Is Boris Johnson's European Trip Important For Markets

Very good morning to everyone. It is Thursday, 22nd of August. Hope you are well. We're going to cover a couple things this morning, but before I even begin, I just want to make you aware that there's some very important economic data coming out momentarily. So while I'm on the mic, what I'll try and do is cover this off as we go through things. But you've got the eurozone flash manufacturing and service PMIs. These will be very important for European prices this morning. I would be anticipating, uh, reactions in things like the euro, European equities, so the DAX, the Eurostoxx, and the Bund. So do keep an eye out for that. It's coming up, the French figure first at 8:15, followed by the German figure at 8:30. The latter of which will be particularly important. Why? Because this is a look at the graphic of German manufacturing PMI. In the last reading marked the steepest decline in overall manufacturing conditions in Germany since mid-2012, as new export orders dropped the most in 10 years. Falling sales to China, slump in all the automotive sector, more concerns about the ramifications of hard no-deal Brexit and so on. And so what we've been seeing is quite a severe contraction, deterioration consistently in German manufacturing, which is obviously very key for their overall economic output, but not just for them but for the overall eurozone area. And so this is going to be particularly important. The number for Germany on the manufacturing side, just so we're all up to speed, is expected at 43. So actually a slight further deterioration from what we had last month, which was 0.2 above that expected figure. The range: 41.5 to 44.5. If we get a 41 print, where does that put us? Well, we're going to have to start looking at a, at a 10-year chart. That puts us through the trough that we had in the height of the European sovereign crisis with the multiple bailouts of some of those countries. Countries like Ireland, Greece, and Portugal, that puts us back down to levels we really haven't seen in the best part of a decade, uh, since the severity and fallout of the financial crisis. So definitely keep an eye out for that. That's coming out, as I said, at half past 8. The French figure will come before, um, in about 3 or 4 minutes' time. The manufacturing from France expected at 49.5, so right on the cusp, minor contraction. The service sector, um, to remain in slight expansion expectations, 52.5. So that's coming out, and I will cover those when they are released. But otherwise, looking at the, the overall broader markets this morning across different asset classes, um, things fairly quiet. And I've been looking at, you know, just various, um, volume profiles, and this whole week has been relatively tame, particularly in the fixed income market for the US. This is all because everyone is waiting for Friday's very important speech from Jerome Powell. As you can see from the charts, there really wasn't any and definitely no sustained reaction other than a momentary blip in prices on the back of the FOMC minutes last night. Now, just a quick look and the reason why— these are the kind of headlines that people are running this morning. If I just transition, so 3 reasons for cutting in July. Remember, the reason— one of the main reasons that people didn't really react to the minutes is not just because Powell was speaking on Friday, but the date of those minutes was from the 30th to the 31st of July. So they're about 23 days old, those discussions. And obviously the world has moved on in those 23 days. There's been new emphasis on the inversion of the yield curve. There's been new economic data that's come out, new speeches that have been made, so essentially rendering those minutes just redundant. They just really weren't that interesting at all. The only one thing I think that was potentially slightly surprising was that there were two members who wanted actually to go for 50 basis points, not 25, but that in itself not enough really to move markets. So not going to dwell on the, the minutes really. Going to move on, talk about a few other things. One thing you can see on the charts here is dollar index pretty flat. There's no real dollar strength, let's say, for the moment, albeit it's holding on to the gains that were seen last night. One thing is you are seeing a little bit of pound weakness. Cable just edging through some of the low points that were seen yesterday afternoon. So cable's down about 16, still relatively moderate in its losses, though nothing so sizable. But obviously a lot of the talk at the moment is in the run-up to the G7 happening in, uh, Biarritz in France at the weekend. Yeah, you had Boris Johnson doing the European rounds. He was in Germany yesterday meeting with Angela Merkel, and what came out of that was some fairly positive noises actually. EU officials, though pessimistic, said there was still time for a deal. Interestingly, Merkel said it's up to the UK to put forward a workable alternative to the backstop. The UK Prime Minister agreed. He said the onus is on us to solve the border issue, though he pointed to measures that have already been dismissed for the last 3 years of Brexit talks, included the Trusted Trader Programme, electronic pre-clearing of goods. So essentially this kind of technological solution in order to keep an open, uh, border, uh, like without checkpoints and so on, which could then invoke the memories of the— or breaking the risk of breaking the, the peace agreement broken in the late '90s. So problem being, I guess, with that last point, although Merkel has been relatively positive, that's always been the case. Germany definitely much of the mindset that they want to, um, uh, just avoid any cost, really further disruption to whatever what already is an economic challenging period. I'm just going to pause for one moment. The French numbers have just come out. Just seeing a big pop in the euro on the back of that. So let me just see if the score— 51.8. So that's all three there and beating on expectations. The manufacturing unexpectedly in expansionary territory, and as such have seen an uptick in euro-dollar Towards 1.1090. So just coming on, yeah, Euro popping, DAX popping, uh, Bund to the downside. So very positive number, the French manufacturing PMI has just come out 51. That is way above the top end of the most optimistic estimate on the street. So immediate bid into the Euro and DAX on the back of that, certainly alleviating what has been very depressed kind of sentiment around the growth happening in Europe at the moment. So particularly strong numbers there out of France. The actual service number, 53.3, also considerably higher than expected as far as the deviation from the mean for, for the PMI data. So decent numbers. Germany coming out obviously in 14 minutes now, but this is going to be quite interesting given how much people have been panicking. And obviously that's put emphasis on the fact that the ECB have got to do more, they've got to cut the deposit rate, they've got to restart QE. But if the PMIs have hit that low now and start rebounding, that would be definitely interesting to see whether or not the euro then will start to, in the medium term, claw back some of its persistent losses. All right, just going back to what I was saying here, the point I was going to make on the Brexit talks was that everyone is still at the same sticking point that Theresa May is. It's all to do with the Irish border, the backstop. But the problem is, as much as Merkel has been favorable to potentially— look, we want to work to get a deal done— Boris is only bringing forward things that have been discussed before, which have already been dismissed. So unless he comes forward with something new, some sort of maybe legal twist on the understanding of what this backstop means or entails, then I really don't see this changing the game at this point in time. The one thing that's definitely going to be happening today, of course, is that Macron— quite good timing for Macron, of course— the PMIs have just come out really strong. And obviously one of the things that Boris would have been wanting to leverage is that, look, I'm going to threaten no deal, you're your economy is suffering. And so, you know, this puts us— data maybe is a nice little boost for Macron going into those face-to-face discussions later on this afternoon. But all that aside, France is an absolutely different beast to Germany. France has been way more critical and definitely less friendly in the idea of giving any type of concession to the UK. The French government, they said last night they expect the UK to leave the EU without a withdrawal agreement. That is their baseline scenario, that there will be no deal. And so at the moment, he's not giving anything away. So I think Merkel was of no surprise to hear her kind of more conciliatory tone yesterday, more interested in what Macron has to say and what then Boris and Trump do at the weekend when they meet up in France at the G7. Very interesting comment though. From Boris Johnson that he made in his own kind of usual fairly descriptive way. He said, "In my life, I've watched a lot of European negotiations, and believe me, it looks at first as though it's an irresistible force, an immovable object. And what in my experience happens is people find a way through at the last possible moment." And I absolutely agree with him. I really don't think from a trader's point of view you're going to get this really big massive pops in the pound because, you know, we're going to come out of the G7 and I think that there's going to be exactly where we are at the moment. I want this, they want this, and there's no pressure of a deadline yet. It's too far away for people to start cutting deals and making concessions. So I'd expect all of this to manifest into potentially medium-term some weight in the pound as we get closer to still the same status quo as we get through to the end of September into October, then it gets a little bit more interesting, certainly if we retest the lower bound of those, um, historical low levels in cable. All right, a few other things just to quickly go over, but one thing, Chris, quickly back to the charts. The DAX loving life now after that surprisingly strong French data. Just keeping an eye here on, uh, the previous range high from yesterday. Uh, we've just moving the charts out here. I'm just going to put it on a 60-minute. You can see this is the top end at the moment of quite a considerable range of resistance that we've been trading over the course of August for sure. So if I just put a rectangle over some of the price action here and where we are in the near term, as the first challenge you've got here, 11,810 11,845.49 on the upside, which would be the kind of the bound— the price action that we've had here over the course of August. So two interesting levels. Certainly a surprise development there in France to see such strong data. The manufacturing one, the standout. Services also exceeding expectations as we just saw. Okay, wrap through the other headlines. It's almost as if the market's gone quiet on on the Chinese yuan. It's almost as if, you know, we had such— well, start from the beginning. It's amazing how markets can be so blinkered at just looking at one subject at a time. And I often mention this to people who are new to markets when I'm explaining how do you perceive kind of daily market sentiment and how do you assign a hierarchy to the macro themes that are in play. But you remember about 3, 4 weeks ago, The only thing that you needed to do to really trade the open was what was the fix for the Chinese yuan. Now no one even mentions it. In fact, the yuan fixed overnight at its weakest in 11 years, and it's gone, you know, we're moving further above 7 at this point. The only thing is, is there's a trade war going on, and then headlines come out, then there's an inversion of a yield curve, and and people start getting spooked about a recession. But even that in itself has now almost dissipated and moved to the side. So we get the next thing. So it's interesting how definitely I think to, to manage the macro environment, you've got to be quite agile to really pick up on your perception of how the— basically the market is perceiving its value on these types of subjects. Interestingly, now I think about this chart of the yuan is that people seem to have got over this psychological symbolic level of 7, which people were absolutely panicking about, that it would lead to mass capital outflows and so on. That hasn't happened, and the yuan continues to weaken, which has prompted state intervention through their state-owned banks overnight. So definitely warrants continue to walk— to watch. If we obviously punch higher to 7.1, we're not quite there yet, we got close to it, I think we actually touched it last night, If we start going higher and higher, yes, this will become a problem. But at the moment, the point being, it's just quite interesting how this is a development that really hasn't changed, but it's just that people have been distracted by other issues. But quite like Italy, for example, it flares up and then it goes away. The yuan issue is not resolved and will come back in time, I am sure. Okay, um, that is it from me actually. I'm going to hand you over to Sam because we want to make sure you guys are all over the German PMI when it comes out shortly. So in terms of a calendar for today, let me just bring that over to quickly run through. I think my computer— one of my pages is frozen, so let me just talk you through instead what it is that we've got. So on the calendar, you've got the German figure coming up. The Eurozone Manufacturing PMI is obviously the summation of these countries will be at 9 o'clock, but that's very much just confirmation rather than anything new information at that point. You've then got the ECB minutes, do not forget about that, that is coming out at 12:30. Um, that could be interesting, particularly given the, the fact that even though these data points have come out strong, otherwise it's been a fairly precarious situation for Europe, and people are looking for hints of near-term action from the ECB in the form of deposit rate cuts of 10 basis points and the potential restarting of QE before year-end. So those minutes will be definitely of interest and market moving. Into the afternoon, the US weekly jobless claims, um, you get the market service and manufacturing PMIs flash reading as well from the US at 2:45. European consumer confidence at 3 PM. Jackson Hole Symposium does kick off actually today, but Powell doesn't speak till tomorrow. So although we can share the agenda for who's on the docket, really the big one is not until tomorrow afternoon. And then of course French President Macron meets UK PM Johnson. I believe that's happening later on this afternoon. All right, I'm going to transition my screen, hand you over to Sam. I will post the German numbers as they come out into the chat room so you're aware of them. Soon as they're released. Thanks very much, guys.

Yeah, thanks, Ant. I guess we start with the, the euro here, just as we've got those numbers coming out in 5 minutes to the second now. So you'd expect after seeing the good French numbers that the German and therefore the European ones as a whole are going to be pretty good. Obviously just above where we're trading uh, would be pretty important going back to yesterday, which couldn't get above there, couldn't get above there at all, 1.1130. And it's, you know, a bit above there, you've got the overall range that we were looking at from yesterday and talking about just how that could hold price in and to the downside. Obviously that double bottom as well, bringing up this new mini range for the euro back above what's been a pretty important line in the sand. You can still see we've got those rectangles drawn up from the previous, um, briefings. And again yesterday that held pretty well, and again this morning. So that's your line in the sand, 1111. Above there, perhaps we're favoring to buy up towards the top end of these ranges, and below there, well, we can start to drift down as well. Looking at this longer term, I don't know if this is drawn up as such, this daily chart one. But you can just see, looking at the last few trading days, just starting to perhaps look to get squeezed in both directions. So where we're getting this new, uh, range squeeze from the high and the low as well. So, you know, much like the pound in a bit of no man's land, maybe the euro and the dollar side of things here just waiting for a move either way for a test of the, the yearly low, which of course we had at the beginning of August, or back up towards some of the higher levels around 112, which was obviously so key going back just a few weeks ago. Moving over to the pound, and I've only really got one point marked up here, uh, which was— well, you see Anthony Cheung's got it on as well— around 121.20 was pretty important level going back to the last few days. Certainly on Tuesday and Monday as a key point, and previous days around there with price section. As we perhaps just move up towards the pivot, as the dollar has weakened thanks to the euro there, we are just almost coming in to make— maybe make the third test of that trend line higher the day. So that would be probably quite, quite key, 121.50. But much like the euro, as we said, we are uh, perhaps in a bit of a choppy range and just drawing on these potential trend lines, uh, from that yearly low. Uh, any dollar strength, looking for, for those to break. Top end of the, the range, all important as well for this week, around 121.89. So 3 key levels I would say to focus on: the pivot, obviously the R1, and yesterday evening's highs is, is as well. 121.89, highs of the week, and then that trend line from the, the low as well coming in. Gold, a market that as well as perhaps euro and pound getting, getting squeezed from both ways. And actually, just as we speak, gold is coming to test— I believe I draw this trend on the lower part of that from that spike we had last week. You can see just tempting to, to break through that. And then from the upside as well, you can see over the last few days as well. Not necessarily the third test, but getting squeezed. And gold just having a look at trying to, to pop to the downside. Obviously equities pushing higher off the— this European relief, if you like. So money just coming out of safe havens, albeit briefly. So just keep an eye on there. And gold, obviously some key levels to the downside around the S1 and the previous lows from the week, which should be obvious targets. And then the top end of the range over the last couple of days around the R1. So a lot of markets just waiting perhaps for some impetus either way to really, uh, get a move. Moving over to equities, you can see that spike in the S&P really has come from the DAX and Eurostoxx. Um, we're just now above that trend line that has been tested. You can see over the last sort of few sessions. A bit choppy on the, the way through overnight, but where we obviously finish the, the day will be important. Can we confirm a break above, or is it a false break and actually we start to drift lower, uh, as well? It'll be interesting to see what, what happens there for, for S&P. Above where we're trading, obviously the high of the day, but all important 2945 area, some key resistance around there, around with 2956. If we can close the week above 2950, I think this psychologically, 3,000 comes quite quickly, uh, as well as some of these previous lows that we had in the market before those breakdowns. So really important end of the week, can we get above that trend line? We're pretty much trading right on it now. To the downside, I think you'd, you know, for the bears to really get excited, while a fail break would be if we can get back down, uh, really below yesterday you say sort of afternoon's lows would be pretty important. Those headline, the figures have just come out. Let's have a quick look over at the euro to see how we have reacted. As you can see, they're already testing up to the R1 as they have come in better than expected. So worth keeping an eye just here, obviously above the R1 you've got all those highs from yesterday, and then if if we were to get a pop through the real key level around the important highs of the week. So just keep a close eye on that, that line in the sand. You'd be happy staying long as long as it's above 1.1111, uh, really. Um, not well, the manufacturing coming in 43.6, so better than the expected. The services also better, 54.4, the expected. 54 there. So better than expected. You expect the, uh, the eurozone ones at 9 o'clock to also be so. Quick look over at oil. Um, you can see yesterday the— we did move lower and that trend line therefore has broken. Uh, and I'm just going to continue this trend line on from where it has been drawn. And you can see pretty much will be messy break. We then did find resistance on that later on. So still have that on, maybe just to drag a bit higher for any potential, uh, for it to come back and retest. It broke both ways yesterday, and both times on the first retest acted as good, um, well, resistance and support. So I still have that trend line on. But perhaps you're— oil now just looking a bit more bearish than it did 24 hours ago. Pivot looks very key today, a lot of price action around there. 56.14 to the downside, the lows that we had from the 20th and S1. Also an important point to have on. The DAX is loving life. I'm now above yesterday's high, and that's the highest it's been really going back to the levels we had marked up from the 13th, which are massively important here. Euro stocks and DAX loving life. Likelihood is it's going to drag the S&P, uh, and the Dow and the NASDAQ higher as well. Equities all over, uh, gathering pace as you have seen here. Gold breaking lower, T-notes lower, and the Bund of course, uh, the main mover to the downside. So very much now a case of being risk-on following these positive European numbers. Can we get a confirmation in 30 minutes? If not, expect a reversal of these moves. Euro up to those highs, uh, and the high of the, the week of the last few days very much on the cards. Hope you'll have a good trading day. Good session, and any questions, please do let us know.