Italian Crisis Averted For Now

Okay, very good morning everyone. It's Wednesday, 21st of August. Um, before actually I go on to introduce what we're going to cover, just going to quickly transition over to the charts. A little bit of an uptick just as I was about to press the start button in the European and US equity futures. Typically when I see a move like that, I do like to just quickly pop it on a 1-minute to see the kind of composition of how the candlesticks are forming on a very short-term basis, because that's quite telling to whether or not this is a news-based kind of move, like a headline catalyst. And perhaps there's a tweet somewhere or headlines come out, but just looking at this price movement here, it looks a little bit more gradual than what you would normally see if there was just a one-and-done explosive headline reaction, which of course would be much more, uh, the first candlestick just exploding higher, which this is more of a bid coming in. So yeah, it doesn't look like it's anything fundamental-based, um, break above pivot perhaps. And if you look at the S&P here on the right, that's also just broken above its Asia-Pacific session high, which was also the pivot level. So maybe it's just a coordinated break of some technical levels overall. And from a news perspective this morning, things are relatively quiet. There's not really a great deal going on. And perhaps then just the technical breach, enough of a cue to see a little bit of a push on higher. Consequently, a bit of mild risk on actually with the stock move. Gold a little lower, just coming in within close proximity of its S1. We're down around $7 at the moment. And then the bottom chart here is the US 10-year. That's also been drifting south as well. We're now trading down about 8 ticks this morning. So yeah, interesting in the fixed income space. Of course, after everyone was panicking about this kind of recessionary threat and the inversion of the yield curve, well, everything's kind of flipped back over the last day or two. And so definitely alleviating some of those near-term fears that were definitely kind of growing from last week. So perhaps a little bit of renewed, not risk on so much, but if anything, maybe a bit of almost profit taking on that, that kind of negative buildup in those shorts. And so a bit of reversal on that move, yields back a little higher. Dollar, although it did move lower yesterday afternoon, generally speaking, is still trading up at you know, close to these multi-month highs as we were discussing yesterday, um, as the trade talks kind of go into renewed phase of being a little bit more positive perhaps. So yeah, interesting start to the morning, but again, just to reaffirm, not based on one singular headline, so to speak, just generally a little bit more upbeat on the sentiment to get things underway. Um, going into the news then, I'm going to discuss a couple of things, then I'll hand you over Sam on the technical basis. As a final reminder, both Sam and I will be going live on YouTube this evening at 6 PM London time. All you need to do is click subscribe on our YouTube channel, hit the bell icon, which will then turn on the notifications and you'll be alerted on your phone or your desktop and so on as soon as we go live. The format of that is going to be— I'm going to cover a little bit about this inversion of the yield curve, what my expectations are, not only what does it mean, but what do I think going forward in the timings of what could happen next, because I've had quite a lot of questions on that. So we'll kick off on that, and then we're going to take questions basically from our subscribers. So anything you want to talk about, we're going to hopefully try to address and answer. And then what's going to be pretty cool is we're going to end the session with the FOMC minutes, so we're going to cover that as well. live as it happens, and I'll give you a bit of a short preview as well ahead of that. So without further ado, let's go into some of the headlines. This was a very interesting one I saw yesterday, and this came out of JP Morgan's head of macro quantitative and derivatives research. He is a fairly famous fellow in the marketplace, but he was talking about quite an interesting piece of analysis that he's done where he said, quote, portfolio rebalancing could drive equities up as much as 2% by the end of this month. So he said that after Treasuries rose and the S&P 500 index fell for 3 consecutive weeks, the divergence has left fixed portfolios 2% underweight stocks, essentially. So this isn't to do with underlying fundamentals and the fact that, you corporates are becoming more positive or anything like that. This is purely to do with funds looking to rebalance what has been a lot of downside in the equity space, which has basically left them underweight stocks. And as we get into the end of the month, they need to rebalance, so they need to buy back, back to their original kind of composition of what was the structure of the portfolio in the first place. So more of a function of the latter means that potentially what he's suggesting is that we could see some decent upside, um, in the equity space. I mean, actually, rather than look at it technically, what's 2% look like in the S&P 500? Well, let's just have a quick look of what that would look like from the current price. Uh, let me just try and stretch my chart out a bit more. 2% puts us back up at basically 2,900. Pretty much bang on if you were looking at the current price movement. So that would put us back above the, the kind of area of resistance that we had. You can see here, let me just make this a bit bigger, in the S&P 500, uh, over the course of really August for the best part. That would put us back up towards— let me just again stretch this chart out a bit more— uh, 2900. Obviously quite an interesting level as we get up to that mark a bit higher. Well, excuse me, not 2900. Let me correct myself. That would be the increment dollar gain from a nominal value if you were trading futures contracts of your, your profit. The actual value in the index would be 2969.75 if that was a 2% gain from the current price of where we are. So having a look at that again, 2969 puts us in sight as well of some, some some fairly interesting technical points of interest. So, you know, will this play out? Well, this is just one guy's expectation. Sorry, Mike's just reminded me of my switch over my chart. So here we are. So this is where we are at the moment, just to recap again. And a 2% appreciation of the S&P would put us up at around this level here on the right-hand side, 2969.75. That would take out that area, the double top of the resistance that we've had from the 8th and the 13th of August, and push us back up towards an area that does look quite technically relevant from a resistance point of view, having been pretty firm support in the previous setup through the month of July as well. So yeah, it'd be interesting to see. Definitely we tend to see this. I mean, if we look on the daily, obviously on the S&P It's not uncommon to have these big kind of shakeouts in the market, only then to rally back particularly aggressive in the, in the second phase. I mean, we had that back in the beginning, February of 2018. We had that massive Q4 rout and then the best S&P rally in 31 years in Q1. Now we've had this latest kind of pullback over the course of since late July. And we've managed to already claw some of that back, about 50% of the overall move. But, um, you know, some further upside here I don't think could be ruled out entirely. I don't think it'd be that surprising, to be honest. Near-term area of interest, probably on any further continuation to the upside, looking on the daily here, that I would be looking at is probably two real levels. And really that forms around a band of price action at 944.61. That starts to encapsulate then, uh, some of these levels from the peak of interest that we had in May, that high previous all-time high in SEP October of 2018. Then you can see here that was quite a key level as well, not just resistance but a platform of support for the eventual push-up to the record highs that we had only a couple of weeks ago, in fact. So yeah, Interesting analysis and one that I'm sure will make the bulls happy, but let's see. Timing-wise, obviously it's the 21st, so you've only got really a week and a half for this guy's prediction to come to fruition. So let's see if he— we'll revisit this in a couple of days and see how that's playing out. This was another thing I just wanted to share. This— I know the graphic is a bit squashed, but this is a look at the activity of Trump, the US president, tweeting on the Fed and Fed policies. So no surprise at all to see this little period here in Q4 of 2018 of— you can see it's beginning to tweet about the Fed and its policies and then ramping it up, almost doubling of the volume of tweets over that period. If you remember, if I was to map a chart of the S&P 500 the S&P 500, if you follow my mouse, was basically going like this, heading south. So the more south it goes, the more pressure he puts on the Fed. Then we had a fairly consistent pattern through March, April, May, June, but then more recently, really since the official campaigning for 2020 has commenced, he's really ramped it up. And certainly since the Fed now have begun to cut Whether or not this is a mid-cycle adjustment, yet to be seen, but you can see that it's gone up sharply. And as I've said before, I would very much continue to foresee this to be the case. Now, on the back of this, the other interesting graphic that I saw was one out of Bank of America, and they were talking about this idea that the Fed is unintentionally underwriting the trade war. And what they're talking about is this adverse feedback loop between the Fed and trade policy. So, you know, it's pretty self-explanatory, but this is an interesting kind of way of just really shorthand summarizing what's going on at the moment, which is that, um, the more tariffs that are put into place, whether between the US and China or the US just generally globally, given its protectionist stance, equates to a weaker economy, and therefore as a net response, markets start to weaken, equity starts to fall, and so on. What does that prompt if aggressive enough in its weakness? Well, then the Fed has to change course and take action and ease monetary policy. As a net result of that, then what happens is by creating more stimulus, having a lower lending environment by cutting rates or restarting quantitative easing Confidence picks up, economy then starts to respond, and market strengthens as a result of Fed action. But the more the economy strengthens, then that gives more room for Trump to then enact further tariffs to keep the pressure on to get more concession from his opposition in regards to the trade negotiations. And then the whole thing repeats itself. So again, it's, it's quite an interesting thing here. And it does again go back to this idea that it definitely plays into the hands of the president, this kind of win-win scenario where that passing of accountability of a lack of Fed action then can be blamed squarely at the, at the hands of Jerome Powell and his colleagues. But then if they respond, it gives Trump more room to then enact more aggressively on trying to appear being more strong domestically on his negotiations on the foreign front. So quite, quite a nice simple way of just looking at what's going on at the moment. And really, I think what plays true as to why Trump is pretty much locked in to win 2020, all else remaining equal, up to this point in about 18 months' time. Moving away from that, the other big thing, the other big news in Italy is that Tommaso's got his hair cut for the first time in a number of months. He's gone from rural, let's say, rustic Italian freestyle hair, and he's now— I reckon he's lining up the position, he's going to put his application in for the PM role in Italy. And this is the, this is the reason why the Italian president obviously ready to give Salvini rivals time to seal a deal. And this comes after the PM Conte resigned yesterday in protest basically of the, the fact that he very much was critical of Salvini breaking up the existing coalition between the League and the Five Star. Timing-wise then, what have you got to be aware of? Well, the Italian President Mattarella begins intensive talks with political leaders today to determine whether a new ruling coalition is viable or the country must hold fresh elections. Now, what was quite interesting yesterday was you almost had quite a counterintuitive move to what you think might have happened, which was actually Italian yields fell. The thinking here being that Well, actually, this is going to delay the prospects of any type of snap election. And so therefore, consequently, BTP's actually rallied. So this is what I'm looking at here is the BTP that did hit a bit of a near-term point of resistance from a high that we printed back on the 15th earlier this month. We tested that yesterday afternoon. We've had a look at it this morning before then, a rejection and a decent push back to the downside. in the BTP. Um, a few other things then to look out for in regards to Italy. Consultations with the Italian President, uh, Mattarella, will start at 3 PM London time, so 4 PM local time in Rome. So if you were anticipating any further updates to do with Italy, most likely that's going to start coming late afternoon from a UK time perspective. The other thing, sticking with European politics, we know that the G7 is happening in Biarritz in France at the weekend, kicks off on Friday, and I think it goes through the weekend. But ahead of that, Boris Johnson, the UK Prime Minister, is doing a bit of a European roadshow. And obviously this is the first time he's really getting out and about in mainland Europe, which is obviously critical for him trying to garner some kind of support around attempting to get a new concession from Europe about striking some kind of Brexit deal ahead of his threat of that no-deal scenario on October 31st. So Boris is looking to meet Angela Merkel today, and then he's going to meet with French President Macron on Thursday before then heading to the G7 meeting. Meeting. Now what's really interesting here, of course, is that if you think about Europe, you know, let's step away from Britain and Brexit for a second. Let's think about the eurozone. The eurozone is under quite incredible economic pressure at the moment, none other so than Germany, which has been seeing quite a severe contraction in its manufacturing sector, very much evident in the PMI data, uh, kind of suppressed readings in a lot of the soft indicators like iPhone, ZEW, hitting multi-year lows. And this is very telling because Germany is not just subject to risk from a fallout of a messy Brexit, but also of course from being targeted, as they have done, from the Trump administration. Now what's interesting then with these major European officials is that if they push back too much against Boris, well then what could happen is that that could form an even tighter relationship between between Boris and Trump. Trump, of which, has already been quite an ardent backer of Boris's stance of playing into that same narrative of kind of taking back control and your sovereignty, and very much the similar type of rhetoric that Trump has been pushing at home. So the interesting thing here is that Merkel and Macron are two of the staples of obviously European ideology and being of the largest economies have the highest political influence over potentially shaping a Brexit deal with the UK. Can they maintain that firm stance though and not be bullied by the kind of Boris bluff, if you like, if that is the case? Because the risk for them is that not only are they in a politically weak situation in the eurozone, is that they could then form a will distance themselves even further from Trump. And a forming of a very strong alliance between Trump and Boris would be the last thing that Europe would want. And hence the reason why Boris has been playing up to this, and Trump has been tweeting in the last couple of days how he's had some great conversations with the Prime Minister. All of these types of things are all definitely playing into the hands of Boris to go in pretty strong with a kind of looming threat threat for these negotiations, which I'm sure he'll be having with his European partners at the weekend. So yeah, we'll be interested to see the outcome of this. Obviously, from these three, I'd say Salvini definitely much more trying to align himself with Trump, given his more kind of natural nationalistic views that he has in the way he wants to govern. So he definitely is the outlier of the three. Merkel very much, just given the sensitivity to the German economy, more open to striking some kind of compromise and deal. Macron's the kind of Mr. Europe and the biggest kind of block, I guess, to that happening. So maybe perhaps the Thursday conversation between the UK Prime Minister and the French President will be particularly of interest for markets. Final thing to talk about is we had the API crude oil inventories last night. To start off, let's just have a quick look at the, the crude chart. I mean, this was a, uh, a chart that I was looking at yesterday because we'd drawn up quite a distinctive trend line from the price activity. You can see highlighted from the ellipse here, from the low point printed down at around a 50.50 price point on the 7th, retested multiple times. We got to that point, had almost like a false breakout and a rundown to what was the S1 on yesterday's daily pivots before then launching back higher. And then, uh, consequently the other trend line coming from some further back price action on the upside, just containing as well as the previous highs you can see here from the price action over the course of the last 48 hours. So quite a nice technical setup in oil. Um, when it comes to the API inventory reaction, as you can see, it was basically zero. Market didn't really react at at all. The numbers, so you are aware, was a crude drawdown of 3.45 million, which was a deeper draw than expected. Cushing, a draw of 2.8 million, the biggest draw since Feb of 2018. Gasoline draw 400,000, distillate build 1.8 million. But rather than dwell on, uh, infantry situation, I mean, the chart really says it all. It didn't really move on the data, and it's similar with the DOE's that we'll get later on this afternoon. As much as they can move the market, and WTI is sensitive in the intraday environment to that release, I think the bigger play in town is still a demand story emanating out of the trade talks and this overall perception of global growth or recession fears that have come from this new obsession with the yield curve. So I don't really see that being a game changer. The only time that that could really take hold is if then— if I extend this trend line out a little further, if we were to get a break upon that, then what I'd be doing is then at that point, if we were to get a bearish report, big builds across the board, then just looking to target down at these previous areas of kind of relative significance. Um, as you can see, following the trend lower would be the approach. All right, that is it though from me. I'm going to hand you over to Sam. Um, so let me just switch over my charts, and then hopefully, if I don't see in the chat room on Trading Live, I'll see you on YouTube later on this evening, uh, for the event. Thanks very much.

Thanks, Ant. And, uh, yeah, might as well start talking, uh, about oil here with the, uh, the trend line getting squeezed in from the downside held well yesterday, and we're already back up towards that higher point. And just to put this onto the daily as well, should that load up, you can see we've, we've got that really strong test happening now of this, this trend that's starting back on the, the 15th of July. So certainly where we finished the, the day and the weeks on on this trend line will be massively important. I'm just going to move this trend line down to where it would be, and you can see just really held up nicely yesterday morning, uh, the last test before that on the 13th, and a decent push from yesterday's S1, that trend line, up towards 56.5 where we're trading now. So if you're, you know, probably with the data out later, there's no harm in sort of waiting for that, but Certainly if we can get a close above there, could well see a further push higher. To the downside, same as yesterday, really just focusing on, on can you get a close of, of that, uh, that trend line. And below there will be obviously the main thing to focus on for the day and session ahead. The euro relatively flat for, for the day now, just having a little bit of a, uh, go at trying to claw back the, the pivot after breaking through, uh, that area where we found support, pretty much the high of yesterday. We eventually got through there late into the session, um, and it still remains. And I'm just putting this on that longer time frame. You can just see near those lows, and it's starting to do what it did, uh, a couple of— well, I guess you could say, yeah, a couple of weeks ago. We're just almost making a new range and Uh, you can see there, then we have that push down and we're looking like we're just about to do the same kind of thing. So especially with the, the minutes later, um, which, you know, eyes will be on, no harm in again for this just being a bit patient until maybe we come into the afternoon and evening before really getting too involved. Certainly to the upside, I would be focusing on, on, on any of those breakdown points should we, we break above this range, which I would say say now comes in and just put this on to 60-minute, you can see the R1 and the higher point from Friday, uh, Friday from— sorry, the 19th. Monday is, is pretty much bang in line, and the double bottom from, uh, Friday and yesterday as well for the lower part of that range. So just keeping an eye on that. Yes, the pivot is, is pretty important, and, and this area is such— 1111 has been, you know, influential for really going back to the 16th and then the 9th, the morning of the, the Monday, high of yesterday morning before we broke through, and then finding support now. So it's a key midpoint, uh, and I'd almost put it down to that level. Today's our one with the top end of that range and that double bottom, waiting for, for price to come to those. Looking back at the similar price action, you can see from that week where we were stuck in it from the 6th to when we finally broke through 8 days later. on the 14th. So for euro, those would be the levels I'd focus on. The pound had a bit of a push in it yesterday before just drifting lower, and we're continuing to do that now below the pivot. Um, for both the euro and the pound, they were coming to that lower point of those, those trends, and we, we got a decent enough breakthrough, and then obviously the S1 came in. The story about Merkel really ignited price to the top end of its range. However, we have come back down since. I still have that trend line on from yesterday despite what looks now like a bit of a false break. It was respected well before and then after on the breakthrough, so I'd still have that on as a, as a pretty key level. And likewise to the upside, if we can get back above that range, today's R1 and the high of the 6th looks pretty important. The pivot obviously is an area to focus on. But should we get back down to— back up, I should say— to any of those previous lows around 121.69, uh, I also quite like the look of that. Intraday levels, you can see 28 and 19, we had some good resistance/support yesterday, so they would be important before we got down to that trend line. Uh, quick look over at gold, which Uh, with equities having just pushed higher and reaching their highs of the day in the States, you've got gold coming under pressure and finally breaking through $1,511.50, which held so well yesterday. And then, uh, 6 AM before that breakdown, you can see, uh, S1 providing a bit of support. Key level below there, the double bottom from yesterday and Monday, also in the picture. And then the double top as well. So similar to the euro in that you're perhaps getting this new range coming in that you would like to, to be focused on as well for, for gold. And again, with the Fed minutes later, no harm in just sort of being a bit patient today as the market will of course be, be waiting around for that as well. The S&P, as mentioned, as, as did push higher, and the NASDAQ actually is the one that has really pushed on, already reaching that R1. The Dow Jones and the S&P much more relaxed in terms of not quite making, uh, that, that level. The S&P— just putting this onto that daily chart— and we talked in the briefing about the, the trend line yesterday. Let's bring this in now. Let's have that drawn on. You can see just how well that was respected, and we were talking about as well, how, how it was so similar to October, November, December last year. Not saying that's the high, but it's very important to keep an eye on what happens around that trend line. Certainly should we get up there again, uh, bulls and bears will want to be protecting— or the bears protecting the bulls, looking to, to get through that. So intraday, where's that trend line looking like it's going to come in? If we were to come up now, anywhere between, I guess, 29, 28, and 30 would be the level of interest. And that for me is the, the key level for the week really. To the downside, if we were to get another push below 2900, obviously the low of the day, which was the high we had back on the, the afternoon of Friday, so that's pretty important. And also back down towards 2878 is pretty key from a price action point of view. But for me, all about that trend line, and certainly the way that the market started to today looks pretty strong. Euro Stoxx and DAX already above their— well, Euro Stoxx above the R1 and the DAX just testing that now. And that key level in the DAX from yesterday's high and also Monday's high, so that high of the week being tested a couple of times. Can we get a third test of that? And again, just like a couple of these other markets, we're in this little range, aren't we, where you've got a clear defined double bottom and double top. Euro, gold, the DAX, all very similar. Trend lines important, S&P and oil, and they are not too far away from, from being tested. Obviously some interesting, uh, could be an interesting evening depending on, on what comes out. T-notes also down with gold and the Bund following suit there as well. Any questions, as usual, please, uh, do let us know. I'm looking forward to catching up with you all guys later on, on YouTube. So please do make sure you, you join in. I hope you'll have a good, good morning and catch you later on.