Is a Tory Majority More Likely After Farage News?

OK, very good morning to you. It is Tuesday the 12th of November. Hope everything is going well for you. I'm going to talk about a couple different things here in the briefing. An update on the British pound following the information we had yesterday that caused a decent 1% appreciation in the pound against the dollar. And we're also going to have a look at how hedge funds are positioning themselves for future potential upside in WTI crude. Uh, going to have an update as well of what we are looking for from Donald Trump, who speaks at the New York Economic Club later on today at 5 PM London time. That'll be 11 AM New York. And then there's a couple of data points to look out for today in addition to a lot of central bank speak coming from the Fed and the ECB as well. Starting off though, gonna jump straight in on the British pound and cable. We've just seen a bit of an extended move here that looked a little bit more technical than anything. You've just had, literally as I've just started the brief, a quick 10-pip dip there. As far as I'm aware, there hasn't been any new headlines that have come out that I've seen on the news feeds in the last 30 seconds or so, but the pound was already under a bit of pressure I'm just having a look here on the 30-minute chart just to explain a couple of different things. This was obviously the Farage comment when it came out yesterday, the fact that his party have pulled out of 317 Conservative-led or held seats in a bid to prevent opponents blocking Brexit. Farage a week ago had promised to field 600 candidates, if you remember, unless Johnson went for no-deal Brexit. And so his party now saying they'll concentrate their total effort into all of the seats that are held by the Labour Party, essentially. We'll come back to that in a moment, but the initial interpretation of that was a net positive for Boris. Just to give you an idea, bookmakers now suggest that this is going to be an easier route for Boris to get a majority in Parliament. Betway now have a 66% chance of Boris getting a majority, up about 11 percentage points from prior to the comments coming from, um, Farage yesterday. However, we've had a bit of a pullback on that move. So just having a look here on the 30-minute, a couple of points of technical interest on both, uh, different time frames. So looking on the 30-minute, you've got those initial lows that we're printing back towards the end of last week on the 7th. So trigger point, you can see there a run through that 2850, contributing to that last little dip that we just saw, was likely stops just getting run. People just playing that move here, that that would be the immediate kind of near-term support, but that giving way and just coming down to quite an obvious target point here. You can see from both where we were trading on the 8th, so the end of last week, and also on that initial move up yesterday morning, providing a bit of a platform at the exact same point at around 1.2835. So just a little blip down on that fast money move to around that area. Also, that's 1.2835 in the futures. I was just having a look technically, and I already had marked up on a slightly longer time frame— I know Sam will look at this himself in more detail— but you've got that descending trend line from around the beginning of month, 1st of November. It was tested on the 6th of 7th and held. And just keeping an eye on that if we go further forward into the day, whether that would come in quite nicely with around the 128 and also the S1 on the day, as well as some of the previous day's trend line coming in from the 11th when the price was moving up given the, the Farage comment. With that also, that's coincided with that previous more short-term chart that we were just looking at. But drawing out this area here from yesterday on a 120 timeframe, that does start to encapsulate some of the lower level of support that we were seeing back in late October time. So as I put the rectangle here, the ellipses signify areas of where the market responded, good technical points. But the rectangle, a strong area of support, I feel. for cable in the intraday environment. Jumping back though into the news, because I know Sam's gonna look at these things in more, more detail, as I mentioned, Nigel Farage won't fight Tories in election boost for Johnson. That's still getting quite a lot of airplay this morning. His Brexit Party though will still run in seats held by the opposition Labour Party, opening up the possibility that he could be a kingmaker with just a few seats in a hung parliament. Now, that word is quite synonymous with UK general elections. This is where you kind of get, at the moment, in the current guise of the 2017 election, the DUP is quite a kingmaker, a small political outfit in regard to its overall representation of number of seats. But the point being is that the Conservatives under Theresa May needed them in order to govern with a working majority. So the idea here could be that Farage could secure a couple of Labour seats, which would mean that if we're in a tight situation of a hung parliament, then could he then be forming some kind of collaboration with the Conservative Party, which would be, I would say, a bad case for the pound because that would heighten then his ability to influence the Brexit narrative from within more strongly, and that would increase the prospects of no deal and so on and so forth. So perhaps right for a little bit of a pullback. Anyone who's looked at markets intraday for long enough will know markets do tend to over-interpret headlines and you get almost like an exaggerated move. And I think that somewhat was what we saw yesterday because there's still obviously a lot to play for and a lot of potential scenarios that could play out. The initial was that this is going to give Boris a boost. However, I think it's a little bit more complicated than that when it comes to the fact that Brexit Party is still going to run in seats held by opposition Labour Party. If they were going to only target the Leave areas specifically, perhaps that benefits Boris more. If it's a little bit more open than that from the Brexit Party side, that that could be a little bit more of a headache for the prospects for Boris Johnson. Moving on from Brexit, this is a headline which did come out late yesterday, but again, it's getting a bit of airplay this morning. This is talking about Donald Trump, of course, and having got to this phase one potential deal with China. Essentially, US President Donald Trump is expected to announce this week that he's delaying a decision on whether to slap tariffs on cars and auto parts imported from the European Union, likely for another 6 months according to EU officials. So again, this is why the market has responded quite positively to all-time record highs in the last week or so. It's not only the idea that they're getting closer to some kind of workable solution with China, which is the most pressing trade dialogue at the moment. But outside of that, this protectionist policy is also relevant for other key trading partners, and the single market in the eurozone is definitely one of those. And so I think a lot of this— the reason why the market isn't forcefully responding to this, I feel, is that he has done this before. He's kind of threatened tariffs but then just keeps kicking the can down the road. And I do think that Again, as I've said before in the briefing on Monday, this is all just part of the management of Trump. He doesn't want to commit and sign deals too early because he knows he's got a good 12-month slog to get through before kind of D-Day for him, which is the presidential election in early November of 2020. So a bit of a sigh of relief perhaps. This isn't confirmed. A lot of this is according to people familiar with the matter. EU officials have said, but I guess you're looking for the conclusion from the man himself. And could that come today? So as I said, Trump is scheduled to discuss the country's trade policy at the Economic Club of New York, and the markets are likely to hang on his every word, is what Reuters are reporting this morning. What can you expect? Well, according, according to a White House advisor or spokesperson yesterday, you You can expect the president to highlight how his policies of lower taxes, deregulation, fair and reciprocal trade have supported the longest-ever economic recovery in US history with record-low unemployment, rising wages, and soaring consumer confidence. So the usual, if you like, of kind of validating using various different metrics of how successful his approach and policies have been thus far. I guess the key will be what definitively does he have to say, particularly given the almost stalemate that we've reached on whether he is or isn't going to conclude this deal anytime soon with China. So what time is that happening? I guess that's the key question if you're trading the intraday environment. He's not speaking until 5 PM London time. That's going to be 11 AM New York. So if there is going to be anything he's going to say, it's going to be a bit of a late one in regard to how markets might respond. Again, any aggressiveness or playing down of any immediacy of a deal, whether with China or Europe, will likely be met negatively in markets, i.e., equity weakness. And I anticipate then that you'd see a bit of a flight to quality type move. So gold would probably look to reverse some of its heavy losses it's seen of late. But my baseline expectation here is that he kind of continues down the way that he is, which is a successful almost management of keeping the market on its toes, providing enough support that it doesn't sell off, but not giving away all the bullets too soon, if that makes sense, by committing definitively to any of these deals. One thing that has been evident I just wanted to mention WTI crude this morning up again, we're up about 30 cents, trading above the $57 handle in the futures. This is a graphic here looking at net long positions of WTI, and the reason why I've mentioned this is that oil has rallied more than 8% since early October amid these kind of lukewarm signals of the potential phase one deal between the US and China. So we're starting to see a bit of an emergence of some cautious optimism amongst the hedge fund community when we're looking at these speculative open positions in the futures space. Net long positions of WTI have reached, as you can see here, their highest level since early October. But you can see net long positions are still about only half of where we were in mid-September. The important thing here though, as you can see, as the price has started to come up, it's been in lockstep with hedge funds rearming themselves, getting more net long again, or building up their long positioning after a big contraction of holding those long positions over the course of September when we had a bit of a fallout in escalation of the trade war. So do hedge funds see over the coming weeks and months a positive conclusion to these developments, and so therefore comfortable with looking to rearm themselves with long positions from here going forward into the end of the year? The other thing then is, uh, what are China saying at the moment? So they're not really adding too much on the trade side, but what I thought was quite interesting, you had a advisor to the People's Bank of China, quoted overnight as saying that Chinese policymakers should pursue a proactive fiscal policy and cut interest rates to support the flagging economic growth. Importantly though, they do not face the same deflationary pressures that exist overseas, and that fiscal policy measures should be the first consideration, with monetary policy playing a supportive role. So I think that's quite important for the basis that they're continuing down that route by the governing kind of authorities, that it should be government-led with monetary policy being used as a secondary tool. Very much the kind of opposite way around of what we're seeing in the eurozone, where you've got very much a monetary-led stimulus for the economy, with Draghi when he left was putting out pretty firm calls for countries to step up to the plate. It's the opposite way around when you're looking at China, of which it always has been. They also as well don't seemingly are panicking about these deflationary pressures. Remember, inflation and as far as CPI and PPI are diverging at the moment, particularly given the rise in food prices, given the sharp spike we've had in pork, given the African swine flu and the impending Chinese holidays, which typically lead to seasonal demand for those products. I've actually read at the weekend that it's anticipated in the coming month or so CPI in China should hit up at around the 5% level. However, if you remember, PPI is moving into deflationary territory given the weaker manufacturing activity that we've been seeing. But it seems though this article, this advisor to the PBOC, would be not hitting the panic button just yet. One other thing, just to conclude the headlines this morning. I did send out the email earlier. I shared with all of you guys on the distribution list, but I also did tweet last night from my Twitter account. This is by far the most comprehensive analysis I've seen for the UK general election and Brexit thus far. It's a research report by the economics team at ING Economics, and if you scroll through It gives you different scenarios that could happen for the UK election. It gives you what different reactions as far as the— or how the market will interpret it in terms of the pound, UK yields, under everything from a large Conservative majority to a thin one to a Conservative minority to a Labour coalition to a Labour majority. And then it goes on talking about all of these in more greater detail. What if the Conservatives fail to secure a majority? Could we be in for another election after this one? How would— what would need to happen for that to materialize? What are the prospects of that happening? What are the legal requirements of that? And so this is an absolute one-stop shop, I would say, for absolutely everything you need to know to get fully armed at least at this point, to understand what it is that we'll be looking for ahead of time. So do take a moment today, I would suggest. I would set aside an hour of your time to have a good read through that, and you'll feel much more confident about what you're dealing with going forward, which will definitely help you interpret the headlines like what we saw from Farage yesterday that will be very useful for trading the intraday environment. All right, quick look elsewhere. One thing, we've got a couple of economic data points for this morning. We get UK wage data. Remember, you've got wages, CPI, retail sales all coming out from the UK. We had GDP yesterday, a 0.1 miss on the year-on-year, but that's not going to really move expectations. Nearly no reaction, if you like, on the British pound, as you would expect. Here though, this is looking at the average weekly earnings growth. Expectations are that it remains constant at 3.8%. You have seen it has come off the peak slightly that we saw in July. So that being the 9:30 data, again, unless it's wildly out of line, I wouldn't really be looking for it to have too much of an impact on the pound. But Given the fact that sterling is testing those quite key technical levels that I was looking at earlier, you can see we're right in the middle of that rectangle box at the moment, or on the 30-minute chart, um, down at that lower level of 2835 will be key, uh, if this number was a downside surprise. So a breach of the lower end of the range, which is 3.7— so let's say a 3.5% print could help act as a bit of catalyst with the technical breaches, might well have a bit of a downside bias if directionally we are moving lower this morning. Otherwise, in Europe, we get the German ZEW survey. Again, for those new to the economic data prints, the ZEW is the, the economist and analyst's soft survey of their conditions of now and 6 months looking forward in the future. Expectations here are that it remains largely depressed at around a negative 22 print, meaning that financial market experts continue to see further deterioration in the German economy. Now, I don't think that a negative number here is a surprise. It's just about, well, how negative are they at the moment? And so I'd say you need to get back down to around the August print of near -44 for it really to, I guess, liven things up potentially for the euro, or a positive surprise back towards the zero marker these would all be significant breaches of the, the lower and upper bound of the range. I would say would be the only thing that could move European instruments. Otherwise, in terms of the calendar for the rest of the day, it is a particularly quiet US session. Remember, there's no oil inventories today from the API, given the fact that you had the Veteran Day holiday in the US yesterday. So oil inventories will be a day delayed than normal. API is tomorrow, DOE is then on Thursday. You do, though, have a lot of Fed speakers and ECB speakers on the docket. So here you've got Coeur Mersch, already spoken this morning. Clarida, a voter, does speak on monetary policy, and that's going to be at 10:30 AM London time. So keep an eye out for that. Fed's Kashkari, non-voter now, but will be a voter next year and is one of the most dovish members of the Fed. He's speaking in a Q&A panel at 11 AM. ECB's Lane and then Trump later on this evening. With Barker and Harkin— Harker also speaking as well this evening. Okay, that's it from me. I'm gonna hand you over to Sam then and talk over the charts from a technical perspective and some of the setups he's looking at for the day ahead. But Dennis, I'll post a link to that research report in the chat room as well so you have it. Thanks very much, guys.

Hi guys, I hope we all had a good evening. So we might as well start off with the, the pound here. As you can see, come under a bit of pressure this morning but finding some support on what was the high of Friday. So understandably an area where people will look to take some of that profit there. And if we were to come back up towards that pivot, obviously just keep an eye on those previous lows of the Asian session which have acted as good support before we did break through and retested it already. So 1.2862 to the upside, and of course this low that we're trading down at where we found support, 1.2835. Obviously quite a way off where we were over or past the, um, those Brexit comments from Farage. Worth getting on this trend line as well, uh, just from those highs. And if we were to come back down to test that today, you could expect a bit of support if that was to happen now, not too far away from what was the original high of yesterday as well. So worth having that trend line on from the last couple of trading sessions. Also broke this one here, which you can see is offering a bit of resistance to the upside as well. So certainly some levels there to be aware of for the, for the pound. The dollar's strong elsewhere as well, and you can see euro just drifting lower here, making a new low for the day. But we have got some support from a lot of yesterday morning trading here at 1.1046. Below there, the S1, and yesterday and Friday's lows also in the mix. So wouldn't be looking to get too aggressive on that move, potentially looking for, you know, retest of these areas. If we have a look closer, now where you can see we've already had some decent price action. So if price was to come back towards this this kind of point. When we look in here, 1.1052, that'd be of some interest as well. Quite a lot of noise up near those highs from yesterday. It looks quite messy now when having a look at it. So I don't know, Euro, I think, I guess you can consider the pivot and the breakdown area that we had before, looking here on sort of that 5-minute where the, the sellers maybe took over this morning. That could be another area. But the two key resistance points above where we're trading, I would have the trend line and, uh, that high, uh, and the pivot to consider. Gold this morning has, uh, obviously come under a bit of pressure yesterday. That's, uh, all-important $1,465, $1,466 level. The buyers is failing to, to take over that. I think the, the fact that we closed below that level on Friday was key, and, and certainly the sentiment is still to the downside. The low that we touched yesterday was also a key level. Just having a look back here longer term, you can see that's the low that we had on the 5th of August. Would also have up here the 2nd of August low, 1442. That's going to be somewhere, uh, I would have on the chart if we are to break yesterday's low in S1. That would be an obvious target for a market that's just been drifting down ever since last Monday. Sentiment does still seem to be to the downside. I wouldn't really be looking to to get long unless we've kind of broke 1458, uh, and more medium term really 1465. Now I think that would be the, the confirmation that you'd be happy to, to get in this market. Also worth having a look here, and it's not going to come in for a while, but the possibility of the prices getting squeezed from that top with that trend line there, worth having on. But certainly there's a couple key points it would have to get through to even test that level. Also keep an eye on the, uh, the Asian session low before we broke down at half 5. You can see there's also some support yesterday, but of course, as with gold, probably best to be looking at this afternoon rather than now. S&P finishing, uh, on the highs yesterday, uh, finally breaking through what was quite a solid— you see resistance here throughout the day. It did come back to find support late on the, the the session, but by then things had quietened down. Had broken above the high that we made on Friday, a little false break there, and we're just finding support now on what was the closing price or the closing high of yesterday. So again, I'd have that marked up, and price here I think is really going to be dictated by what Donald Trump comes out and says over the coming days. You can see now we're just starting to form this bit of a range over the last few trading days. And, uh, the R1, the all-time high, a key level to keep an eye on. And perhaps as well, you probably want to get on a bit of a trend from the low that we had back on the 6th, just starting to bring that into play as a possible point of support. By the time it comes down, could well be one of these lows from yesterday as well. But I think for now, uh, the S&P is a case of wait and see. See or look to buy as we break resistance levels. Whereas, you know, gold, if you're looking to get long, you'd want to see those, those points break. And if not, go with the flow. And I think gold has had some good opportunities when it's broken those key levels of support. Yes, so you can see, yes, it would have been late on. The pivot was also very good. We haven't had a retest of 1455.3 I'd be looking at, and then yesterday's low down towards 1442 could be a good opportunity as well. Oil, as I mentioned, pushing higher. The, the key levels all to keep an eye on, of course, will be those highs that we had from last week that we just could not break through. Um, on the longer term chart, if we do, then it could see a decent push higher and could be a really good opportunity. But for now, this— the sellers come in every time we get back up towards that, that point. Worth having the trend on from the last, uh, including today, 3 days lows. Also from the highs, we're getting squeezed in the opportunity here. I know the volume is low. Of course, this would be on a break. I would look to get long or short, um, respectively, above those levels to sort of target any of those highs or lows as well. So keeping a watch on that all-important $58 handle which would be above those highs that we've got on there. The DAX just pushing lower over the last 30 minutes or so, but nothing too substantial, you'd have to say. Keep an eye on really where we're trading now was the highs throughout yesterday morning, much like the S&P had resistance until the evening, and we're just coming back for the first real retest of that. So yeah, have that marked up for sure. The dollar's still gonna— still acting strong, which is of course bring in that euro and pound under a bit more pressure. And if this is to continue, you've got to imagine gold is going to drift down. But for now, let's see, that volume not likely to be there. Any questions, as usual, please do let us know. But I hope you all have a good trading day, and I'll catch you all in the chat.