, 60% of that in oilseeds, the remaining in products such as meat, cotton, cereals, and seafood. Combined purchases slumped by a third to about $16 billion last year as China's retaliatory tariffs on American farm goods reduced imports. So last year was about $16 billion, so they're looking to buy an additional $30 billion. So if you— probably 2017 more comparable. So that's, you know, decent number. But as I was saying at the time yesterday, I think this is more just a bit of a sweetener thrown the way of the US to get them on board to try and keep things positive, because it's in the China as well as the US obviously political agenda to keep the equity markets and general broader market sentiment supported. Now, on that final point, and again positive, this was Donald Trump yesterday. Not sure if you saw his tweets, but he was saying, I want 5G. Well, you know what Donald Trump's like. We're only on 4G and he's like, I don't want 5G, I want 6G. Well, okay, technology United States as soon as possible. It's far more powerful, faster, and smarter than the current standard. But here, here's the point: American companies must step up their efforts or get left behind. There is no reason that we should be lagging behind something that's obviously, uh, this is so obviously the future. I want the United States to win through competition, not by blocking out currently more advanced technologies. And it's that last part that's quite key. So this is a little bit of a conciliatory tone for sure coming out of Donald Trump, because the previous tactic has been to just block them and cause problems. It hasn't been this, this kind of feeling of fair play and let's be innovative and compete in a fair marketplace. Now don't get me wrong, do I believe this is what Donald Trump really thinks? Well, no, this is part of the massaging of the message, so to appease market participants like us. But nonetheless, if you go through the string of events here, this is positive. The right people again are meeting today and to talk over the details on those memorandums. The Wall Street thinks that there is no chance really, or very low one at that, of tariffs going up on the 1st of March. You've got China doing everything they can to try and again offer some kind of concession, and that's been responded by, by Trump in the rhetoric he's been saying. So at the moment, quite positive, and updates to come later this afternoon for sure. So if you look at equity markets at the moment, this morning actually we just drifted back above pivot in the major 3 US indices. Uh, managing to see some moderate upside, but the move isolated to equities at the moment. No real move in FX or commodities elsewhere. Finally, before I look at the calendar, this was a chart I've just updated it, but it was something we looked at yesterday because the Australian dollar has been all over the place. This was the story yesterday. We had the positive jobs data, the currency popped, the RBA watcher from Westpac sounded dovish. that sent the, the currency down. Then that report about China delaying coal imports, which would have a dramatic impact on the Australian economy, got denied by the China Ministry of Commerce. Then we got to overnight. I've not managed to get specific details on that quite sharp green candlestick that came about half 8 last night, but presumably, given equities responded in a similar fashion, I'd imagine it was a China-related kind update, which as we've been seeing is a positive, which would be net positive as a proxy for Australia. You then had RBA Lowe— sorry, that should have an E here, let me just type that in. So he's the governor of the RBA and he came out and after hearing from the Westpac guy sounding uber dovish and the markets believing him, the RBA governor forced to come out. This is quite 101 tactical approach from the central bank to realign guidance. and he sounded way more balanced rather than saying— sounding outright dovish, and we appreciated a little bit on the back of that. And then this morning, China have come out and they've denied this entire story about Australian coal imports as false, and so we have had a little trickle higher here. So yeah, certainly for the Aussie, um, this coal situation, the trade stuff definitely needs to be, uh, quite keenly watched. And actually, quite interesting, there's a, there's a good macro strategist that Bloomberg have, and he was, he wrote a piece this morning, and he was actually saying, and although this isn't playing out right now, it's something to consider, he said that actually a positive China-US trade talks outcome could be negative for Australia. And what he meant by that was, was that if then China can resolve their disagreement with the US that puts China in a much healthy economic situation, which means then they can play a lot more hardball politics with Australia, which then as a net result would create more friction between those countries to the detriment of Australia more than China, given that they've secured a deal with the US, if that makes sense. Quite interesting, certainly logic to that argument. But for the here and now, it's responding in a fashion, but something to just be aware of. All right, quick look at the calendar and I'll give you guys some time with Sam because I know that's who you really want to listen to. Um, here we are, here's the, here's the calendar of events. So we've got IFO coming out shortly. Um, when Sam's on, I'll type that into the chat room so you can see the numbers as they come out. It could be quite an interesting number. Is it going to be wildly market-moving? I doubt it. At the moment, I mean, it's expected to remain relatively static. IFO is still relatively elevated as an economic piece of data, but obviously this is now companies forward-looking for the next 6 months. So you basically get a number about current and future expectations, and it's the future expectations which could be quite interesting to see how confident German companies are about the the near term. Otherwise, Europe, Europe, we've got HICP. These are final readings, so again, probably not too dramatic. Then going into the afternoon, Canadian retail sales. I mean, the loonie always responsive to tier 1 economic data, so maybe if you're looking at that currency, keep an eye out for that. The main thing though I wanted to point out is you've got a real cluster of speakers Now this is something we were looking at all the way back to Sunday night. Friday was going to be quite a key day for central bankers. Now we've had the FOMC minutes, which were on market moving. We had the ECB minutes on market moving, and we kind of thought that it's all been more of a focus point is, well, what do these central bankers think as of today? Because that's what's important, particularly I feel this guy Mario Draghi given what's happened with the economic data sets that we've had with the PMIs and, and other weakness that has, um, materialized, then what has he got to say about the, the current situation? I think that will be an interesting one at 3:30. Otherwise, this is an absolute Fed assault. You've got Bostic, you've got Williams, you've got Clarida, you've got Bullard. They're all speaking through throughout, uh, predominantly the afternoon. So as soon as the US session commences, then they start kicking off. But I think even though there's a lot of Fed speakers, I think we're relatively clear about their stance now. We know that they've become very dovish at this point. I don't think you're going to get massive reaction effect in the dollar potentially on the back of that. The one that I think that could be more interesting is Draghi. Alright, that's it from me. I'm going to give you back to Sam, and I'm going to wish you a good day ahead, fantastic weekend. Just to let you know, on Sunday night about 8 PM, I managed to do a bit of a trial run. Sorry, I've got a hooligan in his hoodie stood behind me loitering in the background. He must have watched Arsenal last night. But yeah, just to let you know, Sunday night 8 PM, if you go on to our YouTube channel hit subscribe, hit the notification bell. And then at 8 PM, I'm going to do a live look ahead for the week, um, talking over some of the main macro fundamental things we're looking out for with a bit of an overlay on a couple of charts on a longer time frame. So if you want to join us Sunday night, otherwise I'll see you again in the chat room throughout the day, but otherwise on Monday morning for the briefing. Thanks, guys.

Thanks, Ant. Um, yeah, just having a quick look over. Well, as I mentioned, those US equities just above the pivot, um, and whether that's leading the way up to the R1. And I think the first sort of currency I want to have a look at would be the Aussie dollar, which you'd be forgiven for, you know, wanting to come in this morning and about looking at the news thinking I want to get short considering everything that's, that's gone on recently. However, with the sort of the positive spin on things overnight, uh, and with equities going higher, I'd just be a bit hesitant about wanting to get short without perhaps a bit more confirmation. So just having a look at this, for example, the, the pivot— I don't know, you've also got the, the high, uh, from yesterday midday, which is sort of holding things up. I'd almost actually be looking for this level to, to break to then get long. I know the dollar's just coming off a tiny bit, pretty much still flat for the day, um, but with, uh, with a bit of a positive spin that you can see highlighted, uh, well, here is pretty much when that story, I believe, to being run, like I was saying. And yeah, above pivot, I don't mind the look of, of a, of a long round there. Going over to equities. And just sort of having a look in the US, the, this, the low that we had last night was a pretty, uh, pretty key area that you see back from Wednesday's trade— Wednesday, no, Tuesday's trade as well. So quite a key point of price action which has held up quite well. And we're coming into this new range, so be focusing on an S&P towards the end of the week, how we, we close and On that daily, on that longer term chart, we're still a tiny bit off that, that trend line that we, we tested overnight on Wednesday evening. Need the trend line there. So we're having a look if we can close above that, you know, and that would basically then be 2800. That would be quite key. Uh, if not, maybe a little drift lower to begin next week before having another go on it. And then obviously the, the 10th of October, that breakdown of the, this double support that we had on the 8th, and then early September as well would be the next sort of target area I'd be looking at. I think, you know, maybe a brief pause here, which you'd be expected to see with some profit taking, before maybe that drift higher comes. Another market to perhaps have a look at on that longer term chart would be copper, which you know, has pushed above that range depending where you want to draw your sort of horizontal line. I think around 2.8465 is not a bad area, uh, to have that. And you can see we really did push and continuing to do so. And you've got some key resistance points that it's, uh, sort of hung around briefly but still looks like it wants to go. And maybe the, the next sort of target people might be looking at, that 26th of March low around there. Another market I know, because we're coming to the end of the week, it's always quite important, uh, to have a look at the sort of the longer term view of markets. And one that interests me quite a lot, whether we could get there today, I don't think so. It'd have to be a pretty significant move on a, on a Friday. Um, but EUR/GBP, you can see the amount of times we come down to test this level. And, you know, with some, all, you know, weaker data again yesterday in Europe, or certainly some parts of it. I think if we can finally get a significant close below this level, the opportunity for a more medium-term trade to— for the short— let me just move the camera out the way— back down to those levels that we saw in April 2017 could be an option as well. Looking more intraday quickly at the euro and the pound against the dollar. Dollar to see if there's opportunity-wise. You can see the euro has already pushed above that pivot. I know a couple people did get in on, on that sort of retracement of that level, uh, a break above the, the high of the day. You just got to be a bit careful because there is the resistance from, uh, yesterday afternoon as well. So perhaps this new, uh, sort of zone of support and resistance coming into play. Again, for those that do like the look of maybe the dollar, uh, increasing I'll be looking to get a bit of a trend line from the low to the low that we had around 8 o'clock. And if we find support here again, it might be a breaker. That is what you want to see before really, uh, getting in the pound. We'll have a look later on at the sort of the longer term view of this. It's been a tricky market. I think if, if you ever wanted the pound summed up in— well, the pound recently summed up in a chart yesterday is perfect. I've that. Up, down, up, down, up, down. Very, very messy. And I'd almost be half tempted to leave that alone. You've got quite a nice support level building here, however. So maybe a bit of dollar strength, pound weakness across the board. A break of that down to the lows of the 20th and the S1 is not a bad one to look at. Gold, we saw the big sort of move to the downside yesterday before finding support, and we're trending higher for now. So again, if you wanted to see gold come lower, you've got quite a nice trend to, to have marked up. Let me just put this on a 5-minute. You can see how well that's been respected once, twice, three times. So, uh, the way— probably worth having this in a bit of a trend channel really, having a look at that. Um, so you can see we're sort of just grinding higher. But yeah, dollar strength, we've obviously you'd be looking at it to sort of break to the downside, and likewise a bit of weakness and we could push higher as well. A couple resistance points from yesterday to be aware of maybe before that happens, most notably 1329 or nearly 1330 on the, the futures there as well. Quick look over at oil before, uh, wrapping, uh, things up. So you can see we, uh, taken, uh, another push here above the $57 handle. A couple of the headlines coming in this morning was that oil was on its way lower. Not quite sure where they got that from, but yesterday morning was looking at this area of previous resistance once, twice, before— it's just too obvious to work as a level support, but it did held once, twice, three times, and we continued now above the $57 and the pivot. Quite key resistance where we're trading. So I'll be having a look at that. You can see 1, 2, 3, 4, 5 times on the 15-minute chart, uh, so quite a key level even to have later on in the day. Maybe a mini range with the 57 handle as well, so that 18 tick. If you're not in a trade, whether it be long from pivot or not, it might be worth waiting for either consistent break above or below that pivot for opportunity-wise equities. We'll have a closer look throughout the day, but with some slightly more positive comments from the trade side, I think you've got to favor the, the longs again for now. Interestingly, when we were coming down yesterday afternoon, you, uh, you did hear some, some tweets or comments on the Squawk come out. So there, yeah, it feels like we're back to buying the dips, if you like, in equities for now anyway. But obviously the weekly flows will be quite important as well. So yeah, any questions as usual, please, please do let me know. We'll be on the mic throughout the day. But if I don't speak to you, hope you all have a great weekend and good luck to the English against the Welsh.