Markets await European PMI's and ECB's Lagarde

Okay, very good morning. Happy Friday, 22nd of November. Hope everyone is doing well. Thought I would kick off the briefing just a touch earlier than normal this morning because we do have some important economic data. So I'm going to try and whittle through the main headlines, give you the macro kind of fundamental overview, and then I'll come off the mic and we'll conclude the wrap. So Um, again, we've got the manufacturing service flash PMI data coming out for the month of November, and it's going to start with the French numbers at 8:15, German at 8:30, and then obviously concludes the eurozone numbers at 9. We've also got the ECB president Christine Lagarde gives her first real speech of substance since coming in, what, 3, 3 weeks ago or so as ECB president. So a lot of people are anticipating that Essentially, this could be one to watch, uh, given how she will, uh, convey the current sentiment towards the economic environment and the current status of monetary policy. So she's speaking at 8:30 AM as well. So plenty to come in the next 35 minutes. So starting off then, let me just give you a quick overview of what the charts look like this morning, and things are relatively quiet. I'm just having a look here on my watch. The Dow Well, the S&P finished down only about 5 points last night, so it's a relatively flat finish. The Dow was down just a touch, 0.2%, about 50 points or so, and that's really translated into the Asia-Pacific session. Not a great deal of movement to speak of, and so far this morning in, in the European UK open, it's relatively flat. Major currency pairs are pretty much unchanged, a reflection of that in the dollar index. Gold just a touch higher, nothing really too much to speak of there. With Treasuries basically flat. WTI crude up about— well, up from where we were in the low point about an hour ago, but overall down about 23 cents. But of course, I guess you need to put this into a bit of perspective from some of the recent days' ranges that we've had. We've had some such a roller coaster in crude oil prices, obviously, from where we were midweek to where we are now. That loss fully recovered and pretty much tracking in the late US session about the best levels that we've had so far in this week. And in fact, you'd have to go back, as you can see on the charts here, all the way really till September to where we are at the moment. So despite some of the things that we've had throughout the week, we're managing to recover some ground. But the biggest story remains that of this, and I did see this last night, someone shared it, and I thought it's just a really good graphic of really the last 48 hours in the world of financial markets. And this is the S&P 500 and looking at the, the trade war. And to make things really nice and clear, it's just got the red rectangles signifying when the market is dumped and then green when it's rallied. It's just so dependent on just one, one theme, and that of course is the, uh, this Phase 1 trade deal between the US and China. You can see the biggest sell-off, the first one, deal delayed into 2020, was on Reuters. And then you had, um, the House has passed a vote to support Hong Kong protesters, again gapping down the reopening of trade. Then the Chinese Vice Premier cautiously optimistic, we rally. And you can see here what's quite interesting, and it is again a reflection of that trade war cycle. Nearly everything in red, which has created a downward movement, has been almost US-led. The deal being delayed, the Trump kind of saying that they're not stepping up to the plate, kind of the idea of then voting to support in both the House and the Senate the Hong Kong protests. Which goes against kind of the, the will of any interference as far as the Chinese government are concerned. And then it's the Chinese that have been coming back and been saying more of the positive side of things for the time being, up until this last moment that we had. This would have been yesterday, having since recovered. But the point being is that it's been quite seesaw. And I guess one of the things here is that, I mean, sure, in hindsight it looks great if you could have caught some of these moves, But I mean, if you actually look at the broader range here, I mean, certainly on the downside, there's quite a distinct near double bottom from the move that we had late on, on the 20th and then early on the 21st. And so perhaps then really it's about assessing the risks associated with such seesaw price movement. Even as a global macro kind of trader, I think it's it can be quite difficult to try and stay on top of the narrative when the headline noise is quite frequent. And so therefore, you know, if you're being a little bit more conservative, a little bit more prudent, it's just about identifying, well, what are the outer bound kind of ranges, and then playing it accordingly, not unless there's something really definitive that breaks, rather than getting involved and trying to just get potentially caught out on just a singular headline. The other thing which is quite common in this type of thing, although the, you know, if you X out that last rectangle, and this is the way that news tends to impact markets, is that you can see the first move and then the subsequent rectangles identifying the other price spikes, whether high or low, have got progressively smaller. And this is quite normal. It's almost People often refer to it as kind of this headline fatigue. People generally just become almost desensitized to the number of comments that we see. Very reminiscent of what we had in a much more longer-term sense is what we have with Greece back in the sovereign crisis. First couple of times, first few months really, it was really market-moving any time Greece was mentioned. Then progressively, as it got spoken about more and more, had lesser and lesser impact. But just quite interested to see that in a very kind of microscope level of the last 48 hours of price action, almost a similar sort of thing playing out. Of course, bottom line, you've got to be mindful of, you know, that the history would tell us that the way this has gone over the last 12, 18 months is that Trump loves to kind of put a departing shot across the bow on a Friday afternoon. Just to kind of make it clear of how the land lies as far as the US are concerned. So definitely I'd be keeping an eye out on that. Um, the other thing that I saw Bloomberg were running this morning, this was looking at the blue line, the VIX, and signifying that despite, you know, as dramatic as this looks, you know, not to put into context that we are just a whisker off all-time highs and percentage-wise, these aren't the biggest moves ever by any stretch of the imagination. And as a matter of fact, the VIX is, is relatively suppressed at the moment. Now, they were talking about it in an article this morning in a slightly different way, but the way I was looking at it was more every time that the VIX tends to get down to this kind of 12 level. So you can see here back in April, that was the kind of lowest point that we had back in late July. It was the lowest point we've had. And in November here, when we've hit the all-time highs, the VIX has almost hit again a double test at around that 12 level to where we are at the moment. The one thing normally happens here though is that if you actually look over this period of somewhat calm, it's followed by a big spike. July, big spike. And so again, if you were looking at patterns here, uh, it would suggest that it's only a matter of time before something— the most likelihood initiated by the trade war because that would have the greatest influence to really disrupt markets— we could be in for something coming shortly. And it wouldn't be, I don't think, too surprising. The other things that we've had— let me just blow this up a little bit so you can see the headlines more clearly— this was looking at China's Xi, so the Premier, stressed the need for equality in Phase 1 trade deals. So again, continuing to fit a fairly passive approach, somewhat optimistic, or I should say cautious optimism, that was uttered by the Vice Premier the day before and being reiterated by the Premier overnight. We also had some comments out of a Central Bank, the PBOC advisor, um, who basically said that China still has room to adjust its fiscal, monetary, and real estate policies if uncertainty over trade with the US generates further downward pressure in their domestic economy. Uh, so again, it's, it's, it's kind of a, a two-pronged, uh, verbal, uh, strategy at the moment from the Chinese, trying to be, um, able to talk about the idea of that they want to get a deal done from a governmental level, but also being quite clear as well that, look, we're happy that we can withstand the storm if the US also don't step up to the plate. And therefore, at the same time, you get commentary out of the PBOC saying, look, we've got plenty of options. You could say that's almost an opposite case of what we have in many areas in the Western world where the kind of monetary ammunition box is relatively dry, whereas in the Chinese, from both a fiscal and monetary perspective, there's still— or at least they would want it to appear that there's plenty of options still. The other thing was a research comment out of analysts at Goldman Sachs who've come out and released their latest note, and they said an easing in trade tensions, a bottoming out of global manufacturing activity and a continuation of cautious policy support will aid the stabilization in China's economy next year. So remaining quite bullish on the prospects that we've kind of hit peak trade war, if you like, in terms of where this— how these tensions are. But I'd say this is more of a reiteration of what they did say before. One thing to be aware of though, it's not all blue skies and plain sailing at the moment because Politico have released a a latest report that's getting a little bit of airplay this morning at the European Open. And to give you the summary, it says that Trump administration officials are considering whether to start a new trade investigation against the European Union as the window closes for hitting Brussels with automobile tariffs, according to multiple people briefed on the issue. So if you remember, the US not only when we hit this new all-time high and the VIX has hit this lower bound at 12 most recently at the beginning of really November, and all this positive sentiment that we've had, well, it wasn't just a nearing of a phase one deal between the US and China, it was also the idea that the auto tariffs on Europe were going to be delayed. But this article would suggest that even though that's the case, the Trump administration are potentially looking at other new trade investigations against the the EU. So it could be something to just keep an eye on. Uh, depends really how much people want to circulate that as to how much impact it might have. I'd say the DAX this morning hasn't really had much of reaction. The euro is a touch softer more recently, maybe worth keeping an eye. It's just broken through its, uh, lower bound of the Asia-Pacific session. But for the short term, the PMI data from the eurozone is going to be much more influential coming up shortly. Uh, on that note, just a couple of other final pieces, and, and basically we'll wrap things up so we can focus on the data. This was something out of Australia, and I just wanted to mention again, it was Goldman's note that's come out overnight, and they've said that Australia's central bank, the RBA, will probably lower interest rates further in the near term but is unlikely to deploy unconventional policies such as bond buying program in 2020. So Goldman saying sure, they might cut. Markets remember a price for another cut sometime in the— towards really the middle of next year at this point, obviously subject to change of course as we go ahead in time. But Goldman saying that they don't think the RBA will deploy QE is kind of the opposite call of at the moment what the existing stances are for Citigroup and JP Morgan. So I thought it would warrant a mention here in the briefing. Other than the data, this is the other big thing I want you guys to be aware of. So in about 25 minutes' time, half past 8 London, you're going to get Christine Lagarde give a keynote speech at Frankfurt European Banking Congress during the Euro Finance Week. It is anticipated that this speech is going to be one of which where her first real commentary on the economic situation on monetary policy and so on is going to be commented on. So definitely this could be a market mover. This is kind of as well the first time that she's going to give her more formal speech of importance in her new capacity as the president. And although this is one of them, the strongest skills and assets that she has is her ability to deliver speeches in a fairly confident and eloquent way, Obviously, it's the first one as the ECB president, so we'll be watching it with some great interest. Interestingly, she speaks this morning and then they've got scheduled Luis de Guindos, who's the vice president, of course, of the ECB. He's going to be speaking later on this afternoon, a different event. He's over in New York. But I think quite a subtle strategy here from the ECB. They kind of got de Guindos, who's been on the scene for a long time, was a VP under Draghi. And so just in case Lagarde makes a mistake or is misinterpreted, de Guindos can do the cleanup job later on this afternoon. So again, that kind of classic central banking strategy. Data-wise, a couple of things to have a look at, and hopefully we can finish in good time for the French data. You'll remember last time we had the, the PMI data, it was quite, it was quite a tricky one to trade. Because you remember we had this massive service print on the French number, markets rallied, and then the, the man— then the German manufacturing came out and then the market pulled back again. So these are flash readings, these definitely are the market-moving ones because again these aren't finals. So France at 8:15, Germany at 8:30. Remember, it's kind of more service-based for France that could be key. Can it maintain that momentum from the prior reading the prior one being a move back to around 53, which analysts are expecting to remain constant at that level. And then the key one, the metric, is the German manufacturing flash PMI. Um, that's expected to see a mild improvement to 42.9 from 42.1, but still, as you can see, in sharp contractionary territory for the time being. Um, we then get the UK services PMI as well. Although unlikely to move the needle too much for the Great British pound, given the overall focus on the buildup for the general election, the service PMI data is probably one of the singular most important data points that we do have. The lower bound of that range for today's service PMI in the UK is for 50— well, actually, excuse me, the expectation is for 50, the lower bound is for 49.7. So again, a movement, a dip into, um, negative territory could be interesting. Uh, you've got yesterday's low print trading only around 20 pips away from current price in cable at the moment. Um, and then into the afternoon, you get the US version of the PMI data. You've got University of Michigan, but that's the final reading, so probably less significant. Speaker-wise, other than those mentioned, that's really it for the day as far as, um, major events are concerned. You do have the Bund, Bobble Shatz, November futures options expiries today as well, later on towards the close. But just going into— obviously, as I've been talking, I have seen a little bit of a bump up here in the equity index futures. So I would imagine— well, let's just have a look how the DAX has been moving. It's been quite a graduated move. So here, I mean, obviously as I deliver a briefing, I can see Twitter and the headlines roll, there's nothing immediate that jumps out. So one of the things here is that if you actually put, let's say, the DAX on a 1-minute— and this is the only time I'd ever look at a 1-minute chart— I can see here from the movement that it's— that this is a trend, and it's unlikely to be a one fundamental headline. Because if it were, then instead of rallying in a sequence of, say, 8, 9 candlesticks showing progressive price movement, if it was a headline spark price it would have just been one straight candle. So it's probably more— you can see that bigger, more accentuated move there coming around that level on that candlestick. And you can see that's kind of towards the upper bound of the price range, and you can see quite clear levels. So probably technically just helping bump that price a little higher, such as how the DAX tends to move, much more volatile of course as a product. All right guys, I'm gonna leave it at that and wrap things up. Wish you a great weekend. As I said, Sam not here today, so Tommaso will be covering him on his desk. So any of the live guys at home who have any questions, please direct them to Tommaso. Thanks very much, and enjoy your weekend.