FOMC review & Bank of England preview

Okay, very good morning. Anthony here at Amplify Thursday, 20th of June. I hope everyone had a good evening. Um, going to— well, I was just kind of prepping up some of the, the tabs so I can talk you through the news. It's definitely a central bank focus, not just talking about the Fed. Obviously we've got the Bank of England later today. We had the Bank of Japan overnight, we had RBA comments overnight, so definitely a central bank theme at the moment. But before I got on to Jerome Powell and a summary of what happened last night, coming in this morning, must admit I'm a little bit surprised by the fact that the market has continued to, to kind of take that move a bit further. I think when we were leaving, gold had seen a bit of a pullback, but you can see overnight it's kind of powered on One thing is technically, Sam will look at this, but you know, we're punching through some longer-term technical points of resistance, and that certainly helps the breaks to the upside. And if you look at the gold future here in the top right, there's a very quite clear pop in price action at 3 minutes past 2 AM London time. So, you know, normally a very illiquid part of the session overnight, and orders going through, if a level gets hit, then that's when you can see some stops run and that kind of type of price action. But overall, it kind of fits the same narrative of a dovish monetary response. You've got gold higher, dollar then as a result a little bit weaker, albeit still down about 2 tenths, but, and just off its lows, but still down. That trend that had been materializing yesterday has continued. European and US stock futures a little bit higher, as well as fixed income futures. So at the moment, at least The markets have taken this as a signal that the Fed are serious. They've kind of given the nod to the rate cut in July. And that reminds me, actually, I'll get that up as something we can look at as well, because I believe now a July rate cut is 100% priced in. We'll see if that is still the case in a second. But let's have a look at what exactly did happen. I know some of you were here, some of you might not have been, so let's have a review So Powell opening the door to July rate cut amid Trumpian uncertainty. So definitely the trade war is one of the most influential factors for the Fed in the short term for trying to factor in the risks, and the largest one of that to the US economy going forward. Overall then, as a, as a quick look, this is where July currently resides, and obviously the federal funds rate at the moment is 2.25% to 2.5%. And as you can see, that doesn't even feature on this graphic. So Fed Funds now are pricing in 100% probability that there will be a 25 basis point cut at the end of next month. The probability of 25 basis points is 63.6%. So 36.4% that we're going to get a 50 basis point cut. I still think that that's, you know, unless something develops between now and then of a much more a kind of negative, um, situation, whether trade war breaking down again and also incoming data showing quite rapid deterioration in the US economy, I still don't think that 50 basis points, at least at this point, is what the Fed will pursue. But certainly 25 is what the market on consensus is looking at. Now, a few things here. This was the statement, um, And overall, one of the things I might regret in saying is that I do think the market is a little bit in, I guess, kind of the initial response to what's happened. The Fed have committed to the dovish kind of expectations of the market, but I do think the market's overdone this a little bit because I still don't think there's a great deal here, you know, that's saying that the Fed are just going to cut 3 times by the end of the year. I think that the Fed definitely have paid heed to the fact that economic conditions have changed. They've talked about economic activity was rising at a moderate rather than solid pace. They kind of tweaked some of the language around some of the other phrasing as well. They dropped, of course, that idea of patient and instead talked about monitoring the implications of incoming information, i.e., the trade war. And the economic outlook as appropriate to sustain the expansion with a strong labor market and inflation. So that's the hint that they're ready. That's the tip-off for July, I would say. But I don't think there's much there. And as we'll see with the projections, I think once again people start to digest this further, I'm just not sure how much more you're going to get out of it. So Which, that is true, then obviously room for a bit of a pullback in the 10-year move, the gold move, the dollar move potentially could materialize. And if that was going to happen, I would say that could happen when the US start to come in, so around that crossover time, 11:30, midday London, when the US come in having already fully interpreted what's gone on, had a night to sleep on it. What do they think then? And I think on the balance, for me, I think what was said I think you might get a bit of a pullback, but let's see. Dissenter James Bullard, unsurprising. He is an outlying, um, uber dove, so I don't think that was particularly shocking either. The one thing that was a little bit strange was this. We were looking at this in quite close detail last night. This is the, uh, so they've updated this graphic, so now you can see, um, the changes So the actual medium dot plot for 2019 actually remains the same despite a bit of a shift in the composition of the dots. But then you can see the, the gaps here, and most notably, instead of being a kind of normal rate hiking cycle going up in rates, they've got this what is a rather bizarre pattern of rates going down for a period of a year and then going back up again. Now Now this is again particularly unusual, and I think that's taken the market a little bit of time of what they want to think about that. I think at the moment at least the markets have taken that as the Fed are willing to kind of weather the trade war risk. Looking between the lines, perhaps just given the political timeline of an election to be delivered and Trump's second term by the end of 2020, maybe this is a bit of giving a little wiggle room for the economy with a lower rate trajectory for next year, only then for it to pick up pace, you know, once all those big risks are put to bed because Trump can't afford for them to lose. So don't really— I'm not sure how much credence I give that. It makes logical sense in terms of the graphic and the timing, but you know, if the Fed were to start basing their decision-making around political events and politicians like Trump. I think that they're, they're lining themselves up for, for a big mistake down the line. And the other thing is here, they're kind of, they're breaking that traditional rate hiking cycle, which is normally one of many, and cuts the same, one of many. If you break that, I'm fearful that markets will be a little bit unsure of how to judge then your next move. And the more uncertainty there is the less power you have in the ability to influence markets through verbal communication. And that's almost kind of self-inflicting for the Fed in the long run. So a couple of broader thoughts there to think about. But the one thing is, yes, 2020 has gone down, but we do bounce back, back up, albeit a little bit lower, but rates then move back to the upside. So again, um What does this mean? Well, you know, Goldman Sachs was one of those banks, if you remember, when I was doing the preview last night, who were expecting no rate cut. Well, they've come out and they, they now see the Fed cutting rates in July and September upon reviewing of the information of what we saw last night. So again, now we've got clarity. You know, it was kind of, um, you know, speculation based upon, you know, theoretical knowledge of what these analysts thought could happen. Now the Fed have come out and given the full summary of economic projections, um, I think the consensus is now that the Fed are going to be cutting at some point. The variance will be how aggressive and the timing of when, but July seems to be definitely in. It's about when does the next one happen, if at all. The other thing as well I thought I'd mention, this was out yesterday, but it It certainly is quite interesting. Basically, those people, without being mentioned, close to Donald Trump have speculated that Trump believes he has the authority to basically demote Jerome Powell from being Fed chair. Now, apparently some of the lawyers have been looking at this, and technically there could be a way to basically remove Powell from the Fed chair position. Obviously, Trump very much, uh, critical of Powell because saying that he's, he's lifted rates too fast, too high, and that's been to the detriment of the US market. And so hence the reason why he wants him replaced. I'd like to say right now, this will absolutely never happen. I could pretty much would like to put my, my name on the table there. There's no way that Trump's gonna demote Powell. All this is, is Powell playing political games so that it looks like, again, he's hedging his bets. It's not Trump's fault, it's Powell's fault, all in time for the political race for 2020. This is just PR management from Trump for the general public in the US to feel— to distance himself from any potential future economic shock. And so then he's, you know, he, he's got someone to point the finger at. So absolutely, Powell has said immediately yesterday that he's going to serve his full term, and I'd absolutely expect that to be the case. Not only, um, this, but Pelosi of the House, she was saying yesterday someone who obviously has large confrontations with the president, he said there's no way that can happen because the central bank by default is supposed to be independent in the first place, so he wouldn't even pass this through Congress. So yeah, this is just Trump 101 tactics serving a political agenda rather than anything for markets. So I wouldn't worry, Powell's going to be here to stay. That being said as well, another, another Trumpism Obviously the market got a big rally 2 days ago on the back of the fact that Trump tweeted about a positive telephone conversation he had with Xi, how they're gonna have extended talks at the G20 at the end of the month, so on and so forth. Well, Chinese media— again, we did cover this yesterday, but just to get you up to speed— did come out and say upcoming trade talks between the 2 countries are unlikely— that's unlikely— to immediately resolve major disagreements between the 2 sides. This is the point here. Trump, again, timing is of the essence. He tweeted that several hours before he then officially said he was going to run in the race and he had that campaign rally in Orlando, Florida. So again, all about timing when it comes to Trump and all about his political agenda, of course. So do I think a deal is going to get done for the G20? Absolutely not. Are the two going to talk? Most likely they will, but there's still going to be differences to resolve, I'm sure. So just because equity markets, I think, have had quite a positive run, and we could even— now we're in striking distance— get to those all-time highs again. You know, this trade war is far from resolved at this point. The G20, though, will obviously be a pivotal moment where we could see a bit of a pullback when, again, if you think about all of these meetings we've had on a public stage, It's been positive, positive, positive, positive. We get up to the point of let's then do this deal, um, and then it falls down again. And it almost feels like we're building that way up for the G20 as it approaches. Okay, enough on the US and Trump. Let's move on. Uh, update on the Tory party leadership contest. We had the third ballot last night, so poor old Rory got the chop. Um, after his fairly tame performance that he did in that second live televised debate. So he's gone. I don't think that's surprising at all. One thing I think that's more interesting here is the fact that Rory Stewart apparently has been having breakfast meetings over the last few days with Michael Gove. Now the reason that's quite interesting is if you can kind of switch the supporters who are backing you then into Gove to tip you over Jeremy Hunt, where Hunt and Gove are pretty neck and neck, that could be quite troublesome for Boris Johnson. Uh, as I've said before, he wants to avert, if possible, going against Gove because that would be more of a tricky one to handle, uh, in a playoff between the two characters. Hunt, I think, would be more of an easier one for Boris to manage. Uh, Boris out in front by a clear country mile at the moment, as you would expect. So it's more about who's going to be whittled down to the final, final two. Now there is going to be another ballot happens today, and the result— and we'll be expecting one more to be chopped off, and I would be fully expecting that to be Sajid Javid. That result though is coming out instead of 6 PM, slightly earlier time of 1 PM, to look out for that. Now interesting headlines in the news this morning, a couple of people putting rumors around close to Boris Johnson that he could potentially eye an early UK election, potentially penciled in for the autumn, uh, the autumn being obviously around the timings of the delivery of then the current end of Article 50 and this risk of a no deal. So if you think about it, I can understand the strategy here. The deadline is October 31st, so if you held the general election just before that and you were Boris Johnson and you absolutely pushed hard about this idea of willing to do a no deal, I think you probably would get quite a lot of public support. That being evident with the rise in support of the Brexit Party, and given the fact that Jeremy Corbyn is so reluctant to commit to the, to a second referendum, for example, which would probably be one of the most powerful arguments to counteract that, I think that Boris you know, it could be quite a compelling case to try and get a stronger majority in Parliament to then go and renegotiate, avert a no deal, but now you can go back to Brussels through then an extension to say March 2020 and say, well, I've got more control now, Europe, do me a deal and I can get it through Parliament. I do think that has some legs. The only problem here is that, remember, April or the summer of 2017, Theresa May thought pretty similar to what we're thinking now here for Boris Johnson, and it absolutely backfired, egg on her face, to a spectacular degree. And obviously polling is one thing, sentiment, trying to ascertain that is difficult. What could the actual result be? Who knows? So it comes with a huge tail risk for for Boris if he went down that route. But I can kind of see the logic in why he might want to do that. Now, other things are today, moving away from the politics, although that being obviously an important and restricting component of what the Bank of England are likely to do today. The Bank of England, what Bloomberg is saying here in their decision guide, is you've got the ECB, Draghi sounding incredibly dovish at the beginning of the week at the ECB forum. You've got Jerome Powell now committing, and markets very much expecting rate cuts in the near term from the Fed. But the Bank of England might sound, in the context of the global central banking world, a little bit hawkish. Now, a couple things here to be aware of why that might be the case. This is looking at the Bank of England curve. So although they might sound a little bit hawkish, one thing is obviously the global situation has changed amid some of the ongoing tensions on the trade war. So the Bank of England curve for what market pricing was for future rate rises— this is the black line— but over the last month, obviously, as people, these other forces at play from the other central banks globally, have got dovish, as data has deteriorated, as the risks on the trade stuff has, has got larger, well then that's where that orange line comes in. And so the current rate of interest is here, but you can see the kind of what markets are looking at now. It's a little bit more shallow than where we were a month ago. In terms of the evidence then of what, what comprises of the UK economy and, and kind of gives a fairly more balanced argument, is that factory output, uh, the last reading you can see here on the, the chart on the right-hand side, that's quite a significant drop, as you can see, after what was 3 consecutive positive readings. Now, a lot of the reasoning behind why UK manufacturing production has kind of held up over the course of what has been a slowing economic environment with political uncertainty has been this idea of Brexit stockpiling. But obviously, once inventories build, there's only enough stockpiling to, to happen for a limited period of time, and once that's done, we'll well, then what? Because ultimately underlying this is a lack of appetite and demand for purchasing of goods in this sense. So that's obviously a negative. If we look at some other things, the pound has, you know, had to reflect this. But not only that, the pound being probably most sensitive to the fact that a no-deal prospect has been rising as it's become clear that Boris Johnson is most likely to take over from Theresa May. As you can see, we're getting very close to the, the low point that we had in December of 2018. Bank of England, though, it's not all doom and gloom because the other factor here that the hawks will be discussing at their meetings would be the fact that inflation is at target. You know, although inflation was dipping through the back end of 2018, it has stabilized and remains at target. So that would be indicative of the fact that, you know, at this point there's no reason for them to cut rates. Because one of the considerations here could be that if we look at this, UK unemployment is still at its lowest rate since the 1970s. You know, UK unemployment is in fantastic shape at this point. And the logic here would be that if that continues, because it is decreasing at the moment, well then that could lead to renewed inflationary pressures. And so is there reason to be hawkish in this particular area? So, you know, there's, there's obviously different parts of the economy that tell slightly different stories, but the idea here is that not— I don't think that they're going to sound so much hawkish, they're just not going to sound as dovish, and quite rightly so given these factors. Than some of the other central banks. So I think just don't be shocked or surprised. You might get a little knee-jerk flurry higher, possibly on the upside in the pound on the release, but ultimately I, I still think the point is, is they're not going to change rates until really there's any Brexit uncertainty that's removed. Otherwise, we have the Bank of Japan overnight. I really don't think that warrants talking about too much, in all honesty. Uh, the Japanese yen, if anything, has suffered on the back of the dollar weakness rather than anything BOJ-inspired. Bank of Japan leaving rates on hold, as completely expected by all analysts. You've then had the head of the RBA in Australia, Lowe, reiterates the RBA rate cut on the table as spare capacity persists. Uh, so again, has the Aussie moved? Well, if you look at the Aussie dollar this morning, I mean, it's actually trading up in the futures, testing around its R1. So again, it's more reiteration of what was said before when the RBA cut rates most recently. Final thing I just wanted to mention was the DAX has seen a pretty positive start to proceedings. Obviously the DAX following in suit and sympathy with the move in US index futures from overnight and the pickup this morning just on the back of the Fed. But, um, worth keeping an eye on SAP. Actually, let's just have a quick look where SAP are trading. If I quickly jump on Teletrader, just wondered, uh, not too much of a read across. I was anticipating potentially Oracle had particularly strong sales numbers out overnight. The company showing strong demand for apps in transition to cloud technology. Hardware revenue declines 11% in a legacy unit, but shares after market yesterday did shoot high on the back of the update from Oracle. Oracle, obviously, and SAP, the most two dominant forces in the software application space, and so potentially a read across for, for the German maker as well. All right, well, let's have a quick look at the calendar and then I'll hand you over to Sam. A few things he wants to say as well this morning. So from a UK perspective, you've got UK retail sales coming out at 9:30. You've then got the Tory leadership— we've got the Bank of England at 12, Tory leadership ballot, next round elimination of probably Sajid Javid at 1 o'clock. For the UK retail sales then, Accordingly, such as UK data has been of late, I wouldn't be looking for something too spectacular, spectacular in reaction. Retail sales, though, is expected to come in negative. I guess it's a case of that's not too surprising. It's just how bad is it? So I'd say on the balance, given how markets are or market participants are generally viewing the UK economy, A bigger reaction might come if there was an upside number, an upside surprise. Otherwise, Bank of England midday. You've then got the weekly jobless claims coming out of the US, Philly Fed all at 1:30. Um, and then speaker-wise, uh, Bank of England's Mark Carney and Chancellor Philip Hammond, uh, give their annual Mansion House speech. Uh, didn't realize that was today. So that's one of their black-tie dinners they have this evening, just up around the corner from the office here. That sometimes is used, used as a bit of a staging post for policy thinking. But just given this coinciding with the day of the Bank of England rate decision, I would say it's highly unlikely you're going to get too much more from Carney. Chancellor Hammond, maybe for his political views, could be interesting. We shall see. All right, going to come off the mic and hand you over to Sam because I can see Markets are seeing a little bit of movement, session highs still in equities, so I'll see what he has to say. Thanks very much, guys.

Yeah, hi guys. Yeah, equities pushing on, not just in, in the States but Europe as well. NASDAQ and S&P just pushing a new high as we speak. And obviously, as we get up to these heights Obviously got to start talking about all-time highs again. Uh, what an opportunity. I, I had orders right waiting, uh, about 10 points below that low, so a bit frustrating, but is what it is. Move on, not going to cry about it too much. But in terms of a percentage move to all-time highs, you've got to imagine it's going to come pretty soon. Looking at here on the futures, well, it's less than half a percent, which is incredible. Considering where we were back in the beginning of the month. That move from that low to the high, just a mere 8% push. That could easily happen today, of course, in, in stocks. And just having a look where we're, we're trading now, we've put the pivots on for a bit of a guide. You can see we're already above that R2. Yesterday didn't really move that much, to be honest. It was only overnight that we had a continuation of this push higher. Weaker dollar, gold pushing on as well. So $2,950, we're now above and not too far from that all-time high. Whether you'd want to go chasing this market or not from as high as we are now, maybe not too aggressive. If you're already on in, of course, fantastic opportunity to, to hold this position for a retracement. Perhaps looking, you know, you can see here overnight what a good trendline— this was before the break around quarter past 7— if that was to come back and get tested, that's somewhere you've got to— you could argue you'd be looking at for a level of support. And then lower down, 2936, obviously that's a fair whack away now, but that and R1 could offer a good level of support. The NASDAQ, similar in price action, in that we've pushed higher, and you can see the R2, which offered as a bit of a level of resistance this morning has already come back and retested that area. So quite technical this morning, but you can just see from overnight this green candle after green candle, which is quite extraordinary. Looking at the, the NASDAQ here on that longer-term chart, this does have a bit more to go to the, to the all-time highs. Uh, so in terms of opportunity for more medium-term trade, you know, this might be one to to look to, to get in favor over the S&P, 1.5, 1.6% away from, from that high. Looking at the pound, obviously coming into this morning, uh, you have the, the Bank of England coming up. So whether you'd want to again trade this ahead of that, uh, or not, it finally broke through. And this again was overnight, the, the key level we had marked up, 271720 area, those previous lows, acts as really good resistance, came back down to below 1, uh, 127, what was the previous high of the day. That acted as support at 9:30, and since then it's just been pushing higher and higher. The dollar now down overall today 0.3%, having started yesterday at a 2-week high, uh, or a couple of days ago was at a 2-week high on the dollar index. But the pound pushing on. Key levels to be aware of to the the upside. And we'll go through this obviously closer to the time of the Bank of England, but we are just ticking ahead of what has been quite good resistance that started this down move again on the 13th. The higher that— I wouldn't necessarily— it's saying it's going to get away from things unless we were to get above 127.21 on the futures. It was the double bottom low of the 12th before we had a breakdown around 4:30 on that day of the 12th. So keeping an eye on that as a, as a level of interest. I think, I think there could be still a good opportunity to get short here in the pound medium term, but keeping an eye on this level, of course, with the Bank of England, that will really dictate things into the shorter term, medium term of today and the rest of the week. Euro with the dollar helping, uh, push higher here. Key level around the R1. You got those previous high, uh, of the 14th, the low of the 12th. So it's just a key zone in general to be keeping an eye on. And with the, the euro dollar, you can see again, just putting this on a longer term chart, every time we have pushed higher, uh, since— I mean, going back here to May, it has been met with a faster move down. So we can still see where we're contained in if you like, in this trend channel. And I'll just draw it, you know, roughly here. You can see we're not too far away from testing the top end of that, so be keeping a close eye on that over the coming days. Also, that's that high. Just gonna put the pivot on quite a key zone, if you like, for today and the week. Top of that trend channel, you could argue that there's a trend line coming from these tops as around here, which would be around 114. You've got the previous lows. There's a really key zone for the week from where we're trading now, the R2 to 114. That'll be certainly somewhere to keep an eye on for, for euro. Monitor that level as we, we go in. Gold, highest we've been for a couple of years, or it was the highest we've been for, you know, a couple of years on, on that push back to, uh, well 2018, so a year or so I should say. Um, but the high of the year was, was reached yesterday. And you can see just how important this, this whole area is going back to 2014, 2016 in July, and then of course '17 and '18. Really, really key level. It wasn't so long ago, uh, last summer where people were talking about, you know, coming back to these, these lows that we started back in, in the, uh, the early part of the millennium. Uh, that hasn't happen. You can see we have continued to push higher, really squeezing on this here. This is that weekly chart. If the Fed are going to continue to be overly dovish and the dollar does weaken as Trump might want, well, maybe the opportunity here is still actually to get long and look to target above 1400, which someone in the chat, Will DeLucy, was, was saying yesterday. So let's have a, you know, look to see if that can happen elsewhere. And having a look at oil, we had a decent push overnight and Certainly that correlation between equities and the S&P is going to help. Well, with equities pushing, if oil can continue to do so. We're now out the top end of this range. You can see $55 was that one that we talked about in the beginning of the week, just how important that would be. You know, you can see these lows going back from November last year, which held the double bottom. We then pushed higher. And that key level we just had a go at breaking here around 5538, which was the previous low on the futures of the 8th of March. Really key. Can we confirm a break above that today and this week? And if we do so, you know, I wouldn't be surprised to see a faster move back to 58, just purely technically looking at this market. I know other people will have a different opinion, but that's why this, this sort of level, the line in the sand stand is a good gauge of sentiment, certainly going forward. You know, you know, on the flip side, if we had broken this low on the 12th of June, well, we could be down near $48 for all we know. But we've pushed higher. Oil now back above its 10th of June high, and also the low that we had back in March, quite significant if we can close above that. Safe havens is coming under a tad of pressure. The Bund on the pivot. I'll be keeping an eye on what was the, the previous high of yesterday afternoon, 120, uh, 172.35 as a key level. T-notes, which pushed higher and sustained— I mean, it was the only one for the whole duration of the 7:30, uh, Fed press conference yesterday that sustained its move higher, coming under a bit of pressure here, uh, this morning. But what a key level this would be. And again, a gauge, uh, a gauge of sentiment. The 18th high, the high of yesterday, was also the R1 be keeping a close watch on, on how we react around that point. Uh, also probably looking like there would be a bit of a trend line before that, you can see from yesterday evening's high. So keeping an eye on that. Also looking to come in around the 128 handle. Uh, stock still pushing on. Uh, gold, keeping a close eye towards the end of the week as well about those multi-year levels. Euro and pound supported, perhaps a bit, uh, overbought. Bank of England could be a good opportunity to sell if it doesn't go, uh, in favor of the Hawks. But looks like it's very much a case of risk on in the market for now. Any questions, as usual, please do let us know. I hope you have a great Thursday and a great trading session ahead.