Italy Pulls The Plug As Elections Loom

OK, very good morning. It is Friday the 9th of August. Hope you are feeling better than I am. Not feeling amazing this morning. And just before you ask, I know it's a Friday, it's not a hangover. Not been feeling great all week, a bit under the weather. So I'm going to keep my part particularly quick, and I'll let Sam come on and he can, uh, talk over the, the markets in more detail. But as you can see to the side of me, uh, some Chinese data overnight. But before we get on to that, let's just have a quick review of the charts and how things reside at the moment. And I was just looking at the S&P 500, and you know, another really strong rally yesterday. I mean, this is a daily continuation chart, but I guess if I put it on a 30-minute I mean, that was effectively yesterday's session, just up and up and up. And kind of like what I was discussing with some of the market speculative positions that we were looking in the futures space about the fact that there's more short outweighing long positions the most in multiple years. And this is the kind of price activity I was kind of referring to, is that when the market does start to ramp up, then, well, then, you know, if everyone's overtly short, then some of those trades have got to buckle and and therefore the price kind of springs up and you get these days where I think the Nasdaq was up over 2%, uh, the other indices a little bit shy of that, but a really strong recovery after what was a, you know, a very aggressive dip that we had at the beginning of the week, of course. So yeah, another case of buying the dip, so to speak, very reminiscent of the price activity we had right at the beginning of June. That actually took us back up to all-time highs, so Are we going to get there again? I guess we've got to wait to see. Certainly not going to happen any time today, but over the course of the next few days, I guess a thing to look out for. So good, good recovery in US equities. But again, underlying it, you would say, are some question marks. But nonetheless, a positive close. The US 10-year pretty flat overall, marginally positive, about 4 ticks. Similar price, dollar gain in gold up about $4. Still holding that $1,500 level. Obviously that's just such a psychological level nowadays, and having broken above $1,500, you can see that really that area of consolidation was the $1,500, broke above there earlier this week, and that was really powerful when it did. Added about a good $23, $24 to the price activity, come back down and just found some support at that, those previous highs, uh, to then move back up again and then playing the range, I guess. Looking at the price activity of what was that initial move this week. We've now kind of defined this range, I guess, to watch for the session ahead between pivot on the downside and the R1 being also the weekly high. Here is the other level to look out for. So other than that, currency markets are pretty quiet. Dollar index is basically flat. And so that's really mimicked in the major currency pairs. European stock indices not really doing anything at all. Uh, there is one particular product that is moving substantially this morning, and that is the Italian BTP, which we're going to have a look at in the next few minutes. First off, let's start with the headlines. So for China, um, well, one thing is overnight in Asia, despite the kind of ramp up on Wall Street, Asia Pacific session was a little bit more, a little bit more downbeat. The White House reported yesterday that they're holding off on a decision about licenses for American companies to restart business with Huawei Technologies. So right back to where we were, it almost feels, a couple of months ago. So renewed trade tensions, of course, just taking some of the steam out of the sail of the— or the wind out of the sail, I should say— of the equity rise on Wall Street. Obviously from China, it's been quite interesting this week. We had some export data we were talking about yesterday that exceeded expectations, and was that a byproduct of the weakening of their currency? But what we've had overnight is inflation readings. So this is PPI in particular, where producer prices in China fall for the first time in 3 years as deflation worries have resurfaced. And obviously this puts added pressure on the idea that perhaps then China needs to step in and start to prop up the market with additional stimulus. Now, slowing demand not only seen at home, just given domestic repercussions that we're having on the trade war, but also from abroad with global growth and consequently demand decreasing, all leading to lower demand essentially, and so therefore decreasing PPI. Chinese manufacturers, so reading some of the articles this morning, they've been cutting prices and that's been effectively squeezing their profit margins. So you can see how the dominoes start to fall, and then this starts to lead to more company defaults, credit spreads start widening in these Chinese firms and XYZ, and the whole thing kind of can blow up quite quickly. The other thing of course is don't forget about raw material prices. Oil obviously has seen a seen a pretty dramatic repricing over the course of the last couple of weeks. And then things like copper as well has been under considerable pressure, so that's also playing a bit of a part as well. CPI— because whenever the PPI data comes out, it comes alongside the CPI data, and the CPI data actually rose 2.8% from a year earlier. So this is the consumer rather than the producer, and that was actually higher than expected, but predominantly based on food inflation The food inflation component accelerated at its fastest pace in basically 7 years. Food price index. So the actual CPI year on year in China was 2.8%, but the food component was up 9.1% year on year. Quite, quite phenomenal. So obviously chiefly led by extreme pricing in pork and other proteins, the prolonged outbreak of African swine fever. And also reportedly dry weather in a lot of fruit-growing regions has led to a big kind of isolated shock to food prices. And therefore, hence, you've got a very clear divergence here, but again, one that's been apparent for the last couple of months. Definitely a story of underlying this trade war is Chinese economic activity from its kind of lifeblood, its manufacturing, is decreasing. Very evident in the PPI. And if that starts to feed through and make consumers unconfident, well, prices are going up, particularly in the food sector. So that's kind of China, that's where we are at the moment. Obviously, usual rules apply. I'd keep an eye out for how did China respond through the proxy of that Chinese state media journalist on Twitter. He tends to have a pattern of tweeting not really at this time, but more so when the US come into market, because ultimately that's who they're trying to convey the message to. So if you are looking at Twitter for any Chinese response, I'd say probably from around 11 AM onwards is when I'd be kind of more vigilant. And then obviously Trump tweeting tends to kick off at around 11:40. This is the big story though, this is the one about Italy, because yesterday Italy's ruling League party, the Deputy Prime Minister Matteo Salvini After spending weeks and weeks saying, "We're gonna work this through, we can work the coalition," he's basically just had enough, thrown in the towel, and declared this government is unworkable. "I want a snap election." Not unusual in Italy. If Tommaso is here, I don't know if he can recall for me how many elections Italy have had in the last several years. Pretty much at least one every other year, I think, pretty much summarizes it. The point being is that they've had a lot of political uncertainty and change over recent times. So seems like we're back into that situation again. A couple points to be aware of though here: Parliament actually in Italy is in recess. So kind of like our own to some degree, the month of August tends to be a holiday shutdown, so to speak, and so all the parliamentary members go away. So actually they're looking to reconvene next week to potentially carry out the next steps. Now how this works in Italy is that the President, Sergio Mattarella, is the only person with the power. So the President of Italy— remember, um, Di Maio is the Prime Minister, the deputy is Salvini, the President is Mattarella— and he's the only one that can dissolve Parliament as far as the Constitution is concerned in Italy. He's probably unwilling to do so because his goal, of course, is trying to appease the European bureaucrats to try and get a budget over the line, which he needs to do preparatory or prep work in September in order to give to them in the coming weeks. Otherwise, they run the risk again of being fined heavily for not, you know, for breaching rules on the debt-to-GDP deficit and so on. So the other thing is there's never been an election— I think I'm right in saying this— in the month of August in the post-war era in Italy. So it'd be particularly unusual. There's there's not a lot of people around. It's not particularly a good time to call an election, people on holiday and so on. So, um, yeah, point being is if you look at the euro, there's really not too much movement. But if you look at Italian assets, yields obviously have spiked aggressively this morning at the reopening of trade. So what I'm looking at here, this is the BTP future And you can see we've had a substantial gap down. Let me transition my screen. So this is the BTP future. You can see yesterday, actually, in fact, well, not yesterday, the day before, we were retesting up at this double top right here, what we had on the 25th. This was on Wednesday. And then, yeah, look at the, the move here, 1.4160 down to a 1.37 handle. You know, that's, that's sizable. So, you know, definitely Concerns are due to return. Italy, it's almost like Italy flares up when we have these types of situation. It jumps up the hierarchy of the most pressing macro factors. And it's not like the Italian situation has ever gone away, it's just that we've been so focused on, you know, the looming deadline for Brexit, the trade war, and so on, you know, and Italy has never really kind of resolved its issues. And So we're back here again. So actually, I'd say updates on Italy now could well have some read across, um, into the general European assets that we're trading. You do now need to keep an eye on this situation going forward. Obviously, technically, you can see there's a little kind of area of support here where the BTP has been trading throughout the month of July, and we've kind of tested that first top end of that that band. Any break of there then certainly starts to open up potentially deeper moves to the downside. So definitely worth keeping an eye on the BTP for a barometer of sentiment, I would say. Dramatic break of those downside levels, acceleration in yields in Italy could well consequently then start to lead to some risk-off trade if that was the case. Okay, other things just to wrap up my part. German exports slumped most in 3 years amid trade uncertainty. I must admit I'm getting a little bit tired of sounding so doom and gloom these days, but unfortunately this is the news, and, and German exports are in fact at their worst in 3 years now. Uh, exports fell an annual 8% in June, imports dropped 4.4%. Uh, really 2 points I want to stress here. One is that yes, this chart looks pretty dramatic. This takes into account basically the financial crisis, where obviously conditions were way worse than they are at the moment. But we're getting right back to that period of— basically, we had a one-off anomaly in the summer of 2016. That was when German exports dramatically dropped after the UK voted to leave the EU in the referendum. Obviously, that very short term created a massive amount of uncertainty because no one really knew or had even contemplated the country voting to leave. So that's what that was. We're kind of coming back down to that extremity and that of the sovereign European crisis that we had in 2012, 2013, when Greece, Ireland, Portugal were getting bailed out. So down here, the point I wanted to make was, A, this isn't really that surprising. We've seen German PMI, the soft-looking forward indicators, have been weakening consistently over the last 12 months. So the fact that this is now translating into the official trade data I don't think to me comes as a surprise at all. And also, if you look at the month-on-month reading for the German export number, it was -0.1%. Expectations were -0.1%. So, you know, as much as dramatic as this headline, headline sounds, this is the importance of your interpretation of the news. This really isn't unexpected. This is just performing to the trend of which we would have thought. And so as such, DAX EUR, Bund, no real movements. Um, final things to talk about, uh, this is very brief. Boris Johnson says there's bags of time left to renegotiate Brexit with the EU. Trying to think how many days it would be to October 31st, but let's say roughly 89, something like that. Um, he's basically playing this game of brinksmanship at the moment. Is he gonna get 83. Sorry, I stand corrected. Thank you, Sam. 83 days until Brexit is delivered by, uh, Sam Norse Boris Johnson. Excuse me. Um, but yeah, he seems to be a game of brinksmanship. No one's really backing down. He's saying he's not willing to talk unless they drop the backstop. Europe's saying that's not going to happen. So at this point, I would say I would anticipate we remain largely at the status quo. Boris continues to say we will not call an election But if you actually read his wording— I was reading one of these articles this morning— he's basically doing a little bit of central banker tactics where he's phrasing it in a way that if he did, then it could be, well, I didn't actually say definitively that we wouldn't have an election. I just said that the people don't really want another election because we had one in 2015, we had a referendum in '16, we had an election in '17, and the people don't deserve deserve this. So what they say, bottom line, politicians, it doesn't mean anything. It can change very rapidly. And secondly, from a market point of view, I really don't think the pound's going to really get that reactive now to what Boris is saying. I think we've kind of priced in the status quo. I actually think it's going to wait until that clock gets down to, say, 30 days, 20 days, then you're going to start seeing the vol kind of return. To sterling. Talking of the pound, later on today we have UK GDP coming out. Um, quite hard to see, I know, but actually there's a little blue box there on the far right. Now this is UK GDP quarter on quarter going back to 2011, so quite a large time frame. And you can see here we've had these little blips, uh, wherein never actually going into a technical recession because we recovered quite sharply here, but 2012, 2013. But we're expecting basically flat growth today after what had been a very surprisingly strong Q1 on the back of this infantry building story ahead of the March deadline. So the range, I would say, is what's important because the media is going to make a massive deal about the fact that UK growth is stagnating. But from a trader's point of view, that really is of zero consequence. Sequence. What the market cares about is, I think, if we had a negative reading. Now, that flat quarter-on-quarter reading, the range here is -0.1% to +0.3%. Now, I'd say you really want to be— we'll be breaking the realm of that expectation. So I think if you get a -0.2%, -0.3%, sure, we start to retest the lows that we that we printed yesterday. If we get a high print, then yeah, subject to some movement to test the top end of the range around the R1, lines up quite nicely with the Wednesday high in the cable chart. That'd be looking for like a 0.4, 0.5 reading. So yeah, just don't get too spooked by the fact that we're not growing the UK. That's not a surprise. Other data points other than that, we've had the German, you've got the IEA monthly report So that's for oil traders coming out at 9. So do be aware of that. Apart from the cluster of growth data, industrial manufacturing output from the UK moving further on this afternoon, you get the PPI numbers, but these are final from the US. So I wouldn't be looking for too much here. If you're trading the loonie, you're in for a volatile afternoon. The currency always very responsive to the employment data and building permits. And then for oil traders, you've got the Baker Hughes rig count later. All right, that is it from me. I wish you a good day ahead and have a fantastic weekend. Thanks very much, guys.

Hi guys, good morning. Uh, have a quick look over, uh, some of the charts. We're just seeing a touch of dollar weakness just come into the euro, which I mean, really, like we were saying yesterday in the briefing, and you can see some of these lines are still on, it's not doing much. So just a few, few attempts at trying to get above the pivot this morning. So worth keeping, obviously, uh, you know, watch on, on that level. But just gonna make this chart smaller. You can see this, the importance of, uh, well, where we haven't actually got down to it today or yesterday, but the, the low that we had back on the 6th was the highs that we had back on the end of the month, uh, previously as well. So, and with a potential trend line coming in the mix there, 112 handle as well, somewhere I would have marked up. And you know, there could be the opportunity above the pivot, or it could be that, uh, you know, the, the short, you know, on the sort of the false break of that level in an area of resistance is, is a trade that you're looking at. But unless we really were to get down to this trend line or up towards the higher points where we, you know, again been squeezed to the downside as well. I wouldn't say there's necessarily the, the greatest trade opportunities. You can see really this market way— well, may well move if we were to really come to those points. If not, I don't think we'll see too much. Uh, yesterday was quite a choppy day. There was a few comments that came out and made a spike higher to only come back lower. Pretty, uh, instantly. And it's the same with the, the pound, really. Um, if I bring in the pound, I know a couple people were short yesterday from the R1, uh, that kind of area. And we also had a, a decent, uh, break of a trend, which we did have the false break previously, but we finally got the, you know, a clean break of that. And it did make its way back down towards, uh, and almost reaching the lower part of the year. to the upside as well, similar to the euro in that you— we were getting squeezed from, from both ways. And while it wasn't the cleanest trade and the volume was, was low, you can see we have broken out of that. However, I would still have the, the top end of that, that trend on, uh, if we were to push higher, uh, you know, following any, uh, of the data that comes out at 9:30. Just keeping a close watch on, on that point. We are, you know, more Uh, shorter term trending lower, got an area of support from yesterday evening, more of a zone I would say from yesterday as well, around 121.48, and then the trend line to the upside. So shorter term keeping a closer eye on that, but it might well be worth waiting for 9:30 and of course seeing where we close the week as well. Having a look over at oil, I'm just going to put this on to the daily chart. Um, let me remove that. And I was just having a look— I put actually on a weekly— and I was just having a look at the, the trend line that had broken from that 2019 high. Let me just bring that on. Well, 2018 low, I should say. I don't know why I said higher. Uh, just having a look back to see what happens, uh, around these levels. They if we were to retrace back. And, you know, that would be, you know, fair whack away, but we know oil can get there, uh, pretty quick sharp. So be keeping a close watch on that. And if we lower that time frame down into a more intraday look, you can just see how well it respected in the sessions leading up to that break that we had overnight on the 6th. That would come in around 54 above the R2. So you would need a pretty big move to get up there. You'd also have to get through the low that we had overnight on the 6th as well before a big breakdown on the, uh, on the 7th in the morning. Um, but you know, certainly medium term would be looking at, at that area as a pretty key point, uh, to have, uh, you know, marked up on the chart. And this trend line from the top would also today come in at the same point. Not saying we're getting there, but if we do, really key to, you know, for the short-term price of oil, what happens around that, that point. To the downside, you've got a nice, uh, area yesterday of support and trend line we just couldn't break through. I'd still have that on. And you can see this on the 15-minute. If I just— that trend line there moving, you can see just how well that was respected. And it might well be come later in the session that will come into play. And again, works the same way as the one to the upside, becomes important. A break below and we can start looking yesterday's lows, or if it holds up towards the, the higher points as well. S&P, worth having a look as we, we come to— well, not just for the S&P, but of course all the markets— we come to the end of the week and, and start looking at, uh, where we're going to finish and how that could impact the coming days or weeks as well. Just above where we were trading yesterday, you can see we have the previous all-time high back on the 1st of May What happened just after the 1st of May? We had some negative trade headlines and then it got better. Um, are we happy? Are we seeing that again but in a lot more quick fashion? You can see how we drifted lower, came back in the same sort of, um, same sort of pace happening again now. Uh, one, uh, level, uh, just to keep an eye on there, that previous high, just because of how well it was respected again before the breakthrough and the retest. And then once we have broken down, so 2961.25, while we're 40 points away from that, obviously a day like yesterday we get there very quickly. Uh, be keeping a close eye on that. And then to the downside, you know, if you want your area to, to be aware of for where we close the week, and you know, could absolutely close within these 50 points, but 2910, uh, which was also, you know, an important point previously, and again before before the, the further breakdown on the 5th, on the Monday, uh, as well, which could act as a bit of support. So 2910 to the downside, 2961 to the upside would be the real key levels that I'd be looking at, uh, going forward. Also, if we drop it down to 60-minute, put the pivots on, you can see how close we are to those points, or far away depending which way you want to look at it. But there's a trend line that I'd like you to have marked up which is starting from some of the highs that we had of this week, and it was just really respected all the way through the sessions before we got that break post-cash open yesterday. So be interesting to see what could happen on a retest of that. And while of course we're about 14 points away from— we're trading— I'm just seeing at the corner of my eye the DAX just printing a low for the session, obviously half hour into that open. Last one of the week, while keeping a, yeah, a watchful eye on, on what the DAX does. But that trend line, certainly something I would have up. Speaking of trend lines, gold broke it finally yesterday. I don't know if anyone was around to take advantage of this. It was just, you know, so, so textbook of gold. And the only, uh, I guess, issue was it didn't happen during European trade, uh, just how many times we tested that trend line. Get the breakthrough, targeting up towards those highs. And again, like the S&P, worth keeping an eye should we have any retracement to see what happens on a retest of that area, which would also be 1,500, which would also be yesterday's low and the high of the morning of Wednesday as well. So those would be the, the main points to keep an eye on. Of course, R1 matches up with the, the multi-year and this year high of gold. So perhaps a new little range coming in. I think you still got to favor the upside for this market, all things considered. But trend line to the downside, S1 1500 looks a really important point. And of course you could always favor the break of the levels to the upside as well for that continuation. Quick look over the DAX, just to reiterate that point that we are just pushing to a low. Just the pivot has broken on the third time of asking. Obviously a retest of that is worth keeping on to the downside. A couple of levels to be aware of from yesterday. Um, while we didn't really move into the back end of the session for the DAX, I'd say that's likely to, to happen again as we just drift into the week closing. Quick overview again of that data, just, uh, from the morning, 8:30 now, really 9:30 with that UK data going to be the main driver before we have the US numbers into the afternoon with the Canadian employment data set as well. No speakers of note, but obviously Trump is more than likely to be on the wires, tweeting a fair bit yesterday as well. Any questions, please do let us know. And for everyone who I imagine is very worried about Anthony, I will be looking after him today. Making sure he gets through okay. But I hope you all have a great, great day and even better weekend. The football is back. Arsenal have signed very well. Dare I say, we're getting that, that top 4 again.