Iran Retaliates With Missile Strikes But Markets Recover

Very good morning, Wednesday the 8th of January. And obviously you've probably seen some of the headlines, more updates on Iran for me to cover with you guys and a bit of a view about not only what's going on but what can we anticipate going forward and having a bit of an explanation as well behind some of the moves. I mean Before I get stuck into the headlines, let's just have a look at the charts. And you can see these kind of V-shaped patterns across the three center charts. This being, uh, we've got the S— well, this is the S&P. Let me flick it over to the DAX here. So you've got the DAX with a gap, uh, lower at the open but recovery, almost a gap fill to some of the range low of the price activity in the futures from yesterday. You've got the NASDAQ, that V there, and the similar case in the S&P. You could map that, if you like, in a mirror image in the opposite direction, the inverse relationship then with stocks and bonds. So as equities got hit last night, T-notes bid, and then the reversal that came. And that's kind of imitated across all the other different asset classes. The one perhaps that is holding on to some of the gains at the moment is gold in the top right, although it's off the breach it has seen of $1,600. In overnight trade in the futures. It's up $15 still, but it has seen a pullback of approximately $20 or so from the initial headlines when they were coming out last night. So the way I'm going to cover this is I'm going to cover the news and then I'm going to let Sam come on, and Sam's going to do hopefully a really interesting thing because he was up last night to about 2 AM trading the events as they were coming out. I must be honest, hands up, I was fast asleep at that time. So testament to Sam, because I'm sure there was some excellent opportunity. But I think it'll be really interesting to see how he was trading it and how the news was coming out and how he was going about his business in the overnight session, given the kind of drip-feed nature of the way of which news tends to come out at that time, and particularly out of that geographic region as well, uh, and then he'll do his usual look at the charts and thoughts about where we'll go from here. So, um, let's flick over to the news. This was of course the headline that you're probably reading as you come into your desk this morning: Iran retaliates with missile strike on US-Iraqi bases. So remember yesterday we were talking about the Fars News Agency and they were, uh, suggesting that Iran was looking at 13 potential ways of which they could retaliate against the US strike on the Baghdad airport which killed the military commander Soleimani. And so this is the first of those more kind of aggressive nature and real response that we've seen other than verbal rhetoric in a physical form. Iran firing 15 missiles at US Iraqi air bases Yesterday, the Islamic Revolutionary Guard Corps has claimed responsibility for the barrage, with the Pentagon saying that the launches did indeed come from Iran. Now, just to give you a bit of context, what we're looking at here, these are the two sites of which were targeted. So you can see, well inland into the kind of center west and north of the country in Iraq. Importantly though, And one thing to be aware of with this, although the Foreign Minister Zarif has said on Twitter that the government concluded proportionate measures in self-defense of the Soleimani strike, there's a few other things to be aware of. First off, there was this headline, and this didn't come out immediately. This actually came after some of the initial headlines were dropping in the overnight session on reports of the missile activity. And this was that a Boeing 737 bound for Ukraine crashed in Iran, and actually everyone on that plane died. I think there was 167 passengers, 9 employees of the airline, all were killed. Now, reports that I've heard this morning were that there were no kind of cause of technical issues from the pilot in itself. Itself. However, Iranian news agencies are reporting that it was a technical failure. I'm a bit surprised by the fact that this isn't getting more airplay. Remember, it was the 787 MAX that had technical fault issues previously that's been a big headache for Boeing from a manufacturing point of view. But this is the 737, and it just so happens that it was in Iran at the same time these missiles were going off. So, yeah, be interesting. Um, I do think though, if this was serious in the extent that it was a plane shot down, there are a couple of considerations that I think need to be taken into account. Uh, if this was a plane bound for a Western destination such as a US city and it had Americans on board, this would be a completely different matter. The fact of the matter is that this was an airline route or scheduled flight going from Iran to Ukraine. And so I guess in that sense, it kind of is lesser important in, in the fact of which markets will assign in terms of any type of immediate response. But it'll be interesting to see how Boeing fares, of course, as a singular company if it was a technical fault and that is proved to be true. And I must say I take the Fars News Agency as a news source with a pinch of salt, that would be a big headline. Boeing are the largest company still in the Dow, they represent about 8% of the entire stock index, and if they are experiencing technical faults that has crashed a 737, there's not a lot left that Boeing have other than that. So yeah, it's going to be interesting to see how that plays out at the reopening of trade, specifically for that single, single stock for sure. Um, continuing on though, there's a few other things to mention. This is a graphic of looking at crude oil, so the generic first futures, so the front month futures contract where the most volume is. That's the black line. And then also we're looking at gold. That would be represented by the price in the index, the spot price on the left-hand side. And as you can see, they've both kind of mapped each other in this overall, uh, kind of reaction to the news. But extreme bid, but then reversal. And as I said, that's what's been evident in other asset classes, like with the equity dip and then recovery as well. Now, one important thing that's happened here is that the targets that were hit by these 15 reported missiles were US military bases. Now, two things. One, the OPEC Secretary General has already come out and said specifically that Iraqi oil facilities are secured and the country's production is continuing. Now that's very important because Iraq is the second largest producer in OPEC and second largest within the Gulf region. Um, so no disruption has been seen, um, and that is very important in terms of any sustained move that could have happened if infrastructure were damaged and that hasn't been the case. So if you like, this hasn't for oil traders been as devastating or bad as it could have been. The other thing is Donald Trump, of course, has tweeted in reaction to what's happened, and actually I'd say it's a fairly passive response. You would have thought that, you know, we were looking at charts yesterday, there's plenty of US personnel within the region, and they would have already have planned for this type of activity, and if it were serious enough, then you would have thought US would have struck back immediately. But that hasn't been the case. In fact, Trump saying all is well. The missiles launched from Iran at two military bases located in Iraq. Assessment of casualties and damages are taking place now, but so far so good, and reports are that there's been zero casualties. So, um, one thing that I thought was a particularly good comment that I saw from one individual was that he was saying that Iran needed to do something quick. This was coming from the founding director of the Center for Global Policy in Washington, and I think he makes two very good points. One, Iran needed to do something quick. If you think about it, just like Trump tries to do and say things in order to appease the people in America that will vote for him and keep him in power, the Iranian officials need to do exactly the same. One of the most prominent figures in Iran has just been assassinated, and so, you know, you've seen the images of the mourning taking place in Iran. The Iranian government needs to show some degree of strength, and so something needed to happen. But of these 13 different options, this is probably the lightest of all of them. But something quick needed to take place to show some kind of response in physical activity. Secondly, um, the other interesting comment this, this chap said was that this is a placeholder move, but a low-cost one. And I, and I definitely agree, and I think that's reflected in prices. The idea being here then is that, um, it's kind of a strategy whereby at the moment I still believe that this is a de-escalation situation irrespective of the initial knee-jerk activity, if that makes sense, that we've seen in the very short term. So here it's kind of satisfying a political objective for Iran but not wanting to get caught up in an all-out assault in a war issue. And that has been ratified. A lot of this move that we've seen here in the reversal across assets is Iran have come out and specifically said that they're not seeking war. And you probably would have read a couple of articles this morning, apparently quite a lot of algos getting caught the wrong side of these headlines overnight in dollar-yen, jumping on the initial moves but then getting absolutely killed on the back of the fact that algos are not artificial intelligence. They're not adaptive and have an inability to overlay context. And that's where algos can be very bad— good at execution, bad at adapting to updates to the information and the situation as it evolves and changes. So yeah, quite a few different things here, uh, that are going on and things that I thought I would cover. Um, final points on the Iran issue that I wanted to share. I'll drop this into the chat room so you can have a read. But we talked about yesterday ways and means, and we have done since Friday, about how Iran could target specifically Saudi Arabian infrastructure in order to cause destabilization within the Middle East and also disruption, more impactful because of the volume and the amount of supply of crude oil that Saudi has, whether that being tanker attacks the passage of trade and transportation of crude through the Strait of Hormuz, or the actual infrastructure in itself, which we've seen before with the drone strikes. Now, interestingly here with this graphic, uh, and a comment that I read in a research note from Morgan Stanley last night was that they were looking at alternate ways beyond Saudi Arabia of which Iran could retaliate. And a couple of things here, I think that this graph really sums it up quite— or this graphic sums it up quite nicely. I know it's a bit small to read, but it looks at possible Iran retaliation if they're looking to target Syria, Iraq, Saudi, Lebanon, Yemen, or Israel. And I think this is quite interesting. So what MS was saying was that possible near-term Iranian retaliation could include attacks against Israel using Hezbollah proxy escalations in North Korea. You know, they were bang on with that. This research report predated that of the missile attacks last night. They've also talked about cyber attacks as well. And Iran could pursue more aggressive strategy but remains mindful of U.S. military power. And meanwhile, election politics stateside is likely to limit U.S. engagement. For those reasons, I think we were discussing on, on Monday. So hence the reason why, yes, there can be flare-ups and bouts of volatility, but most people are still fairly sanguine about this issue and that ultimately, uh, this isn't a game changer, if you like. This is just a momentary focus on an issue which has flared but ultimately will stabilize. So I'll let you chew over that graphic in a bit more detail, but definitely I think My advice is still that you want to kind of pre-equip yourself with the ways and means of how Iran could attack the West through proxy wars with other nations, given the allegiances and alliances that exist within the Middle East. And the geopolitics is quite complicated, but this graphic does a good job of simplifying that. And if you're going to be proactive in order to anticipate and react to news, this is my advice to go, go about that type of way, to be more responsive to headlines. Okay, moving on quickly. Brexit. Well, House of Commons reopened last night. I forgot to tell Sam, actually, I was sat two seats down from Rory Stewart on the tube yesterday when I was heading to go and deliver a lecture at the London Business School. Didn't get a chance to talk to Rory. He was with a friend, I assume, deep in conversation. But yeah, House of Commons reopened yesterday, so he was back to business, but so was this chap right here, Boris Johnson. And today is significant because Boris is meeting the EU president later at Number 10 Downing Street. Now, Johnson, as per the headline, is set to say that he will not be asking for an extension to trade talks. Now that is a continuation of the status quo. It's not new. But what is he referring to? Quick look at this timeline to refresh your memories, because I know we've been somewhat sidetracked by the Iran issue since we've returned for the new year. But obviously now, January 31st, the UK leaves the EU. Technically speaking, we conclude then this remove or move between Article 50 and into the implementation or transition phase. Now, one thing is particularly key here is that it's not like Boris has 11 months then to negotiate a trade deal. I mean, yes, in a way you could look at it that is the case, but importantly, at the end of June, the 30th of June, is the deadline to request and have acceptance of an extension to the transition period. Now, from a legal perspective, one, It's going to be incredibly difficult then. Boris has to basically get a trade deal on the table that can at least be agreed at this point with some top-level tariff-type agreements and how they're going to conduct trade, for example, in 5 months. And that's a big ask when more complicated trade deals with bigger nations has taken several years. Um, and so here then it's kind of a balance of between he's gonna play this kind of assertive card because he wants Europe to kind of make it serious that he's willing to take this up to the end of December and revisit the idea or notion of a no deal. So Europe try and force their hand. The other thing here though is too, Europe has said that they would allow an extension. They would allow an extension to the end of 2020. 2021, of which some might say then that that's probably quite a likely outcome given point 1, which is the complexity of the legal side of getting a deal done in such a short time frame. My, my base case here then is that the rhetoric's likely to remain firm. I would say there's likely to be a lack of progression as we, we go through the coming months. Boris is going to want to keep the pressure on all the way up until the summer. And that then means that potentially a lack of real movement, meaning that no deal, then if he doesn't request that extension, of which is not looking likely at this point, and I don't expect him to, not until the possibly the 11th hour. If he doesn't, which I think would be actually a better strategy for Boris, and he pushes this back to December 2020, he needs that, that, uh, that kind of weapon on the table of a no deal to get a proper deal done. So, uh, as me and Piers were talking about in our 2020 outlook, maybe some light relief for the pound, uh, in this kind of honeymoon period post the election, the majority government. However, things are going to get back to no deal scenario come the summer, and we're going to expect further pressure coming into the pound at that point. So as far as today's meeting between Boris Johnson and the EU president is concerned. I don't think much is going to happen. He's going to say, look, you know that, you know what we want, this is what we want. Europe are going to say, that's not what you're going to get, you're going to have to, if you want, remind you of the June deadline to submit your request for an extension. And Boris Johnson is going to say, don't want it. And I don't think that's going to be particularly a pound mover this morning. Other thing that we've had, just quickly, you have had the German, uh, factory orders come out this morning at 7 AM, uh, quite a substantial miss on expectations. Markets were looking for a +0.3% print. It came in at -1.3%, as you can see here. Um, this is the first decline in factory orders since August, mainly due to a 3.1% fall in foreign orders and new orders falling from both the euro area and other countries. So the German economy really does still remain under some heavy pressure at the moment. Now, looking at the euro this morning, um, didn't react too much at the time, but as I've been talking, we have seen a bit of a further concrete breakthrough, uh, what was really a support level from earlier this morning, and we've gone through the low of what yesterday's session— I did hear Alex here on the floor talking earlier about the 200-day moving average being retested a couple of times. So presumably that's broken now. Yeah. And so that's going to be a meaningful signal for a lot of the technical traders looking on the higher time frames, I'm, I'm sure. But Sam can have a look at that. The other thing from the calendar perspective today, obviously everyone's going to be looking— still a lot of focus on the Iran issue, particularly when the US come in. Just so you're aware, President Trump— go back to his tweet He did say he will be making a statement tomorrow morning, so that is today. Today Trump will be giving a national address given the situation of the missile attack on those US bases in Iraq. There's no set time as yet, so of course we'll keep you posted, and I'm sure the squawk will be covering that live as and when it comes out. But that will be important. Again, my base case view there is very stern wording but no actual military action, which as far as markets are concerned, I think then they'll be able to digest that in a fairly orderly and calm fashion. Otherwise on the calendar, we do have ADP employment, national employment coming out later on this afternoon. Obviously a precursor for non-farm payrolls on Friday. The last ADP saw a number of 67,000, as you can see here. Um, that was for November of 2019. We're going to get December data today. Uh, that was the lowest number last month in 6 months, well below market expectations of what— as well at the time, which were for 140,000. So it came in at 67,000, was expected at 140,000. So it's going to be interesting today to see if that does indeed bounce back. The Wall Street estimate is that it does and it goes back to 150,000. So be interested to see that figure, 1:15 London time. We then get the oil inventory numbers coming out of the DOE later on this afternoon. So I'll recap all of the API numbers that came out last night, but again, they're largely a side order now because of the news that came out last night, which is a much more dominant factor for crude oil prices. From a calendar point of view, from the speakers, let's have a quick look at the timings of what we have. So, um, the EU president is speaking with Boris. That's going to be taking place around 11 AM this morning. ECB's de Guindos at 1 PM this afternoon. Fed's Brainard at 3 o'clock are the ones you're looking out for. All right, let me hand you over to Sam and he can go over his side and explain how he was trading the market last night as well. Okay, have a good day, guys.

Yeah, hi guys, hope we're all doing well. Yeah, I'm not usually up at around— one second— around midnight, but after I got home yesterday I was so tired I actually had a nap. So then when I woke up I was obviously full awake and was checking Twitter in bed. Sound like Anthony now. But yeah, the headlines started coming through and there was rumors going around, and it's actually quite annoying at the time because there seemed to be so many fake tweets going around that there had been an attack. But then once you started getting it from the major headlines— BBC reporting it, Spectator Index was the first one that I had seen— so we had an initial pop lower in equities, and obviously gold and safe havens went higher along with oil and booted up the laptop and started to look for an opportunity to get short this market. And I was trading the Dow, and after we had broken through the low of the week, you can see here on the 5th— sorry, Friday's low— once that had broken through, I was just looking for that area to come back to get retested. And I'll put the trades up on Twitter later, but you can see here, once— probably price had broken through. And this was around just, well, sort of half 11-ish. Uh, got in on the retracement to that area and targeting what was then the original low as the first target. And then if we put this back on a longer term chart, there was a level, uh, just a bit below here, the lows that we had from the 18th, where I exited the rest of that trade. I did have another go, uh, looking to get in to the trade a bit lower down because the headlines were still coming through and the, the market was certainly thinking that Trump was gonna retaliate and it was going to come soon. So tried the, the previous low to get in to that trade again. It didn't really go anywhere and that trade was a small loss here and that came and stopped me out around about 1:40. And it was at the time when I was actually speaking to, uh, Safe Ali. I'm sure obviously Anthony Cheung, remember him from Amplify. And he was, you know, talking about on the other side of things how perhaps it wasn't all as bad as it seems. You obviously had all these talks that US were moving their troops out, that this attack was no casualties. Does Trump even need to respond? The fact that Trump hadn't tweeted, and then you started to see the markets really push on. I didn't take any of the longs on, I'd already taken the 2 trades, uh, that I wanted a good winning trade where I made sort of nearly 200 points on that, and then, you know, a small loss on that one. So I was happy to sort of knock it on the head from that. Um, looking at the market now, how I would be looking to play this— if I just remove those lines off— I think it's, you know, interesting to see us just hold up pretty much actually where I initially got in that trade. But you can see the original low here uh, from the early morning, 28,447. I'll be looking at that as a line in the sand. Above there, then markets really, you know, have taken this as a one-off. There's going to be no escalation from this and we can go. However, if that is to hold, and especially into the afternoon or the US morning, you may well see a little break lower and Trump can come in and say something else. But for now, it'd be a case of of wait and see, let the market tell you what's going on. So below this trend line, above this horizontal area of resistance, is where I would be looking at. Of course, above and below, there are still key levels. The previous low of yesterday, which broke around 9 o'clock, would be a point that I'm keeping an eye on. Below that trend line and any of these areas of support as well. Having a look over at, at gold as well, I didn't take this trade on as obviously Anthony Cheung, uh, the Dow Jones at the time, but a really big push hit the 16,000, uh, and it was around this sort of time here where we saw the retracement elsewhere that I was happy to sort of scratch that second trade and not really look for a continuation of the moves that happened just after 11 o'clock. Looking at this now, put it on the 60-minute, you've almost got the line in the sand but to the opposite direction here in gold as well. What was the original sort of low of the Asian session, the R1 today, 1585. We're keeping a close watch on that as well. Below there, we're now then looking towards, I would say, a key point of 1574.8 as a very, uh, important level to have marked up. Also, you can see if that was to get hit, this trend line from yesterday, which was so well respected even into 9 o'clock yesterday, would be be a level I'd be having marked up there as well. The euro, as Ant mentioned, coming under a bit of pressure this morning. Give me one second.

You okay?

We're good.

You had good trade last night.

Lack of sleep is what it is, but there we're back in business. Having a look at the euro, um, obviously that coming under the pressure there and breaking that, that 200-day moving average on the spot market. So it then brings into the trend line that I've been talking about all week. If we get this on, and it's actually as we sort of put this on the daily chart— sorry, we put this on the daily and bring in this trend line that has been so well respected— we're just starting to have a go at breaking that as as well. So the 200-day moving average on the spot, you've got this really key important trend line, and we know what 2019 did. Every so often when the euro pushed higher, trend line broke and we made a new low for the year. Not saying that's going to happen because of course we want that confirmed break on the daily trend line, but that's something that I would be absolutely paying a close attention to. Bring it on to the 60-minute, bringing the pivots back on. You can see just where we're trading now, just taking out uh, very, very briefly that low from yesterday. I wouldn't get too excited because obviously you've got the low from Friday there as well, and it's more of a zone. You've got the high as well from the 26th, the 19th, a really key level, 1.1174. Uh, again, talking lines in the sand, that's as good as any, uh, there for the euro. If that was to, to break through, you've got some really key, uh, levels of interest, 1.1156 and 1.1130 to downside, which would, uh, be obvious targets. If this is to hold and we get a snap back, of course that could be a really good buying opportunity. So where we close the day for the, the euro, uh, will certainly be, uh, of major interest. Oil, uh, obviously this was another market I was looking at, uh, at the time of trading the Dow. We, we pushed higher, uh, and of course when, uh, we started to, to push lower— and this again is that candle which effectively stopped me out on the, the second trade of the down. Everything just started to reverse. In terms of the line in the sand for, for oil, you can see we are just coming to perhaps a bit of a lower part of this trend. Let's have a quick look at that just to see how that holds up. So I look to have this on. We're getting squeezed from, uh, both directions. There you go, a little pop through there. In terms of areas of support below, if this is to hold, $63 is $63 is a pretty interesting level, and actually you'd argue it's more of a zone along with yesterday's highs, uh, as well. So keep a watch really at $63. Below $63, uh, I think we could absolutely continue the, the previous 2-day trend and start drifting lower here, uh, for, for oil. Quick look over the pound just to see how that's reacting. A little pop higher, uh, through the pivot, uh, caught my eye, and we have come back to retest what was the previous high, and that's held relatively well for now. I think if you're, you're long, as long as you're above the pivot, you're, you're happy enough. The high of the day, uh, is also pretty much the high of, uh, around midday yesterday. So keep a watch on that 31.88, uh, as a, as a key level, uh, to, to have marked up. As usual, any questions, please, uh, do let us know. Uh, we'll be on through the chat throughout the day and available in the, uh, comment section.