GBP Traders Await Details On Brexit Extension

Okay, very good morning. It is Thursday, 24th of October. I hope you're well. I'm going to cover this morning a look ahead for kind of two big events coming up, one being momentarily, which is the European PMI data. So while I am delivering this briefing, you are likely to see some movement in European assets. So I'll try and do my best to keep an eye on the, the news scroll whilst I'm doing this session. Because we've got the various European manufacturing service PMIs. These are the flash readings for October, so just be mindful that these more than likely will move the euro, European-related assets. You've got the first number of real significance coming out from France at 8:15, so just under 10 minutes' time, and then the German figures are going to hit at 8:30. For the eurozone kind of conclusion at 9 o'clock. So first things first, just be mindful of that, um, over while I'm talking the next few minutes. Secondly, obviously it's the ECB press conference, so we'll have a quick look at what we're expecting, if anything, from Mario Draghi and what the eventual outcome could be. But first of all, just having a look at the charts this morning at the open, relatively quiet, a little bit of an uptick in, uh, the British pound. If you've been listening to the squawk, a couple of murmurs on Twitter from different journalists about the idea of Labour warming to a general election. Otherwise, I'll go through the headlines on Brexit in a moment. Other indices in the equity market relatively flat. Overall positive close on Wall Street last night, the S&P finishing up about 8 points and still holding above that 3000 level. European indices following suit, relatively positive this morning. DAX just off session highs, up 62 already out of the gate. Through the cash open. Daimler shares after their earnings this morning up about 4.5%. Just very quickly, in terms of the other European movers, STMicro in France up about 4%, Daimler up, as I said, 4.5%. AstraZeneca and RBS— Astra up 1.5%, RBS down 3%— are some of the notable market movers on the European, UK earnings side. Otherwise, Fixed income and gold pretty flat. So if you were looking at those to get a bit of an idea from a risk perspective, not too many cues coming there as we await this major data and a major central bank event. So before I get into Brexit and the ECB, just very quickly to update you, we did have some large-cap earnings, of course, last night. Microsoft shares not really seeing a great deal of movement. Sales and profit topped estimates. On cloud and Azure slows. So nothing really too surprising. Sales and profit got a boost from demand for their Azure cloud computing programs and internet-based versions of Office productivity software, lifting results above analysts' expectations. But I was looking at some of the research yesterday. For 2 years straight, so 8, now make it 9 consecutive earnings reports of Microsoft, I think they've exceeded expectations on things like uh, EPS and, and revenue. So it's unsurprising, hence the turnaround that that company has really seen in recent years, to put it right at the top of the pile of biggest companies in the world. The other one was that kind of smaller but more sentiment-related company which has helped lift possibly a little bit of just sentiment into the close yesterday and, and kept things buoyant overnight in the Asia-Pacific session. That was Tesla. Tesla packs profit report with positivity as Musk breaks the mold. Obviously what they mean by Musk breaks the mold, we're so used to him putting out such lofty expectations and what the firm can achieve, and he never really lives up to the hype. Well, he did, and actually he absolutely smashed the estimates on the street. I can't remember the figures precisely, but I think their earnings per share was supposed to be a negative and actually came out something like just shy of $2. Yeah, $1.86 in Q3, so it was wildly above expectations. Earnings margins exceeded those expectations. Their revenues did drop, but nonetheless their shares did hit or rise as much as 21% last night. That sounds a huge pop in their price, but don't forget that it's not abnormal to see a company like Tesla— their volatility generally on their earnings reports does tend to be, you know, far in excess of someone that you would you'd likely see from a more kind of matured company like, and someone of the size of Microsoft, of course. But overall, I think, just to quickly summarize on the US earnings so far, actually, I think, you know, going into this earnings season, people were so downbeat. You know, if you think about X-ing out the Brexit shenanigans that are going on, the economic environment has been souring. And you'd think from a corporate profitability point of view, both now and forward-looking, that people would be pessimistic. And actually, I'd say on the balance, that hasn't happened. In fact, I think 80% of all S&P companies that have reported have exceeded expectations on their earnings per share. So that is a little bit better than the, the kind of 5-year average, and I think goes against the grain a little bit of perhaps where people were positioning for about 2 weeks ago before really earnings season kicked off. So it does give some reasoning for the underlying support we've had in, in US indices overall, and, uh, and the reasoning why then the S&P for the moment remains above that that 3,000 level. Okay, jumping straight into Brexit then. Here's the man of the moment, of course, uh, Boris Johnson. And what is the latest that we're looking at here? So French— it's all about the— before I get into what France want, what Macron's been saying, uh, the EU is keeping Boris Johnson waiting over the length of a Brexit extension. And really, this is the next pivotal point of where we go in this Brexit saga between whether or not he looks to— that's Boris— persevere with trying to get his deal over the line in time or in the near future, or do they grant a longer extension which then open up the higher likelihood of having a general election. So what's the current status on the European side before they really give a formal response to what they're going to do? The French are pushing for a tighter deadline of November 15th. So essentially just giving an extra 2-week leeway to the current existing end date of October 31st. Of course, um, a couple things to be aware of with that. A short extension to November 15th could help the Prime Minister, if you think about it, to concentrate the minds in Parliament as MPs concerned about a no-deal departure rally to try and pass a deal. So essentially you're just kicking the can down the road by another 2 weeks and look, let's get this deal over the line. And that meaningful vote, of course, was the first of any meaningful vote to pass, given the three failed attempts from Theresa May. And the arithmetic would say there is some appetite to get that passed. It's a withdrawal bill that's struggled, the more legislative section of the proceedings. A couple of things, though. With France and Macron pushing for this tighter deadline, he is Essentially going against what other European leaders are more inclined to do, which is give a more lengthy extension. The reason why people are a little bit more, from a markets point of view, more aligned with the fact that Europe are likely to grant a 3-month extension, what originally is what the UK has asked for, to going back to the end of January, is because Macron's made these kind of calls before. In previous deadlines that we've had, but he's never really followed through with it in the end. And so I can kind of understand this is just European political posturing. They just want to make sure that the UK is sure that Europe's not just bending over, adhering to the UK requests. So I don't think it's any more than that. I do think at the moment Europe will be open to this probably flex-tension approach by having that deadline in Jan, but the ability to execute it if he can get the deal ratified beforehand to exit Europe. A few other things then to be aware of with the Brexit side. If the EU does grant an extension to the end of January 31st, which is looking, I think, still the most probable, UK will likely be headed for an early general election. Now on that front, do be aware that Parliament has twice rejected attempts by Johnson to force a national ballot But Corbyn has repeatedly said that once a no-deal Brexit on October 31st has been ruled out, Labour will be ready to let him dissolve Parliament. So this is really what we're looking at on the Brexit side. Um, before I continue on that, we've just had the French PMI data come out. Uh, the manufacturing figure 50.5, higher than expected by 0.3. The services figure 52.9. Expectations were for 51.6, so particularly strong on the service sector in the PMI. If you remember France, when we had the, uh, the Yellow Jacket protests, that really hit the service area of the French economy and has dragged them down in terms of their economic kind of prospects. So to see that bouncing back quite sharply is, is quite a distinct positive when otherwise we've had quite negative readings in terms of the the overall eurozone economy of late. So just quickly, just to break from the Brexit talk, the euro seeing an immediate spike on the back of that, just taken out that kind of double top of last night US close and overnight Asia Pacific test, and just powered through the R1 just given the magnitude of that service beat. So, uh, upside levels, we're just having a quick run-up here on the fast money move for a retest on that high that we printed back on the 22nd. You can see here, and you've got some of that range high to keep an eye on, just a few pips above. So yes, solid service number from the French, and the euro loving life at the moment on the back of that, just given how depressed generally European data has been of late and how dovish then the ECB have been sounding of late as well. Gold consequently, and T-notes also getting a bit of a knee-jerk reaction on that data. Again, as I said, it does go against the grain of European, just general sentiment economically of late. But importantly for France, that service number has been depressed over the last kind of 12 months, and so a bounce back would be a sharp relief for that. Particular country. I'll keep an eye on the— don't forget we've got the German number as well at half past, so I'll try and rattle through this, this briefing as quickly as possible. But yeah, just going back to the point on Brexit, a few summary points to think about. Parliament has twice rejected attempts by Johnson to force a national ballot. Remember, he's pushed for an election before, but of course he needs two-thirds majority of Parliament to back him, and they never have. But Corbyn has repeatedly said that once a no-deal Brexit on October 31st has been ruled out, Labour would be ready to let him dissolve Parliament, that being then the backing of pursuing a general election. So really, we've had a few tweets this morning from other Labour officials but not Corbyn. What we're looking for is what does Corbyn say? Does he really follow that up or not? Does he commit to an election if indeed Europe do grant a lengthy 3-month extension? If that does happen, I'd say for me that does play into the hands of of Boris to some extent. But there's a couple things here to think about. In a meeting last night, and this is what I'm looking at here, or before I do, Johnson told Commons yesterday firstly if he was forced into a lengthy extension on Brexit deadline, he'd seek to call an early general election. The Times newspaper said yesterday he could be ready to do that on either Thursday today or Monday next week. Just in terms of timing. The other thing to be aware of though is, um, as I said, he needs two-thirds majority of Parliament to back him to, to go down election route. And last night apparently there was a meeting held by what's called the One Nation group. Um, so if you think of the Conservative Party, there's the more kind of Eurosceptic ERG. On the flip side, there's more moderate Tory MPs known as the One Nation They're a group of around 70+ MPs in the Conservative Party, and they unanimously agreed it would be opposed to an election before Brexit was resolved. So it's not quite slam dunk as yet. Several Conservative MPs are concerned about the prospects of holding an election in the second week of December when the winter weather could hinder campaigning and activist support. And also, on the flip side, there is the threat posed, of course, by the Brexit Party and Remain-supporting Liberal Democrats, especially if Brexit is unresolved. So some say that the longer it's drawn out— and the reason why Corbyn might be open to an election if the deadline then is Jan 31st— is the idea that that gives more strength to the Lib Dem or Brexit Party's, um, idea that basically Boris has failed. So therefore, a more protracted, drawn-out, lengthy delay would play into their favor. Hence the reason why Boris probably likes the Macron solution of November 15th, because it continues to fit more within his more aggressive timelines to deliver Brexit. Okay, that's it for Brexit. I'm not going to go any further than that. So really, the balance of power from a headline-moving perspective today is going to be on does Corbyn back a general election? But that firstly is contingent on what do Europe say and what's the confirmation on the details of the length of the extension that they allow. Okay, quickly, Draghi and the Eurozone and the ECB today, 12:45 for the rate decision and statement, and then press conference. Of course, Draghi's final one's going to happen at 1:30. Uh, really, this shouldn't take me too long because the overall take-home summary here is that I'm not expecting a great deal, to be honest. Um, it would be, I think, unusual to see Draghi, who's, you know, particularly well skilled and rehearsed now in these events, to really disrupt things for Christine Lagarde, who obviously takes over as he departs this month. And so I'm basically expecting a copy-paste repeat of basically what we had in September. The reason why then— I mean, that definitely leads down the more dovish kind of sounding ECB. If you look at this, this graphic here, this is looking at the 3 ECB presidents we've had since the inception of the European Central Bank back in 1999. And you can see actually Draghi has had a bit of a tough time. The ECB's target obviously is 2% on inflation, and you can see, uh, Duisenberg and Trichet did a pretty good job at keeping inflation— although triche, obviously it had wild swings through the financial crisis— but on average keeping it at 2%, whereas Draghi's really struggled to get it up there, and it's always remained just above that 1% level. And at the moment, inflation is tracking at 0.8%, so wildly away from target. Hence the reason why the ECB are recommencing their quantitative easing program, counteracting weakness in the economy, but also to try and fire up inflation before waning demand, if that continues, becomes an ever more increasing problem. So looking to get a little bit ahead of the curve in that respect. Euro area household sentiment obviously has been decreasing. We've broken recent trends and getting down to depressed levels that we were seeing amid that really aggressive sell-off we had in Q4 when we had the global stock market rout, of course. With the escalation of the trade war and policy tightening that was happening. And that has altered the timeline a little bit about what and when are the ECB going to act. So obviously the recommencement of QE starts, and that has created, as we know, large division within the Euro— the Governing Council about whether that was the right move to make. It's been very disgruntled from the kind of Germans and the more northern countries in that respect. That that was the right decision. And then the cut to the deposit rate has been pushed back a little bit, but still priced in for the summer of next year at this present point in time. The, the thing you're probably likely to hear from Draghi— this is a kind of graphic talking about fiscal firepower. Obviously Germany, which typically runs a surplus, very unusual comparative to most other eurozone nations, does have the lowest debt burden, so consequently some fiscal ammunition to act. And given the size of the economy, that could be a potent force. But would they want to do that? Probably not at this point. But you're likely to hear Mario Draghi, as he has done recently in the press conference, kind of bang the drum that governments need to take more fiscal action in order to supplement then what has been a kind of a relatively low ammunition box on the monetary policy side. Okay, that's it though. I'm going to cover on that. Obviously we'll talk about the ECB much later this afternoon when the event happens, but net summary, I wouldn't be looking for, um, fantastic moves actually on the back of this. I think if he does it as he has become well known for and manages the event well, I'd be looking for fairly little disruption to market prices. And as you can see, I think these PMIs are actually more interesting and we've got the German one coming up. So just be mindful of that. If that German one comes out strong as well, you could see another little injection in the euro and a bit more downside pressure in gold that you've already seen, which is residing at this S1 in the, the futures at the moment. Other than the ECB and the PMIs, you do have US durable goods coming out this afternoon. You get US jobless claims as usual on the Thursday And you get the US services manufacturing flash PMIs as well at 2:45. From an earnings perspective, this is just a quick recap. Pre-market, you've got the likes of 3M, uh, is probably the largest company, uh, coming out before the opening bell. And then Amazon, aftermarket, Visa, Intel, probably the names to look out for. Okay, on that front, I'm going to hand you over to Sam. I will post the German numbers as they come out in 4 minutes' time into the chat so Sam's aware and he can look at the charts and update his, his technical look while he's doing it. Okay, thanks guys, have a good day.

Yeah, hi guys, uh, start off with Euro. I think no harm in doing that while we've just waited for the German numbers to come out. And as, uh, as Anthony said, those French beating expectations across the board, and we've pushed higher. Um, was just looking— I've written down, and this was before it was coming out, uh, just that the, the low of yesterday really being the bottom part of that range. And you know, we've got the ECB, and I think it would be a safe bet to say whatever the spike is, it's going to do the opposite and then finish the day exactly where it is. Um, but worth keeping an eye for later on on this, this low, um, from yesterday. Just confirming the bottom part of this perhaps mini range that we are now in. The low of the afternoon of the 17th as well, break below there, then I would say the next sort of level to keep an eye on would be the high of the 16th. We're now back above there. I had marks up as well, R1, uh, and the high from the 17th, obviously breaking through that now even though we're a bit choppy on, on Tuesday session. I'll be keeping a watch if we were to come back to to retest that area and some of these highs as well as a potential point for, for the buyers to, to want to come back in again. And whether that be possible if the German and European numbers are, you know, also a lot better, that could be a move that doesn't take place until Draghi comes on, and then obviously things would, would have changed a fair bit as well. So ECB later on will probably mean just, uh, tidying up the technical analysis part of this, uh, later on as well. But we're just trading at the moment on the highs that we had back on the 22nd, so on Tuesday, and also Monday evening as well. So a bit of resistance you'd expect around here on a retracement. Uh, well, obviously got the data out in 3 minutes, 2 minutes, so probably best to wait for that. But I do like the idea if we were to come back towards the previous highs as a nice level of support or profit take, of course, if the German numbers are worse than expected. The low that we just talked about in the euro, same as the pound really, the low we hit yesterday was also the low that we had back on the, uh, the 18th, and that's guided this price higher for the pound. We finally got above its high of the day yesterday evening I've got a, uh, a nice Facebook message from someone saying it's above my level. So, uh, shout out Fez for letting me know so I could get in on that. And, uh, yeah, we've had pushed high. I mean, we're just coming under a bit of pressure, uh, off this R1, but nothing doing really. I don't think there's been any comments out or anything more, just a bit of profit taking above that. And we're now pretty much on what was the high of last night and then the Asian session morning. As well. So 129.44 is a good enough level, I think, to hold price, uh, for now. Above where we're trading, uh, as well, it's probably worth, uh, keeping an eye on from the highs that we've had from the 21st, just in case, you know, we come up and hit that 130, which is also, you know, some previous highs in the mix there as well. And then also from the lows just potential for, you know, this getting squeezed in from both directions. Only got the two tests each way, so I'll be more looking to see what happens, uh, on the potential third test of these levels. But quiet day yesterday, quiet day yesterday, and, uh, I think bigger things to come. Let's have a quick look over at the yen. Obviously got 20 seconds until that European number comes out, so keep an eye on that. You can just see risk assets pushing higher this morning, and therefore your safe havens coming under a bit of pressure. I want to keep an eye what happens on this trend of the last few trading sessions. We're now closed below it, or about to close the hour below, so therefore looking potentially at that as a resistance point to, to come in. We'll have a quick look over the reaction here in the euro. Is the, uh, pretty much in line manufacturing lower Well, just the word lower there, you can see is what that's done to euro and back down to that R1, uh, where of course you would expect a little bit of profit taking to, to take place. So those German numbers, uh, not taking the, the cue from the French ones and actually coming all worse than expected on investing.com— 48.6, 41.9, and 51.2. So yeah, not, not looking good. And actually, you would say now that, uh, support level is unlikely to hold, and therefore as well, the yen on that trend line is likely actually to break above regardless where it closed now. So almost the opposite of those French and the gold, which came down. You've got to imagine it's pushing higher, which it is. And that what would have been a nice place to have got short on yesterday afternoon's or yesterday morning's low, and then this was also the low from the Asian session. Now doesn't look as attractive as before. And in fact, you maybe want to just hold off, uh, that short. But as a resistance level, as a profit target, obviously that gold does look good. Also on gold, while we're, we're here, you can see the, the trend lines from the 15th starting through. We just couldn't get a break, a confirmed break above it. Got choppy towards the end, but we closed the day below. Uh, so I would still say that's of some importance, 1500. Uh, didn't quite get tested as well. So that whole area above where we're trading on those highs that we've been squeezed in from has held. But overall gold, and I keep saying this, an overall direction, I'm not too sure to be honest about where it is going to go. And probably just best to wait for a confirmed break either way. Obviously by the time it's closed that day, it could well of course be gone. So no harm in sort of looking to see if there is a catalyst to get aggressive on the break either way. S&P, as we saw early trade, the DAX pushing higher, dragging S&P as well. But now the German numbers not so good, so we've got to come down and reverse a bit of that. And that's what's happened here. 3,000, uh, and the pivot worth keeping an eye on. There was, you know, decent enough price action around that area. Yesterday's high almost this morning's low around 6. So that's another point to have marked up. And also the double top that we had from the 22nd, that trend line just before R1. So if you are looking to get long later on, I would be looking to take profit definitely before we get to that resistance point, uh, as well. Having a look longer term, you can see obviously so close really to testing these all-time highs again, which is quite incredible really. But, uh, again, longer term, up around— coming in around 3020 would be another point of interest that I would have, which is only 11 points, uh, to the upside. So a day like yesterday, we would get that test, uh, as well. Quick look over at oil to finish things up. Decent push yesterday on the, uh, the shock draw, should we say, of the, the DOE in comparison to the API. Good push higher, uh, really that coming in and getting us up to 56 and closing the day quite nicely. You can see above what, what, what was a good resistance point at 55 that we were talking about. So that's still an area I'd be looking at for potential points to, to get long on that possible retracement. Uh, it seems like the bulls have won that thanks to that DOE. Above where we're trading, next key level market-wise of really important highs, just a bit above where we're trading here at $56.60, basically a dollar above. So we're now perhaps a bit mid-range for the next decent opportunity. We can see once we broke that $55, a good battle around there, and which the bulls then won. Also the R1 from yesterday as well. Any questions, as usual, please, uh, do let us know. Uh, you've got 25 minutes on the dot pretty much until the European numbers come out. And of course Draghi, then 12:45 release and 1:30 presser will be taking over a lot of people's attention. Hope you all have a good trading day and catch you later on.