Is This The Beginning Of A Stock Market Rout?

Okay, very good morning to you. Wednesday, 2nd of October. Hope you're well. Anthony here at the desk in London. I'm going to have a recap on what you can see to the side of me, of course, which was the main catalyst of the price movement of yesterday's session, creating a fairly significant sell-off in global equity index futures. Asia overnight following suit from the lower close on Wall Street, given the fact that the ISM Manufacturing was such a weak reading that we had yesterday. We're also going to talk a little bit about, well, what does this mean for the US economy? What does it mean for the S&P over the kind of key levels to look out for? I'm going to talk about what does this mean for the implications for the October Fed meeting and the prospects now of a cut happening at the end of the month. I'm also going to talk about Brexit and Boris. It's the final day of the Tory party conference. What are we expecting, given some volatility we had late yesterday afternoon in the pound after some reports about potentially a bit of a breakthrough, a concession coming? And then we're going to have a look at North Korea, some missile tests overnight. Don't worry, the world's not going to end, but definitely I need to point out a few things around that. That you can be aware of, and more importantly, why are they doing that right now? I think it's quite a telling move because obviously, as you will know, it is the 70th anniversary happening at the moment in China, uh, and these things do tend to be very interlinked. We also then recap the API olive entries from last night. What are we looking out for then as the prelude, if you like, and the setup for the DOE's this afternoon? And then I'll recap the calendar and hand you over to Sam. So First off, let's— before I get really stuck into the ISM, let's just have a look at overall general broader market sentiment. And things are relatively flat, but the interesting thing here obviously is that the, the US 10-year, bottom right, remains elevated. You can see here technically it's found some support, bit of a bounce on the early European UK entrance here at 7 AM this morning in the futures. And around those previous highs that we had had over recent sessions. The US 10-year being lifted, of course, as yields plummeted on the back of the weakness of that US data in yesterday's session. And then US index futures remain suppressed, albeit in relatively quiet trade overnight in Asia. Really quite interested to see then how things play out when US comes— or the US participants come back into market in a few hours' time. So importantly, as I said, we've held on to those moves. So gold still up a decent amount post those numbers, albeit it's pared about $8 off the initial high that was seen, uh, in the aftermath of the numbers and around the European cash close. Um, so we trade still, uh, $1,482, which is elevated despite being down about $7 on the session, and we're just finding a bit of near-term support around pivot. But it's the S&P I want to have a look at more closely just for a moment. I know Sam's going to go over this in a lot more detail, but I just wanted to have a look at a few longer-term levels. And this was obviously the, the move yesterday. Why did that happen? So just to recap for any of those who, who weren't fully up to speed, this is the graphic here that I'm showing you of ISM Manufacturing Gauge, which yesterday missed expectations by a large margin. And it was a 10-year low in September. As you can see here, the white line marks then the headline ISM figure. We've just broken below where we were in the beginning of 2016, which puts us back to where we were in June of 2009. Now, actually, what I thought was most interesting looking at this data, not only was the headline weak, but a lot of people look at the constituents that form the ISM Manufacturing Report. And if you actually look at that, this is a graphic now of something a little bit different. So here the red line is the ISM Manufacturing number, um, the PMI Composite Index, but the new export orders, the 3-month lead figure. So this is often seen as a bit of a lead indicator of then future performance. And if you look at new export orders, that is a monumental drop-off, which does not look good at all as far as this data is concerned. That's not for now, that's about the perception of the future. And I think that explains to a large degree why there was such a severe reaction yesterday. Not only was it a decent miss on the headline figure, But the underlying, you know, kind of peel off a few layers and look beneath the bonnet. And actually, there's some really quite nasty parts to this report in terms of its implications of what it's suggesting about the future performance of the US economy. So new export orders absolutely tanked, which would suggest then that this idea of— you remember where we were about 2.5 months ago, everyone was almost panicking about this inversion of the yield curve, but we saw a really decent bounce away from that. Well, do we go back into that phase now? And this certainly would heighten those prospects that economic growth in the US is going to be more, more muted, let's say. The actual Atlanta Fed GDP tracker after this data is now looking at about 1.8% at the moment for the next reading, for the next quarter for US GDP. So that obviously was the, the key thing from yesterday, and it does really highlight the importance that our economic data, and we've got some real big stuff coming up. ADP today, but non-farm payrolls of course on Friday, which is going to really, uh, be interesting now given what's been happening so far with US economic data. So even as I'm speaking, just keeping an eye on the S&P future here, um, we're just having a retest. You can see in the near-term price action of the initial lows that were seen, um, right into the close on Wall— you can see there Wall Street literally closed at the low yesterday, and we're right at that level in the futures at the moment. Now what's very interesting about this is I was looking at the daily continuation chart. Let me just remove this trend line for a moment. Now if you were to go back year to year, how has the S&P 500 performed over the course of, um, where we were on the 2nd, 3rd of October of 2018 to where we are today? Well, this is where we were This is where we are. We are absolutely square at this point. It's quite amazing really to think we've had such a variance in price. We obviously got down towards $2,300, breached $3,000, and here we are right at the exact same point. The interesting thing here, and coming in listening to Bloomberg this morning, obviously it's within their— I guess it's within their agenda to try and push the narrative that, you know, you know, here we go again and the October sell-off. But, you know, interesting, obviously it was what, uh, when that Saudi journalist Khashoggi got killed, was almost like the, the spark that set the, the, the various things that were happening at that present point in time alight. And the market really did sell off aggressively, and that was the commencement of that Q4 kind of correction, if you like, in the markets globally. And when did that happen? Well, happened today. In fact, tomorrow. So yeah, definitely while we're at these real key technical relevant levels, and you can see here another kind of batch of interesting levels at around that point here that we had through the summer, we're right on that at the moment. And that does open up the prospect potentially of a deeper move to the downside. This is looking at a 120 chart. Perhaps that makes it Let's say if I was to, you know, look at this chart, this is the long term, but if I was to zoom in on this area here, that summer movement, well, you can see it here. There's a really a band of support. We've literally just broken that now as I'm speaking. What I'm looking at here is this band. Uh, let me just get a rectangle to make it more easier for you to see. Kind of looking here because that encapsulates then a lot of that price movement that was capping the upside of much of the month of August. And you can see on the eventual breach of that level, a real accelerated move that we had at the beginning of September. If we were to push below this, then technically I don't really see a lot. I mean, I'm not talking maybe so much intraday, but days, week type price movement. Well, really, that 2900 psychological level just below there, 2891.75, which starts to bring in then the lows from late August, September, certainly is on the cards. So, you know, definitely interesting at the moment to see how this shapes up. And certainly I think when the US come in, it's going to be key. I think for this week, if we are going to hit that lower downbound levels in the S&P, then, you know, if nonfarm payrolls comes out, that could be another reason to add momentum to the move. The interesting thing, of course, and the thing to remember and the thing I think is quite surprising about the move yesterday was of course, um, this. Now I know this is linked to trade war, but I think the same is true somewhat to the performance of economic data. But we can also link this into the current status of trade war because obviously they're going to be holding high-level talks recommencing between the US and China next week. Now if the equity market does start to sell off here and we do start to see a meaningful move from around 3,000 down to 2,900, well then you can almost guess what's going to happen. US and China are probably going to meet. We've seen trade talks, if anything, almost break down at the end of last week with some new ways and means of which they're looking to kind of ramp up different ways about capital investment in different firms into different geographic regions and so on, putting limitations on certain things. Well then, you know what's going to happen. The market will sell off, trade fears pick up, economic data weakens. That means that really you get a dual-fold mechanism here, and that is one, you get this idea that there's Trump's potential that he then starts to go, "You know what, I received a beautiful letter from Xi, and we're going to play some golf, and it's going to be great," and then all of a sudden the market will go, "Wow." That's, that's a positive. We've seen this so many times before, and I still find it incredible that the market responds to that because we know that this is kind of a, a cycle that just keeps on repeating itself. But secondly, and almost more importantly, I think, is what are the Fed going to do? And obviously, I would not be surprised at all if Donald Trump today starts tweeting about Jerome Powell saying, look what you've done, equities are selling off, I'm trying to broker a trade deal I'm trying to make America great again and you're not pulling your weight. Now, not that Powell's going to listen to him. Why should he? His job is not to listen to government speakers. His job is to react to the economy. But that latter point is important. If then we start to see a significant weakening in the economy, such as has been evident in recent data highlighted by yesterday, in addition to a continuous equity market sell-off, well then something's got to give and the Fed have got to start committing then to not just a mid-cycle adjustment. We've had 2 rate cuts. Markets were pricing when we were talking on Monday for 1 by the end of the year, and that was not priced for October. At the beginning of this week, literally 2 days ago, federal funds futures for the October 30th Fed meeting, which you're looking at right here, was priced the probability of a 25 basis point rate cut at 40%. That's now gone up to 63.6%. So we've seen a 24% shift up in the prospect of a rate cut happening in basically 4 weeks' time. So this is quite key because one thing that we've obviously seen before is when then people start having this belief that the Fed are going to take more assertive, more proactive measures to counteract any type of downturn. What do equities do? Inevitably, they start to rally again. So as much as we're having a bit of a short-term bit of pressure in the equity market, and I do think that possibly that could continue down to those levels we were just looking at in the S&P, particularly given the importance of this level we're just kind of testing— we've just broken here in the S&P S&P 500. I do think though that ultimately there's an opportunity to buy a dip, but not right now, further down, because then the Fed hand is going to be forced. They're going to have to cut, and potentially then the market, given how much more dovishly priced it normally is to the Fed, will probably be discounting then not just one but another cut in December. And all of this will likely be supportive as in addition to Trump than going through his usual cycle of then talking up a trade deal rather than what's been quite negative at the moment. So a few things for, for thought there for sure. All right, moving off of that, I've got to update you about Boris. So just hopping across the pond back to our own shores, Boris Johnson, uh, to issue an ultimatum as EU balks at his Brexit plan. So So of course, as a reminder, today is the final day. Here's the agenda for the Conservative Party conference in Manchester. So today is Strengthening the Union speech at 10:00, A Woman's Place is in Politics follows that, and then the Prime Minister— excuse me— is scheduled to come onto the stage and deliver his closing speech, which is kind of the real headline piece, if you like, where I can already tell you what he's going to say. He's going to be massively talking up that we have— we need to fulfill the will of the people, we will deliver Brexit. Um, he's been hinting towards a self-imposed deadline of the 10th or 11th of October, I think it is, to really just put the pressure on Europe. Um, now you'll remember there was a high degree of volatility yesterday in the pound. I'm not sure if many of you are around to catch that. It kind of came late afternoon. Let me just repeat to you the comments that came out, uh, and show you the cable chart. So this was it here. So we saw an initial spike higher, and that was that move there. Pretty decent actually. It went from around 122.30, uh, all the way up to 123.75. So strong move. And that came on the back of a Bloomberg source report saying the EU is reportedly ready to consider a time limit on the Irish border backstop, considering a backstop for Northern Ireland only, and reportedly sees possible concessions if the UK accepts the backstop, according to two people familiar with the matter. Now, I think Sam made a really interesting point when that came out, and he was just saying, you know, this is just hot air, and how many times have we heard this before? And then lo and behold, literally within the hour, the EU Commission spokesperson came out and denied the report and said the EU is not considering that option at all. And I think this is one of those things where if you're a retail trader, you can get severely hurt on the back of that type of information, because what can happen is that you come late to a move, you see the pound has seen this really nice top on the upside, you then try and get long, perhaps let's say in this case at the pivot, which was the previous highs, trying to get long. It works for a period of time, but then the denial comes out and you get hit for the best part of 50 pips on an initial spike on the back of the fact that they deny it. And so I do, you know, with, with political information like that, particularly when it's not an official saying it, it's a source report saying it. Remember, when a source speaks, what happens from a news accredited agency point of view, their job is then they try to get official comment, and more often than not, that official comment is no comment, or in this case, they say the opposite, which can cause an aggressive move in the other direction. So just be very careful of that going forward. Now, what are we expecting as the outcome from Boris and these rumors about potential concessions? Well, This was a really great sequence of tweets that I saw, and this is when really you've got to be on top of your Brexit journalists if you're using Twitter. This is Tamara Cohen, and she works as a Sky News political correspondent. Now I thought it was quite interesting as she said, "Despite Johnson's insistence that he wants a deal, sources familiar with the substance of the talks put chances of securing one pretty low." I'm hearing around 10%. Some say it's even lower. Two senior ministers told me yesterday we're not going to get a deal, and I personally think that that is the case. Although Boris has talked about this idea of some kind of time— potentially accepting a time-limited backstop and so on, and checks not off the physical frontier of the border in Northern Ireland, and there's been some talks that potentially the Brexiteer-minded MPs would support a deal similar to May's, given the fact that they would risk losing Brexit altogether. I just think that Europe are not gonna agree to what Boris wants and what Boris is gonna outlay later today. Now, these other tweets that came out from this journalist, she said that Johnson's message, message to Tory activists today is that there are 10 days to make this work. The EU will want a work-through proposal well before the 17th of October. Remember, the 17th and 18th are the European Council summit where they're going to be discussing Brexit ahead of the end-of-the-month deadline. So what Johnson is going to say today is probably going to go down very well with the Conservatives. It's going to go down like a lead balloon when it comes to Europe. And we've already heard that, particularly from Ireland, of course, which are intrinsically linked to this key sticking point on the border issue. But then also other EU officials have already said the same. The final offer, the PM to unveil details of, quote, take it or leave it deal at the party conference and legal texts this afternoon. He will say it's a fair and reasonable compromise to build on, but the details of two borders plan is like to be fiercely opposed by the EU. So once again, things haven't really moved on a lot from Theresa May. We're still stuck on the same issue, and that is the border wall. So I guess if we're going to go back to the pound and talk about this from a trading potential, I see this as a baseline scenario going down the route of quite a rousing no Brexit, credible no deal threat speech from Johnson. I'm sure he'll do a good job of that, and that'll really really rile up the Brexiteers, and the conference might look like it's gone down well, but ultimately I think that this is all political posturing and the EU will not accept his terms, basically. And so therefore I don't really see too much in a way of real reaction here. We kind of know what Boris Johnson is gonna say, so I don't think that him threatening again no deal is going to put immediate downside pressure on the pound. The one thing I would look out for is after he's given his speech, it'd be interesting to see if any European officials comment, and if they do, what is the tone of that response to his proposal that he outlines. So I would say, given he's going to outline some of the legal text around his deal, the next 24 hours you probably will see some sort of meaningful move retesting either a resistance relief rally or the near-term lows on how Europe responds to his deal. And my baseline scenario there is they're not going to like it, we still remain at this current impasse, and it's ongoing at that point. All right, a few other final headlines to show you before Sam jumps on, looks at the charts. I just wanted to quickly mention this. Is this really moving the markets? No. And I wanted to explain why. So North Korea has fired a ballistic missile basically overnight, possibly from a submarine. This comes day before talks between US and Korean officials. Now, if you've been watching the 70th anniversary celebrations in China, you would have seen that they've been absolutely rolling out their military capability to try and really flex the muscles to show what the great nation they are. And these things do tend to be correlated, obviously, although in an indirect sense. North Korea tied to China, and so North Korea doing this at this point in time, I don't think is surprising at all. To give you a bit of background color, since the historic peace agreement brokered by Trump, there's actually been 9 ballistic missile tests conducted by North Korea. So go figure, it's not exactly being peaceful on the peninsula. But the point being is if you look at historical precedents, every time Korean officials about to go into talks with North Korea, or even in fact with China, North Korea tends to conduct these military exercises. It's kind of their way of, of the art of negotiation going into high-level talks. So it's completely not unusual activity and not something that I think you need to be particularly concerned of, albeit whenever this— whenever you hear of this type of thing, obviously when it's happening in real time, you do need to pay attention to where that missile is going, of course. But ultimately, more often than not, um, it's just a, a test and a threatening behavior in that way. One actual thing I just quickly wanted to show you, actually, what I thought was quite interesting, and I, I have mentioned this before to a number of our new interns when I talk to you about geopolitics. And this was an updated graphic that I saw, and I thought it was just really fascinating because if you look back in the, the history of human civilization, and if you then put that together in combination with the long-term objective of China to become the global leading trading partner of the world, then what we've learned from those two things is that you need a sizable army. Now, it's not that these days people go into hand-to-hand combat like we would have done in previous world wars, but having a large army is to facilitate the safe passage of goods through strategic points globally, particularly areas like Straits of Hormuz, for example. But what's been quite interesting here is if you look over the last 10 years, so basically since the financial crisis, Chinese military spending has has increased 83%, whereas the US and United Kingdom both have decreased by 17%. So even though US defense spending— I had the stats here, um, US military spending last year was $649 billion, China is only $250 billion. So the US still is massive compared to everyone else. But the interesting thing here is is as the Chinese economy keeps growing, as they pursue this, uh, this, this, um, general push towards opening up, liberalizing their economy in the way that they, uh, they operate on the global level, their military has to increase, and it's increasing at a rapid pace. So just a quite interesting, from a longer term, bigger macro picture. Final thing, um, looking at oil prices quickly, We did have the API crude oil inventories last night. Um, there's obviously a lot of things going on in the oil market at the moment. On the demand side, this new fear about economic downturn ignited once again from the ISM last night in America. You've then got on the flip side and supply side potential further risk of disruptions from the ongoing tensions in the Persian Gulf. On the actual more short-term mechanics, if you like. The crude number last night, the API's, was a drawdown of just shy of 6 million. That was, um, unanticipated. Analysts were expecting a build of 2.25 million. Cushing was a build of 373,000, gasoline a build of 2.1 million, distillates a draw of 1.7 million. So again, we'll recap these as we go into the release of the DOE's later on in the this afternoon. But when this data came out last night, last night, slight little bump up in price action, kind of drifted up during the overnight Asia-Pacific session. We've just found a little bit of support around the $54 handle, the pivot in the futures this morning. Um, okay, quickly the calendar. What have we got? Uh, UK construction numbers. Uh, last time this came out, I think it was the steepest fall we've seen in UK construction PMI since March 2009. So right in the severity of the financial crisis, unsurprising then to see this number remain in contractionary territory. Even if it comes into the lower bound of the range, I wouldn't really anticipate that it's going to have that much of an influence over the pound, to be honest. The interesting thing this afternoon will be 1:15 ADP. This obviously the prelude to nonfarm payrolls we get on Friday. And just given the context of yesterday's weak economic data, data. We will be watching that with particular interest. The lowest estimate on the street is 100,000, so anything below there could be particularly interesting. And then you've got the oil inventories this afternoon. A couple of speakers: Di Guindos from ECB, one. Fed's Harker, two. Fed's Williams, voter neutral stance, just before 4 PM. And then Boris Johnson, of course, talking at midday. Okay, that's it from me. I'm going to leave you with that. Any questions, feel free to put them in the chat or on the video comment section, and have a good day. Here's Sam.

Yeah, thanks, Ant. I hope everyone is doing well. It seems the markets are red, much like North London last night, as Bayern Munich beat Tottenham 7-0. Yes, 7-0.

2.

I'm sure our head of trading, Piers Curran, who, uh, has just walked in, is, uh, not going to be too happy about that. Anyway, let's have a look at these red markets. Just having a look at the, uh, the S&P, and like Ant was saying, the, the important levels that are, have broken through, uh, are, you know, continuing this morning. And technically, uh, you know, just having a look at the charts, uh, else where I'm just going to bring this in. We're coming to, um, well, let me just clear this up. So that was the area we broke before. The high that we had back on the 30th was also the low of last week. So we've retested that this morning and we're continuing to come down now. And what was the high that we had back on the 3rd of September is the next real key level, which is going to look like it come into play any moment now. 29, 20 26, give or take a point or two. And actually, we've just touched that, uh, to the tick now. So quite a key level, uh, being tested in the S&P. And a breakthrough of their, you know, 2,900, not the furthest move away. Of course, if we have a move like we did yesterday, that could well come into play. So S&P under pressure here. You can see on the longer term and the shorter term chart, you can see just having a little tiny bounce, 3 points or so, from that first test of the level. Of course, keeping an eye on any of the, uh, retracements up to previous lows to act as resistance. But it wouldn't be too surprising to, to hear some, some Trump comments, uh, come out. Other levels on, on the longer term charts that are still quite interesting— that trend line in oil, uh, that we've been talking about this, uh, this week in the briefing. Of course, course that broke through on Monday. We almost came back to, to retest it yesterday, uh, didn't quite make it up to towards the pivot. However, of course, we're still relatively nicely below that area. $53 getting, uh, tested almost, uh, yesterday, which is quite a key level itself in, in the fact that you've got a couple of lows from the 25th of August and the 3rd of September as well there. So underneath that trend line for oil, like we were saying yesterday, got to remain favoring, uh, well, a move to the downside. I would say yesterday with stocks coming down and obviously the dollar weakening, um, gold pushed higher and that $1,492 level that we broke on Monday as well got retested. And what a good opportunity intraday that was to have then short on what was such a good support level to act as resistance. However, if we come up again, especially the way stocks are moving, it wouldn't be too surprising to see maybe a, you know, an attempt of trying to break through that. But certainly your line in the sand for gold, $1,492, that whole area, you can just see the importance of this area going back from the last couple of months. As well. Having a look over at the pound, it's going to be choppy, I think, really go through the next few sessions, you know, more so even maybe today and tomorrow than the last couple. You can see each time we have a spike, uh, we're met with a push lower. So just, you know, just bear that in mind. I would say it hasn't really been the case that you get a push and you get the continuation of that move straight away. So if you aren't involved in the early move of it um, just, uh, just be careful. I would say we are just having a bit of an attempt to recover the morning's losses, and we're coming back up towards the, the pivot previous low of the day. So as an area goes, 123.14 on the futures is somewhere I'd like to keep an eye on. You can see from those highs yesterday as well, we are just, you know, breaking this trend from, uh, those highs. As well. So confirmed break of this and the previous low, then a change in direction isn't out the question. I think trying to trade this purely technically though is going to be pretty tricky, especially the way it has been moving off these comments. However, quite a key zone of resistance we just can't get through at the moment will be the, the high from Friday, Monday, and Tuesday around 1.24. 1.2375. So key resistance zone, uh, that we've been tested, but just above 1.23 at the moment. And those— that trend line and the low of the morning or the Asian session worth keeping an eye on. Euro having a decent afternoon yesterday following that, uh, 10— well, the worst reading for 10 years from that manufacturing release. So the, uh, the euro pushing up, and obviously that's still the, the the low of the, uh, the year. And that's a pretty key point, just a failure to, to confirm that close below, meaning you could argue it's a bit of a triple bottom there. Uh, key level just below where we're trading is pretty much, uh, well, almost the pivot, 3 ticks below, uh, 109.74. I'd have that marked up as a bit of a line in the sand. And then likewise with the pound, from the highs of yesterday today. Probably worth having a bit of a trend on there, uh, for potential, uh, move later on. You've already seen this morning a break of, uh, that pennant to the downside. You can see here just bringing that in. So around 7 o'clock, that move, uh, pushing to the downside. So any retracement up to that area, which would be around 109.90, uh, if that was to come in now, would be a point of interest that I'd have marked up on the chart as well. Having a look over the DAX, which like with the other markets yesterday, other stocks came under pressure. Just bring in this trend line. You can see perhaps was given the, uh, the cue that it was going to happen all day, breaking its trend line around 10:15. Of course, like there was the case last week on the cash open, it in the US, stocks came under pressure. And really, obviously, the 1:30 data was, was the main reason. But also that push following 2:30 to the downside was, was pretty aggressive. The DAX just now hitting that low that we did have on the 25th last week, pretty key point as well. First real test of it. Be interesting to see what happens. Can we get that, that confirmed break below again? I guess the close of the hour will be pretty important. Now you've got about 20 minutes for that. And likewise with the S&P, any retracements back to those lows, uh, that we have broken through, uh, be looking to see whether they hold as resistance or not. The stock's under a bit of pressure coming to, uh, key points. That low of the day in the S&P, obviously that longer-term level, the higher the, the 3rd of September. So that would be a key one for, for the bulls. To hold from a technical point of view, perhaps before 2900 comes into play. But are we now in just a bit of a new, uh, new range, 20-point range? Uh, you can see the importance of that whole, uh, zone, if you like, going back here to the 1st of August as well. But stock's not looking good. Keep an eye on that 1492 for gold. Uh, pound just be be, be careful, I would say. And obviously the dollar, which has been on this 2-year high, perhaps today you could see a continuation of the weakness we saw following those bad numbers. Oil, of course, wait for the data later on for the main move, but as long as it's below that trend line, I think you've got to favor a move to the downside. Hope you all have a good, uh, good trading day, and any questions, please do Let us know.