Morning Briefing - 26th July 2018

Hi guys, good morning. It's Thursday, 26th of July, just gone past half 8 in the morning here in London. Feels as if I've actually got something to talk about in the briefing, as it has been a relatively quiet week in comparison to others. As you can see from the picture here, a lot of love, a lot of love, summer love between Jean-Claude Juncker and Trump. We'll come on to that in a bit of time. But obviously the trade talks that they were having yesterday, and, and from that picture you can sort of see as well as looking at the markets how they were perceived. However, we have gapped down in US equity, so we'll come on to that as well in a bit. Quickly just going to go over the sort of moves that we had from yesterday in the markets as well. Data-wise, as you can see on the calendar, we had the, the IFO out in the morning. Very, um, limited reaction from the IFO numbers. Tiny, uh, miss on the business expectations. The climate just a bit better than expected. Zero reaction. Nothing really happened from that. We had the home sales out in the afternoon, uh, around 3 o'clock. Again, limited if any reaction, uh, from that. It was only data-wise that once we had the, the API figures at half 3, which you can see here. The, the crude number, a big draw, a lot bigger than was the expected -3. And gasoline, while still a decent draw, wasn't actually what the API was suggesting. If we have a quick look at the reaction from oil, you can see the API there on the left-hand side. I think my camera allows that. The API there obviously pushing a bit higher. All drawdowns. And again, from DOE, all drawdowns. So not often you do get that, uh, but the reaction was good, was that to the upside initially. We came back down to test the pivot before pushing higher. Um, there's a couple of sort of rumors on, on trade talks or breaking down around that time as well. So sort of had a bit of a negative impact along with profit taking. Was a good technical level around the, the sort of the R1 resistance. You can see was also the high that we had back on the 23rd, so on Monday. Hit that, came back down, pivot, which was the low of the day, which is good support before pushing on. Gasoline, mentioned that was a draw or two, just under 2.5. The API, we said, was obviously quite a lot bigger than that, so a bit limited in the push that gasoline could have. And when we did come down post-DOE You can see that really sort of led the way, uh, in terms of the move lower compared to oil before, uh, rebounding higher. And into today's session, we have sustained a push higher, and oil, uh, and, uh, and gasoline higher over the last sort of hour, uh, or so. Also yesterday, I mean, the, the main sort of mover going into the back end of the session Um, was— and you can see highlighted here from the, the rectangles, uh, both in euro, limited a bit in pound there, uh, S&P, Dow Jones, NASDAQ, all at half 8, or the half 8 candle if you like, all pushing higher. So the euro strengthening against the dollar, pound also, and equities in the US And if I just bring up the DAX, uh, as well, no prizes guessing which candle here is the 8:30, uh, candle. There, as you see, DAX, European equities, all over the place, sort of strengthening, uh, going into that time. Why was that? We'll go back to the picture of these two enjoying their bromances, as Philip rightly said. Pretty, pretty convincing that the trade war talks went quite well. The initial reports that Europe was said to have made concessions with US President Trump in trade war talks, trade talks in which they agreed to lower the industrial tariffs and import more US soybeans, this was then confirmed. So the initial reports came out, this was the then sort of backed up. They're working or agreed to work on zero tariffs, zero barriers, zero subsidies on non-auto industrial goods. So just before that, if we go back to the charts, you had reports out that there was in fact going to be tariffs on sort of automobiles. And you can see the dollar here around sort of half 3 started to strengthen, as has been the case on an escalation of trade war talks. At that time as well. If I bring up the dollar-yen, you'll see here the yen strengthened against the dollar into that sort of 3:30 time before pushing a bit lower as well. Um, you also had T-notes in sort of that flight to quality move pushing higher, um, to try and almost break out the, the resistance. So the technical level working quite well there. And of course, you can then see the red candle on the right-hand side, um, on the sort of, you know, the risk-on move that's, uh, that's that then did follow on the confirmation of the later report. So initial, uh, idea was that there was going to be tariff on these, uh, on the automobiles. However, that was quickly, uh, brushed aside as well. So all seems well, uh, at the moment. Whether this can be, uh, continued or not remains to be be seen. But it seems as Trump has done it again, isn't he? His tactic very much seems to, you know, cause a drama, kick up the rhetoric, make it seem like the— whatever he's after is completely impossible. And then of course, at the last minute, he saves the day, looks like a hero. But yeah, it remains to be seen, doesn't it, whether this can be sustained with China. You know, they had made progress, only not too. So by no means is this a case that, uh, this is the end of that. But, uh, Mr. Juncker, how easy is it to make a deal? Remember that. Um, also, uh, last night, as I'm sure many of you are aware now, the sort of the main story could easily have started with this, uh, as a sort of background picture rather than Juncker and Trump. Facebook, uh, the high, as you can see, 219, 219, all-time high actually, just before the earnings came out. And obviously quite a big, uh, sort of miss on that, uh, forward guidance not great. And you can see down about 20% by the, uh, the sort of the end of the, the session. Um, as well, I can drag this into the picture. You can see Zuckerberg loses $16.8 billion, so I reckon he's had better Wednesdays than that. Um, real— you can see is the fortune just goes back to sort of where it was in the April. But you know, it begs the question, going back to the, the chart of, um of Facebook here. Um, you know, is it an opportunity to effectively buy the dip? Up however 40% since the Cambridge Analytica dramas, uh, beginning of the year. Uh, I'm not too sure as of yet, but look, if you had offered people Facebook down, you know, 20% at any point in the last week, they've bitten your hand off it. For it, similar to sort of Netflix, similar to US equities after the sort of February crash. Um, whether you would want to get in today, I think you'd be brave, but, um, who says buy the dip? Is it— is still, you know, not a thing. At US equities, uh, I've been pushing higher. If we go back to just the chart on US equities, you can see the sort of the aftermath, uh, here of the NASDAQ, the 8:30 push higher only to come back down when the earnings came out, really hitting the the NASDAQ, uh, a lot, um, a lot more than sort of the, the S&P and, and the Dow Jones due to the weighting. So completely understandable. And there's your gap lower. In terms of a trade opportunity, I mean, the high that we've got just now, if we get a break above there, you know, that would be a bit more aggressive. You had the idea of this whole sort of gap fill, um, sort of the psychological move to sort of fill the gap, repair the market, is, is got to be something you consider today. Whether we can get up to, to that, the, the sort of the pullback, um, after we opened, uh, the, the trading last night at 11 on the futures here, um, it's got to be something you think about. But whether it is a longer-term sort of buy the dip up to those, those all-time highs again, I think remains to be seen. You know, the calendar, which we'll come on to in a bit more detail today, you've got Amazon earnings out as well, uh, you you know, the big, big companies are the ones that have moved these markets that we're sort of trading the most. You go back to the beginning of the week, Alphabet after hours, after trading hours, pushed these markets higher, and now we've had lower because of these Facebook earnings, you know, really sort of missing expectations there. Coming on to the, uh, the calendar itself, obviously today is going to be all about— in the morning, easy— well, in the morning, in early afternoon, is all going to be about the ECB. Um, I would suggest that this morning it is very much a case of just keeping risk intact, definitely for European markets. I'll I would say equities and bonds as well, as the market, you know, is waiting for what happens at 12:45, but probably more importantly, the press conference that ensues 45 minutes after that. Um, you know, the expectations are— if I just bring up ING's, um, slides that they do, which is quite useful, uh, here. Sort of the, the scenario analysis. So they're expecting, you know, not too much movement to sort of take place in the euro, sort of trading at 1.17s, which is where it is now. Um, so not too much if, if all sort of remains the same. Inflation to increase gradually over the medium term. The, the main sort of, uh, point people are going to be looking for is all about what, what, what summer really means as as mad as that sounds. A couple of analysts have been a bit confused, as you can see here, just with the wording in different languages. So here you've got that picture— so I'm showing the right screen yet— of the different languages: English, French, German, Spanish. And the literal translation of those changes, you can see, vary a bit. And some have got 'until the end,' some have got 'at least through the summer.' So a bit of confusion what summer really means. When are they gonna potentially look to start raising interest rates? Is it gonna be in the summer, or is it gonna be caught, uh, uh, you know, sort of, uh, into the autumn, end of the year? The market is, is starting to perhaps price in, uh, a 10 basis point hike in December 2019. So in terms of market, uh, really starting to move here it could be sort of the hawkish reaction that you're looking for, uh, is that, uh, well, as well, you know, if we talk about QE, that, that could be tapered a bit earlier, um, that the June-July deposit hike cannot be ruled out. You know, if they were to start saying that, that really does sort of, uh, put in stone, if you like, that, uh, there's going to be announcement for a hike in the summer. Personally, my view, and of course that could easily change today, is that Draghi is going to do his whole terms without raising interest rates. So of course he is heading out the door in, I think off the top of my head, it is October. So if a December hike was the one, you know, he wouldn't be in charge when that comes into play. We'll do a bit more of a rundown as we, as we come through, uh, sort of closer to the time around 12:45, uh, and then of course 1:30. Um, but really the press conference for me is, is going to be the the thing that moves the markets the most. If we have a look at just where we're trading on, on Euro as it currently stands, and again, like I said, we will do this again, it, it's gonna— we are getting squeezed in. If I just remove the pivots and put this on a daily kind of— you can see we have been over the last few weeks and months, if you like, getting squeezed in from the, the lower point. I'm going to draw a sort of a a rough trend line on here, but also quite an interesting ceiling around sort of 118.5 on the futures. I think if they were overly hawkish and suggested that, uh, you know, it was always going to be set in stone that, um, you know, they were going to hike before the summer, or that the summer was going to be when they're looking to do it— I don't think Draghi would be that stupid to say that, however— but if they were to do that, then I think you can get sort of a breakout of this range, I think the DAX would come under quite a bit of pressure. And obviously, the Bund would follow suit there with the DAX. If they were to be a bit more dovish, you know, sort of uncertain of the pace of monthly purchases, you know, rates can remain unchanged well past the summer. Again, I don't think he's going to be stupid enough to say that. He's, you know, been in the job long enough just to not really want to look to spook markets. So it's, it's always an opportunity, ECB day. If you go back to the 14th of June on the last one, you can see that how, how the market did move there, really, um, really quite significantly, um, down 2.5% there. This meeting, I don't think he's going to, uh, offer too much, but the wording on, uh, sort of of what he means by summer is, is really gonna be the main sort of point people look out for. Going back to the meeting, um, in June, I think because in, in the sort of the weeks before that you had the idea that, uh, June was going to be a live meeting, which was taken and perceived to be hawkish, we had sort of priced in a bit of the move to the upside, as you can see in the sort of the days before that. So when, uh, he wasn't hawkish effectively, so more dovish, we, we then came under a bit of pressure oligarchs since that day rise a bit higher. Um, so it'd be of course interesting to see what comes out, but focus I think is really going to be on, on what happens into the back end of the year, uh, for there. So having a look back over at the, the calendar, 12:45 the, the rate decision, um, sort of comes out. Obviously not expecting any changes there. 45 minutes after then you have the, the press conference As usual, the, the first couple, first 2, 3, 4 questions are going to be the most important, then it sort of filters out. You know, it won't be a, it won't be a surprise to see what people ask early on for those questions there as well. So Facebook down, you had overnight that those markets Those markets, uh, just get down, uh, equity-wise. So the DAX this morning, you can see, has actually pushed on. A lot of European companies, uh, are higher this morning. Airbus up 5.8%, BMW up 5.3%, Volkswagen up 4%. Fiat Chrysler, after, um, having quite a big down day yesterday, is up as well. So these, these companies within Europe, a higher Volkswagen, BMW obviously having a big impact on the DAX, uh, there as well. So if you are looking to trade the DAX, it might be worth sort of getting those individual stocks up as well in what is still quite an earnings-heavy week. Mentioned we have Amazon out as well. You've also got Intel, Mastercard, Comcast, Amgen, CME Group as well. So a couple of ones that are definitely worth keeping an eye on in terms of when they come out. Other data-wise, if we just switch back over to the calendar, you have durable goods out at 1:30, but obviously attention is going to be, uh, either where goods trade balance as well and initial jobless claims. No, well, look, it would have to be a multi, multi, multi, multi-year high or low for those to move the markets when attention is elsewhere. Um, having a look actually at the markets as we sort of stand from a technical point of view. Obviously, focus still can be on the dollar index from the end of the week, whether we can get back up to that $95 handle. Seems quite a long way away now, just under 94, and it seems that Trump again has manipulated the markets to, you know, to do what he wants. Up from Thursday here, you can see uh, rectangled. We have only pushed on and on. So yeah, does what you want. Currency manipulator, call him what you like, uh, but you know, it's a hero after yesterday, right? Um, but yeah, pound-wise, uh, I think the key sort of resistance level I've got in my, uh, on my charts is just above the R1, previous low that we broke through, uh, on the 17th. Um, so keeping an eye on that. A bit of a trend line forming as well from the lower— the low that we had on that Thursday marks up quite nicely, potentially with a move later on if we can get down to there. For the euro, obviously going to be most likely sideways for the remainder of the morning going into quarter to 1, and of course what could happen later on you know, can move this market higher or lower quite quickly. I mentioned that we are getting squeezed in, got big resistance, uh, just a bit above also R1, but a double top there as well. Um, European equities of course pushing high this morning but can move, uh, as quickly come 12:45 and 1 o'clock. Have a quick look over the other, uh, dollar pairs this morning. Um, Aussie dollar just drifting lower But again, since Thursday, same as the other dollar pairs, um, just pushing higher a bit against the dollar. I think if we can come back down again, uh, maybe just before S1, for me, Aussie dollar, uh, I like the look of a long there. And you can see what happened yesterday, uh, early morning we had a go at clearing that, uh, sort of filling that gap. And of course later on you can see that has been now done. In what was one of the slowest sort of gap fills around. Dollar-yen, from a technical point of view, I mentioned a couple of briefings that out of all the dollar pairs against the dollar, I favored the yen the most just because you had the, uh, the comments from Thursday which were maybe, you know, rightly or wrongly, but they were perceived to be hawkish about a possible policy change. And I still, you know, favor this market coming under a bit bit more weakness. Can we get up to the pivot today for a short? Is, is not a bad idea. I think that as well, you know, you've got a bit of a trend coming down, so, you know, even for those that are interested, uh, in going long, if you get a break of this sort of area, uh, that may well come into play. But yeah, around the pivot I quite like. If we were at all to get up to R1 as well, I, I'd like the look of that. A break of the S1, obviously we're going back to looking at levels not seen for a while, and it also is quite a good support area, uh, around there. So a push lower would definitely interest me as well, favoring this market to move a bit more to the downside. Having a look over at gold, we talked yesterday about there being a bit of chat that, um, you know, the summer sort of, uh, bull run, if you like, is, is not too far away. Trend line today marking up quite nicely with S1, uh, and in terms of an area itself, you had a bit support there yesterday, and also not a bad place for the low of the day, um, or lower yesterday to sort of come in. Remains to be seen if we can hold that out as well. US equities, it'd be interesting to see from the NASDAQ's point of view if we can push higher and have a go at filling the gap. That will interest me if we can pick up that with a bit of volume. I'd be interested to see what happens with Facebook shares today, whether it is a buy the dip opportunity. I think you'd have to be brave to do so, but I think it will attract a bit of interest from, from people certainly as well. Just seen a tweet come through: at the end of the first quarter, 97 hedge funds counted Facebook as one of their top 10 holdings, more than any other single stock. So yeah, absolutely, if you get a continuation of that, that's sell-off in, in Facebook, then it could be a bit of a bloodbath today according to Goldman Sachs. So yeah, but, uh, yeah, remains to be seen what happens there. From the, from a chart technical point of view for the NASDAQ, we can get above that high of the day. I think you'll have a go at filling that gap as well. Amazon, um, if you, if you know, you have really good earnings there, will be up at the, the all-time high again very shortly, I do believe. Any questions, obviously please do get them in the chat. I'll come on the mic closer to 12:45 to do sort of a more in-depth rundown of what to expect, when to expect it, and how the markets perhaps could move in correlation with each other. But if I don't speak to you in the meantime before sort of around 12 o'clock, hope you all have a good day. I would expect market conditions to be quiet in the buildup to the meeting and press conference. Have a good day.