GBP down as pressure mounts on UK PM May

Okay, so a very good morning. It is Wednesday, 22nd of May. Good to be back. First day for me back at the desk for this week and raring to go. Obviously, it seems like I've missed a couple of things, one being what seemingly is quite a choppy situation with the trade war direction. It kind of kicking off quite negative in the beginning of the week, and then Trump giving an extension on businesses dealing with Huawei for a 3-month period. And now you've got this latest kind of blacklist in circulation of other Chinese tech firms that are being targeted. So a very fluid situation on that side of things, but overall positive close last night on Wall Street. A little bit more mixed overnight in Asia. with that latest turn that we've had targeting some new Chinese firms, but nothing too spectacular, spectacular for the market open this morning in terms of a negative sense. Index futures are marginally lower. Crude futures are lower though. We're going to have a look at that. We obviously had the API inventories last night. There's a couple of updates as well from the supply side. Also Russia have made some comments in regards to potential ideas around what they could do at the June OPEC decision about production cuts. And then obviously you've got this kind of cloud of uncertainty on the trade side, which diminishes the kind of growth prospects and the demand for crude oil, a continuous kind of weighing factor, if you like, on the product. Otherwise, the main thing, as you can see to the side of me, headlines of course, about Theresa May. And I did miss, obviously, the action yesterday. I was just looking at the cable chart here, top center, obviously rocketed higher on the back. I can imagine the type of headlines that were coming out, that she's kind of made a severe concession to meet the demands of Labour, and she would hold a confirmatory second kind of referendum, if you like, on the final deal. Only if you accept my deal on the withdrawal bill and the pound kind of shot higher, however faded pretty much over the course of about a 2-hour period, almost immediately kind of talked down by not only Conservative members but leader of the opposition party Corbyn. And if anything, the pound's come under some pressure again. We're testing 1.27 handle this morning in the futures, which is below the, the low print really of yesterday evening's session. So it remains on the back foot, and this comes after renewed calls now for her, a kind of speed-up, if you like, in her resignation, given how, how badly this latest turn of events has been digested by both sides of the political spectrum, you could say. So yeah, let's get straight into the news, and then I'll hand you over to Sam. He'll look at the charts in more detail, but let's have a quick overview of what's happened with Theresa May. So yesterday, a guarantee of Commons vote on whether to hold another referendum on the government's Brexit deal, and also a vote on different customs options, including a government proposal for a temporary customs union for goods. So seen as a major concession to the demands of Labour after those talks broke down just a week or two ago. Now, problem is though, you've got a pretty divided Labour Party. We know that, although what she's done would probably satisfy half of the party. It certainly doesn't satisfy the likes of Jeremy Corbyn, and he's kind of made that evidently clear. But Corbyn is backed also by pro-Brexit Conservatives, obviously the ERG. We're going to talk about Boris in a second, but importantly also the Northern Irish party, the DUP, also condemning her proposals as well. So it's pretty much dead in the water. Or dead on arrival, as they often say in the press, as soon as she's given that surprising speech. Now, a few things then. This has led to Theresa May facing pressure to abandon now her Brexit deal and just basically quit as prime minister within days, according to people familiar with the matter. That's the latest kind of speculation in the press this morning. And that's probably then what's leading to a little bit of pound softness this morning. Let's don't detract from the point that the euro, although it's come up a little bit in the last half an hour, is also negative. The dollar index largely flat, but worth keeping an eye on. But the pound in a sense is, is generally weak fundamentally, and it's not just about the fact that this deal is kind of not being accepted. It's the fact that political uncertainty generally then, in terms of leadership on the party, if she were to resign, totally throws up in the air this whole kind of Brexit process. And also the most likely replacement, of course, is this chap. And you know the gentleman's Twitter account I'm about to bring up. And the amazing thing, of course, is How Boris now is obviously using the vehicle of Twitter to vocalise his thoughts. He's not been a particularly regular tweeter, however, obviously looking to just get right on the coattails of the kind of momentum that Trump has had. And he came out yesterday with great reluctance, he backed the meaningful vote 3, if you remember, the third one that failed for May. He did actually back. But now that we're being asked to vote for a customs union and a second referendum, the bill is directly against our manifesto. I will not vote for it. We can and must do better and deliver what the people voted for. It does amaze me because as much as this might excite a large number of the UK public as to warming towards get Theresa May out, let's get Boris in because he'll get the job done. Done in a Trump-esque kind of tweet style, if you like. The point is, if he becomes Prime Minister, he's gonna face exactly the same problem. He's not gonna get a better deal through because half of Parliament doesn't want a hard Brexit. That's the point. So as much as Theresa May can't get her deal through that will upset Brexiteers, Boris is not going to get his deal through either because it's going to upset the Remainers. And so all that this does, I think, if Boris comes in— I think this is what the market is kind of pricing in as of this morning, a little bit of sterling weakness— is the risk of a no deal has got to go up. But we know the risk of a no deal materializing in reality is very slim. As much as Boris might talk it up, as well as the ERG and the Brexiteers, they are talking out of their— leave you to fill in the gap. I really don't believe that they would pull the trigger on that happening. I strongly don't believe that is the case. And so we end up in exactly the same situation. So I don't know, will Theresa May step aside? With what I've just said, I think— still think it's unlikely. Because she knows this, Boris knows this, and I think if anything for Labour it's almost a good thing because now when we have the European parliamentary elections on Thursday and not only do Conservatives get decimated, Labour also have a spectacular fail which means then, well, Corbyn, the rest of the party like Tom Watson and Keir Starmer can say to Corbyn, well, 'Teresa May's offered you this deal that you wanted. Why aren't you taking it? Look how badly we've done here.' And it kind of heaps the pressure on Corbyn. And, you know, if you could remove Corbyn out of the equation, well, then you might have something where Labour could start dealing with Conservatives on the terms that have been unveiled by the Prime Minister. So I definitely don't think that this is a a kind of, that's it, the box has been ticked, May is done situation. Not just yet. However, I would definitely over the next, particularly today, but the rest of the week, be particularly mindful of any rumors that might generate some steam. Just because of context, I think delivered into this environment could have a decent impact on the pound about her potential resignation. So yeah, again, Dominic Raab, another front-runner. I think after Boris, he might be second or third favorite. He said Mrs. May's deal would break our clear manifesto promises, but I would like to remind Mr. Raab that he's going to face exactly the same situation if he was to become Prime Minister. Like, like the example that I gave you with Boris. So again, the main point here is without any progression going forward, any uncertainty, a continuation with change in leadership just delays this, and this needs to be factored in with the rising prospects of a no deal. So the pound fundamentally, I think, is probably going to remain on the back foot potentially throughout today. All right, enough of me getting slightly agitated about Brexit. Let's move on, talk about something else. One is oil. Oil is down, talking WTI crude futures, about 60 cents this morning. We're trading at $62.56 level at the moment. This was the API crude oil inventories last night. We had a build of 2.4 million. Expectations were for a drawdown of 1.3 million. Cushing build 871,000, gasoline build $350,000. Distillates, a draw of $237,000. Now, one thing I was looking at here, obviously it was a surprise build, if anything bearish data. And the industry report suggests an increase in US stockpiles. And as you can see here, stockpiles in the US have continued to increase. This is looking at the week-to-week kind of numbers. And if you go through 2019, you can see getting up to the highest amount that we've been throughout this year. So definitely in the context of, um, the souring trade negotiation going on between the US and China, this definitely is providing a significant headwind. The other article that I've been looking at this morning is this one, is that Russia's economy gives Putin reasons not to extend OPEC+ deal. Now we know Russia is absolutely pivotal for the OPEC+ supply deal to have any type of bite in actual reality into market prices because of the volume of which they pump. Them being, uh, kind of second, I guess, behind the US now, that without them taking part and doing their kind of, uh, compliance to 100%, well then it's very difficult for the Saudis to get what they want. You in terms of keeping prices supported at the moment. Now, the reason here is because OPEC+ pact is hurting Russia's economy, and while higher crude prices can bring the Kremlin additional revenues, the problem is, is that production cuts are weighing on one of the country's most productive areas in terms of the composition of their economy. Now, the Q1 reading of GDP in Russia came in at 0.5%. Now that was below all 14 estimates on Wall Street. So every bank was looking for something much more positive than what came out from Russia. So they've had a weak start in growth terms, and predominantly down to one of their major sectors that contributes to economic growth, and that being oil. So for him, for Putin, and we know that Obviously, in a country like Russia, uh, very different in the way of which it's managed comparative to, say, other Western nations. Obviously, the powers that be in the government side have quite a lot of control over what happens in the oil ministry, not independent in their thinking in that respect. The other thing though, and the reason why you're not getting just a runaway sell-off in oil is there are still supply-side potential shocks. Now, for one, this was something reported this morning. This has kind of been ongoing, but Yemen's Houthi rebels, who are backed by Iran, said they've attacked the Najran Airport in southwestern Saudi Arabia with a drone. Second strike in 24 hours. So ever since, of course, the, uh, US sanctions and the kind of removal of the waivers that were in place. Iran have obviously responded quite aggressively, and they've stepped up their attacks on Saudi Arabia, the ally of the US, in response to that decision. And so definitely there are supply shocks elsewhere still ever evident. You've got elsewhere oil facilities in Libya were targeted in acts of sabotage. According to the nation's state oil company, while Nigeria's Forcados crude pipeline has been closed as a precaution after a fire occurred nearby as well. So yeah, there's, uh, quite a few things to, to balance at the moment. I guess with the trade situation, we're kind of up to speed, I guess, of what the latest is at the moment. I guess the oil inventories from the DOE, of course, which we'll get later on this afternoon could act as a potential pivot point for the daily price action depending on the size or not of the build or draw that we get. And then obviously just layering in any key technical levels would probably be the best way to approach the situation, I would, I would suggest. All right, the other thing of course that's important for today, uh, we'll look at the calendar in a second because there's some inflation data coming out the UK, but it is the FOMC minutes. Now, um, I will be covering this on Trading Live in full later on this evening, so, uh, I'll probably deliver this briefing and then I'll come— I'll be off the desk for majority of the day, but I'll be back this evening to cover that in full on tradinglive.com. But let me just give you a quick overview of what we're looking at here with the Fed And it's all about, are the Fed, as the title suggests, going to shed any clues about the debate around a rate cut? Now we know that the markets in terms of the short end federal funds rate futures are pricing in as time goes by into September and definitely the end of the year, the odds are, uh, a market positioning suggests that we're going to be cutting interest rates at that point. So what we're looking out for is, were there any discussion of what it would take for the Fed to confirm then a much more, um, stronger bias towards cutting in the future. Remember, we're not looking for any pre-commitments here, we're just looking for any hints and tips that they're slightly leaning towards that direction rather than remaining neutral in that respect. Now obviously Powell has been reluctant to kind of show that hand thus far. But since that, the recent breakdown in the trade war certainly has, uh, definitely changed the situation slightly. One must remember though that these are minutes, so they are dated and won't reflect that latest breakdown in discussion. So personally, I'm looking for the minutes to maybe not unveil too much new information. Remember Powell played down inflation's decline below the central bank's 2% target, as coining it as transitory. Um, so was he, um, kind of backed by the rest of the FOMC members in sharing that view, or were some of the others a little bit more reticent, um, to believe that narrative? That could be a key area which could provide some dovish cues potentially this evening. Uh, so close, close close attention will be paid to how many other policymakers voiced that same kind of view. The other area is about plans to stop shrinking its balance sheet in September, when it will halt the reduction of its, its holdings of Treasuries. They haven't really unveiled a great deal of detail on that at the moment. Any further discussion points around that matter could also be quite pivotal in terms of the interpretation of of how hawkish-dovish tonight's event is. One thing that we did have yesterday, or overnight, I saw him talking in a recording this morning on Bloomberg, was Fed Bullard. And I must admit, if I was Jerome Powell, I'd be having some stern words with, with James this morning. And Mr. Bullard does tend to have this reputation. He is a bit of a pain in the neck for whoever is the Fed chair at that point in time, because not only does he flip-flop in his stance fairly regularly, but he definitely doesn't hold back in what normally central bankers are very articulate in a way as to not kind of rock the boat too much from the main communication line of the Fed. Bullard kind of doesn't fit that mold, and he said the December Fed hike may have slightly overdone it. Rates are in a good place though, if anything a little restrictive. So kind of criticizing the decisions that they made. Um, so I must say he does sit at this point very much on a dovish end of the spectrum. So hence the reason why markets are not reacting to his comments. If anything, the dollar touched firmer this morning, albeit broadly flat. But yeah, that's the kind of overview of the minutes. I'll go into this in a lot more detail when we get down to trading it later on this evening. This is a look at the calendar then. What have we got coming up? Well, UK-wise, we do have UK CPI. Now it is expected actually to see an uptick from 1.9% to 2.2%, and you might kind of think, well, wow, inflation going up in the UK, really? Is there demand implications in that respect, you know, in an environment when there's such uncertainty around Brexit? But a lot of the economic data has been reflective of this degree of kind of almost front-loading, getting ahead of these kind of what have been moving deadlines, of course, about when Brexit was in fact supposed to happen. So that might have had a— for the sake of, without a better word, a transitory effect on short-term inflationary conditions in the UK. I wouldn't really read too much into this. I don't think the markets, in the context of what's happened in the last 24 hours, are really looking at this data too clearly. If anything, it might give you a better point of entry to play out that short positioning, to carry on the fundamental bias of what is a short-term negative on the political side over the Theresa May government at the moment. So inflation data is coming out at 9:30. Do be aware of that in the UK. From a US point of view, it is pretty quiet. It's really CAD data at 1:30. Anyone trading the loonie, retail sales, even though quite dated— this is March numbers— the, the local currency always very responsive to this type of data. But then all inventory numbers 3:30, and the minutes at 7 o'clock, of course. So feel free to just join us from home for that. Speakers-wise, a couple of people ECB and Fed related, really the major ones start kicking off in the afternoon. Fed's Williams being a major one, is a voter, hawkish stance, speaking at 3. Bostic at 10 past, and they're probably the two major speakers I would say to look out for. All right, that is it from me. Let me hand you over to Sam. I'll catch you in the chat room, and as I said, I look forward to you joining me later for the FOMC. Okay, have a good session ahead.

Hi guys, hope everyone, uh, doing well. Uh, just having a quick look over the pound here. Well, you can see just during the, the briefing and having another leg here, just breaking through that low from yesterday. Uh, decent, uh, break lower. And I mean, from the, the high that we had uh, yesterday afternoon. We've now gone— what's that, 100 and 150-odd ticks down to, to the downside. And worth looking here longer term, you can see this is the, the lowest we've been since the beginning of the year, that flash crash low of the, uh, the yen at the beginning of, uh, the year. Let's bring this into picture so you can see here If we were— I mean, the next clear level that hasn't been tested for a while, you're going back all the way down to 1.2574. That's quite a fair bit to go. I'd be keeping a potential eye just a bit below where we're trading, 1.2650, about 30 ticks or so below where we are trading. Uh, the, the failure yesterday to hold on to those gains has been brutal here for the pound, and not just the pound against the, the dollar, of course. The euro as well. Another up day here. 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, including today, days in a row to the upside. Uh, we're back above the, the top end of that range after briefly coming below it yesterday, uh, and extending, uh, above the, the 0.88 handle, uh, as well. Bit of resistance as well, uh, earlier in the year on the 9th of FEB didn't even care about it and smashing straight through. Not looking too good for the pound at the moment. Sentiment very much to the downside. I think, um, as the day goes, it should be really a case— unless there's a new headline out— looking for opportunities to get short. But you can see just between S1 and S2, a level worth keeping an eye on there, uh, going back to the beginning of the year. Euro, uh, we've got a touch, only a touch of dollar strength this morning, uh, which has, uh, led to this coming down as well in correlation perhaps with the pound, but nowhere near as strong. Also got this break of a trend, and you can see that retest as well. So I'll be keeping an eye on that for anyone looking for an area to get short, or your, you know, uh, diagonal line in the sand, if you like. To, to hold or to, to get above if you're looking to, to go long. So quite a key trend line to, to have on. Uh, that low we had yesterday, uh, again, uh, the lowest we've been for a fair bit for the euro. So if that was to break, uh, you'd be looking at the low of April, just between S1 and S2, much like that level for the, uh, there the pound is as well. Aussie dollar, uh, while the pound did a full reversal in a few hours, uh, the Aussie did it in, uh, just over 24. You can see gapping up at the weekend, coming back down, but since then we are stuck in this range. So probably worth, along with the, uh, the lower Friday's close and yesterday, uh, to the highs of yesterday and today, almost as having this as a range and waiting patiently perhaps for a break higher or lower. I think with everything that's happened, I think the short probably is the better option to look to get in on the Aussie and higher up if possible. But obviously on a break of that effectively double bottom could be a good opportunity to get short. Just obviously going through 8 o'clock, so have a quick look over at the DAX, just spiking below that pivot. But the way it reacted yesterday around the similar time, you can see it spiked lower only to come back and pushed on throughout the day. However, you have got quite a key level that didn't get tested yesterday, the, the breakdown that we had on Monday morning. Uh, we keep it on that just a bit above yesterday's high, and you can see we are, I guess, just off this trending a bit higher. However, not just in the DAX but the S&P as well, we have started to see a potential break of trend. I was just looking at this earlier. You can see while you had the, uh, the spike through it initially on Monday evening, we then did come back to, to test it once, twice, three times, and four times again this morning for that breakthrough. So a bit of a potential reversal within the markets here. Equities did have a half decent day yesterday. 2856 to the downside, a key level to keep an eye on, not just from yesterday afternoon, but the morning, and then Monday evening, and then it was the, the previous low of the day, uh, on Monday as well. So quite a key level to focus on there for the S&P and the Dow, as you can see here, and the NASDAQ looking very similar, all coming under pressure, those trend lines breaking, uh, as well. Quick look at gold, um, drifting lower. I mean, on the, the longer time frame, it's Uh, this is the 4-hourly chart. Quite a key level of support that you can see, uh, going back to the back end of April, beginning of May, and obviously now to the back end. So is it— keep— is it a key one to, to keep an eye on? And also, we, we've gone over this a few times with this trend line from the low of last year. Let me just draw that on. You can see we are of course below that now. So for this market, definitely from a medium-term point of view, I would prefer the short. And yesterday was the first close below that trend line which had offered quite good support in, in previous sessions. So yeah, where could you get short for, for, for gold? That's what I would be, be looking at. I guess if we get back above that trend line, then it could go back into the chop and you're less likely to want to get too involved, potentially looking at that high of the day or around the pivot area as well for now. Obviously volume a bit lower in the morning, but that key break below the trend yesterday, uh, quite key. Oil, it just doesn't want to break out of this, this range and confirm, confirm a push higher, does it? At the moment holding very firm. Each time we, we look to, to get above sort of $63.50, we then close back down. We come back down and and it's, uh, it's held well. We're in, uh, perhaps a bit of a new range at the moment, just trying to break to the downside. Obviously the DOE is later one to, to keep an eye on, and we're not too far off that, that low of the day as we speak. Bit of support below where we're trading, uh, on the 16th low around on the futures anyway, uh, 6240 and 6228. So quite a bit of, uh, uh, support just below where we're trading. But from a technical point of view, the fact that we have really closed the, the candles here below this level at 6275, uh, it's quite damaged. So gold and oil start in the morning, uh, bearish from their finishes yesterday and overnight. Uh, equities, I wouldn't say they're necessarily bearish at the moment, and I'll be keeping an eye on the DAX to see what it does around this pivot, potentially to sort of wait in the your 15-minute period to get involved, um, as well. Let's have a quick look at this trend line on the DAX. You can see there, look, another false break. And this was similar to what we've had a couple of times with that. You get that price action at 8, the false break, and then we do push on. However, if we were to come back down, you know, and you get that, that close below this trend line, that could offer a good opportunity to get short in the other markets. Any questions, as usual, please do let us know. Uh, as Ant mentioned, you've got the, uh, the, the data at 9:30, so keeping an eye on the pound in the build-up to that, uh, as it's understandably under a bit of pressure, uh, at the moment. But if I don't speak to you, I hope you'll have a good trading day.