FAANGs hit on antitrust probe as rate cut bets rise

Okay, so very good morning. It is Tuesday the 4th of June. Hope everyone is well. I'm going to go over a couple of different things here, talk about, as we can see here, the close on Wall Street. Why did that happen? Why is the technology sector so heavy Although we were here commenting on this live at the time, we'll have a bit of a review of exactly why that is happening, where potentially we go from here. We're also going to talk about the 10-year US yield. We're going to look at oil prices, and all coming under the umbrella at the moment of the fallout from the, the ongoing trade war situation. Also going to have a look at Donald Trump, what is on his agenda on day 2 of his UK state visit. Definitely important because meeting with Theresa May. So on the back of that, we're also going to have a look at what does Trump think about Brexit and what is the prospects of and likelihood of a US-UK trade deal. There's a few things I wanted to cover on that front. Then we can look at the RBA. They cut interest rates as expected, but does mark one of the first cuts we've had in many years. So We'll look at the implications that that's had and then the review of the calendar. And then Sam will come on and look at the markets from a technical point of view. So quick look across the asset classes though this morning. And actually, it's a fairly tame open on what was a quite a negative close on Wall Street, all things being equal, particularly on the tech sector. And that did feed through into largely negative trade overnight in the Asia-Pacific session. But I guess it kind of goes around in full circle. We kind of go back into the, the UK-European swing. And now it's about really just reevaluating how does the land lie and have we priced in now the latest developments on the trade war. Certainly as I'll go through, there's a number of big banks just adding to the calls about prospects of recession and also cutting of forecasts on corporate profitability, particularly in the US, which is kind of just continuing to feed this this, this growing narrative of global growth concerns. But overall, pretty flat for the moment at least. I'd say very marginal risk-off trade. US index futures, European having already opened slight negative. T-notes have been creeping up. Gold also the same, up about $3. The Dixie's pretty flat, and that's largely reflected in the currency pairs. And as is the case as well for oil, just finding some resistance around its pivot in the futures for the time being. So let's get straight into it. Why did the likes of Google, as you can see on the, the left-hand corner here, fall over 6%? If you think about it, these are some of the largest companies on planet Earth in terms of listed. Google down 6%, Facebook down 7.5%, Microsoft down 3, Amazon down 4, Apple down 1. In total, if you take the FAANG names, um, on their own, they were down $137 billion lost in valuation yesterday alone. Now, why did this happen? Well, again, it's a very coordinated and specific sell-off in the major technology company names, the larger ones. So Facebook, Amazon, Alphabet, Apple. Those companies appear set now to undergo antitrust probes after the US Justice Department, the DOJ, and the FTC, the Federal Trade Commission, agreed to set up oversight of technology giants. So to give you a bit more detail, after $41 billion was wiped off Facebook yesterday, a person familiar with the matter said the US FTC will oversee antitrust scrutiny and whether the firm's practices harm competition in the digital market under an agreement with the Justice Department. That added to early morning losses after reports that the Justice Department was preparing an antitrust investigation into Google. So this is— I guess there is a sense of inevitability about this type of regulatory change because of the fact that these companies becoming such dominant forces. There actually is quite a strong political will on both sides of the house, if you like, in, in Congress, or both chambers, to address this problem about the increasing monopoly that these types of firms have on the consumer. So definitely this is one of the big tail risks to otherwise what arguably is, you know, are companies that do hold longevity for the future in terms of how embedded they are now into various different consumer behaviors, I guess, in purchase and transaction and services. But it's going to be this slow grind, if you like, of regulatory change that could provide a bit of a headwind. I would say that what happened yesterday is kind of a knee-jerk reaction, probably exacerbated by the overall context of the conditions in the wake of the ongoing breakdown in the trade war situation. Although I think regulatory burdens will provide a headache for these firms, I think that they will be surmounted quite comfortably. I think yesterday was almost a perfect storm with coming with a lot of the other news flow that was coming out at the time, and it kind of became almost self-fulfilling and exacerbated the price movement to some degree. On the trade war side though, what certainly is happening and Well, before I get to that, this is just a quick look at, um, technically— well, this is going by size and valuation. If you remember, we had the Q4 rout in markets. We had the awesome Q1 recovery as the Fed kind of turned dovish, OPEC+ cut production, China's authority stepped in, you know, everything else in between. The markets recovered, and you can see that valuations of some of these companies, particularly likes of Alphabet, Google, got up to near that trillion mark again. But you can just see over the month of May how influential the trade war destabilization that's happened from the fallout from the escalation against China and the latest on Mexico the last two days certainly has had a, a real shift in valuation. And that of course has fed through into Elsewhere, the US 10-year Treasury yield now below 2.1% for the first time since 2017. So bond markets continue to remain well supported. And the other thing obviously that's being impacted on the global growth concern is crude oil. WTI crude edging lower so far today after plunging 10% in the last 4 days. And this does come after comments out of Saudi Energy Minister Al-Falih yesterday, who said that he is committed to doing whatever it takes to stabilize markets. Yeah, obviously referring to quite an infamous phrase adopted by the likes of Draghi in years gone by, I think, when he initially ushered that during the sovereign crisis. But I think— I'm sorry, it was Yeah, it was Mario Draghi that said that phrase. I was post the 2011 kind of blip from the ECB. The point being is that that, despite that fact, the necessity of Saudi really wanting oil higher, unless there is some kind of supply shock at the moment, the kind of tables have turned. And what was quite an equilibrium between growth concerns outweighed by supply risk or shocks coming from Iran to Libya to Nigeria and so on, that now seemingly has become overweighted by this short-term investor focus on the negatives for the time being. So definitely fundamentally, I think it's still some downside bias potential for crude oil. What this is inevitably leading to, and this is what we were kind of inferring yesterday, is that bets on a rate cut from the central bank have really shot up over the past 2 days. So the implied yield on January 2020 Fed funds futures, you can see here, getting ever more divided or away from the current Fed funds effective rate. So this, of course, coming towards the, the June meeting. Markets now starting to price in ever closer an impending rate cut to come from the Federal Reserve. We did have on that note a comment from James Bullard. He is one of the Fed members, said that a rate cut may be needed soon. Now, not to spook anyone, Bullard is a dove, and so these comments aren't massively surprising, but certainly does put it out there on the table most explicitly that Bullard said the yield curve may signal Fed policy is too tight and and just given the risks around the trade war, maybe a rate cut will be needed soon. A few other things to be aware of: Bank of America, Citigroup have lowered their US corporate profit forecasts whilst pointing out the risk of recession amid the trade war. JP Morgan have said yesterday the chance of US recession in second half of the year has risen to 40% from 25% just a month ago. So As I said, the, the kind of shift, if you like, from the general herd in where markets now and forecasts being cut quite aggressively, uh, definitely this can feed through into, you know, further playing out of what we've had from yesterday. I think yesterday a little bit more unique, perhaps a little bit more pronounced given the fact that you had that layering in of the antitrust probes coming for the likes of the tech majors. Largely that, I think, probably would be priced in. So my— I'd say on, on balance, to see another sell-off of the magnitude of 6%, 7% in Google and Facebook today, I would say is unlikely unless there's new unexpected news that, that develops. Okay, moving on, let's have a quick look at Trump. Um, obviously Trump had his first of 3 days. Well, let's have a look. This is the agenda, the UK visit timeline. Yesterday was very much ceremonial, meeting the Queen, having tea with Charles and Camilla, having a banquet in the evening. Really, today is the most interesting from a potentially markets point of view because he's having a working business breakfast with Theresa May. At least for now, the Prime Minister, until Friday that is, but also with various business leaders. I think there's someone from Glaxo, obviously all the US banks are there, JP Morgan, Goldman Sachs, a few other leaders of industry are going to be there within that meeting. And then in the afternoon, the President and the Prime Minister will hold talks at Downing Street, followed by a press conference. And obviously the things that, that people are eagerly anticipating in this high probably probable is that Trump starts talking about how he's going to cut the most amazing deal for Britain, and how Britain should not be bullied by the EU, and how we should send Farage in to lead negotiations, and how the US will be there to make sure the UK comes out okay on the other side in the end. Now, on that point, we know what Trump's political kind of goal is. Obviously, he he can almost validate his own domestic policies by getting Brexit delivered, kind of fits that more populist narrative. But a few things I just wanted to share with you to dispel any notion that Donald Trump could do anything close to supplementing the gap if we were to have a hard Brexit or a no deal and revert back to WTO rules. Let me go through. In 2017, I'm showing you a chart here of UK trade with the EU. So to give you an idea of the colors here, the two at the top, kind of teal color and the blue, that is imports from the EU and exports to the EU. The bottom two are exports to the US and imports from the US. So in 2017, the US accounted for 18% of UK exports. And 11% of its imports, while the EU in comparison accounted for 45% and 53% respectively. Trade talks experts, uh, they link the extent of trade to 3 big forces. And this isn't just trade talk, this is just common knowledge in regard to how trade intrinsically works. There's 3 big factors: the size of the trading partner, So obviously you're talking about the US economy, but not just Europe as individual countries, but as a single marketplace. The distance and then the depth of trade arrangements. The distance, of course, we're only over the Channel compared to across the Atlantic. And the trade arrangements, we are very much embedded into the European Union, not that so closely to the US. By being closely aligned with Europe means that there's a closer regulatory alignment which means easier and more flexible and more high volume of trade. If Britain's imports and exports to the bloc dropped by just 10%, it would require a 37% increase in trade with the US. For any significant UK-US trade deal to be possible, a hard Brexit must take place, in which Britain leaves the EU's customs union and diverges from regulatory alignment of the bloc's single market. So, points quickly on this front. The point being here is that in order to have this kind of trade deal with the UK, we need to initiate then the most disruptive, worst economic case scenario for the UK, at least in the short term. That means a reversion back to WTO, a complete inaccess then of any regulatory alignment to the single market, leaving of the customs union, the most negative in terms of its implication of the UK economy. Only then could we go into these trade talks. And the point being, from those statistics I've just shared, the US in itself doesn't do enough trade with us to even fill half of the gap that we would have missing with the EU. So quite frankly, I think Trump is full of hot air, and I think this is an absolute farce in my opinion. I think Trump purely playing a political card in order to strengthen his own political agenda, and that just so happens to fuel the flames of then the kind of likes of the Brexit Party, the Brexiteers, who try to convince people that the UK can recover and have a better future, trying to break these deals with, with the US. This circles back all the way to the point that, you know, it was supposed to be easy to deliver Brexit, and you're seeing that play out. I can assure you the US will not give the UK the type of deal that they're promising, because technically they can't. That's the point. The other point here is, don't forget, public opinion is highly resistant to signing up to US food and animal welfare standards different between the US in Europe and UK. And also, Trump, in order to cut a deal, has also been making some pretty strong noises about the fact that he wants the NHS to drop controls on the cost of medicines, wants more US pharmaceutical action on the drug market in the UK. This would be highly detrimental to the NHS existing structure and something that you know, when you get beyond this kind of ideological view of that Britain can be stronger on its own again and, you know, breaking these trade deals, on the, on the ground, it's going to be far from it. So again, I've tried to be unbiased in all of these briefings, but I thought about time that, you know, I just talk about the facts. And the facts are that, you know, I think it's absolutely pine sky thinking that, that Trump is doing anything other than just self-serving his own political agenda by what he will be doing today, which is talking up a great deal that he can offer the UK. Um, anyhow, next thing and final thing I'm going to talk about, and I hand you over to Sam. Um, Australia cuts its key rate to a record low. So interest rates were cut to 1.25%, a cut of 25 basis points. This was as very much expected by the market, but economists and markets still foresee further rate cuts in the months ahead. Definitely, I'd say at this juncture, although fairly equal balance of commentary that came out to supplement this rate decision of the cut in rates, economic data is probably going to be quite key to monitor going forward as to whether or not markets are right to anticipate further rate cuts to come in the future. Okay, quick look at the calendar. Um, what do we have? You've got UK Construction PMI coming out at 9:30. Again, this is, um, I'd say the lowest tiered out of the 3 PMI readings that we'll see out of the UK this week. Services one coming up later this week is going to be more important. But even then, the conversation we were having in the chat room with the new traders yesterday was that UK data really is inconsequential at this point, has very little meaningful impact on the price of pound or UK assets given the fact that, you know, the political factors are such dominant driving forces for the currency at the moment. You've then got probably the main economic data point of the morning being the eurozone flash PMI. We are anticipating a decrease from 1.7 to 1.3%, a range of 1.1 to 1.6. This is quite interesting, of course, because it comes just 2 days before the ECB meeting, where we're going to be looking out for a couple of interesting things actually. Not that we're anticipating any rate moves from the ECB, but we're looking out for clarity on the parameters around their Targeted Long-Term Refinancing Operation Part 3, uh, and we're also looking out for the latest projections as well from the European Central Bank. And you know, how weak or not inflation is could well dictate how dovish those projections in the accompanying commentary is from the central bank. So that's going to be quite key, and I'd say you want to have any positions cleared euro-related in anticipation of that number. Going into the US afternoon, pretty quiet, no major 1:30s, but you do have factory orders and the regular API inventories coming out later in the afternoon. But there is a whole slew of Fed speak, so it's all very much afternoon-based. Fed Evans, Williams, Powell—

it's—

so the Fed chair is speaking as well. A lot of these members, Powell included, he himself giving the opening remarks before the Fed listens to a conference on monetary policy strategy, tools, and communication practices. So this, as per the briefing yesterday, is about a 2-day meeting Anthony Cheung, talking about the current methods of which define the framework of Fed policy, particularly this idea and notion of having an inflation target, which historically has been quite good at looking at the rate of unemployment and how that calculates then into potential inflationary conditions to then subsequently have a target. The point being is that now we're almost in an unprecedented area where that connection, that classic Phillips curve, is, is kind of broken at this point. So does that need altering? This could be quite interesting to hear from these guys later on today. Okay, that is it from me. I'm gonna leave it at that, hand you over to Sam. So overall, a little bit of stabilization in markets after the equity market rout led by the technology sector from yesterday. I really don't really personally foresee a continuation of that move, at least to the magnitude of yesterday in those particular FANG names. I think largely this regulatory news was the driver and that now priced in. So unless we get new trade war developments, which might not be the case because I think Trump's going to be focused more on Brexit and kind of talking that agenda for today given the schedule that he's on. And then we look to the US afternoon Fed speak factory orders coming out as well from the US. All right, I'll catch you guys in the chat. Otherwise, have a good day ahead. Thanks very much.

Thanks, Ant. Uh, hi guys, hope everyone is doing well. Have a quick look over some of the currencies. As you can see, we'll bring in the euro to the picture, but quite a few of them Certainly the dollar pairs anyway are under a bit of pressure this morning. The euro just pushing on and continuing its, uh, its push higher yesterday. The levels, just having a quick look obviously above where we're trading, if we were to push on, you're at 113 on the futures, just a bit above where we're trading, which also has the, the high back from the 13th, obviously quite a key level to, to keep an eye on that as well. If you remember from the, uh, the weekly strategy report, you might not be able to see the initial start of this trend line. There you go, because of the camera. And that looks to sort of come through and already broken. So I'll be looking for an area of this sort of retest down here to eventually get back up to, to 113. You can see the importance yesterday of this area from where we go back to the 13th and then the 15th of the month, now broken through, and it's acting as that sort of level support. So while the, uh, the trend line, if you like, slightly, uh, chopped up just this morning, could well be that just for the, the further push on up to that all-important 113 handle, uh, you're going to want this trend line to hold, basically. So zooming in, you can see there tiny bit of a false break early hours this morning on the low liquidity, but this morning it's held all, all that time. So you want a line in the sand to know whether there's going to be continued dollar weakness. I think this, this trend line is as good as any. Even the pound finally catching a bit of a respite. Obviously we hit that 126 on Friday, the pivot acting as good support, and we pushed on now to that R1. Quite a bit of resistance above where we're trading though, going back here You can see just from these highs, all from the 28th, uh, would be quite key and hard to get to. And even on that, that longer term, just looking here, 4-hourly, well, you could argue with— we're starting just to break through some of these, these trends that have been containing price to the downside. You can see late yesterday we got that breakthrough and a decent first test of that yesterday before the push into the, the afternoon. I wouldn't be too getting too carried away about you know, saying this is the, the beginning of a further push higher for the pound. I think there's still obviously quite a few factors, uh, in play. And the Aussie, uh, pushing on, uh, this morning despite the, the rate cut, of course, that was priced in. I think with, with this market, the way to, to probably look at this if you do feel where, you know, should be coming down is, is looking for these trend lines. And effectively, like that euro, just the the line in the sand. What area, uh, will the sellers come in or will the buyers continue to take over? Of course, yesterday we came back to test the top end of the range, technical, uh, market, and the first real test of— you can see what was the low, double bottom low that we had back on the 6th and the 9th, really strong. So acting quite technically for now, key level above where we're trading, other than the high of the day, you could have just, uh, on the handle at R1, and we've also got the high there of the 12. So for the Aussie, I think you've got to favor the upside unless we were to, you know, really break the, the trend lines to the downside. And I would say that is the same for the euro as well. You can see price contained quite nicely, uh, from this trend starting on the, the last day of the month, the previous month. So unless that was to, to go, you've got to favor a continued push higher. Uh, having a look at another market helped by the dollar weakness is gold really pushing on the R1. Previous high of the day yesterday was a superb trade, admittedly right on the data, so you'd have to been quick to pull the trigger. We're still looking to push on here, and just looking here on the 240 chart, you've got key resistance on the 25th, 1335 on, on the futures, and I wouldn't want to stand in the way of gold at the moment. Moment. And again, it could be a case of, well, just, you know, identifying a level. Where will the sellers, you know, come into this market? At what point can we start to see things turn around? Because you don't want to, you know, be getting in the wrong side of this market. With equities, obviously we had a bit of a topsy-turvy day, especially in, in the S&P. You see, we pushed higher, cash open came lower, failed break of the, the low of the day, and we're now back probably, you you know, not far off the middle of that. Um, I agree with that. I don't necessarily think certainly for those FANGs you're going to get continued selling pressure, but where to let the market agree with you, I think the pivot's not a bad place. You've also potentially got this as a zone where the previous low of yesterday, the high of yesterday evening, which is also pretty much today's high— can we get back above there? And then you might see a further recovery, uh, in the NASDAQ. Let's have a quick look just to see if we've got any trend lines from these highs worth considering. Not really at the moment, but it might be that, you know, you start to get a bit of resistance here in that final push above the, the hand as well, 7,000. But for stocks, yeah, I wouldn't be too surprised to see a bit of recovery. But just the way things are, you know, traded here, you can see the the Dow Jones finishing up for the day yesterday, uh, you know, looking for that continuation above these highs is probably what I would prefer. Of course, trade comments could come out, but like I mentioned, unlikely probably today to do so. Oil as well had an interesting day. We pushed higher in the morning, almost got to what would have been a really key resistance point. You can see those, you know, I suppose we almost got the previous low of Friday evening before that final push down, which acts as a really strong resistance, a good line in the sand potentially for oil there. Stuck within a bit of a range this morning. So wait for Tim to come on later to go through this in a bit more detail. You can see just how nicely this trend line from yesterday's low to yesterday evening's low to today's low is, is reacting. So a break of that, you can further get a continuation from through as well. Just having a look at the high, uh, worth keeping an eye on, was almost, uh, tested as support before that breakthrough. But we've had decent price action around here, $53.43. So my, my bias would be waiting for price to come either way here on oil, ideally in the afternoon, as obviously in the morning less likely to be, um, you know, too filled with volumes here to get that higher move. I mean, look at T-notes here, it's continuing to push on. Worth having a look. And I was looking at this yesterday morning, um, just the, the patterns. And it might be worth again looking for this continuation to happen unless one of these, you know, breaks, and then you can get that, that follow-through. Just the, the break of, uh, a high and it comes back and forms a good trend line, uh, which is respected then through throughout the day. And this isn't Obviously the first time it happened yesterday, you can see it acts once, twice, and then the day before, the breakthrough support, once, twice, three, four, five times. It's a really good, uh, you know, just pattern to, to be aware of, should we say, on the, um, on T-notes there. So it might be one not to happen today as we are a fair bit away from the high of yesterday, but keeping an eye definitely on the level support, which if we were to, uh, come down, not anytime soon, it'd be around the 127 handle, low of the day as well. So would be a pretty key level to keep an eye on. Obviously just going through the, the cash open, uh, in Europe, have a quick look over how the DAX is trading because of course it can drag things around. Really key resistance yesterday, we finally got there just, uh, after 4 before the, the cash close. We had it marked up early morning. It took its time but eventually did get there. Uh, it's having a quick look now. Key level, obviously, just below the pivot of the support from late last night. Uh, we're keeping an eye on that. If that was to go, then sure, you might get a bit of a follow-through in US stocks, but not something I would be looking to trade too aggressively until the volume starts to come in as well. Any questions, as usual, please, uh, do let us know. The dollar is having another leg lower here, which is helping the, the pound, you can see, have a go at trying to test this R1. Some interesting levels, uh, certainly for the afternoon. And if you are looking for maybe a bit of Aussie dollar weakness, those trend lines like with gold and T-notes might be advisable, as they are still pushing on, just as the Canadian dollar is as well. Hope you all have a great trading day, and I look forward to speaking to you in the chat.