Morning Briefing - 20th September 2018

Okay, very good morning, Thursday, 20th of September. I hope you're well. I thought I'd jump on. There's a couple of things I want to cover from, I guess, a broader macro perspective. So I'm just going to talk for about 10 minutes and then I'll let you listen to Sam and he'll go through the markets in a little bit more detail for the intraday. But there's a couple of broader, bigger themes that I thought I could touch upon at least and give a few insights, or at least my opinion on. That hopefully could be in some way useful. But a quick look across the charts this morning, a little bit of dollar weakness. We've seen the pound just pop higher on the break of pivot. There's actually been another U-turn, some positive comments out of EU's Juncker. It's just come out a short while ago. We'll have a look at that in a second. So cables just elevated at the moment. Eurodollar has also followed suit. In the equity markets, mildly positive. Nothing spectacular, but certainly coming up to the top end of the range. You can see here in the S&P, it's pretty similar for the Dow futures as well. So worth keeping an eye on. And then with a little bit of mild dollar weakness, crude futures just off the high, but up about $0.37, still above the $71 handle at the moment. So that's kind of the general feel. As I said, Sam will go through this in more detail, but I certainly just want to jump on and talk about a couple of things. And so Starting off with the UK, quick talk about economics, but ultimately the politics is the driving force of the currency at the moment. And obviously I wasn't on the desk yesterday when the CPI numbers came out, and I was quite shocked when Tommaso told me what the numbers were. I was like, wow, how did the market react to that? And obviously the pound spiked higher but fell back quite quickly thereafter, and then the kind of politics overshadowed the move. But this was quite an interesting graphic I saw in the in the FT this morning. What it's looking at is, uh, obviously yesterday inflation was an upside surprise, i.e., the expectation was superseded. Um, I would imagine just given the size of the beat that it was above the top end of the, the range. But as you can see here, that was quite a surprise because we had had basically 5 readings in a row of fairly substantial, uh, downside surprises. We've not had an upside surprise really. You've got to go back to right at the beginning of the year. So So it was quite shocking. However, one thing that I, you know, when I see a data point that deviates from the, from the consensus figure so, so much, my, my initial thinking is, well, why did that happen? What's caused inflation in the UK to spike? And therefore, as a net result, is it a sustainable situation or is it a one-off? Because that's very important for how you trade the pound in the short term. I.e., is the pound gonna spike higher and continue, or is this just a one-off thing and the markets will quickly look beyond it? And this is a chap I follow on Twitter, I do highly recommend him, he's the chief UK economist at Pantheon Macroeconomics. He's, you know, he comes up with some really sharp analysis, and looking at what he said, and I did look into this as well, afterwards, but I think he's absolutely spot on. Half the rise in CPI inflation in August, which is what we saw yesterday, was driven by the transport services and recreational goods components, which— if you actually look at that data, when you break down CPI, if you were to go on the Office of National Statistics and you see every single individual contributing sector to inflationary conditions in the UK, you can see then that these are typically some of the most volatile i.e., very hard to say that we're on now a renewed inflation fear in the UK when ultimately it's down to these components which tend to be very, very volatile. And the thing here is that continued weakness in underlying services inflation means the case for another rate hike is flimsy, is what Samuel Tombs is saying. And I couldn't agree more. I think although the pound is on the front foot this morning, as you well saw yesterday, this isn't so much about inflation. If this was sustainable and the thought was inflation would continue persistently to be higher, well, this ultimately is going to force the Bank of England into a bit of a rock and a hard place about potentially raising rates. My point here is that I don't think you should read too much into yesterday's CPI reading. I think that was already evident in the way the price reacted yesterday. What is the big thing then that's driving markets? Well, ultimately I mean, this was the CPI release we had yesterday. So that was the pop higher, the quick reversal that we saw really within 20 minutes. What was quite nice here was the technical way the market responded to the pivot levels because we kind of found some resistance at what was the daily R1, broke that on the data, the fast money. And this typically is the way markets tend to trade in these speculative short-term movements is, you know, people get in and want to get out the market at the first possible exit. And none other clearer when you're trading quite aggressively than identifying this around the pivot levels. The market then came back and lo and behold, it came and touched right back to the previous point of resistance. We then found support, rose higher, but then ultimately the Brexit to and fro kind of came in and we started to see this really seesaw price movement. That being the UK, Theresa May cannot accept Northern Ireland the kind of discussions being separated from UK customs, and we spiked lower. And then later on, Juncker said the EU-UK are far from a Brexit deal. But guess what? With Juncker this morning, he's just come out and tweeted and said Prime Minister Theresa May's presentation at the EU summit in Salzburg last night was a delight. I mean, make of that kind of wording what you will, but I mean, the pound has not spiked, but certainly if you needed a catalyst for a little break on pivot, which was holding some of the price action, you can see here in the center top chart, uh, that definitely has helped the situation. Obviously, if you're trading these types of headlines, my recommendation is that certainly politics is more powerful than economics at this point as far as the pound is concerned. But one of the things here is about the longevity of the types of trades that you're going to put on with this type of responsiveness to the news and headlines. What I mean by this is you can already see Juncker yesterday, it was moving lower and now it's moving higher. And this is the same guy 12 hours later changing his, his wording. So, um, you know, there's a lot— it's a very fluid situation, which should make you then, if you are trading these higher volatility risk events, you know, just be aware of exactly that. High risk, high reward. So you've got to approach it appropriately. Would I just be sitting there banking on the fact that I'm going to try and hit every single Brexit headline? I think if you did that, you're going to lose money. I think if the opportunity arises, sure, but you know, you want to be thinking of consistency and strategy. And then if you get the big one that comes out, i.e., no deal or these types of headlines, and you get a really big consistent clean move in the market, Sure, there's going to be opportunity. You want to get a hold of that. So, you know, I think just putting things in a little bit of, of context. On that note, couple things to be aware of then, because this is the type of headlines that we're seeing at the moment. And this is the UK-EU swap jibes and point fingers as the Brexit clock ticks, kind of then summarizing that chart we were just looking at with the, the various tos and throws of the, the price action. Now what's happened here is that Juncker said yesterday the Brexit deal was far away. The Irish prime minister said there had been no progress in talks since March. And Theresa May said there'd be no extension to Britain's membership to give negotiators more time. So if you think about it, going into this Salzburg meeting only about a week ago, what you were hearing was quite aggressive kind of positioning and commentary for the likes of the ERG in Britain. Led by kind of Jacob Rees-Mogg, and then there's Boris Johnson as well. And what was happening for Theresa May was actually some positive developments, almost conciliatory tone from both the UK government and Europe going into this meeting. It was quite a positive atmosphere. And then you came out of it yesterday completely the other way around. So, you know, it's a much harsher tone that's been issued by both sides than I think that what we were seeing in the build-up, which is obviously quite interesting here. Time-wise now, a special summit is set to be called for mid-November for a final Brexit deal to be done. But chief EU negotiator Barnier said late yesterday that the UK couldn't postpone decisions until then and would have to come up with new proposals in time for the next summit, which is only in a couple of weeks in October. The main sticking point, of course, still remains— it's like a broken record, I feel, from the last several months— the Irish border. EU officials are starting to rewrite their proposal on the border to make it more palatable to the UK, but they are not budgeting on the issue that's most unacceptable to the UK, that being that Northern Ireland would have a different customs regime to the rest of the UK, the diplomats in Brussels were quoted as saying. So we still need to monitor this, obviously, even in the short term today, because, you know, the show's not over yet. The The kind of Salzburg circus is still in town. And this is the agenda by time for today, local times. You got arrivals. If you're watching Bloomberg TV this morning, you probably would have already seen this. They've been turning up all the main senior officials. So there's a working session happening this morning. You've got the family photo. Interested to see how that pans out. And then you've got the working lunch on Brexit. But the big kind of section of this obviously is coming in the afternoon because this is when you get the press conference trying to wrap up this event. So this includes Donald Tusk, the president of the European Council, Jean-Claude Juncker, and Sebastian Kurz as well, the federal chancellor of Austria. So a couple of key speakers there to be aware of. And this as a side point to just the economic calendar for today certainly will be pivotal. for potential renewed movement of the pound. As a separate note to this, if you are going to be tracking the news intently, then obviously, you know, looking at the media scrum this morning as they arrive, everyone's there, including of course, uh, Laura Koonsberg. And she's been breaking a lot of the headlines as well. I can see she just tweeted here 13 seconds ago on my feed, so she's definitely active this morning. And I'd be monitoring her closely to try and obtain a bit of an edge on getting the latest scoop in that sense. So that's, that's Brexit. Another thing I saw, again talking a little bit more broader macro kind of issues here, is we've got to talk about Trump, we've got to talk about China and the US just briefly. I don't think that's so much of a big change in headlines. There's nothing really new that's gone on. We've obviously had the president look to order those new tariffs on China, kind coming in on September 24th, which is only 4 days away. And then he's talked about upping the 10% threshold to 25% in the coming months. Interesting thing though that I've been reading, um, last night is about how China, as we know, have been fairly passive and responding only in kind thus far, and not upping the kind of ante in that respect. Now of course we know one of the pivotal political marks in the calendar is going to be the midterms, which is obviously now only weeks away come early November. One website— and fortunately now we have Bill sat in the background here who has a political career in terms of his history, so it's going to be excellent having him on board with the Amplify team to talk about these things in the chat— but one thing him and I were talking about the other day briefly was a website called RealClearPolitics, or otherwise known as RCP. Now, anyone in the US who knows their markets or indeed their politics, this is kind of the benchmark website that everyone looks at. You know, if you read a research report from Goldman Sachs, from Deutsche Bank, from JP Morgan, The Economist, and research strategists and so on and so forth, this is the website that they actually use. So this is seen as the most credible in terms of the data in which it gathers. Now, what I was looking at here is that, um, are China actively being passive for a reason? And by this, what I mean is that at the moment, the composition of Capitol Hill is Republican, i.e., you have Donald Trump, and the House and the Senate are both run by the Republican Party. And although there is differences, of course, even within that one political political party in regards to their belief and full backing of the president and his policies. The truth is it's a Republican-led White House at the moment, wholeheartedly in that sense. The key is here is that the polls would indicate that there's going to be a shift in the House. This could be incredibly problematic then for Donald Trump. And if you're China, why up the ante now when you know that on the balance, the probability as far as the polls are concerned is that the Republicans are going to lose the House because the amount of seats that are up this time round. Then that means that any type of policy of which Trump wants to push through of a more aggressive nature, which we know has been his, his kind of typical practice, it's going to get voted down by the Democrats. And so then, you know, this kind of pushing so aggressive against China Does that get then, you know, pushed back by the, by the, the changing of the chambers in this sense? So I think I don't really see this China, you know, there's obviously a lot of questions because we're getting to the point of a very elevated level in the conflict. Oh, you know, I had questions on Twitter and LinkedIn to me about when are China going to start dumping their treasuries? That's not going to happen, in my opinion. I mean, that's the most self-inflicting way of hurting China by doing that type of activity. But for sure, I think that you could have China tweaking its kind of size of purchases of Treasuries. And that— we saw that in data yesterday, in the TIX data. But I think that a lot of that is for selling dollar-denominated holdings in order to have cash then to prop up the market for the weakening of the currency. So I don't think this is really trade to— or tied to trade wars in that respect. So a couple things here I just wanted to cover on the Trump side. And, you know, one thing to be clear of, you know, this might be an easier graphic for you to digest. This is the current House of the 115th Congress, and you can see here how well the Republicans did really when we had the presidential election. In 2016. So you can see this kind of sea of red apart from the kind of classic areas on the kind of West and East Coast. And this is the contested areas and what the polls are indicating. And you can see it's a lot more split here than what we were looking at before, which could see then ultimately the shift out from the Republicans into the Democrats. But there are 40 toss-ups, they call it in American terminology, These are the kind of, let's call it a swing state, or a swing seat would be in this particular instance. And actually what you can do on this website is, and this is what we will be doing on the, the kind of night and evening of the midterms, is we're going to be looking at every single seat as it comes out to see then which ones are the toss-ups which are quite key. Okay, final thing for me is Japan, and this is a very short conversation, but the one thing to be clear here is that this isn't an overall Japanese election or anything of that nature. This was a Liberal Democratic Party, the LDP, which is the ruling party in Japan, and they had their leadership context— contest— of which Shinzo Abe won. So he's won his third straight year his third straight 3-year term as head of the ruling party, which basically shooes him in to now become the longest-serving Premier in Japan. So he won comfortably, 553 votes, nearly 70% of all the votes that were tabled. What does this mean? Well, it doesn't really mean a great deal. You can see that from the fact the Japanese yen hasn't really reacted. This was to be expected. Because of a lack of credible rivals within his own political parties. This is irrespective of the fact that he's had political scandal thrown at him all over the place in the last 12 months, and he's kind of lived through that by the benefit of the fact there's no credible alternative. It's kind of, uh, the, the political status quo, it almost seems, across the world globally at the moment is that people are unhappy with the establishment, but there's no credible alternative. And that's kind of a similar case that you've got here with Japan. From an economics monetary policy point of view, well, this means that you're not really going to see any radical change in BOJ approach to their ultra-loose monetary policy stance. That looks set to continue then, now that he has remained in power. Okay, that's it from me. So just thought I'd add a few, few points, a few, few thoughts, because I've not been on the desk for, for a couple of days. I'll hand you over to Sam now. He can talk about the charts more technically and the setup for the intraday. But otherwise, have a good one. Thank you very much.

Hi guys, good morning. Obviously got about 50, 40 minutes or so till the UK numbers out and you can see pound and euro as well and S&P just pushing to the highs as the dollar Itself, the index is on the low of the day, lowest since midday yesterday, and quite a key level to be aware of in the pound if we were to continue to push on. But you can see where we traded yesterday, um, well, not yesterday— well, yesterday morning very early on, and also on Tuesday, and then before breaking through from the data yesterday. This area where we're trading now, we had very strong resistance. So even though we had that sort of spike post-data and then the, uh, the Irish border comments, I'd still be keeping an eye on, on this level as a strong one of importance. Um, trading before the data, I wouldn't be too keen on doing that, but around that pivot looks half decent. Probably worth having a trend line as well using the lows that we've had into this morning. Uh, it's sort of, as long as we stay above there around the pivot, then I'd favor the upside if we come below, then it might be an idea to get short. Low of the day as the target before getting down to, uh, the lows from yesterday afternoon, uh, around here. Mention the euro also pushing on. You can see not too long ago making that high, really key area. You can see, uh, on that longer term chart as well, we've gone through in previous days. But even just looking here on, uh, the sort of last few days, once, twice, three, four times coming up to that 118 area on the futures. And it really is, is quite key, I suggest, um, keeping an eye on that R1 later today. Overall, I do, do favor the upside, um, but similar sort of, uh, thought process to the pound, that they only really looked to get a proper short. And if we were to break the sort of lows going into that pivot— so pivot, uh, sort of the last line of support, I would say, for these pairs. Uh, obviously the first sort of test up around this area, you would expect a bit of a bounce for the euro. But, uh, just favoring a bit of dollar weakness to continue while keeping an eye on the, on the dollar index for now as well. Not the only pair that's higher— Aussie dollar as well. Pushing on. Didn't quite make it down to the pivot, which would have been quite a nice point to have got in this morning. But pivot for those 3 pairs, quite interesting levels, uh, for the continuation to the upside. And the previous highs from yesterday and beyond, quite important as well. Equities in the US, uh, the pivot seems the theme of the day, has held quite well. Quite key resistance that we've touched again this morning from the high of overnight yesterday and then Tuesday as well, and even going back to the 14th. So finding a key resistance for the S&P there. And you can see even if we were to push on, you've got the, the all-time high just above where we're trading today on the R1. Can we reach that today? Wouldn't be completely out question. You know, everything that's sort of been chucked in its face, it's turned a blind eye and continued to sort of grind higher. And I would imagine that would be the case today. Not the worst idea to sort of look for yesterday's high to break up to that all-time high, and you can even look to leave some on to push higher. NASDAQ, which you can see on the open yesterday, after pushing to the new high for the day, we did push lower only to the then, um, sort of reclaim any loss. And the pivot again holding quite strong. This one I'd be slightly more cautious in terms of overall sort of direction for the market. Might be worth having this on just to sort of wait for either that push higher and let the market tell you we're going to go in, uh, to sort of test the, the high that we had from, uh, from Tuesday and Monday. Or if we get below that pivot, sort of down to the S1. Dow, which— Dow Jones, which outperformed massively. I think this is definitely a case of putting this on this longer-term chart because having cleanly broken above the levels that we talked about earlier in the week— let me just give me a bit of time to make this full screen— you can see now we're trying to break through the high that we had on the 30th. We talked about this area being quite key for the sort of the, the last push on, having broken through some key resistance in the last couple of days from the last day of January. So the 30th of January, which was also, uh, pretty much yesterday's high, that would be an area that I'd be interested in, uh, to keep an eye on this morning. Oil. So yesterday we had that push late into sort of the, the afternoon, and it has continued. And, uh, if I were to bring in the longer term chart, let me see if I can find that quickly. No, I can't. So I'll just put it on. You can see for, for oil here, a couple of really key resistance points coming in. We're into that, that zone, if you like. If I get the rectangle, you can see from that 6th of July, just trying to break through into this area. I'd again favor the upside here. I think now could be the time where we get a bit of a further extension, and I'll be keeping an eye on— well, what would roundabout be just above 72, uh, the dollar handle, uh, today. So I'll be focusing on that. Gold as well, with the, the sort of dollar weakening, um, over the the last couple of days, to an extent, sort of recovered a bit as we're coming back to that low, would favor the upside. But I think I'd really only want to get involved if, if we were to really— I don't know, I think actually for this, while the euro and pound, I favor a move higher to sort of look to get in, I think gold might be a case of sort of waiting for it to come a bit lower to continue this sort of dollar weakness scenario. Maybe not the best sort of market to look at for that. Um, dollar yen, sort of wrap things up before going to European equities. You can see the sort of the range-bound short on R1 would look technically quite good if we were to, to get up there. And, um, yeah, same sort of, you know, a lot of price action around the pivot points. Today. I think if we were actually— you know what, I think looking at this, you can see how many times we've come up to that R1. I'm not sure I'd definitely fancy an overall, uh, short from there. Same with the, the S1. We've had 1, 2, 3, 4 tests on that, uh, that maybe looking to get in around here would be quite unwise, as well as there. And the, the trade idea, actually, just having a look at this, that I do like the look from would be a break above the pivot to target the high of the day and then that R1. So it's having a look there, it looks, looks quite interesting. European equities, uh, still on that September contract for the DAX. We continue to sort of sustain yesterday's move, although the previous days of the week, Monday and Tuesday, we came back down to test the low again and following maybe the push a bit later, albeit in the day, we didn't quite, uh, come back. So be keeping an eye on European equities. The Euro Stoxx 50 also now above that R1. So equities, uh, happy for now. Keeping an eye obviously more into the afternoon to see what happens for, for the NASDAQ. But Dow Jones not too far away from that all-time high, one sort of last push needed to get there. And S&P wouldn't bet against it reaching there today as well. You've got just over 30 minutes or so to the UK numbers. Um, we'll be posting charts throughout the day and obviously on the mic. I hope you all have a great trading day and catch you later.