Markets Await Confirmation Of New UK Prime Minister

Okay, very good morning to everyone. Tuesday, 23rd of July. Hope you are doing well. I'm just having a quick look at the, the charts first thing this morning, uh, usual routine. I'll go through some of the headlines and then I'll hand you over to Sam to look at the markets more technically. Overall though, I was off the desk large portion of yesterday, but I understand it was pretty quiet, and I think that's probably due to the fact that there are some major things happening later on this week. And, and as I go through some of the news here, it's not that the, the calendar in terms of economic data is particularly busy, but there are definitely some looming events, and particularly earnings season tends to follow that pattern of hitting its peak in the middle of the week, really defined by Wednesday and Thursday, the latter of when you get those big tech names like Amazon and Alphabet. And so a lot of people, I think, are just sat on the sidelines at the moment. You've got the ECB meeting on Thursday as well, which is going to be a particularly interesting one, as we're going to talk about in a moment. But this morning, just having a look at the general sentiment, equity markets Mild positive movement seen overnight in the Asia-Pacific session, kind of translating into some slight gains this morning in the futures market, both European and US futures. Elsewhere though, currency markets seeing a bit of movement. You can see here top left, both EUR/USD and Cable under a bit of pressure. A few questions this morning about dollar strength. I think really it's a combination of a few different things. As I'm going to talk about with the ECB, money markets are pricing in about a 40% chance that potentially the deposit rate gets cut this week on Thursday. As much as I don't think that that's going to be the case, there's a decent market pricing. So I guess, you know, fundamentally could explain some softness in the euro. And then obviously for the pound, you've got this announcement coming up for the Prime Minister. I don't think it's a particularly shock. that, or if Boris Johnson wins. We have also had some comments, last little run lower here in the pound breaking its respective S1 on the daily pivots. But Bank of England's most hawkish member, Michael Saunders, just came out a few minutes ago and said the Bank of England is not bound by forecasts implying rate hikes, saying a no-deal Brexit would push the pound lower. UK economy is weak and clearly not overheating. That's a shift from the most hawkish member to sounding quite explicitly dovish, and that's the first time he's made those type of noises. So the overall composition here, if you remember about 2 months ago, the Bank of England was being seen as the last standing more hawkish-minded bank given the low employment, the high wage situation. But even the most hawkish guy is now shifting, and so the overall composition of the bank tilting much more dovishly in preparation of what is to become this no-deal scenario. Um, elsewhere, well, I've just seen the DAX take a bit of a break here on the upside. Let's just put it on a minute. Yeah, it's been really moving since the, the cash equity open, obviously being benefited a little bit here by technical breaches of some of the range from the overnight Asia-Pacific session. You've got the weaker euro as well. which tends to lend its hand to some of the more export-heavy German index, given the components, constituents that reside in that particular stock index. Elsewhere, gold a little lower despite the dollar strength, still kind of licking its wounds, so to speak, on that technical breach of the trend line that I'm sure Sam was talking about yesterday. Quite heavy selling pressure coming in does of course come with gold in recent sessions, touching on fresh 6-year highs. So at these elevated levels, having gone up to around the kind of 14.50 type mark, a little bit of profit taking around there may be warranted. One of the news items we're going to discuss as well is that one other lower-ranking risk to markets was the potentiality of another government shutdown, but that's now been removed because a deal was struck on Capitol Hill last night in regard to government funding going forward for the next 2 years. Fixed income, relatively quiet. T-notes pretty flat, just a bit of resistance around the pivot at the moment. The opposite in the case of the Bund, with the pivot level providing some near-term support to price, as has done during the Asia-Pacific trading hours. Again, I'll leave the rest to, to Sam. To have a look at. I'm talking about the Fed. The probability of a 50 basis point rate hike does continue to decrease slowly. It's dropped another few percentage points. It's now at 21.4%. So again, might explain a little bit of unwinding of any recent dollar weakness as markets come back to the reality of going 25, not 50 basis points at the end of the month as we go into this now blackout period. One thing to further follow up, I did get updated from, uh, the guys at Ransquawk who said on Friday night there was a Wall Street Journal source report which basically said the Fed aren't going to do 50. So again, ratifying what we were discussing on Monday, given the rollback of some of the comments that we had from Williams and Clarida at the end of last week. Moving on then, let's talk about some of the main news items. Um, timings— had a lot of messages via Twitter yesterday asking me what time's the announcement for Boris Johnson. So this is the actual near-term timing for this morning. So 11:40 AM, the announcement of the next Conservative Party leader begins. 11:47, declared by the 1922 co-chair. And then 11:50, the new leader makes their first speech. On from the morning, so today's all about the results. Wednesday then, technically if Johnson wins, he would enter Downing Street at about 4 PM after Theresa May conducts her final session of PMQs, the regular fixture on a Wednesday. She then needs to go and see the Queen to hand in her resignation. And then Johnson would take over the helm later on that afternoon. Thursday this week would be the appointments of the cabinet and the ministerial team by whoever the new prime minister is. And then on Friday, the new PM outlines their vision for the country, delivering a speech in the north of England. So that's the plan, both for the morning. So we're looking at around just before midday for the confirmation who the prime minister is. And then you're looking for this pattern to play out, the formalities to happen Wednesday, the announcements of the cabinet. So if Johnson wins, you're looking for people like the Chancellor, Philip Hammond, to resign probably on Wednesday once this result has come out. Could be other movements as well to be— to keep an eye on before then. The key speech, which if it is Johnson, to see how much he then pursues this idea of do-or-die, no-deal scenario, does he push that in his speech on Friday? First thing to be said though is that even though the markets and bookies' odds are very much in the realm of kind of 90/10 that Boris will win, I might remind you we have been here before. We were 90/10 supposed to not leave the EU as far as market pricing was concerned going into that June referendum. So I definitely strongly believe Boris Johnson will win. That very much is both the political and the odds point of view from the bookies. But all I'm saying is that if Hunt does win, I would be expecting an aggressive rally in the pound in an immediate fashion. We were talking, Sam and I, about this this morning. I don't think that you you could discount a move of 150 to 200 pips on the back of a Hunt win in pretty quick succession, just given the fact that the market is very heavily priced in this no-deal mantra under Boris Johnson. So looking at the pound this morning, obviously has been under— just seeing here— under a bit of pressure. This obviously has come with these latest Saunders comments As I said, the hawkish member turning quite distinctly dovish is a new development on that regard. A couple of things though on the Boris Johnson front that I'd just like to go into. One is a lot of people have been talking about the parliamentary arithmetic. Monday began with the resignation of a former minister, or the, the foreign minister Alan Duncan, um, and he then floated the question of whether Boris Johnson would even be entitled to become the Prime Minister. In terms of the constitution, a Prime Minister in Britain has to command the support of the House of Commons in order to assume the role. But given what's been happening—resignations, there's been another minister that's been accused of sexual harassment that's also been temporarily kind of removed at this point, yet to be confirmed whether he comes back or not. So technically has reduced the government's majority in Parliament to just 2. That obviously is right on the brink on whether or not the Prime Minister even can command the House. And therefore, do we need to go down the route of having a snap election to sort this out? So it's almost as if Boris Johnson takes over the helm. And an even weakened position, more polarised than what Theresa May had, with the slimmest of slim majorities at this point. So this is definitely why a lot of people are quite reticent to believe that, you know, he's going to have the silver bullet to fix this Brexit situation. Could actually end up being quite to the On the contrary, Boris Johnson could end up being the shortest surviving prime minister ever in history if that doesn't play out correctly. And if we did have a snap election, then if he were to lose, of course. The other key issues that, that again will go down this idea that Boris wins, that he's going to have to face is an escalating crisis with Iran. We've seen this definitely in focus over the course of the last few weeks, and it's only seen seems to be escalating given that vessel that was captured by Iranian forces at the end of last week. Of course, the Foreign Secretary at this point is Jeremy Hunt, who in itself— Boris has got an interesting decision to make here. We're right in the midst of a conflict with Iran, but Boris has, you know, kind of behind closed doors suggested he wants to fire Jeremy Hunt. Couldn't be worse timing in terms of addressing quite a key issue. Globally on, in the, on the foreign affairs front. On the telecoms front, of course, a decision has been basically delayed and delayed on whether or not the country will use equipment from Huawei Technologies. That's a very sensitive subject, particularly with addressing the relationship with the US, because Donald Trump obviously very forceful about the way of which He feels that China have been covertly using technology to breach various different security rules. And so Boris has this difficult decision to manage between, do you want to appease Trump, or do you want to, as we have at this point, be more open to these technologies and having a closer alignment with the relationship with China? So yeah, not, not plain sailing at all at this point. But I mean, that's more bigger picture. In the short term, the tail risk here is a, is a Hunt win, an aggressive spike in the pound. Once Boris gets confirmed, I actually think the move is, is already priced in, and so there's very little risk, I'd say, to downside at this point. The only risk that might come is if when he gives a speech at around midday. If he really does bang a super no-deal hard Brexit drum, then that could, I guess, force down a little bit more movement following this trend. They've generally— some sterling weakness emanating from some of the MPC comments this morning and just the overriding euro weakness contributing to dollar strength this morning as well. Other stories to be aware of, just wanted to mention this one quickly. This isn't due, of course, the ECB rate announcement until Thursday, and it's these types of factors why I think the markets have been relatively quiet to get the week underway. Traders are pricing in a 40% chance of a rate cut. I mean, that, that's surprisingly high, I thought this morning when I read that. A couple of comments though that I wanted to go through for some of the big Wall Street banks. So Goldman Sachs They've said that the ECB will ultimately over-deliver relative to expectations and see more room to price QE. Goldman's expect a 20 basis point cut and tiering to happen in September, so not Thursday, and a renewed asset purchase program including buying of sovereigns. QE to start at €25 billion per month for 9 months. If you remember, the last phase of QE, which ended in in Q4 of 2018 was when we were at a pace of about €15 billion. So they're looking for around a reversion back to where we were in about the Q3 era of 2018. Commerzbank, Commerzbank foresee a risk that the ECB could, quote, go big and cut the deposit rate by 20 basis points this week. They're probably the most aggressive on the street. They say that the ECB might want to preempt any potential Fed easing, which is 100% priced in for later on this year. Because remember, if the Fed ease, then, then technically speaking, then this could put pressure on the euro, um, and therefore consequently could the ECB want to get ahead of that and cut themselves this week? JP Morgan though to talk more balanced. Their call is that the ECB will alter language in the statement this week with policy rates at present levels or lower to open the door to further rate cuts, with a 10 basis point cut in deposit rate to be delivered at the September meeting. I must stress, despite the more kind of aggressive calls out of Goldman and Commerzbank, the JP one is more the general broader market consensus and the one that we have here on the desk. We're looking for a language change to open the door, an optionality to the cut to come at the September meeting is what we feel. I did mention briefly President Trump announced a bipartisan deal to suspend the US debt ceiling and boost spending levels for 2 years. This removes one obstacle which potentially could have seen the government shut down again as soon as September, October time. So that appears to be averted, but it's all not yet completely a signed deal. The House has to approve the agreement this week before members leave on July 26th for a 6-week summer recess. The Senate can put it to a vote as late as next week, so it still needs to be ratified. And obviously stranger things have happened, but at this point, reading some of the press articles, it seems that everyone's you know, had their compromises, got what they need to be able to come together to sign a deal off at the moment. I must stress that if you read some of these articles, the level of debt that the US are getting into is getting very high at this point. Under the terms of the agreement, the budget cap for discretionary spending will rise to $1.37 trillion in 2020. Rising to $1.375 trillion in 2021. You know, these are particularly high levels. The new spending and limit savings, the deal will likely push the annual budget deficit of America over $1 trillion next year. So this isn't really a factor for right here, right now, but definitely from a broader perspective, it's worth just noting these kind of numbers. And then I just wanted to mention as well, although most of of you guys I know will trade, will trade outright positions rather than a more complex kind of hedging strategies. But I did see a note out of Goldman's this morning, and they were talking about the fact that an increase in gold price volatility— obviously we've seen gold up at a 6-year high in the last week. To give you an idea percentage-wise, gold is up about 11% on the year. And what Goldman is saying is that the increase in gold price volatility has made bullish options on the traditional haven more expensive than their yen equivalent. So gold up about 11% for the year, the Japanese yen is only up about 1.6% against the dollar. So if you're looking at those classic safe haven instruments, there's better value potentially in taking the yen trade rather than the gold one. But again, I am talking about the options market, not about outright day-to-day positions in the intraday market. Um, obviously gold and yen could both benefit in the case of a shock US intervention to weaken the dollar, something which was on the table and been doing the rounds last week that was prompting some of the comments in response that was coming out the Treasury Secretary. So you've kind of got a protection from potential intervention from the US, however likely that or unlikely that might be. But then the idea being that it's too expensive now to get exposure to gold and better off being exposed to yen, given the differentials, uh, and the lack of real price movement yet at this point in the Japanese yen comparative to the dollar so far this year. Quick look at earnings. What have we got coming out from the earnings front? Um, not too much actually. Tomorrow and Thursday are much more interesting from a broader index point of view. But if you are looking at the single stocks, the ones to keep an eye out for pre-market: Coca-Cola, perhaps United Technologies, Biogen, slightly larger firms. Aftermarket, you have the likes of Visa. And if you're looking at more of those kind of, um, social media type names, Snap is reporting after the close. Calendar-wise though, for today, in terms of the schedule, we have a pretty quiet morning, nothing really at all going on. One thing is the Spanish have their, their plenary session followed by the first vote of Sanchez's government formation. Is a two-vote process, the second of which happens on Thursday. but could be quite interesting to have a look at. I don't think that's really going to be too much of a factor for the euro. Potentially might see some movement in related Spanish assets, in yields and the IBEX, but worth keeping an eye out for that. Otherwise, it's more of a US-centric session from the, from the scheduled events. Existing home sales at 3 o'clock, API oil inventory line till the afternoon. Haldane is also speaking from the Bank of England Following on from those Saunders comments, which weren't scheduled and were dovish in nature, surprisingly from a hawk. Be interested to see how, how Dane, the chief economist, comes out and what he has to say as well. So that is it from my side. Um, with that, I wish you a good day ahead, and I'll hand you over to Sam now. He can look over the charts going forward. Thanks, guys.

Hi guys, hope we're all doing well. Let's have a quick look over, uh, the markets. And you can see, before we go over to the currencies, oil just popping down here over the last, uh, 20-odd minutes or so, just after having pushed to the high of the day. We had a bit of resistance back yesterday as well. We're just seeing, uh, the market drift down, uh, and you've got bit of a potential trend line coming in around these areas here that's just looking to, to break through. It's worth keeping an eye on the, on oil there. Got a fair bit of support just below here from yesterday, 55.85, and it was a decent point as well on previous sessions. So worth having that marked up. And then obviously the high of the day just above, uh, and some key resistance that I would have marked up where we didn't quite reach it 56, 61, another important point to the upside. You can see we're also getting squeezed in here as well. You can see from the top end of the, the 17th high of yesterday was also the highest today. So that's that reason we didn't quite make that 61, but just seems like we're having a go at potentially breaking out the bottom side of this pennant. So just have that marked up up if that was to continue. You can see if I just make this a bit bigger here, those lows of the days coming in on the handle at 56 on the futures. Moving over to, uh, to the currencies, let me just bring in the euro. See, we had a really key level which we were talking about in the briefing yesterday, really strong level support over the last— well, not just a couple of days, we've got going back to— well, if we put this on a 240, you can see going back to the beginning, uh, middle part of, uh, of June as well. And you can see we're there overnight breaking through that. And in what was a very lackluster day yesterday, we had a bit of a trend line that didn't want to quite break. The high of the day then acted as the, the top end of that range on, on multiple times. And then finally, early hours of the morning, we get that breakthrough, and, and we've, uh, now obviously pushed well below the S2 level. Uh, looking at, uh, this from a, an opportunity to, to get in for a trade, obviously because it's so low down, whether you'd want to keep getting short unless we get retracements around the S2 or even, you know, the previous sort of low here around 112.45, uh, is, uh, see, this needs to be made. Just price, you can see here, just staying below this trend. And actually now just coming up to look like we want to have a test of it. So I think for any shorts, uh, for EUR/USD, you prefer it to be a bit, at least a bit higher up in terms of levels to be aware of if we were to continue down. You can see if I just move this above my camera there, you can see the lows back from 30th and the 23rd of June around 112.15. Not a million miles away, but those would be the next sort of points of interest. Retest though of the, uh, the lower part of that range from yesterday would be ideal, uh, well, on paper anyway, around 112.54. You can see just how strong that support level was. Pound obviously worth waiting for the announcement, uh, and as I mentioned, we were talking this morning, and if it was to be Hunt, yeah, you'd get a decent, decent push higher. And I imagine you will have a few people interested in taking that, uh, that trade on, uh, just as a bit of a— almost not necessarily a risk-free trade, but certainly the reward of that is, uh, could be very lucrative. Looking to the downside, you've got key support just above the, the S2 area, 124.60, the lows from the 17th, high from the the, the back end of the 16th as well. That'll certainly be an area I'd have marked up. And then if we can get that retracement, you can see anywhere around the, the S1, 124.81, 84, uh, are levels where you could expect some resistance. Uh, but of course, with 11 o'clock approaching and that time being sort of penciled in for the announcement, I'll just be a bit on edge for that. You can see from yesterday we have been trending lower as well. So it might well be after the dust has settled and it's kind of sell the rumor, buy the fact, we may well get a nice break of this trend line and see a decent push to the upside. Quite a key one, respected well since yesterday in what was a pretty quiet day as well. We broke back above towards the S1, previous lows of the Asian session acting as resistance late in the day around sort of 4 o'clock, so just before that European close. And look at the, the yen. Yesterday we talked about that trend line, uh, which eventually broke through. You can see we go back from the start of the 10th, uh, going through all of yesterday, and then you get that break in the early hours. Unfortunately, that's sometimes the way it will go with the yen and, and the Aussie alike, is, is that the best trades sometimes do happen in the early hours, and you see a really strong push down there. And we actually almost got down to the S1— S2, I should say— for the day as well, where there actually is quite a bit of support just below that, going back to the 17th. More intraday retracement-wise, people will be, you know, eyeing up the previous lows where we had a double bottom this morning before that breakthrough. But just be careful just to see how we get there. Are we gonna maybe break this trendline aggressively? That makes you not want to take that. Ideally, you would want it just to grind its way higher to find support on— resistance, I should say— on that previous low. Looking at the Aussie, just to wrap things up for the currency pairs, those trendlines, well, it's literally right on the retest of the one from January 2018. 2018. If I just bring that in here, you can see if I smart that up, just testing that now. We had a bit of a bounce from it and that coming in around 26, so 9 or 6, 9 ticks or so higher from, from that point as we're, as we're printing at the moment. Also worth having marked up here the, the trend line from the early part of December 2018. To obviously the April level as well. And you can see that has come into play just before the 71 handle. So price is getting squeezed in from, from both areas. And it might be that you do want to see a bit of dollar strength on here, and the trade could well be a break of all of those and the 70 handle to the downside. But for now, that trend line from 2018 high reacting as a bit of support on that, that breakthrough once again. Having a look over, uh, at gold. So you had a couple of trend lines in play yesterday, one that, uh, didn't want to break and was very choppy. And every time we sort of got up towards near the high of the day or just before, it did find support. However, the— and that was this trend line here, just got choppy every time it wanted to go through. But also the one from the 18th, which which you can see was marked up quite nicely once we made the, the 3 o'clock low, if you like. That broke through early hours of the morning. You can see this on the lower time frame. Let's make this a bit bigger and easier to see. You can see just how well that was respected around 11 o'clock. So yeah, it would have to have been, you know, up at your screen at that sort of time, but would have been a very rewarding trade. As you can see, it just drifted lower since then. And again, like the euro below us too. So whether you'd want to be getting in, say, now with it being so low down or not, I'm not too sure. But looking for areas where it could retrace to, obviously got any of these previous lows where you can see we had support. Let's move that again above the, the camera of the 19th, and then this morning. So 1421, uh, could be an area people will be eyeing up. And obviously below where we're trading You can see there is some decent, uh, support, or we found some decent support on what was the high back on the evening of the 16th a couple of times before finding support the next day on that breakthrough. So quite a key level at 14, 14.6. Also to the downside, you'd be looking at any of these highs that we had back in the morning of the 17th, uh, and obviously 1400, a bit below that. That'd be a pretty big day for us to, to get down to that point. Point. I'm gonna quickly cover US equities as well. Were pretty contained last night. You can see the pivot was ultimately chopped through quite a lot. Um, again, relatively range-bound, but not that much in the way of movement. And we haven't— I was reading yesterday, had a 0.5% gain for, for quite some time in stocks. Happened a few times last year as well, but slowing down a touch to the upside. However, we have just drifted on, and you can see it does look quite messy. Quite a key level was tested last night, that, that low that we talked about in the briefing yesterday from the, from Friday before the breakdown. The first test late last night held well, and then we're just keeping knocking on that door. Also above where we're trading, the breakdown at 95.75 would be a point I'd have marked up, and then to the downside, I only really feel comfortable should we break this trend line, uh, which was formed at the back end of yesterday's session. And at the moment, that looks like it could come in, well, anywhere around 89 potentially if it was to take its time getting there. But at the moment, that would come in at 2987 and a bit. You can see here, NASDAQ trend line still on, still well respected. Again, testing now, so that could be certainly one to look at. Ideally you would want there to be a bit more volume in this, this trade to take on, but certainly would have that marked up as well. Having a look quickly at the DAX, you can see just pushing higher. It has just stalled a touch. We made our way to, to test what was quite a key level of resistance, the breakdown that we had back on the 17th. Little pop bought through there. However, it looks like a false breakout now, and you could also be looking at any of the previous highs of the day, uh, that we did— we broke through on that open. Any questions, as usual, please do, uh, let us know. Uh, starting to get a bit more interesting this week after a relatively slow day yesterday. But if I don't speak to you, I hope you have a good trading day and rest of the week.