European flash PMI's in focus

Good morning to everyone, Thursday the 18th of April. I hope everyone is well. Going to cover actually not too much in the way of news this morning. There's not a great deal going on. This is quite typical. Not only do trade volumes tend to quieten down going into the Easter break. But we also don't forget people at news agencies also do the same. So actually the volume of news coming out also starts to dissipate as we go into the, the Easter break. So there's only really one story to talk about, and that's a bit of an update on the trade talks between the US and China. But even with that, it's nothing particularly new. So markets at the moment are kind of looking forward into the next 45 minutes, certainly from an intraday perspective. We've got the European flash PMIs coming out, uh, and they're probably going to be one of the more market-moving events for today's schedule. But we also have UK retail sales, also got some US data coming out in the afternoon in the form of the weekly jobless claims, Philly Fed. You've also got the Canadian retail sales report, the US manufacturing PMI. So yeah, plenty to get our teeth into as the day goes ahead. But for the market open, I'd say things are relatively quiet. With that in mind, let's just have a quick review then of a couple of the charts. And looking at the S&P first of all, because we saw a decent pullback yesterday. If you remember, we had a few different earnings reports that came out, a little bit mixed. IBM was a miss, some issues with their cloud unit, but Netflix wasn't was bad in the sense of their forward guidance, but it wasn't a disaster. Then you had Qualcomm with that positive news about basically the settlement with Apple. So actually futures were rallying going in all the way up to the point of the cash equity open. And then from there, it kind of initiated what was a fairly one-directional move all the way back down, probably assisted to some degree by some profit taking Given if we flip this over to a daily continuation chart, you know, we have climbed up to decent levels, just short really of the all-time highs, of course, that we printed back in the early part of October of 2018. Technically though, looking at this chart, we did close below by about 4.5 points the 2900 handle, and that's quite a key level technically through the kind of push towards this recent new high that we've had in April, both on the beginning of April and then thereafter about a week or so into mid-April. That psychological level has proved to be a decent kind of line in the sand, if you like, and we moved below there and closed below that level. So does open up the prospect then that potentially could see some further downside. I don't think that would be entirely surprising. It doesn't change my view that from a medium-term perspective I don't— I'm not looking for, you know, if I just mark this up, I'm not anticipating moves back down to kind of here or here in the S&P anytime soon. But definitely what I think you could see is a move down to this kind of area here, which would be in the futures around 2877.25. A pullback to that level would bring us back to obviously the previous all-time high on the left part of the chart that we printed back before the dramatic fall that was seen in late January of 2018. And also brings us then into context of some areas of relative significance that we saw back in kind of Q3 of 2018 before the fall that ensued. So yeah, any pullback here in the US equity market I don't think would be wholly surprising given the run that we've had. Probably the close below 2900 is fairly significant. And if we did kind of grind back down, I'd be looking at around that area as, as decent support. Going back then to a couple of other charts just while we're on it to have a look at. Gold remains relatively heavy for the time being. Interesting thing here, an observation obviously by some of the traders yesterday, was that you're getting a bit of a breakdown of the correlation in the sense that, you know, if you actually look at that S&P move on the chart we just saw, it's quite a fairly dramatic fall that we had on the day, albeit in a fairly orderly fashion. But what you didn't see was that didn't promote risk-off kind of classic correlation trade, which would typically lead to a bid tone in gold. I guess one thing to bear in mind is, as we go into this Easter period where volumes start to kind of fall off the closer we get into that break, correlations, or I guess the tightness of these correlations, does tend to break down quite a bit. So definitely react to the conditions. And if that was the case yesterday, I'd be a little bit hesitant to just be thinking that, you know, immediate risk-off means a bid tone in gold. I'd probably want to see that materialize first before committing to that kind of logic. In the near term, I guess if we're looking at gold now The fall that we had on Tuesday's session remains, so we're still firmly sub-1300 handle and that quite key level of 1285.5. Probably in the, in the intraday environment, be looking at around this area here, which would be the low from Tuesday, also yesterday's range low before the break that came during the Asia-Pacific session. You can see how this market— gold does tend to react quite technically in this type of environment. And so the break of or breach of that support point, you can see, almost exacerbates the initial reaction down. And when you get these fast money moves on a technical break, market obviously looking for the first port of call to book profit on that type of short-term move. And then the logical place for that being then the the S1 level, which where we have consolidated at this point in time. On a slightly longer time frame chart, again, just stepping back and looking at a daily continuation, I had that ellipse there marked from before, and I still think that's probably a logical target for a continuation again of any persistent move that we've seen in play pretty much over the last week where gold has just been moving lower and lower. Again, that $1,285 was the key breach that you can see from these 3 circles marked on the chart here. Since that break, it's kind of remained on the back foot. So 1264 to 1268, that kind of area there encapsulating some of the previous levels of significance with the kind of rising trend line. I'd be looking at decent support to come in around that point. If equities are coming down, generally that's led to oil— that, that that has been a better correlation in terms of both moving in the same direction. There's obviously the global growth kind of narrative has been quite key for trading these instruments. Looking on a daily continuation chart though, remember we were talking about this yesterday and it remains true in the fact that, you know, we were anticipating— and it still remains the case— of consolidation in this kind of area here between the 63 handle which has had technical relevance both as resistance and support over the case of the last 2 weeks. And then also the 65 handle and where we are at the moment, you can see here from the previous support points that we had back in the summer of last year. And just, you know, I think it's reasonable on the fundamentals given all the different factors in play from the OPEC cuts, from the stimulative actions taken from various different global central banks from the Far East in China to the Western world, in the US, disruptions in Libya and so on. I think we're at a fair price here. And given the factor as well of Easter holidays, I don't really think there's too much appetite to push this market at this particular point in time. So if we did see any oil movement, we're still, still kind of looking at that range to define the overall high and low. So if anything, from a strategy point of view, not looking to get too involved. I mean, if you look at this on a 30-minute chart, it's pretty messy. I'd say we're about mid-range at the moment, and so unless we get to the lower upper bound of that, those levels, uh, they're not really particularly too interested in that market at the moment. The one that's probably going to be key then is going to be the euro. You're likely to see some fluctuation in the price activity as we go through the morning. The reason for that is because we've obviously got some important economic data coming out. So let me just quickly bring my calendar up and we'll talk this through. So you do have the various flash PMI data. So for any of the new traders, the PMI data comes out in two forms. You get the flash and the final. It's normally the flash that's much more market moving because that's the first opportunity the market gets to react and see the economic data for that specific month. And the month we're looking at here, given this is a soft forward-looking economic indicator, uh, is for April. Um, so we're looking at here is really from 8:15 to 8:30, you need to be watching European assets with great care. Um, because if you remember, cast your minds back a couple of weeks, the last time this data came out. You had disappointing French data, the euro popped lower, and then we saw basically this figure come out. And this was the previous German manufacturing PMI, and it came out at a revised 44.1. It was the steepest contraction in factory activity in Germany since July of 2012. It was a sharp miss on expectations, decrease in new orders, which in turn partly driven a further slump in export sales. Both orders and new business from abroad fell at the fastest rate since 2009, mainly due to uncertainty surrounding Brexit and trade tensions. So Germany, you know, economically has really been suffering at the moment on various different kind of angles. Let's not forget that we're talking about export-led nation which has huge risk when Donald Trump changes his focus away from China once this deal gets potentially signed in the coming weeks and then has Europe firmly in his eyesight. And then you've got the risk factor, of course, of the uncertainty being prolonged over the Brexit process. So this is what the German manufacturing PMI— and it's the manufacturing one from Germany that's key given the composition of their economy and what generates the main part of economic growth. And it's been persistently weakening. And it was the last reading which drops off quite dramatically. And if we start to, you know, zoom this out a little bit, this is what the German manufacturing PMI looks like over the last 10 years. And as you can see here, we— if we get to the lower bound of today's reading, and I think the lowest estimate on the street, uh, let's be clear, the median estimate is for slight bounce to 45 from around 44. The low estimate is for 43. If we get a 43 print, that pretty much tips us beyond the low seen in 2012 and to the lowest levels than we would have been in the best part of 10 years since the kind of depths and beginning of the recovery from the global financial crisis of 2009. So, you know, that's where we are at the moment. So if that does happen, Definitely there could be some initial immediate downside in the euro currency. Got this trendline on from really the month of April, had a slight failed break on the 10th, but it's held relatively well. So in the near term, it's a level I'd be keeping an eye on. Any breach of the trendline though, if we did get a 42, 41 type number, you'd be looking for a fairly aggressive reaction to downside, probably targeting then the previous day's low— or I should say Tuesday's low. Anything beyond that brings into sight then the S2 and what would be the low from around the 11th as potential targets on that trade. The one thing I would say here though is that what if we get an upside surprise? I would say when it comes to Germany specifically, but overall with Eurozone economic data the market does tend to be in a fairly negative mindset already. And so by default, from a market impact point of view, if we were to get an upside surprise, I actually think that you could get a kind of bigger move, if that makes sense, because the market is kind of erring on the side of negativity. So therefore it's almost more expected when things are weak. If things are really strong, that's a bit of a surprise in the context of everything we've just discussed. In that situation, I'd be looking for definitely an immediate challenge up at the R1 and what would have been yesterday's high. This is around the 113.78 and a half in the futures, and obviously around this area brings in the previous highs that were seen back on the 12th and the 15th. Um, any breach above there, and obviously we need to start stretching the chart back out. If we get above, uh, that kind of area, which was the highs here, then you've got the R2 and and then the previous highs that come in back into late, uh, March around the 114 handle. So yeah, PMIs could be very interesting, definitely need to be, to be watched this morning. All right, cable, and then we'll have a quick chat about the US-China story. Don't really want to talk about cable too much, it remains fairly uninteresting for the moment, I would say. And I think yesterday Well, really, this week has been largely a reflection of the current status quo, which is Brexit has been put off for a couple of days before they then recommence talks later this month. But we know that deadline's been kicked firmly down the road. So consolidation really has been the theme here in cable. And so unless we start to get down, breaching the lower bound of the, again, the range not really too interested in this market. I guess if anything, if you're playing that range trade, if you're anticipating things to remain relatively quiet, then you've kind of got the downside S1 level, which was then the kind of close proximity to the range low of what we've seen this week, kind of playing accordingly with the pivot on the upside potentially if we were to get up that high. I guess the one common denominator here for potential moves if you're looking at cable. And also for Europe, if you are executing trades around the PMIs, be mindful of later on in the US session you do get some fairly meaningful data coming out of the States as well. So then it kind of shifts over to a dollar story then for potential price movements. A quick look then, um, to finish off the data, we do have UK retail sales as well coming out this morning. This will be half past 9. Again, I'm not expecting too much reaction out of this. We did have some UK data yesterday and CPI numbers, which are, you know, CPI is the tier 1 release in a normal circumstance. But again, you have to apply context, and even though it was a slight miss and a minor fluctuation in the price, all in all it made zero difference. Because again, stepping back for a second, there's such importance and ramification on the UK economy from the outcome of Brexit. Very hard unless these data points are extremely above or below expectation to really move the market substantially. Retail sales, just so you're aware then, is a fairly volatile data set. The one thing is though is that despite the overall, you would assume, negativity that political uncertainty would have on overall consumer confidence. Wages have been relatively decent in the UK, unemployment remains relatively low, so we've got a fairly tightening labor force situation. And actually retail sales has held up, uh, fairly surprisingly. Expectations today for the retail sales out of the UK is for a negative reading of 0.3%. We've got a range of -1.6% to +0.5%. So looking at that range, there is a slight skew to maybe pessimism for a potential miss. So on the expectation, on the median, I wouldn't say that's going to be market moving really at all. But if we get that -1.6% print of which one bank on Wall Street is going for, well then look, that pushes us, pushes us worst position certainly in the last 12 months. We then have to start zooming out on the broader picture, at -1.6%, well, look, that puts us back at the depths of basically the initial aftermath of the EU referendum. And in fact, if we put this on a 10-year chart, we're getting close to breaching this kind of downside end of the range that will put us back to kind of 2013 levels. So I think unless you get that type of number, -1.7%, -2%, therefore you could break those technical low points that we're looking at the weekly range. Otherwise, I wouldn't be looking to commit too much, uh, to the, to the UK data. I'd say the flash PMI numbers coming out of Europe are way more important. Okay, the one story then to mention, uh, and just to round things off for this, for the session, uh, is US and China. Again, market not reacting to this because this is purely kind of updates rather than anything more meaningful. But basically, this is in line with what had been reported a few weeks ago. We're looking at a time period of basically late May, so in the next 4 weeks or so, for them to sign an agreement where all— they kind of cross the t's, dot the i's situation. What's going to be happening is the Chinese officials will be in Washington next week, US officials, so Steven Mnuchin, the Lighthizer will return to Beijing the week after, and this is all about then setting preparations for Xi Jinping and Trump to sign that deal at the end of the month. So for the moment, obviously this is still subject to potentially breaking down, but that's not at this point the base case because politically, as we've discussed before, I feel that there's too much riding on this for Donald Trump to jeopardize now this deal breaking down and the stock market coming under pressure. I mean, going back to the S&P here, you know, Trump will be mindful of price movements in this market, and the last thing that he would want to see is a substantial pullback towards 2800 and a retest kind of down towards this trendline level, which has acted out really well not only as resistance but also as a key level of the kind of pivot of the price action to move and springboard back higher. You know, this type of area would make him highly concerned. So I think he's got a little bit of room for maneuver potentially to still be a little bit disruptive, to try and again get some brownie points on the political agenda domestically that he's still remaining firm. But overall, I do think this deal is going to go gets signed, whether or not that requires a further extension, I don't think that would be either surprising at all either. So that keeps the kind of— although we've talked about potential pullbacks in equities and oil, I still think that there's decent technical and fundamental supportive areas where this market should hold up from a medium-term perspective. So again, these are the headlines that are coming out this morning. Sides are scheduling high-level talks in in-person negotiations working towards a leaders' signing summit later next month in May. All right, that is it. That's the briefing for this morning. So again, the PMI is coming out in about half an hour's time. Remember, the eurozone number is pretty much a non-event because it's just a summary of its parts. So the French service manufacturing situation at 8:15, followed by Germany 8:30, will be key. Otherwise, UK retail sales Later on in the afternoon, as I said, you've got some US data coming out— weekly jobless, Philly Fed, US retail sales— and you've also got the manufacturing service PMI flash data also coming out of the US as well. Earnings-wise, just to kind of wrap things up, there's again no one particularly major. Um, you know, Philip Morris, the tobacco firm, big company, but it's not going to be too much of a an issue, I would say, if you're trading the index futures. Any Bund traders though, you do have quite a large amount of supply coming out of the French Tresor. That could impart some downside pressure. You're seeing a little bit of short setting in the Bund pushing us back down to pivot this morning. It's probably making way for the additional supply hitting the market later from the French Treasury. All right, that's it. So Uh, just so you're aware, we are closed for Easter, so there's going to be no morning briefings on Friday or Monday. The desk will be closed. Um, however, I will probably do a session from home that I'll do via YouTube in a live format. Uh, that'll probably take place on Monday. Um, so yeah, do feel free to join me then. Otherwise, have a great Easter break. I'll be available in the chat throughout the day. So have a good session ahead. Thanks very much, guys.