Latest Update On Brexit & 3 Things To Look Out For Next

Okay, very good morning to you. It is Tuesday the 8th of December. Hope you're doing well. A quick run through then of the news to get you up and running for the European session and the day ahead, starting off with the overall cross-asset class view. And starting from a chronological perspective, overnight on Wall Street we closed with slightly mixed performance on the major 3 indices. The Nasdaq was up about 0.5%, Dow down about 0.5%, the S&P lower by around 0.2%. The Nasdaq 100 closed higher actually for its 9th straight session. What could possibly go wrong from here, I hear you say? But, um, we'll talk about equities and, uh, and a few things to consider as we go through the briefing. Otherwise, in the Asia-Pacific session Uh, not too much to speak of, certainly at least from a headline news perspective. Equities from South Korea to Hong Kong generally lower, elsewhere pretty much unchanged. Japanese shares pared earlier losses given the fact that Japanese PM came out and unveiled the latest round of stimulus to the tune of just shy of $400 billion, uh, US dollars, helping just sentiment there domestically in the overnight session. Nothing too much though in terms of read across into the European open where Equity index futures are seeing very moderately lower, um, the DAX down about 20 points at the moment. You can see in the center left chart here, um, and then elsewhere in the currency markets, the dollar's up about 0.1%, so weighing just a touch, uh, only to a very minor degree on the major currency pairs. Uh, just keeping an eye on the overnight Asia-Pacific low here, top left in the EURUSD pair in cable. We'll get into that in a moment. Obviously lots of Brexit headlines to update you on and, and, and a phenomenal recovery actually after the initial dip. And I'll give you my thoughts on that in a minute. And then elsewhere, gold. I know Sam was talking about this a lot yesterday to some of the guys on the pro training program about how much more bullish he feels now technically having got through that area at around 1843.48. Which was that kind of band that we had marked up yesterday's briefing, which was a key area of support both in September, November, and consequently saw an aggressive breakdown in price, um, only a matter of, what, 3 weeks ago. And now here we are back above that key area and, and feeling quite bullish now medium term that this will provide now these lows that we've seen in the end of November, the lowest lows for a considerable period of time and in at least his point of view from a technical perspective. Otherwise, in oil, it's been drifting a little lower in oil. Um, I wouldn't say it's that dramatic a move. Obviously, still now the supply side is kind of sorted with that OPEC 500K agreed last week. It's now more about the demand picture and obviously monitoring things like the COVID situation as it is evolving in both mainland Europe and the US, of which we're going to run through some some updates on the restrictions, which obviously has a tangible impact on economic kind of performance and subsequent demand for things like oil. So let's get straight to it and let's talk about Brexit first, because there was obviously this telephone call that was happening between UK Prime Minister and the European Commission President von der Leyen. And yesterday, what the conclusion of that was is that Johnson is going to head to Brussels for urgent talks. There has not yet been a definitive date and time set as yet, but it's going to happen in the coming days. So something to just keep an eye out for. And this comes as growing fears that both sides have failed yet to really smooth over those differences on still the three main sticking points. And if you're in the Discord Amplify Live chat, I did share a nice little summary document that the FT put out an explainer on those 3 key sticking points last night, so do check that out if it's a little bit unsure about the level playing field, fisheries, and so on and so forth. The 2 teams are said to be still quite far apart in terms of negotiation process, and apparently there are, quote, significant differences on the 3 key areas. While EU officials have said Chief Negotiator Barnier believes Wednesday to be the cutoff reaching a deal, some diplomats raised the prospect of a discussion at a summit of the bloc's 27 leaders that starts on Thursday. So here then lies your, your timeline. A couple things I suggest that you need to look out for, be mindful of, is looking out for the actual meeting then when Johnson's going to head to Brussels. Also, to looking out for any conversations, probably by telephone, that Johnson will look to reach out to the likes of Angela Merkel of Germany and Macron of France, particularly the latter, given that they've been the ones who've been spearheading the kind of resistance against doing too many compromises for the UK. So that'd be 2. And then 3, the other third point I think to be aware of is the fact that yesterday I think you saw a bit of a capitulation in the price because of a self-imposed almost artificial deadline that was pinned as Monday. So the market expects Monday, um, and therefore the failure to deliver caused that initial sell-off, albeit then the rational minds returned that, well, look, the actual prospect of a deal getting done probably hasn't really greatly changed here because, as we know, this is political kind of nuances and posturing in order to create the type of deal and the domestic narratives that they can sell to the electorate, that they've won in some kind of sense. But the idea being here now is that if they're talking about Wednesday, that's certainly what Barnier was referring to yesterday. I think then that that means that today you're just going to be aware that perhaps then sensitivity that we saw yesterday is going to be much more reduced and then probably will intensify and pick up any potential moves on Wednesday going into Thursday when the, the bloc's 27 leaders meet. So be mindful then, the market will be looking for developments at around these known quantifiable time frames. So today's not one of those. There's nothing really happening today, albeit we're looking out for these top-level state conversations that might emerge. Wednesday is now the next kind of, uh, next deadline. But again, these are moving goalposts. There's As I've said many times before, I don't think Wednesday necessarily is going to be a day that the deal gets done. I don't particularly think Thursday is going to be the day that the deal gets done. I think we've got a little bit left time on the clock to run, and I think just general negotiation tactics will see to it that we'll probably go beyond this week once again at this point in time. Um, a couple of other things to be aware of. Lawmakers, you probably would have read, in the House of Commons voted by a wide majority in a series of votes late yesterday evening. to back the contentious clauses in the Internal Market Bill. Now I must stress that these were expected. So if you remember, the lower house put them in, the House of Lords took them out, the lower house have put them back in again. So this is part of the, again, the nuance of kind of British Parliament. It can ping pong back between the lower and upper house of Parliament. Um, but generally speaking, what does this really mean? And I don't really think it means anything. I don't think it's something that you need to factor in right now, at least for any intraday short-term kind of sterling strategies that you might be contemplating. But basically, I just think it's a bit of a moot point. It's something where it's there as a backstop kind of trigger piece of legislation should it be warranted necessary. And if anything, Boris Johnson was pretty clear yesterday to say that, look, 'Actually, we're willing to drop that if we can get to some kind of deal.' So it's being used as a bit of bargaining chip at the moment. So I wouldn't expect the House of Commons to have done anything else at this point because there is no deal as yet. And so as long as that remains the case, I'd expect them to kind of kick this legislation around in Parliament until then it can be used to secure at least partly a little bit of a compromise on a deal that we do anticipate to come in the coming weeks. So that's the latest kind of Brexit situation. This was one thing I just wanted to quickly show, and this was looking at a survey done by Reuters yesterday, and it was looking at 3 distinct periods of time of when Reuters have conducted a survey across the same banks, asking them basically what is the percentage likelihood that you see of a no deal? And they asked this in June, the blue, September, the red, um, and December, the green. Now the most pessimistic bank here is Commerzbank, and they're looking at the chance of a no deal at the moment of 50-50. But if you look at everyone else, the odds of a deal being secured as far as the view now at these banks comparative to just 3 months ago in September is decreased at ING. They now see a no deal at only 40%. It's decreased substantially at SocGen from 80% to 30%. Rabobank sees 30%. Standard Chartered the same. Berenberg just 25%. Um, I, I agree. I kind of think that at this point in time, any weakness in sterling is not so much pricing in, um, that no deal necessarily is going to happen. It's just that no deal has gone from quite a low probability-based to something more tangible, like 25-30% in my mind, and probably will gradually rise the closer that timeline gets to the 31st. If a deal is not struck, markets will need to position a little bit more for that potential outcome. But I don't see it going over 50% because I think at the end of the day a deal will get done. And I think that largely explains then a lot of the rationale behind the sterling price movement from yesterday. I mean, here it was. It took a little while to really wind up because a lot of those developments were really known over the weekend, but it took until European participants came in and Sterling really got whacked in the morning pretty quickly as it dropped through some technical levels. Quite a bit of momentum coming through the market. But if you actually look, by the time we got to really, um, 7 PM yesterday evening London time, we had reversed the entire drop and You know, looking at sterling currency here, that 134, um, I just bumped the chart up a little bit. You can see it's, it's quite a key technical area. The market has responded to this, um, from a resistance point of view through much of— I mean, on the far left-hand side here, this is going back to November 23rd, resistance on the 25th, 27th, 30th, briefly broke through, and then we had to move higher and support on the 4th. And then the breakdown that we had yesterday in recovery. So that is quite an important technical area to keep an eye on going forward. So after the drop, we've hit that point and just drifted back down and we remain in slight negative territory this morning. So all in all, as I said, with those 3 major points to look out for, the other thing here is about then just a bit of calmness, rational approach to look, yesterday was yesterday, today's a new day. And actually the next kind of self-imposed deadline is not until tomorrow. So I'm not actually looking for too much in the way of a grand big breakout movement today specifically for sterling. So worth perhaps reining in a little bit of any pen— built-in or pent-up frustrations if you missed out on some of yesterday's moves. A few other things I want to talk about, and that is an update on the European, UK, and US COVID situations. And so this is looking at France, and the reason why I'm just pointing this out is because obviously we're trying to, uh, factor in how the euro might perform. There's key things happening at the moment in the context of the euro has been predominantly very high given the breakout above 1.20 last week and the fairly persistent weakness in the dollar. What can the ECB do on Thursday given the easing in form of increasing the PEP by 500 billion, extending it out towards the year end, is all very much priced in. So I guess the only thing that can really, in my mind, from a more immediate sense, that could weaken the euro a little bit, albeit it needs to be taken in granted from the same context with the dollar implications of restrictions, is how quickly Europe can come out of lockdown. And this was something out of France that came in yesterday. They're poised to miss their own coronavirus goal. Set by President Macron as a condition for lifting the country's lockdown, which was supposed to happen on December 15th. So next week, daily new COVID-19 cases are holding at more than twice the targeted level. So if you remember, we've seen the same in Germany already. They've kind of just kept the same level of restrictions and extended it out. And we're likely to see that as well happening in France. And obviously, the more onerous, the more stringent these restrictions, the longer they're in place, the more it impedes generally than economic recovery and activity and confidence to a certain respect. So perhaps then this a bit of a short-term saving grace for any of those people fearing about continuous concerns of a euro appreciation. Perhaps this takes a little bit of the, the sting out of that recent move. The other thing though is then looking at— well, before I go on to this headline about the US, a quick comment here about vaccines, sticking with the European-UK picture. The UK Vaccine Task Force has acknowledged, acknowledged that only 4 million doses of the Astra Oxford Uni COVID-19 vaccine will be delivered this year. 4 million. That was against their projected production of 30 million by year-end that they had initially set out. That was due to manufacturing delays, is what they're touting. So remember, we had Pfizer just the other day, they basically knocked their forecast in half from 100 to 50 million. Now AstraZeneca are saying they're going to do 4 instead of 30 million. So I don't think this is necessarily a, you know, a sell signal as far as today is concerned, but I do you know, go into some of the conversations we've been talking about in these briefings for a while, which is, you know, getting a vaccine, getting it approved is two early parts of the process. The manufacturing and then its distribution, perhaps logistically the two biggest challenge yet in a practical sense to come. And so, you know, I think it's just a bit of a reality check about what a long period we're in for, for the actual rollout, um, and the upscaling, if you like, of the vaccine to be manufactured and distributed going forward. Moving over though to the US, let's talk about what's going on there. And certainly things are looking fairly precarious at the moment. I mean, we looked at this yesterday, just a bit of an update. The US is now averaging about as many deaths per day from COVID-19 as they were in April. And several large states— California, New York, Pennsylvania— are facing alarming upward momentum at the moment in hospitalizations. Um, Anthony Fauci, the government's top infectious disease expert— probably familiar with his name by now— he warned that Christmas season could be worse than Thanksgiving for spreading the disease. And at this point in time, then what that's leading to is the likes of the New York Governor Cuomo said last night he would suspend indoor dining at New York City restaurants if hospitalizations continue on their upward trajectory. He also floated the possibility of a broad shutdown of nonessential businesses across the state like the one imposed in the spring if hospitals become overwhelmed and a very similar kind of situation developing in much of California at the moment with a raft of new restrictions that are coming in. And again, this heaps the pressure on then, of course, a lot of politicians and this idea about will they, won't they get to the point of Congress actually looking to push something through on the spending bill, and can they tie in any type of coronavirus relief on top of that? Piece of legislation. A quick look down at US equities, and I'm just going to quickly jump over to, to back to the charts. And I guess the NASDAQ is one in particular you probably would have caught. I mentioned right at the beginning of the briefing that the NASDAQ— looking on a daily continuation here— the NASDAQ's basically gone up for 9 consecutive sessions. And, you know, whenever that happens, it does start to feel like, you know, perhaps we're getting a little bit overbought. You know, very rare for a market to continuously go in one direction. It's almost healthy for something to pull back. Uh, the more kind of animal spirits take over and the market just continues to go disconnected to any underlying fundamentals, the more susceptible ultimately it becomes to a potential pullback. Not to say, as I said earlier, that that detracts from the point that you can still maintain a bullish, more medium-term view, but in the short term, perhaps susceptible then to at some point a degree of, of pullback just to bring things back into the realm of kind of sensibility to a certain extent. So a couple of things I just wanted to share with you and a few things that have been talked about on Reuters this morning. And this is looking at American Association of Individual Investors, uh, and what it's basically showing us is a US investment survey, and it's looking at bullish versus bearish, and it shows retail investors in a very bullish mood. And basically what that's saying is that the retail market Despite any signs of us being in overbought territory, are just continuing to remain ultra bullish. And sometimes, particularly in traditional market practitioners, this is considered to be a somewhat contrarian signal. Now I do and am conscious— I was listening to Jim Cramer on CNBC yesterday, and I do think he has a good point. I think, you know, old market participants, and perhaps 14 years in I might even consider myself one nowadays. We need to kind of wake up and smell the coffee a little bit, and actually young millennials do dictate a lot of market sentiment nowadays given their overall broader participation, access to market now through things like Robinhood and so on, and just general the way that they perceive value is very different from traditional methods. So I'm a little bit reticent to just look at it as a straight contrarian signal, but it often is the case. You know, it's kind of like that Bitcoin mantra, the moment that everyone says to get in, uh, kind of like Farage saying he's turning to crypto. Makes me feel a little bit dubious about perhaps this is the top for right now for crypto. Um, and so it's Something to just be aware of. The other thing then is looking at put-to-call ratios, and they've basically hit a 20-year low. So again, perhaps there's some degree of people just getting of the mindset that, you know, this can't, can't continue to go on at this sort of pace and positioning themselves then for ultimately that it's getting a bit exhausted. The other thing I saw was Goldman Sachs. They had some interesting research yesterday. They were pointing out that equity positioning is extremely stretched and that when it's this stretched, stocks do actually go down over for a period in historical precedence for a period of 1 to 4 weeks. They have what they call a sentiment indicator that's measuring on very different— a variety of different metrics. And it's basically plus 2 standard deviations above its average. Which represents a 98th percentile reading since 2009, which was obviously the financial crisis. And 2009 obviously saw that wide standard deviation because at that point we were seeing quite a dramatic recovery in markets, given the fact that there had been such dramatic monetary response that happened at that time, creating a similar type of move we've had over the last 8 months during the pandemic. Um, worth noting, as much as Goldman's was stating that things look a little bit, bit punchy as far as right here, right now. Their long-term horizon, they're still ultra bullish. I mean, their end of year 2021 target— we're trading 3678 as I deliver this in the S&P— they're looking at a 2021 year-end target at 4300. That's right, 4300. So they're still very bullish in that respect. The only thing I'd say about this is When it comes to US equities, I mean, we're right up there still in regards to the NASDAQ, um, and the, the S&P is still within touching distance of all-time highs. The, the Dow, when I look at the Dow, I think, you know, 30,000 is still a really meaningful symbolic level. Obviously, the all-time highs were printed just, what, Thursday of last week, not that long ago, and you know, we're still above 30,000 at the moment, which I think has been a pretty good marker for, for price to pivot around. Um, the only thing I'd say about really, um, shorting equity, uh, I am mindful it's a bit of a fool's game and it's proven to not be that astute a play in the context, particularly in the post-pandemic environment. When I say post-pandemic, I mean the pandemic environment. So all I would say is if you are going to short these markets, because I do feel that at some point in time, and I actually think a key trigger point for potentially when this might happen is whether or not the US government can sort its act out. And actually, you know, the House will conduct a vote on a one-week continuing resolution on Wednesday. So that's another important thing for your calendar, and that's to provide lawmakers more time on government spending and virus relief. So rather than then the government shutting down, federal departments going unfunded at the end of this week, they just want to buy themselves another week. But okay, that's fine, you buy yourself another week, but then what happens at the end of that week? Do you get a deal done? So will that be the straw that breaks the camel's back, an inability for Congress to get its act together. And coming in the context of a deteriorating national picture, as restrictions bite given the increase of COVID to the point of hospitalization hitting maximum capacity, where, you know, local, state, federal authorities don't have a choice, that's going to have an immediate then economic impact going forward. To even worse degree than already the deterioration that we're expecting. So could that be then? I think that's what will need to happen to see this little bit more meaningful pullback in equities. But even then, I think if we go down low enough, the buyers will come in and they'll lift us back up again. And ultimately, in the end, Congress will sort something out. And so perhaps better opportunities to get in on those more medium-term pictures for US equities. So yeah, a couple of things there, broad things to think about, but I thought, you know, worth talking about. For more details on this, if you go on my Twitter account, which my handle is here, then you can get my full kind of rundown every morning very early. And hopefully it covers all of these points that I'm kind of going into in greater detail. All right, let's wrap it up. Let's look at the calendar for today. What have we got? Um, we have a fairly quiet morning. Uh, German ZEW coming out, um, in a short while. How important is this? Probably not that important. I mean, what economists and analysts think about the current conditions and economic sentiment going forward is just one part of the jigsaw puzzle. I'd probably say still IFO takes precedence, wanting to see real corporate sentiment rather than what economists are thinking. And then you've got the Q3 GDP number of the Eurozone, but this is a revised figure, so not expecting too much change there. And then going into the afternoon, you— as you can see here, there really is not a great deal happening. There's no speakers either because we're in relative blackout periods. And so all in all, I would say when a calendar is like this, there's a couple of things here, rules of thumb. One is I think, you know, remain fairly patient, fairly disciplined. There's much to come in the end of the week. As I said, the House will conduct that vote on the extension potentially of a continuing resolution for lawmakers in Capitol Hill on Wednesday. You've also got potentially von der Leyen and PM Johnson meeting at some point, perhaps Wednesday. You've also got the self-imposed deadline from Brexit from Barnier on Wednesday. You've got the ECB on Thursday. There's a couple of data points coming out in the second half of the week as well. So definitely be patient. I think there's no need to rush into things if the session is quite quiet. Also, it does mean then when there is no fixed calendar direction, if you like, to come out of a kind of a set piece, markets tend to gravitate towards the top-level macro themes. So everything we've just discussed— coronavirus restrictions, vaccine, Brexit. So They're the things I'll be looking at today. All right, I think that's long enough. So any questions at all, just let me know. Feel free to leave a comment and have yourself a great day and I'll see you in the Amplify Live chat room. Thanks very much.