Morning Briefing - 18th July 2018

Good morning. It is Wednesday, 18th of July. Hope everyone is well. Usual briefing then to get things going and a look ahead for the day ahead. We'll see some interesting economic data coming up in about an hour's time in the form of UK CPI. So we'll, we'll have a look as to what to expect from that. Looking at the charts though, first thing, let's talk about yesterday and what was a pretty awesome recovery in the US equity market. After what looked like a fairly negative open in yesterday's session, falling on the coattails of the— following on the coattails of Netflix, who saw a big move lower after their earnings. So just wanted to start off and show you this. This is the sharp recovery seen in Netflix shares. Did anything new come out for Netflix? Well, absolutely not. Nothing came out new. But such is the kind of appetite for, you know, this stock, which has been incredibly, as we discussed yesterday, popular throughout this year. Almost the mentality then of people buying the dip, taking the advantage of the drop of 14-odd percent that we saw on the back of the earnings report and quite a steep recovery that we saw. I think they finished up about 8.5% last night. As an individual stock, but from an index futures point of view, I mean, there was the dip that we saw on the back of the, the late evening trade in the NASDAQ when that result came out. But as we were kind of discussing here yesterday, you know, identifying these lower levels, which would be technically then of significance and sound points of potential entry, is that I just don't feel this market has any real reason to go lower at this point. You know, you take Netflix as quite an isolated case of which is a very outlying growth stock which has seen monumental gains over a just a small multi-month period. And so a bit of a pullback like what it saw, I don't think has much in the way of a repercussion for broader market sentiment in terms of beyond that of the knee-jerk reaction that happened. You know, if you think about things like trade wars, it's almost like trade wars has just completely been pushed aside. Obviously, Trump has been otherwise engaged with Brexit and with Vladimir Putin, so maybe that explains some of it. But certainly from what we were discussing day to day only about a week ago, trade wars certainly has taken a bit of a backseat. We had Jerome Powell, of course, speak yesterday, and we'll have a look at that shortly. But net-net, not really a great deal from that, but continued kind of cautious manner to this approach of rate normalization. So if anything, that being a supportive factor as well in regards to not overtly tightening too quickly. So, you know, you start to hear these people talk about this Goldilocks scenario where some of the low probability risk from an escalation, a trade war, obviously though could have dire consequence if it did materialize. So therefore, you know, does that prompt a more cautious hand from Powell, which ultimately means we're tightening but at a gradual and cautious manner, which we've seen before as being a real equity positive? Then you've got the broader earnings season. So on the micro level, you know, Netflix aside, earnings season has been going the way of which most analysts were expecting. Which is that of solid improvements going forward, chiefly benefiting on the back of the corporate tax cuts. So here we are in the NASDAQ, and actually last night we hit record highs. So, you know, just when you thought there was a bit of a catalyst yesterday for a pullback, we got down to really what was the intraday, the S1 level, which was around the high point of the 11th. You can see here, and then the market just responded very aggressively and I think one key point here is timing. You know, if you're looking at these US indices, for sure, the US session with the pickup in volume, as our friends across the pond come in, the cash markets open, and we see that, that pickup in the futures market, you tend to get a much more cleaner direction in the market typically. And, and really quite a powerful move seen over a fairly short period of time through the open, Powell's speech, and then after the last couple of hours we're pretty sidelined up until that point. I guess just looking at the NASDAQ here in a more tighter time frame, I'd just be looking at this as now resistance turns support at 7415.25 in the futures, that being this kind of area of double top from end of last week, Monday of this week, and then from the price of which we broke yesterday. So if we drift lower again interested to see how it responds at around that point. Um, looking at the S&P, so looking at the S&P now on a daily continuation because we want to see it on a more bigger picture to encapsulate what was that big sell-off. You'll remember on the surprising pickup in wages, February was when the market went into panic mode about synchronized policy tightening of the global central banks, and that was when we had that really big sell-off. Ever since then though, you can see we've just been clawing back those losses. And actually, from a, from a technical point of view, I think we've broken now quite a key area, which is really these highs from back in March and that high from mid-June. So this kind of price band, if you like, of this area of potential resistance, you can see the market did respond to it both about 8 days ago and also back on the 13th or the 12th of July. But now we've managed to get above that. What is quite interesting now is, you know, where do we go from— where do we go to from here? And obviously, for the NASDAQ trading at record highs, the S&P has quite a way to go until it gets to that point. But yeah, there's not too much to think that in the coming weeks possibly that we can't get up to these type of price levels. Obviously on the, the interim on the way there you've got the 50 mark just for a psychological kind of target as well on the ascent if we were to continue to move higher, but there's not a great deal there technically as obstacles on the upside. And I think having got above this key resistance area which really held the price action in June and saw quite a decent pullback, now we've got ourselves above there The question mark is how far can we go? Looking at the Dow, uh, similar kind of thing actually. So for today's session will be interesting to see whether or not we'll use that again, that kind of mid-May. I've had this— was talking about this yesterday. So this— these are actually markups from Tuesday's session, but that high point in May and that low with the bounce that we saw and some of the volatility on the 8th you know, that 25,080 level. We're above there at the moment, obviously keeping an eye on the upside. You kind of got the, the highs and the trend line coming down. So again, another kind of setup where all things remaining equal, you'd feel like the markets should still be supported unless something, uh, I guess overtly negative was to occur, at least in the short time, to bump prices lower. With this happening though, uh, kind of risk appetite, you know, moving into these riskier assets, well, gold has remained under considerable pressure. And again, a markup from yesterday. And when this broke, I was kind of commenting on the fact that my belief here was that, well, really this should open up a bit of further downside now for gold because it's such a key technical level. You can see it marked up here, which was the end of 2017 kind of mid-December low. We've broken that, and since that point we kind of dropped another $12 from yesterday afternoon. And looking here as well from a technical perspective, I don't really see a lot there either. All things again remaining equal, equities remaining buoyant, then— and the dollar has seen a pretty rapid rebound over the last 24, 48 hours. The downside, $12.14, 3 would be a target, that being the May 17 lows. And then you start talking about the $1,200 psychological level, of which about $4 above that you've got the, the midsummer lows 2017. All of those for sure within distance now. I mean, you see how rapid gold can move. Now, within the last 12 hours, it's already moved from about a 3640 handle down to now a 20. So for it to drop down to test the 1200 handle, yeah, no reason why that can't even happen today under the right conditions. So definitely, given the gravity of some of these levels, particularly that lower bound one— so by this I mean really this 1200 handle— that is going to be big if that gives way. And then that could get interesting very quickly in terms of the— probably the speed of which the decline could materialize if that were to happen. Elsewhere, the other thing I was just looking at, and again a chart I had marked up from, from yesterday, I was looking at the broader kind of pattern of the Treasury market, and this was actually a trend line I'd put on last week, but still seemingly the market responding to it We have had some flurries beneath, granted, a few ticks below, but the price action of the US 10-year has been relatively contained. I mean, you're looking now between the bottom and the high of this about 10 ticks. You can see we've already just moved back up to pivot this morning. So again, I'm just kind of trying to tie in a little bit here of more of the technicals that are in play, just given the fact that from the fundamentals, obviously a lot of people talking about things like Brexit, and for sure that is having an impact on the pound. But for the broader market at the moment, you know, in terms of equities, gold, and T-notes, there's been some quite more cleaner, clearer directional moves. For oil, now this also has has been obviously very interesting. I was just looking at this this morning. This is the 100 DMA defined by the blue line, looking on a daily continuation in WTI crude futures, and you can see pretty much to the tick it responded to that as a support point. Now, that being as well that previous high that we had back on the 14th of June, we obviously blasted through that about a week or two later, and that was when we saw the, the multi-year high that was up here at the 75+ mark. But as we come back down, I definitely would be interested around this kind of area here as to crude support, and a fairly decent area of support I would see it as. Not just with that, that 100 DMA. Yes, I mean, look, I mean, it's only relevant really because of the bounce from yesterday, because it was not much of a, of a key level going back to this early part of June. However, just putting into combination around that 67 handle with the previous points of resistance seen kind of beginning of the year and also in May, so this kind of price band again I'd be looking at with some interest if we're going to see a further pullback to this quite aggressive move we've seen off the highs in oil. You'd need to see this kind of area break for then another move to the downside. I feel, uh, target then would be— I mean, you're looking at $65 as a psychological level, but technically that's a bit messy. Then just eyeing down the, the kind of broader move, I guess, of the, um, the recent range, which would be down at the low at $63.59. Um, so yeah, quite a few interesting things here to contemplate as you go through, and there's obviously some, some quite nice levels that are lurking at this present point in time. Just having a quick look elsewhere. Okay, on the oil front, news perspective, we obviously have had some news, and this is the API crude oil inventories came out last night. See our precursor to the DOE numbers, uh, we'll get later. So let's have a quick look at how the market responded and the numbers that we saw. We had a crude build of 629,000. Expectations were for a draw of 4 million, so a more bearish outcome from the headline figure. Remember last time we had an incredibly large drawdown in last week's reading, it was I think it's biggest drawdown since SEPs 2016. So a reversal of that. We've now got a build. Cushing though was a draw and fairly sizable, double of consensus. That does mitigate the bearishness of the headline a little bit. As too does the fact that gasoline was a build. Distillates was up, uh, a build of 1.7 million. How did the market actually respond last night? Well, let's just have a look. So 9:30 let's just go back. Yeah, the move here— I think the fact that I'm struggling to find the actual candlestick— well, there you go, that was the move. So relatively small, certainly in comparison to just some of the daily ranges we've been having in crude. See, 2 days ago it fell over 4%, which was a, a really strong move. Uh, and so we're at the lower bound at the moment of what has been a kind of range low around this 66.71. So the data last night was perceived at the time to be erring on the more bearish side. Uh, you've got the intraday low at 58, and then you've got this recent price low from yesterday's session at 66.35. On a daily continuation, again, because it's lurking around these key areas, it could be quite interesting. If this data is bearish today, is there a prospect then of opening up some further downside? It could be, could be very interesting if the numbers fit that way. All right, so we've talked equities, we've talked oil, had a look at gold and T-notes. Let's talk Brexit, or Brexit depending on how posh you are. But Theresa May prepares for a grilling from MPs. This obviously comes after an incredibly tough week for Theresa May. She's managed to go through two quite key votes on Brexit legislation and passed by the skin of her teeth. Not though to the detriment of the fact that further resignations further division within the Conservative Party becoming ever more evident. One thing then, looking out for, for today, as per usual, we've got the Prime Minister's Questions. That's probably going to be worth tuning in for, I'd say, at midday. Not because I think that anything particularly, uh, amazing is going to be said that's going to move financial markets, but just for the sake of— I mean, it's going to be a hotly contested debate. Let's let's put it that way. A lot of disgruntled, you know, forget opposition parties, this is a complete fraction now between the Eurosceptics and the pro-Remain Conservative members. And so that's definitely going to be something to look out for today. Mrs. May also is making an appearance at the Liaison Committee of Select Committee Chairs, I believe, later today. This comes after, of course, ministers saw off a bid by Tory rebels to create a customs union with the EU if a trade deal failed. And so definitely we've not heard the end of this story as yet. But going through a few other things, Theresa May has said, according to The Times— this was just ahead of the vote apparently yesterday, because this is when the, um, basically the long story short, the more remain-minded Conservative members were so disgusted by how she kind of gave in to the demands of chiefly Jacob Rees-Mogg, who many you'll see are joking about he's really ruling the Conservative Party at the moment. Her amendments to appease the Brexiteers really fired up these more European-friendly Conservative members, and basically they've said they could now cause an issue and rebel. But what Theresa May apparently said before the vote yesterday on the customs union issue was that she threatened them with a general election this summer if they defeated her Brexit plans on customs. Now that brings about an interesting question then. If we had an election, or if we had a second referendum, what's the appetite, what's the market sentiment, and what's the public sentiment more importantly for this? So we had a YouGov poll commissioned by the Times newspaper The poll was a sample size of approximately 1,600 people, and the poll was taken on Monday and Tuesday, so obviously right in the midst of this white paper debacle that's been going on. Now, what's happened here though is that Labour have pulled 5 points in front of Conservatives as support for a second Brexit referendum has now risen to its highest level to date. So according to the YouGov poll for the Times, Labour now are at 41%, up 2 points from last week. The Tories are down 1. So here are a couple of interesting things here. This is the Westminster voting intentions. So as you can see, Labour have gone ahead. We'll look at this in more detail shortly. A couple of interesting things though here. Do you think there should or should not be a referendum on the terms of Brexit's exit from the EU? I.e., I guess a public vote on the final deal, which is being pushed by people like Open Europe and Chuka Ramona and so on, campaigning certainly in London for this to happen. But the public have said that should not happen. Then asked with the question, "Do you think there should be a three-way referendum?" The three-way being remain, leave with a deal, or leave with no deal. Do you think there should be a three-way system? The majority say no, should not. If though there was a three-way question referendum, how would it pan out? What would be the first preference out of the three? Of those surveyed, Remain is 50%. Leave— on the Leave side, actually, people would much rather leave 'with no deal' than a bad deal. So these Brexiteers and David Davis with his kind of famous line certainly does resonate with the, the general broader public. And if their second preference is, um, remain or leave with no deal, then remain 55%, uh, leave 45%. So that's kind of your, your sentiment as far as we could tell from the most recent surveys at the moment. Now I was just checking this out, and this is a table basically tracking every single major poll that comes out. So this is looking at the major pollsters. I'm sure you would have heard of nearly all of these: Kantar, Survation, YouGov, Ipsos Mori, so on and so forth. Now the interesting thing here of course is that the difficult position— and I don't blame Theresa May, she She's just doing what she has to do and what she can do. But this divisiveness of this argument between trying to secure something which Europe are going to agree to, which inevitably leads down the soft route, but trying to appease the Brexiteers in order that you have enough support to progress anything, has led to this big kind of political breakdown that we've had over the last week. As a consequence, Labour— and I was just tracking this data back, and it goes all the way back down through history, essentially, or recent history— and the last time Labour have been this consistent with this kind of increasing and a 5 percentage digit margin, you've got to go right back to immediately after the snap election of 2017 when popularity for Labour was this popular. Now you'll remember that if you go back down, you can see all blues here because a few months ago— well, go back, look— Labour at the beginning of the year and Conservatives were completely neck and neck. Then Jeremy Corbyn did an absolutely awful job about his party's response to the anti-Semitic claims that came the way of the party and him in particular. Tories pulled away. But now that, that, you know, it's kind of gone and forgotten almost, and the market and the public has been so influenced by this narrative of Brexit and its lack of progression on negotiations, that Labour have now started to see the most consistent pullaway they've had in a while. So definitely this gets interesting, uh, obviously if these leads continue, um, you know, Do we go the way of a second referendum? Does this open up the possibility of a new general election? Does this then mean, you know, potential for Corbyn to become Prime Minister? You know, these are all potentialities. I mean, I'd say likelihood of this is still incredibly low, but does need to be tracked at the moment. The other thing, of course, is that this recess period that Theresa May was said to be quite keen on to basically shut down Parliament so that they can't continue to have a run on her leadership, or the confidence on her leadership was pretty much closed down pretty quickly. That's not going to happen. No one's going to support that, not from either side really of the Brexit argument in the Conservatives or the opposition party, who want to see the PM struggle in order that they get political backing or favorability. In that sense. Looking at cable, this is cable on a— this is cable on a much longer time frame. And for me, cable is at a really key point now. It's kind of a little bit— we're in a zone of make or break because from a technical perspective, similar to the discussions what we were having with gold, similar to discussions in oil with those downside levels, I kind of think cable's pretty similar as well. You can see here we are testing at the moment that previous low that was seen at the end of June, but that is quite key because of the areas of which we traded previously here, the kind of upper bound of the mid-2017 high. We did get above that, but it proved to be a stern level of resistance or support back in October of last year. This was after the the coughing fit of Theresa May when the P45 came out. That was when we hit that low back on the 6th of October. We then— it was exact to the tick support in November, and then here we are right now. So another little bit of kind of heightened political risk to bump the price lower through this 131 handle. And we're really talking about the lower bound in the futures is about the 50 mark. Then, you know, technically there's not a great deal below here. The areas then I'd be watching are probably around the 46, which would be kind of around the initial aftermath era of, of the referendum vote itself, some of this period here. But the bigger target there being this one and this level here, which would be 2783. So if I just clear that off Now these are the broader ranges, so cable's not that far from technically under the right— again, fundamental developments, which would be really more further heightened political uncertainty— of breaking lower. Now what could be a trigger today, of course, for this move is you've got UK CPI. Now UK CPI, this is what it's looked like year on year, and it has, after what has been a fairly quick and consistent fall fall from this, what looks like now in hindsight, the peak of inflation. So the Bank of England, if anything, right to not immediately turn to rate hiking. They were confident that this kind of, uh, effective pound weakness immediately after referendum would fade, and with the general slowdown of the economy, demand would also wane. And that's kind of played out into fruition. Question mark now is the consensus estimate today for this figure. Well, let's just quickly flip over to the calendar here. For the year-on-year, UK CPI is 2.6%. Now, I think Deutsche Bank were talking about this at the weekend about— I think it's energy prices are going to show up in the June report, which is a key contributing factor to the bit of a pickup. So the core reading might be interesting as well, but 2.6% certainly would help then these support levels at around this area. So despite the political uncertainties, inflation picking back up, although expected, uh, might provide then a counterargument to wanting to contain or continue that short positioning, at least in the intraday environment. However, if this number is a disappointment— now let's have a look at the bottom of the range. We've got a range of unchanged. Well, look, check out that for a range for CPI. That is quite unusual. You got 2.4% at the low to 2.9% on the high. 2.9%, that would be a phenomenally large jump, taking us all the way back up here. For sure, I'd be looking for a pretty strong response in the pound given its general positioning over the last day or so, where the pound has weakened quite considerably. Granted, this is mainly on the back of political developments but a 2.9% reading would definitely fire up the pound, I would say, for this morning, given the context of where it is at the moment technically. If we were to get a low surprise— now the lower bound, again, it's expected 2.6%, the lower bound is 2.4%, so if we did get a 2.3% or so, then that's when maybe you'll get an assault on these key technical levels to the downside. So certainly does warrant monitoring quite closely. All right, let's just wrap up things and look at the rest of the calendar for today, and I'll let you guys get on with things. So that UK data, CPI, obviously key. Alongside this, you get the other inflationary measures— PPI, RPI. Eurozone CPI at 10, but this is the final reading, so unlikely to be too, too market-moving. This afternoon, housing focus from the US, usual mortgage apps. Building permits, housing starts. So again, this particular area of the economy, not that impactful for, um, the financial markets in terms of policy thinking or altering that of Fed thinking. And then you've got the oil inventory numbers coming out as per usual at 3:30. So we'll recap the APIs ahead of those in full. You'll note you've got Jerome Powell giving the semi-annual testimony today on the economy monetary policy to the House Financial Services Services Committee. So just quickly to review this, uh, for Powell, if I just bring up the right chart, uh, this was Powell yesterday. For now, caveat assigned Fed rate hikes not on autopilot. The Fed chief adds caveat to plan for gradually or gradual interest rate hikes, has a judgment to make on how hard monetary policy is biting down on the US economy. The signal came from two words: quote, for now, used by Powell as a caveat in his description on Tuesday of the central bank's plan to keep gradually raising the federal funds rate. So obviously potential headwinds escalating from the trade war are quite key in the context then of fiscal stimulus boosting growth. So things then, incoming data, data dependency, and so on will be key. To conclude though, just remember what he says today in front of the House is very much a copy-paste-repeat of what he said to the Senate. So we're not expecting too much. I certainly would be out of any positions when the speech comes. Same format, the accredited news agencies will release this at the specified time, so 3 PM. But it's very unlikely he's going to say anything. But just for the, the small tail risk that he does, I'd kind of stay out the market at that point, see what he has to say 99%, we can expect nothing, and then just look to, uh, recommence any of our trading thereafter. Okay guys, thanks very much. Have a good day. Sam's obviously here all day, as is Inga. If you have any questions, I'll be kind of on and off the desk but here most of the afternoon. So have a good day.