Markets Await Latest ECB Interest Rate Announcement

Okay, very good morning to everyone. Thursday, 23rd of January. Before I begin, don't forget to subscribe to the YouTube channel for our macro fundamental updates every morning and also live events. We'll be covering the Fed live in full next week. And also the Bank of England. So it's a big week for those central bank decisions because those two, particularly the latter, the BoE, is going to be very interesting. So don't miss out on that. But looking at what I'm going to talk about this morning, we've got a couple of different things, a bit of an update on the Brexit situation, and also within that, the trade situation between UK and Europe, in UK and the US. A few things to update you on. Then going to have a look at an update on the virus, how is that impacting markets if anything at all. There's definitely a disconnect at the moment between how the local region is being affected and how that is playing out on the things like Shanghai Composite, for example, and the Hong Kong Hang Seng comparative to the overall global market. So we'll make a bit more sense of that. Then we've got the ECB policy decision day And so what to expect— there's a nice matrix I can show with you with the different things to look out for as a crib sheet. A quick word on Italy going into some regional elections at the weekend, and then the Aussie saw a pop overnight to the upside, uh, unexpectedly positive jobs data creating then a rethink over the RBA potential action of their interest rate policy in the near term. So they're the things I'm going to cover, but before I get into that in more detail. Quick look across the different charts to give you a bit of a flavor for sentiment this morning. And relatively quiet. We had a slightly lower close on Wall Street last night, very marginal losses on things like the Dow, for example. And overnight in Asia, as I said, the Chinese-related bourses are lower still. And this comes— well, let's just jump to that first story, in fact. Which is here. This will give you a bit more of an insight as to the— this is the Shanghai-Shenzhen CSI 300 index, and as you can see, as the, the virus has developed, and what's happened essentially yesterday is that Wuhan, which is the apparent city of origination of this coronavirus, is a city of roughly similar size to all of Greater London, if not slightly larger, but it was put on lockdown in an attempt to quarantine this, this virus. So authorities have banned all transportation links, so suspending buses, the subway system, ferries. They've shut the airport, train stations to outgoing passengers. Everything's been put on, on hold. In terms of the actual stats at the moment of where we're at with the virus, just under 600 people are believed to now have been affected. It's reached all of the country's provinces now, as well as obviously that one person in the States on the, the Northwest Coast, as we were talking about yesterday. Taiwan, Korea, Thailand, and Hong Kong— 95 patients in critical condition and mixed reports, but around 17 to 19 people have died so far. So, you know, with those numbers, the reason why I go through them is to me those numbers suggest that at the moment this is still a very low level, obviously requiring some vigilance to continue to monitor. But I think, you know, between this chart that I'm showing you now, and if I transition to this chart, which is my charts showing the European-US stock index futures, things like the euro-dollar pair, cable, oil, T-notes, you can see there is a stark contrast. And I think that's kind of summary of where we're at at the moment. This definitely is having an impact locally, but it is not yet at the point where it's making investors nervous on a global scale just yet. And unless it does spread into those other geographic kind of continents, let's say, I don't really see that happening, at least for the time being. So don't want to speak really too much more on that issue because I don't think it's really warranted at this time. But again, we'll keep you updated as it develops. Otherwise, as we look at the other asset classes, things are relatively quiet. If you look at things like gold, sure, it has ticked a little lower over the course of the overnight session or even from yesterday's highs when we were trading up to around $62. We're about $10 down from there at $1553 at the moment. The 10-year's up a touch, 6.5 ticks. Oil down 84 cents. There were some infantry data last night, but overall it's still relatively quiet. And certainly this has been a bit of a familiar pattern of the last week and a half or so, really, since the initial reaction to some of the virus headlines, the signing of Phase 1 deal, the almost de-escalation of the Middle East, which quite frankly no one's talking about now because comparative to where we were just 2, 3 weeks ago. You know, it's almost like the market still is in a bit of a wait-and-see mode, a bit of indecision, waiting for the next cue of something to latch onto. And perhaps then the central bank decisions next week could be that thing, because as I'll discuss, not too much is expected from the ECB later on. So I'll leave the chart set up to Sam. Let's have a run through then some of the headlines. Starting off with Brexit, you probably would have read various comments from Johnson yesterday. At the moment on track to deliver his Brexit in regard to European Parliament now need to ratify the terms of the January 31st split. This comes after the House of Lords backed down on Johnson's EU divorce bill. Obviously they were and have been always much more on the Remain side, and so looking to kind of pick some holes in legislation in regards to the upper house on the government's bill. But quite frankly, the way that this process works now is that Boris has this resounding majority of 80, and so whatever they were going to do, it didn't really matter anyway. And so basically, this has now gone through, and it goes through the formalities for royal assent, and it has to go go to the Queen, she signs it off basically. So as we've been talking about, this Jan 31st is not really a significant one from a trading point of view. It's what happens beyond this. And what happens beyond this really then is we, we got to start sorting out some trade deals. And this has been quite interesting actually. We haven't seen any real immediate impacts on the pound, but there's been a few interesting developments. Sajid Javid, you remember, The UK Chancellor at the weekend was quite critical about coming up to the standard requests for things like food requirements, health and safety legislation, in order to be able to deal with the EU's rules. And that's caused some friction, a bit of a standoff at the moment between the UK and Europe. But now Sajid Javid has confirmed plans to introduce a digital services tax, which will mainly hit big American technology corporations. You remember, this is something, a similar route that France were going down, and then the US came back with a whopping $2.5 billion worth of tariffs that they were going to put on a variety of French goods, only for then for Trump and Macron to secure a temporary kind of truce ahead of Davos a few days ago. But what's happening now then is Mr. Javid has said that London would prioritize a post-Brexit trade agreement with the EU over a deal with the US. And Steven Mnuchin, the US Treasury Secretary, has not taken kindly to being put second place to the Europeans. Now, from a UK point of view, just given our volume of trade and the geographic location of which we have with Europe, Obviously Europe is the priority. However, at the same time, you've got to manage the Americans. And with Donald Trump in the White House, who tends to be fairly volatile and very sensitive to the way of which he is dealt with on a diplomatic kind of public level, it's gonna be quite interesting to see how, how that plays out. Maybe one of the reasons here I think Boris has ducked Davos— I think that's probably a wise thing— he he sent the Chancellor. So it's okay in my mind for the Chancellor to say these things because Boris can always say, "Well, it wasn't me that said that, and I'm still best friends with Donald Trump." So again, it's kind of, it's all strategy, I guess, negotiation in a way. But yeah, it's going to be interesting to see what the US have to say with being put second in that queue given obviously the Americans tend to, tend to put themselves at the top of the pile. Um, one interesting statistic that I just wanted to show you, and there's been a lot of question marks, a lot of questions from some of our junior traders about, you know, why is the pound rallying when everyone's pricing in a rate cut? And this is what I wanted to show you. This is the, the CME's, basically their— it's very similar to the FedWatch tool that we look at, but this looks at the not to get too complicated, but looks at short-term interest rate futures. So it looks at the Sonia curve when it comes to UK short-end rates, and it allows us to see an implied probability of what the markets are reflecting in terms of their current price and positioning for the probability of a rate decrease from the Bank of England when they meet next week. And here you can see rates currently in the UK, of course, at 0.75%, and just tipping on the balance is a likelihood of a rate cut from the Bank of England, 55 to 45. Now what's really interesting here is this bottom box, which gives you the statistics of the last month. So one month ago to the day, the price of a rate cut from the Bank of England was 5%. I mean, that's just crazy. We've gone from 5 to about a week and 2 days ago, or less than a week, sorry, 6 days ago we were at 72%, and now we've gone back to 55%. So yeah, a lot of indecision being reflected in the markets, um, in regard to what we think, uh, you know, as a, as a marketplace, uh, of what the BoE are going to do. And so typically what would need to happen here is the Bank of England's MPC needs to come out and kind of relay some kind of guidance, forward guidance, in order to tip the scale in one way or another. What central banks typically don't like to do is leave rate decisions right on the balance, like what we're seeing priced in by the markets here. The reason for that is it creates then a lot of uncertainty, which means big volatility upon the release, because it's a pretty 50-50 bet of which way it's going to go, and that exacerbates the intraday kind of reaction to it. More so, what officials like to do is guide the market one way or the other, so it's a nice and smooth, orderly transition, if you like, between meeting to meeting. But perhaps this is very reflective of the notion that the vote split is going to be so interesting next week. Remember, we've had two dissenters for a long period of time, but if you actually stack it up with the commentary that they've been saying, or the commentary would be indicative of a 5-4 split in favor of a cut. And that's very much what the market's pricing at the moment. So yeah, it's definitely not a done deal though. It's not a slam dunk that we're going to see that. And hence the reason why it's not just a persistent kind of weakening of the pound at the moment. It's a lot more on the fence. So yeah, look out for that and any more subsequent changes in the coming days, any Bank of England comments. Moving over, talking of central banks, to the ECB. This isn't going to take me long because ultimately there's going to be no change in interest rates or quantitative easing at today's event. The main thing that people are looking for really is this, this second bullet point: focus will be on Lagarde's planned strategic review. And also, as a footnote, Lagarde basically, as soon as she's done with the press conference, she flies to Davos and she's giving a keynote kind of panel discussion with Steven Mnuchin of the US Treasury, with the UK Chancellor, with the Bank of Japan Governor. They're all going to be speaking together at Davos tomorrow. But this is the best short-form way of preparation for the ECB interest rate event. This is always done by the Dutch bank ING, and it's the most useful way, I think, to consolidate a lot of information, uh, to put you in the best possible position to interpret and trade this type of event if there is that opportunity. And how this box is divided, uh, obviously if you're watching this on a video, you can just hit the pause button, you'll be able to digest it. But here you have the four main kind of facets that comprise of policy within the European Central Bank. So monetary policy can obviously be highly complicated So as a trader, what you want to do is break it down and make it as simplistic into its definable parts as possible. Therefore, it's much more actionable for you to, to cut through the noise in that respect. So here you've got the inflation outlook, the growth outlook, the interest rate decision in itself, and then also this idea about the strategic review— what and when is that going to happen. Then you've got a scale top to bottom what would need to be said as a change to the current, which is the orange at the top here, phrasing that, um, is the way of which they categorize each one of these, um, these sections. What would be dovish would be here, what would be hawkish would be lower down on the matrix, and then the subsequent reaction that ING think we could see in EURUSD in the currency pair. So yeah, this is a, this is a a good way. And then almost as the event is unfolding, um, you can almost like tick off the boxes to get an overall interpretation of is this in line, more tilted to be dovish or hawkish. And therefore not just trading the event as words are being said— sure, that is one way if something meaningful is spoken— but more so what could be then the trend that might materialize throughout the rest of the afternoon session after the press conference. Other final things quickly to mention: BTP futures are seeing some, some decent movement at the moment, and a lot of this is coming ahead of— and just to put this on your radar— there are several regional, key regional elections happening across Italy on Sunday. Now what's happened here is that the Five Star leader Di Maio resigned And that has caused now some question marks about the validity of the coalition government. And obviously Italy has seen lots of political disruption over the course of the last several years. So this is going to be very interesting to watch. In particular, Sunday's vote in the northern area of Emilia-Romagna could see Salvini's League defeat the DP, the Democratic party, which has been pretty much forever a historical stronghold for the DP. If Salvini and the League, which obviously has been eurosceptic— and if you remember, he's the one that caused a lot of the issues and confrontation with Brussels about the social radical reforms that would have required much more debt to be accumulated, breaching European conditions— this could be then problematic and bring Italy right back to the forefront of, of kind of risk for factors. So that's not happening until Sunday, but just wanted to mention that because, uh, local bonds in Italy are starting to see a bit of movement. And this was the other thing overnight— Aussie. I'm sure if you've looked at your Aussie chart in the FX market, has seen a decent pop on the upside, and it has held a bulk of that move. Essentially, unemployment rate unexpectedly fell, and what this has meant is that more than half a percent Uh, well, the currency has jumped more than half a percent as traders are now pricing in just 25% chance of a rate cut next month. As of yesterday, the odds of a rate cut were 50%. So following this data, the likelihood of an RBA cut has been sliced in half, and so that being reflected and the Aussie holding firm for the time being. And then DOE's are coming out later, obviously had shifted due to the the Martin Luther King Jr. Day holiday, US markets were closed, so this bumps all the oil inventory data back a day. Um, last night, slight downtick in oil, but very much following the trend lower, uh, in WTI crude futures. Uh, you had a crude build of 1.5 million, surprise against the drawdown of, of 1 million, so definitely bearish there. Cushing, though, was a drawdown of 429,000. Gasoline, slightly bigger build, as too were distillates. Gasoline at 4.5 million. So those DOE's are coming out later this afternoon. But that is pretty much everything from me. I'm not going to go— not going to bring up the calendar because I think we've pretty much discussed the main events, that being relatively quiet for this morning. Got the ECB kicking off this afternoon, of course. From the US, weekly jobless claims, the oil inventory data is kind of the main focus. And then Christine Lagarde, of course, the press conference that will commence at 1:30 will be key. Also, Angela Merkel does give a special address at Davos, uh, that is going to be happening at 1:15 London time as well, to just be aware of. Okay, see you in the Trading Live chat room. Any comments, obviously, if you're watching this on YouTube, just feel free to drop a comment and I'll be happy to respond. But I'll hand you over to Sam. Thanks, guys.

Yeah, hi guys, hope we've had a good evening. We'll start off with some of the currencies. As, as Ant mentioned, the Aussie last night, or overnight should we say, had a decent push higher. Looking at this more, let's refresh these charts here, get rid of that, that line. So technically pretty key And obviously the, the reason we've gone higher is all about that data, and you would have wanted to unwind positions before of that. But we also broke out this little trend channel that had been guiding price really since the 16th. So a decent push above there. We then found support on what was yesterday's high, and, you know, a fantastic move back up towards those, those levels, uh, we saw on— what day are we now? Thursday? Tuesday evening. And I think as well that's or so. A bit of a fib level in there from the bottom of that. You can see around the 50, uh, fib, the R1. I mean, just fantastic opportunity. More importantly, I would say as well, you know, I'm just going to remove this trend channel and the pivots. We've got a bit of a false break here now of this head and shoulders. Let me just make sure that you can see that and not get the calendar, uh, the camera in the way. You can see Nice area where we've had that neckline. You've got the two shoulders, shoulders, heads, and, uh, we're now back above, uh, the old classic, uh, yesterday on that head and shoulders looked to be good, but of course the data comes out and you don't want to take that risk. And we're now back, uh, above, uh, and trading at 68.80. Euro actually, you know, over the last few days has looked pretty similar to the Aussie in all it's done. And you can see here, bit bit more choppy but similar price action. And then you've got the sort of the shoulder and the head, and we're now just trying to get below that area. Uh, yesterday, or I should say on the, uh, yeah, yesterday was yesterday, we found support on the euro on, on a level traded back on the 29th of December. Pretty key would have been the next area support for the move lower. But you can see we're just sort of consolidating a bit, as you'd expect going into the ECB. We'll obviously run through this, uh, through Trading Live in terms of the levels to be aware of ahead of that release. But I would be very surprised if we broke out the R1 or yesterday's low before we come to that point. We are just getting squeezed, uh, you can see from the last couple of days anyway. For the high of Tuesday, worth having a little trend line on there. Yesterday's high, you've already got the 3 tests Yesterday's low, you've already got the free test of that coming in. So prices is waiting to, to do something. Would I want to be in a trade before 12:45 from now for the euro? Probably not, probably not. And it'd just be a case of, uh, wait and see and then react from that. But if we were to have an ultimately dovish ECB, or more dovish than expected, well, this euro has got a fair bit of room to go to the downside to attack some those levels last seen from, uh, last year. The pound, decent day yesterday. And, uh, you know, incredibly, you know, you look back at this, this trend line— I know, you know, bringing it up a lot, but it's just the, the significance of these technical levels regardless of, you know, the, the fundamentals that are going on. If they don't break, you can see suddenly good news actually starts to filter into the market and a decent push yesterday. The trend line had held, 130 as well in the mix there. We're now trading 160 ticks above that level, 132 on the futures, uh, an area to now consider. We're just starting to consolidate around those highs from yesterday as well. Keep that just a little bit of a trend channel, little flag up there to, to have marks up for any potential move to the upside. You'd favor yesterday's high and then the highs that we had back on the 8th of January. Of this month, I should say, as well. So keep watching that breakdown to the, to the downside. Got a couple of interesting previous highs to keep a watch on— 131 and the high that we had on Tuesday, probably the most notable support point there as well. Oil, uh, pushing lower. Um, decent technical breaks yesterday of the, the lows of the year, and you can see that nice little sort of set up, pushed through, and, and continued. We have bounced a tiny bit off the low this morning, but looking, uh, at, uh, you know, this, this market here to get these trend lines on. And in the weekly strategy report where we were looking at some of these levels, you know, these trends did get, uh, hit. I know on the daily, uh, we've broken through a couple of those. So here, going back to that low from 2018, that would be one to, to have marked up around $55. And where I would actually be pretty comfortable in saying we could find a level of, of support, it would be the third test of that trend. You'd also have some of these November-December lows in there. Of course, $55 handle, I think that could be quite a nice area. Where would you be comfortable, you know, going long above? Well, you'd have to You know, put this back on the 240 and say really where we just broke through around 57.70 above there, fine, we can find a bit of support. But you can see the significance of that $55 if we can get there. Gold, before we have a look over equity markets, just have a little look here, put those pivots on. Gold really is undecided, isn't it? I've been speaking to people in the first stage of the training program and just what does gold really want to do? If stocks are going to go higher, then it's it's confused and should come lower. But if the Fed are dovish and the dollar's weak and, you know, people are hedging themselves for, you know, something bad to happen later in the year, it's really undecided. And you're seeing that here, you're seeing that here. We're getting squeezed from both ways. If I were medium-term trading, you know, I really would just be, you know, waiting, really waiting for, you know, a bigger move to happen. We spiked higher but then obviously came down early hours couple of days ago. Let's put this back on the 60-minute and lower that time frame. Today's high, the R1, previous highs from, uh, what we're talking here, the 10th of the month. It's pretty key. Keep an eye on this trend line to the downside because that could be an opportunity should that, that go as well, which we have seen on, on previous days. When those trend lines go in gold, you can really get a decent move. So that's what I'll be focusing on. Lower, you know, shorter-term trend lines from yesterday's low in the mix there as well to, to have marked up. But some nice levels, some nice levels. S&P yesterday just drifted lower, didn't it, after making a new all-time high. Um, when will we get bored of saying that? Uh, key level to the downside though, you know, if you were, uh, of the, the bearish persuasion, you'd be happy to be, you know, looking medium-term short below 3308, 3309. Today's S1, the low that we had Tuesday, the high that we had on the morning of the 16th before we broke through into that evening. Decent area of support where, you know, below that, fine, we could, you know, get a bit of a drift lower. You know, got the double top from, um, yesterday on the all-time highs, bit of profit takings at the back end of the week. People maybe don't want to hold that risk over the weekend. Maybe more virus announcements comes out, you know, below there. Those headlines perhaps carry a bit more weight. Levels below there I would be marking up 3,300 and, and just a bit below that, below today's, uh, S2 as a, as a key point. And if we go on that daily chart, where would I be a massive, uh, buyer of a dip? Well, ultimately, I don't think we, we get anywhere near this for a very long time, but that top end of that trend channel that we broke through would be the, the, the place where I would really like— I really don't think we get there for quite some time. And And here, just looking on the daily chart, 3,300 I like the look of. And I would say also, going back, if we could get anywhere near 3,263, I'd be, uh, be a buyer. But I don't think that happens. I don't think that happens. I think we just will gradually grind higher and, uh, you know, hit those milestones. Certainly in the Dow, the 30,000 is still a level where I think, uh, could get drawn towards. It would take its time, but I think we do get there, uh, eventually. Relatively choppy on trend lines looking here on the S&P, but you know, 3309, 3298, and then 3300, uh, and above where we're trading. When could you get a bit excited about the, the push to attack those new all-time highs? Pivot looks like a relatively decent area just above there. You can see we had that breakdown yesterday, so, uh, 3324, let's mark that up. We're just finding a bit of resistance on where— what's the high of the day? You know, failure to push through. You've got the double bottom in a bit of a range. ECB, let's see what happens there. But some nice levels across the board. Just to wrap up, let's have a quick look over at the DAX, which I'm just going to put this on, you know, the weekly chart. That is that we've had this week a new all-time high for the DAX as well. Uh, the— where we close the week will be key. And if we were to close where we do now, it's a double top, it's a failure to push on, and, and technically, you know, is that the point where we, we start to drift lower? ECB may have something to say about that. Just finding a bit of support here on the, the low of the 21st. Below there, and here, this would be on the more hawkish side of things if they were to go through. Just keep a watch on the low of the 8th, the low of the 14th, and the low of 17th, around 13,380. Pretty key level of support, uh, where, um, you can see we've had a few, few lows that come in around that area. Where would I be happy to, to be a buyer? I will obviously wait for the ECB, but if we were to, to get above, uh, I mean, really, here you— there's a couple of points where, you know, the yesterday's low into today's high, 13, uh, and a half thousand. I quite like that. If we can get above there, I think we'll we do just drift towards the pivot pretty quickly. And, uh, you know, above there, well, you know, talking all-time highs again. Uh, hope everyone has a good trading day. As usual, any questions, please, you know, do get them in the chat. We'll cover the ECB through Trading Live around, you know, 12:30, 12:45, and then the press conference. But markets perhaps just going to drift into that, especially European ones. S&P, if we can come lower, 33 $1,309, the level to keep an eye on gold. I'd probably wait and see. Oil, $55, uh, a dollar below where we're trading now could be a very important, uh, level to keep an eye on. Hope you'll have a good trading day, and I'll catch you all in the chat later on.