GBP Drops Overnight As Tory Lead Narrows

Okay, very good morning. It is Wednesday the 11th of December. Hope you're doing well. Obviously lots for me to cover on my side this morning, notably the update from the latest YouGov MRP poll which came out last night and has knocked the pound from overnight and is currently trading down just shy of 1 point in cable. Otherwise, elsewhere, we're going to talk about the ongoing trade war ahead of still the looming threat of renewed tariffs on China by way of the US this Sunday. And then we've got interest rate decisions. It almost feels like although we've been so focused on the election here in the UK, there is the ECB and the Federal Reserve obviously coming up this week. The Fed in particular will be the focal point for later on this evening. So we'll have a quick look at what to expect from that. as well. So first off, let's just have a look at the charts and see what's happening this morning. And I'm not really going to talk too much yet on the pound, but that is probably the most notable chart, let's say, from the morning. You can see quite a gap down given the futures close that we have, and this was all pricing in that poll that came out last night. Again, we'll go into details shortly, but otherwise elsewhere Pretty quiet in the US 10-year and gold, both basically flat on the session. This of course coming ahead of that, that US Central Bank decision. Otherwise, a little bit of movement in the stock futures this morning, seemingly led by a bit of a technical break more than anything fundamental in the DAX. So just before I've switched this live feed on, I was just talking over the mic where you've had a bit of a break of a technical band of kind of resistance at around this area. And we already had marked up in the market respecting so far some of the previous areas of support and resistance that we've had through the last couple of weeks of trade. And that in itself just restricting some of the price action, but certainly very quick run through 20 points or so when we initially breached the highs that were seen from yesterday afternoon session and some of that range high from the previous day's Asia Pacific session as well. As does the DAX, tend to move at around the pickup in volume spike at the cash open at 8 AM. So yeah, a little bit more, I'd say, technical on that push rather than anything fundamental going on from a, from a German perspective or overall global macro kind of type of view on the trade side, because there's not many in the way of new developments on the trade war either. WTI crude futures pretty much unchanged. They're There was of course the API crude oil inventories which came out last night, and if you actually look on the crude chart, you can see we have had a little bit of a downturn as that data did come out, and we've kind of consolidated just below pivot and the $59 handle. So I'll also get you up to speed on what those numbers were as well. So let's jump straight into the news and let's talk about this poll that came out last night. So this is one of the most eagerly anticipated polls because Not only is it the one, of course, that predicted the 2017 election correctly using a new methodology otherwise abbreviated to MRP, this multi-level regression post-stratification model, which essentially tracks polling data over a period of a week from 100,000 panelists across the country, and then it extrapolates certain assumptions through different catchments of different areas. And this one was— is particularly well followed. It came out initially, the first one, at the end of November, so about 2 weeks or so ago now. And if you remember, the pound actually gapped up because it showed quite a resounding victory and sizable majority for Boris Johnson's Conservative Party. Now, at the end of November, that reading stood then of a majority for Boris of 68 However, the report that came out last night was the most latest reading, and this one of course being quite influential because it's just— today is the last day and then the electorate hit the polling booths as of tomorrow. So this is about as close as an insight as you're going to get to the national sentiment. And as you can see from the headline, the Key Poll now predicts a majority of 28th. So here's a look at those two polls, November 28th to Dec 10th. That's not a poll conducted on that day, that's the release date of that poll. Um, so here you can see the Tory bar has lost about 20 seats. Labour, in a net effect, has gained that. There's been some slight shifts elsewhere, uh, not as substantial deal, uh, to that extent. So here you can see the Conservative majority, 68, narrowed to 28. Lib Dems, very little change, they've had an uptick of 2 seats. The SNP has seen a slight alteration, but the, the shift in balance here is really between Labour and the Conservatives. So Labour making up a little bit of lost ground that was seen only around 2 weeks ago. So So whether or not the latest NHS kind of PR blunder by Boris the other day with that sick child in that Leeds hospital because of the shortage of beds, or whether or not it's been a degree of complacency in terms of people thinking, well, it's a bit of a shoo-in. I know talking to Sam, he's of a pretty firm belief that, you know, this is— this could well transpire to be a good thing because it will incentivize those Conservative voters to really come out in force in order to lock in getting Brexit done, essentially. It could be one way of looking at it. But the main thing here is having a look then at some other points of interest from this poll, because there is a margin of error from the calculation, from the methodology that YouGov use in the MRP process. And essentially that gives a margin of error of 367, which is obviously a large majority, even more so than what we had in the first poll back at the end of November, to the low-end margin of error of 311, which would be a hung parliament. So captured within this is the, is there definitely a possible case of a hung parliament? Um, YouGov's political research manager said in the report last night that as things currently stand, there are 85 seats with a margin of error of 5% or less. So I guess for me, doing the job that I do, this is a bit of a tantalizing prospect because that means essentially I'm going to have about 85 seats on my hot list that I've got to monitor and track and deliver as quickly as possible to you guys to give you as much advantage as possible to try and get ahead of any subsequent moves that happen in markets. But all of that obviously is conditional on the fact that if we've got to go into a kind of more low number of a majority, or I guess a minority if you like, or a low majority for Conservatives, or a hung parliament— if that is the case, then obviously it goes really down to the main constituents by constituent as they come out throughout the night. One thing to have a look at though, there was— I know it's slightly blurry, but I did tweet this last night if you wanted to see the graphic in more detail. But essentially, this was Bloomberg putting out their article ahead of the election tomorrow, and it was talking about the various different scenarios that you could have in the British pound against the dollar. And I was looking at Scenario 1, 2, and 3 to To give you a bit of an oversight, scenario 1, they were saying the actual relief rally in the pound would be fairly limited given the market's prepositioning that we've seen over the recent few weeks and so on. Uh, that I would agree to some extent, but obviously this latest poll has knocked the, the pound by a good point. So there is now a little bit of renewed upside perhaps to at least reverse course of some of the movement from overnight, and potentially if it continues through today. But the point being is that the relief of a Tory majority is going to be far outweighed by the shock of a hung parliament. And so the bigger move here, the bigger risk— and as what we've been discussing in recent briefings about the kind of option activity, which suggests that people taking downside protection because the size of the move to the, to the downside in cable could be fairly severe depending on the outcome. So Scenario 2, as you can see, Bloomberg here, and they're looking at an average poll of different banks that they have spoken to. They're looking at a range of between 128 to 122. So this basically is a full reversal in the move in cable of the rally that we had initiated in October when we had the breakthrough on the kind of agreement, at least for the moment, about in framework and principle the Northern Irish border. Now, scenario 3 would be down here. This would be if the Tories got less than 300 seats. And at that point, if Labour loses some seats as well, while Labour might be able to form a government with support from other parties, a condition from the coalition would be most likely Corbyn's gotta go. They've already been quite vocal about this, just talking about this as as well, some of the guys here in early, about if that did transpire and it was a case of the Lib Dems, would they go into pact with the Labour government in order to then form a working government in that scenario? I think that's highly unlikely, even though, yes, you would assume that politicians and Lib Dems would be the same, want a bit of a power grab, given the disaster that was the Conservative-Lib Dem coalition of 2015 and how badly that is still impacting them from a public perception point of view, I think getting into bed with Jeremy Corbyn would be an utter disaster for that party. So I just can't see that happening unless Jeremy goes, and the possibility of Jeremy going, I think, is, is a possibility. But he's been such a— he's stuck around through thick and thin, it's going to be a big call to see that happen. So all of that being said, then that's got to be a bad case for the pound, at least in the short term. If Corbyn did go and there was a little bit more of a centrist Labour leader in coalition with the Lib Dems, well then the pound's got to rally under that point, particularly if it's then been smashed down by the initial political uncertainties that may have transpired. So scenario 3 then would be we get a retest down at that multi-decade low that we briefly flirted with at the beginning of September. If you remember, we had that double bottom defined at the end of 2016, early 2017, after the initial EU referendum and then the uttering of hard Brexit from Theresa May at the first talk Tory Party conference that kind of formed that lower bound of 120. We briefly broke there but failed to sustain it, um, in around September of this year. But that could well be under threat. And certainly, I mean, we're talking about a 10-point move away from current price. But bearing in mind this is the lowest case probability, so I would see that would be a big shock if that did happen. But this is the sort of thing we're going to discuss of course, much more tomorrow. We will be covering this, of course, live. We're going to kick off on this YouTube channel, so do subscribe if you haven't already done so. I'll give you a full rundown. The exit poll will hit at 10. There'll be immediate movement on the back of that. And then, as I said, depending on the scenario, if it is close, then we go into the real nuts and bolts of the evening. I'll have a full chronological order of all the key battle grounds as they come out. I'll be monitoring everything and we'll be going through every ebb and flow of move in the pound overnight. All right, moving elsewhere off of the election, um, this is a graphic, uh, that really underpins the price movement in US equities yesterday. Uh, the guys here will remember this quite clearly because they were all trading at the time. You had a big rally because the Wall Street Journal reported China sees US delaying into 15th threat as tariff cuts debated. Market took a good bid off the back of that. And then later on, December 15th, China tariffs depend on how talks go. The whole move reverses. So at the time, I would say, and as I did say, I think it's the least surprising news, that second part coming, because, you know, this is just a gamesmanship, if you like, of the fact that there's a negotiation going on and but there's also a financial market that's being traded at this present point in time. So here I would say just be a little bit careful. Um, when that initial Wall Street Journal article came out, a couple of the guys managed to capture the move, which was great. But my advice that I was saying to them, having just lived through these kind of news cycles many times before, is that just don't get greedy. Be fairly proactive in management of the trade. Look to at least book the majority of it if you're keeping any on for a further extension of the move. Or if anything, just find that good technical level of relevance, say the previous, the overnight Asia-Pacific high, and then just take the trade. Uh, you know, there's no point sitting in it when you get that kind of momentum ignition. It carries through as that, you know, someone like the Wall Street Journal, you saw yesterday the market didn't move immediately in that kind of algo spike way. There was a little bit of time opportunity to get in because it was from a less followed newswire. Typically, the Journal was associated with the Dow Jones newswire, which not many people have access to. So there was a bit of time. Ride the move and then get out of the trade, because inevitably this can be the pullback. And from a, from an expectation point of view, given those tariffs are still a potential threat on Sunday, I just don't see the point of why Trump would want to agree something so soon if I was him. And And now if I was an advisor to him, I'd want to be keeping the pressure on China all the way up to the last minute to ensure that they really do commit, let's say, on the agricultural purchase side to everything that they're saying, you know. So I would expect this to be the same. So do be mindful of that more choppy price activity. And I do think there could be late this week a potential big shift in the equity space, US-led, on the back of more definitive concrete announcements around yes delay or no, and then we go into the weekend and that could cause some end of week selling going into the weekend in particular. Perhaps people as well closing out some of those long positions that they've had on riding this all-time record high move, not wanting to carry any risk into year-end. A few other things, um, not going to speak too much about Christine Lagarde. Obviously we've got another day to go until we get the ECB meeting. But I did think it was quite interesting, a lot of the press talking about Lagarde because she's really kept her cards close to her chest since she came in as ECB president 5 weeks ago. Quite a few big banks actually talking about the fact that she could, um, she could well make an error in regard to an unintended miscommunication especially when it comes to the Q&A. Well, as much as I agree, anytime a new person speaks at one of these top-tiered kind of events, I do think that is a risk. But someone like Christine Lagarde, although she was nicknamed Madame Lagaffe when she was the finance minister, given that she was quite outspoken at the time, that was over 10 years ago when she held that post. And she's done a pretty stellar job ever since when it comes to public announcements. So I don't share that view that I assign a very low probability risk that she's going to make a communication mishap. But obviously a lot of people looking at this with great interest. She does have a job to deliver, of course. A couple of big banks like JPMorgan Asset Management going as far as saying this is not an autopilot meeting. And they're saying potentially, you know, could we see a policy move? As much as the markets are nowhere near pricing that in, obviously strangest things have happened. Mario Draghi, you remember when he took over from Jean-Claude Trichet, first thing he did was unwind Trichet's policy error of 2 rate hikes in 2011. He just came in and reversed it. His very first meeting. So yeah, much to look forward to tomorrow. Otherwise, the Fed is tonight, and again, we're going to cover that live on YouTube this evening. So we'll kick that off at 6:30. I'll give you a preview in depth, and the announcement will come at 7 PM London time. This a little bit different because Powell obviously is a seasoned veteran now at delivering this, and even though this does include the summary of economic projections Recent economic data would suggest then that when we look at this, which is the federal funds target rate and the rate hike cycle that we had, and then this mid-cycle adjustment, that Powell's been pretty much right. It was a mid-cycle adjustment because it appears to be paying some heed in the economy, because as we've seen, GDP forecasting now for Q4 has come back stabilize around 2%, which has kind of mitigated what had been looking like an extended and protracted downturn and slowdown into Q4. 2% would put us pretty much on stabilized growth for Q2 and Q3 in the US for 2019. So for the moment, and the way that markets are priced, is that this mid-cycle adjustment is done, at least for the time being. And so the communication, if you like, from the Fed is likely to be one of just sitting on their hands for the time being, and largely to be reflected as well in the dot plot changes. We did, of course, as well have payrolls, which helps that narrative. Nonfarm payrolls on Friday came in at 266,000, way above market expectations of 180,000. It was the largest advance in payrolls since January notable healthcare gains or jobs in healthcare professionals and technical services. Employment also increased in manufacturing as those GM workers came back from that one-time strike. So yeah, it will be one which we'll cover, of course, but I'm not expecting a great deal of fireworks, to be honest, that come later on this evening. The other thing, we did have the API oil inventories. As I mentioned, WTI crude has drifted a little lower overnight. The crude headline was an unexpected build, so a little bit bearish on, on that number, 1.41 million, expectations for a draw of 2.5 million. Cushing though was a drawdown of 3.5 million, that is pretty big, but expectations were for a draw of around 2.5 million. Gasoline build 4.92 million, more than double consensus. Distillates, a build of 3.24 million. So despite the Cushing number the, the crude and gasoline outweighing and just bumping prices down a touch overnight. Okay, I'm going to leave it at that and I'm going to let Sam come on. I understand things have been seeing a little bit of movement as I've been talking, but as I said, a little flurry and a push in the DAX again looks more technical to me. I can't see any headlines that have really hit the tape, and the fact that the markets have pulled back would kind of solidify that, that way of thinking. Okay, I will see you in the chat room. Thanks very much, guys.

Good morning, hope we're all doing well. Yeah, DAX was pushing up and hitting the R1 there, and I guess it takes us back to where we were on Friday and almost to the top of that, yeah, just post 2:45. And, uh, yeah, complete reversal of, uh, of that move lower that we did have, uh, in the early hours of yesterday morning. You can see now that's done and more, taking us back to— yeah, sorry, Monday's, uh, sort of afternoon high. And we've come back a bit since then. It looks like it was almost a central bank meeting, the, the complete reversal. I guess with, with this market, where you'd be keeping an eye on now is is almost back towards where we broke, broke out. You can see the highs of yesterday was quite a key level resistance for, for quite some time before breaking this morning. We did actually already snap back to test it along with what was the, the Asian session higher this morning before that. But keep a watch on that, it's going to be key support for this market if we are to continue higher, you would have to say. Also, uh, keep an eye on those previous highs if it was to, to come up. You can almost say there's a bit of a trend line from those highs that we had from late, uh, well, on the 6th as well. So keep a watch on that. The next market to bring in the pound, of course, gapping lower overnight as was expected. We did come down, of course, at, uh, we can see here 9:30 to 10 o'clock and keep a watch if we are to push higher on any potential gap fill. You would expect that to be some sort of resistance, uh, if that was to happen. 31, uh, 131 to the downside, obviously keep a watch on that. But more so, I would just say just a tiny bit above that, you got the low that we had back on the 6th and that round number and some support that we had on the 4th. So quite a key level there, uh, I would have marked up. And then if that goes be looking at the high that we had from the morning of the 4th as well, which give or take is about 30 ticks below there. Looking a bit longer term, because of course, you know, the, um, the move that we had to the upside was on the premise that, you know, there's going to be a decent majority. That's perhaps not looking as likely now. Uh, so if those levels are to go, well, you could always be looking at, uh, us getting before, uh, the election result down to 136 0.3017. I think that would be a big move to happen. I don't necessarily think that's completely out of the question. So those would be the main levels I'd be looking at: 131, 130.69, and 0.3017 to the downside. And of course, if we do get some positive spin on this double bottom and then up towards that, that gap, keep a watch on that. Before that though, 131.33 would be a level to focus on. Some nice support in the Asian session before we did break down when volume starts to pick up post, uh, 6:30 into 7 o'clock. So some key levels there to keep an eye on. Obviously Euro Pound as well, uh, would have gapped to the upside. You can see there, obviously the liquidity in the future is not, uh, great for this market, but, uh, yeah, one to have marked up. Moving over to the Euro Dollar, you can see it's coming under a bit of pressure. This morning. I wouldn't necessarily say it's gonna be completely dragged around by the pound, but you'd expect if the pound was to break that low, the euro should do so as well. And, and worth as well with the, the, uh, the euro here getting on this trend line, or potential trend line should we say, because you've got the low that we had back on non-farm payrolls on that 6th and then Monday, uh, and it does look like if we were to come back down to to, to test this trend line, you can have an area of support which was of course resistance back on the 9th. So keep a watch on that. If that was to come in now, that would be around 1.1080 on the future. Some key support levels below that though, most notably from yesterday, uh, around midday into the afternoon at 1.1077, and then the— all those lows really from those previous days. To the upside, if the euro was to, to have a strong, uh, you know, back end of the, the morning into the afternoon, it's got to get above its previous low, similar time that the, the pound broke down. So 1.1091 would be an area to focus on. And you probably as well worth getting on a couple of these trend lines, which you can see were well respected yesterday and then into this morning. So that third test could come in around one of those previous highs. As well. So euro range is relatively small. It seems as if it's just getting squeezed both ways. No harm in perhaps waiting for the break of either of those. Having a look over at gold this morning, just as equities were pushing up, we saw gold just on the 5-minute come down to test that low of the day. It's, uh, all that is though, just a little test, not much going on there. But there is quite a key level on that low around 14 1466.8. You've got the low from yesterday afternoon, so let's just call that a bit of a double bottom now. And it was the highs from Monday evening and then Tuesday early hours. So key level to, to have marked up. If we were to fall through that, then you've got all of these, uh, bottoms to keep an eye on around 1464, from yesterday's low to Monday's low. And then if that— if we start coming into that territory, then you're getting the the trend line from the low that we had back in November, and that all comes into play for, for gold. So that could be, you know, an opportunity if that is to go as well. So definitely would be marking that up. You can see here starting on the 26th, going into the lows that we had on the 29th, and then all of Monday and then yesterday as well, that trend line to the upside. Because of course it's not guaranteed that we do get a test of all that level. You can see the high of the day where you would just want to move that horizontal line just a bit up because it's taking, uh, the, the interest here of those highs that we had back from around 3:50, 4 o'clock yesterday. So keep a marked zone on that with yet today's high as well. Break above that and I don't see much stopping it really until you get towards sort of 1473 as well. I favor the move to the downside here, but any push higher, you've got to be aware of, uh, 1476.9, the nice double bottom there that we broke on non-farm payrolls. Didn't really get a retest of that, so if that was to happen, you could expect some decent, uh, resistance there. But nicely set up, has to be said. Having a quick look over at, uh, the S&P, you can see to the tick hitting, uh, well, pretty much the tick hitting yesterday's high and then coming back down, testing what was the previous high of the day as well. So in between that range, call it a new zone between 30, uh, 31.43 and 31.36. Keep a watch on that R1 and the high that we had from Monday as well, a key one to, to focus on. Just having this trend line on from the, the 6 let's see if that's come in. So that's probably worth having a look at that as well. And then of course the trend line that we had from the all-time high marks up similar kind of price. So using the high from the 2nd, the 6th, and the 9th, a break above that, then we could get a further push to the upside. But it has to be said, the S&P is a tricky one to trade at the moment. I don't know, we're getting so many conflicting trade comments that are coming out, it's uh, it's a tricky one to trade. And I don't know whether you'd want to get too heavily involved in this market or not at the moment, but certainly to the downside you can see a well-respected, uh, sort of area where we're getting squeezed in from, from both directions. So I would have this on as well. You can see, let me just modify that, sorry, starting from yesterday around 1 o'clock to this morning, and then again just on the 8 o'clock clock. So yes, there's opportunities if those are to go, but I would be looking to take profit a bit earlier than normal, especially in the afternoon once Trump starts tweeting and these comments start coming through as well. I mean, a final look over oil, you can see not much really going on here. If you're looking on the 60-minute, it's getting squeezed from both directions. We had this trend line on from those lows yesterday, that's kind of, but didn't really, uh, get tested after hitting the 1 o'clock. But we did come down literally, well, 15 minutes or so ago to, to have tested that. So there you've got the third test of that. So definitely had that marked up here on the 60-minute from the low of the 6th to the low of the 10th, and then at the moment the low of the day. A break of that, then you'll be looking down towards S1 where you'd expect some support and then really any of those lows that make up that trend line as well. Pivot to the upside, worth keeping an eye on just because it was some nice support, uh, late last night. We retested it pretty well in the early session. So around there, $59 pivot and a decent point of support turned resistance. Above that, be looking at any of these points where price reacted quite well following the, uh, the API last night. So of course keeping a watch on the DOE later as well. Quick look over the bigger picture. What's the DAX doing? Still holding above its Asian session high. So as long as that happens, you could imagine maybe the S&P is going to do the same and get another test of yesterday's high. And then keep an eye on those trend lines as well. The pound's going to be interesting because you've got some really key levels of support below, but you've just had a double bottom there. So can we come back now to test 1.3133? And if that goes, then suddenly looking at the gap getting filled. Gold has got some really interesting levels of support just below. Uh, if that is to break, I think there could be a decent-sized move as well. Euro, keep an eye on that trend line. But other than that, I hope you all have a good trading day, and any questions, please do let us know.