Internal Market Bill Passes Amid Tory Party Tension

Hi there, I'm Anthony Cheung and I'm the Head of Market Analysis here at Amplify Trading. Every weekday morning I'll deliver a fundamental rundown ahead of the European Open, but if you subscribe to the channel you'll also get content from the rest of the team. So let's begin. Okay, good morning guys, and let's take a look at the markets this morning at the European Open, Tuesday the 15th of September. And it was a relatively quiet day yesterday, all 3 of the major US indices finishing positive, just over 1%, and continue to claw back then some of the selling pressure that had been seen in prior week gone by. As the general sense seems to be, a lot of the press and market kind of talking heads about the kind of healthy nature of a bit of a correction in what otherwise was a fairly one-dimensional rise that we were seeing in markets at the time. Talked about a little bit of normalization in the options market as well yesterday, a lot of people saying then that helps the kind of breadth of then the buying that can recommence given the kind of shakeout that we've had of the stretched positioning before that sell-off. So overall, there's nothing really too new to mention on that front. I'd say when I'm looking at the major US indices this morning. We continue to remain on the front foot. The NASDAQ futures up about 60, the S&P is up about 20 or 15 at the moment, coming in case of the S&P in close proximity to the R1 level. Worth keeping an eye on, that does mark around yesterday afternoon's high. We've got at 92.5 and 95.25 being the R1. Any further push above there today then would be looking at the broader range that we've been trading over the last 3 or 4 sessions, which would be up at 3414 on a continuation of this move. Similarly with the NASDAQ, just coming up to close proximity to that high as well from yesterday. And you can see near-term price activity, a bit of a double top. If I just put an ellipse through where we were trading at the back end of last week and then in yesterday's session here at 11349. So so trading just around, uh, 25 points or so away from that at the moment. So generally positive close on Wall Street, a little bit mixed overnight in Asia, uh, some Chinese data helping bolstering, uh, likes of the Hang Seng though in Hong Kong, and I'll get into that data in a moment. But otherwise elsewhere, some general risk appetite. The dollar then weakening in the overnight session, uh, the Dixie's down about 0.2%, so consequently helping support EURUSD, which has managed to get its head just above what was the high point from yesterday. And you can see here finding a bit of a platform now to support price. You've got a combination of the R1 with that high from yesterday, and this kind of price breakout that you can see here was when we saw that very soft reference to the euro, no explicit talking down or jawboning of the euro from ECB's Christine Lagarde last week. So those highs now are within sight. A lot of people were of that mindset, um, the general kind of nature of the ECB being a little bit behind the curve in terms of their policy adoption following the Fed's move to AIT, opening up the prospect then of potentially a euro move back up in towards those 1.20 areas, which has been a catalyst then for them to start kind of voicing concern about the strength of the euro. So kind of continue that grind back up towards those levels and a pretty decent area here then from the technical point of view at least to provide perhaps a little bit of support for— if all things remain equal at the moment, a continuation of the push-up. And I would be targeting up and around the R2, which does coincide then with around that Lagarde high, which was around 1.1940. Looking at the euro futures here, euro is up about 26 pips, but cable is flat as you can see here in the center top chart. Hugging around its pivot level at the moment, on the up, on the north side of that level. But there's obviously some Brexit news I can update you on with the passage of the internal market bill last night, what the next steps are and what does it mean and so on. I'll get into in a moment. In crude, not too much movement, um, pretty restricted I'd say in its overall price yesterday, and it's just sitting around consolidation of its pivot level in the futures at the moment. This despite then Hurricane Sally still being in observation at the moment. And then the fixed income markets were pretty flat at the moment, no real movement seen in the overnight Asia-Pacific session after we did see a bit of a bump up in prices through the US session yesterday. So let me get into some of the headlines then, and I'm going to start off with talking about what's dominating quite a lot of the UK press coverage this morning, and that is of course The House of Commons passed their Internal Market Bill pretty late last night. I think it was— I was looking at the results coming out, must have been about half 10 at night. Feels like we're back in that Brexit Theresa May era again. Um, the Internal Market Bill passed by 340 to 263 in its first main vote, allowing it, allowing it to now go through into the next stages in the parliamentary process starting from today. Only 2 Tories voted against him for now. Others abstained. Of the abstained, names of significance: former Chancellor Sajid Javid, former Attorney General Geoffrey Cox, and Jeremy Wright were part of the abstentions— abstained, I should say. Now the bill passes to its second reading. It will face 4 more days basically of debate on its fine print, a stage at which lawmakers can try to insert revisions that could change the entire meaning of the bill or even kill it if it got as far as that. So if you remember lots of the other procedural votes that we had going through, particularly 2019, even 2018, to do with Brexit, it's not just one vote and that's it. It basically goes through a number of votes. The government puts it through first. Normally what happened last night And the reason why reaction in market was so tame is that that was very much expected to go through with relative ease given the size of the Tory majority. It's now about the revisions part. It gets a little bit more complicated, and then it gets even more complicated then when it starts going down into the next levels where Johnson faces much bigger hurdles when it goes up into the House of Lords from the Commons, should it then go through this revision process where Tory grandees including the former leader Michael Howard has denounced the legislation and could delay then its progress further. So it's not so much of a definitive thing, one and done. Um, it's going to be dragged out throughout the rest of the week. I guess we'll know a little bit better where the land lies by the time we get to Friday perhaps, but even then it's probably like going to spill over into next week. So it's not gone away. The one thing I would say is that it's not really a market-sensitive thing right now for sterling currency if you're trading FX. However, if this does turn into a very protracted period of time to go through the various hoops and hurdles here, which it normally does take some time, then all that's kind of eating into the negotiation time with the EU. Because as long as they're pursuing and talking about this internal market bill, as though— although Johnson's talking about this as an insurance policy which he'd rather not use, he'd rather do a deal with Europe and All the meanwhile, Europe are just going to sit on the sidelines. They can't really do anything until, you know, UK sorts its house out first of all. So that of course is quite sensitive because we've only got— I mean, it's a month to the day really when there's the tentative kind of soft deadlines that a deal of some sort needs to be concluded essentially so it can be ratified across Europe in time for the transition expiration at the end of the year. So I don't think it will be too much of a concern right now, but maybe perhaps as we get towards the end of the week, as these individual votes start coming through, how much revisions does it go through? The more there is, the longer it's going to take. And then how, how much can the House of Lords delay proceedings even further? You know, all of this is going to just heap more pressure on the diminishing timeline that is to cut the deal with only 4 weeks left really to go. Don't get me wrong, we've seen this many times before. Obviously this soft deadline can be moved further out, but if we do get to that type of territory, all the more reason it's probably going to add a negative kind of headwind or weight to sterling going forward over the coming weeks. So that was the latest on that side. Um, but overall in, in Asia, probably worse warrant— warrants me mentioning that Chinese retail sales last night came in the first time that they were positive or saw growth, um, for 2020. Chinese retail sales came in at 0.5% year-on-year. That was against expectations of basically flat. Industrial production came in at 5.6% year-on-year against expected 5.1%. These were both for the month of August, so exceeded expectations. Industrial output rebounding due to fiscal stimulus and surprisingly strong exports. As I said, overnight that did support some of the local indices. Hang Seng was higher, but also it's worth noting that the Aussie dollar was a little bit firmer. So a little bit of a crossover. Generally, the Aussie acting as a proxy for economic health in China, so that data no doubt probably would have helped. But also from Australia, you had the RBA minutes, and where the Australian central bank said the appreciation of the currency was consistent with higher commodity prices particularly iron ore. And they said that there was no— well, effectively, from the minutes, there was no sign of additional policy moves were imminent. So no addition or no indication that additional monetary measures are imminent in itself. Then it's just not feeding into this overall dovish narrative that markets have been so comfortable with over this kind of recovery of pandemic era that we're in. So that in itself being translated in a more hawkish reaction in combination with the Chinese data. So the Aussie's a little bit firmer this morning, and we're trading up about 34 pips, and we're above the R2 in the futures at least for the Aussie this morning on the back of these various different developments. I'm just going back to the, the China front. Obviously these data sets have been pretty decent, and as you can see here, it just kind of further confirms an economic recovery that's taking place in China as their economy continues to start to further reopening and become more back to where we were back at beginning of the year prior to the entire situation started to unfold. A couple of other things to be aware of though, and this was one headline, and this is an update on the US-China kind of trade situation. The Trump administration on Monday shelved plans for a broad import ban on cotton and tomato products from China's Xinjiang region while announcing narrower bans on products from 5 specific entities. Two people familiar with the Trump administration's internal deliberations said that concerns about the broad orders and their effect on supply chains were raised by officials. China has also agreed to buy increased quantities of US cotton under the Phase 1 of the pre-agreed trade deal, and that could be put at risk by US ban on imports. Uh, so if you think about what's happened, a couple of things here, 3 things really. You've got improving economic data happening domestically in China. You've got a little bit of reversal from the White House on the potential broad import ban on cotton from a certain area in China, and also some hopes of improved relations between Beijing and Washington following signs of a deal on the future for the Chinese app TikTok. As well, which we've seen with Microsoft and Oracle kind of fighting over that. So all of this has led to the Chinese currency hitting its highest level in more than a year, uh, overnight. And worth keeping in mind then, obviously we do monitor the kind of the tension between those two nations as a definable kind of sentiment gauge overall, is one of the biggest macro risks generally on a day-to-day basis. And at the moment, um, things are relatively— I wouldn't say positive but just not negative, if that makes sense. And that's probably what's helping a little bit of this, just ability through a lack of other fundamental catalysts for equity markets just to kind of revert back to course following that correction that we've seen of late. Final things to mention: AstraZeneca, they have come out and basically said their COVID-19 vaccine trial remains on hold at least till next week in in the US as regulators examine the serious side effects suffered by a patient in the UK, which we know of. Now, I don't think this is particularly that important. All it's basically saying is that in the US, while their regulators examine the side effects, this is on hold till the middle of the week. So it's not exactly a super long delay, I don't think. And I think market prices really tell you what you need to know. And in terms of any, um, reaction in their price in aftermarket, uh, none really. And also in terms of the way stock futures are reacting, uh, I think the, the world's moved on now from where we were in the middle of last week when we saw that initial dip on the actual breaking of the news. So a further delay of a couple of days, I don't think really moves the needle that much in terms of market expectations about the overall outcome of these stage 3 clinical trials. Um, and then the final thing was Hurricane Sally. Um, Shell, Chevron, Murphy Oil, other producers have begun shutting in some U.S. Gulf offshore crude and natural, natural gas output, while at least one refinery temporarily closed its plant ahead of Hurricane Sally. It's expected to make landfall on the Mississippi-Alabama border late today, early tomorrow. Federal regulators said as of yesterday that 20 1.4% of the Gulf's oil production was now shut in thus far, with around 25.3% of natural gas has been stopped at this present point in time, just given the extremely dangerous and life-threatening storm surge that is expected. However, I would, I would note that the NHC did update about 15 minutes ago from me starting this recording, and they did report that Hurricane Sally had slightly weakened Hurricane-force winds and flash flooding, though, likely along portions of the northern Gulf Coast later. Oil in itself, again, with this type of thing, I mean, we're right in the kind of the hotspot area now, as you can see from these graphics. And the fact that oil is fairly comfortable with the situation, I think, really says it all. So obviously these weather patterns can be quite erratic. Can change quite quickly, so it's definitely worth being vigilant and monitoring. But at this point, I don't really see too much, um, of a real big reaction today necessarily happening in WTI crude that's really going to kick off oil prices. Okay, and then, uh, just a quick look at the calendar. What else have we got today? Um, we've just had the UK data out, um, the kind of average earnings and the ILO unemployment rate. In terms of the average earnings numbers, ex-bonus 0.2% versus expected -0.2%. The ILO unemployment rate 4.1%, in line with expectations of 4.1%. So if anything, perhaps a touch higher on the earnings side, but overall very muted impact seen in, in the British pound. I think that's to be expected from this type of economic data. Anything pertaining to jobs and paid, I think really markets will be a little bit tentative of drawing too many conclusions ahead of what is such a critical period, which is October, when we're going to see potentially another wave of people being laid off given the expiration of the furlough scheme at the moment adopted by the UK government. So I don't think that that data is too much to look at. I think more so what's happened overnight, if you look at the currency markets, is the dollar has resumed. It's quite an aggressive downward trend, and we've actually broken the low of yesterday in the DXY. We trade at 92.80 or so at the moment, so we're down around a quarter percent in the dollar. And I'd say that's just generally buoying those major pairs, and EURUSD obviously outperforming a little bit because of the additional headwind that sterling is receiving from the ongoing Brexit headlines. Otherwise, moving on, you get the German ZEW numbers coming out at 10 o'clock, expected to remain relatively steady for the month of September from where we're in August. So ZEW being the measurement of analysts and economists' expectation about the current and 6-month outlook for the German economy, can't really say there's too much really difference between what they're going to have heard or seen in August to what we've had in September going off the general macroeconomic environment at the moment. So I wouldn't look for too much reaction out of that. Then we go into the afternoon and a couple of interesting US metrics coming out, the Empire Manufacturing from the States for September. You've got US industrial production, cap utilization, manufacturing production, import price index. So a couple of interesting data points coming out, 1:30 and 2:15 London time. Okay, well, that is it. Um, don't forget to like and subscribe to the channel if you haven't already done so. Myself and the team will be covering the FOMC in full live tomorrow night. All you got to do is subscribe, hit that bell icon, and you'll be notified as soon as we begin. Otherwise, look, have a great day. Any questions, just drop a comment. Happy to help. Okay guys, take care.