Morning Briefing - 27th September 2018

Hi guys, good morning. Just gone half 8 here in London, 27th of September, second last trading day of the quarter. We'll have a quick look over the markets, how we traded going into the Fed announcement, the reaction we saw from that, any stories that came out overnight. And we'll start actually with just having a look at the DAX. As you can see, if I bring that into picture here, my middle left chart, we're just breaking out the, the lower end of the range that we've had for the week here. So the DAX is pushing lower. Well, keeping an eye on there, and I've got an area marked up from the sort of the last range that we were in, whether we can get down to this sort of area where we had the high from the, the 19th. Remains to be seen. If one market can do it, you would expect the DAX to have a go at that. Uh, really, this coming through in the sort of the aftermath of the Fed, of course, and you could be forgiven for thinking they were overly hawkish, as you can look to the right-hand side where my mouse is now. And S&P came down relatively strongly. However, the T-notes bottom right also having a decent reaction, but this case to the upside. So this morning, a bit of, uh, risk-off in the market. T-notes higher, equities lower. The DAX really leading the way here. The S&P coming back down to its, its low of the day. Let's have a quick look over to see how the NASDAQ is, is trading as well. Also on its low. Dow Jones Yeah, coming to that low as well. But the dollar-yen, also usually a good indication for sort of safe haven flow, is actually also on its lows. The yen strengthening there despite the dollar also picking up in, in terms of the euro and pound both making a low this morning. And we'll come on to the euro in a bit more detail. It's not really a follow-through of the Fed. The you would say last night, but more concerns in Italy sort of driving the market. So in the build-up to the Fed announcement yesterday at 7, it was a very quiet day. The markets were typically choppy, range-bound, not much going on. You know, even when we had data out the day before, the consumer confidence multi-year high, markets didn't really blink. So it was of course, in the sort of anticipation for what was going to come before the, the announcement, uh, yesterday. I think it's bringing oil into the picture was the only real, uh, data highlight, uh, coming in its usual slot at the 3:30 UK time on Wednesday. And you can see typically, uh, messy there, uh, as we pushed higher to come back low. And a really key level of support that we found back on Monday on what it was on Monday was the R1. You can see found support initially, just didn't want to go, and then the sort of morning support that we had on the back on the 24th this Monday then acted as sort of the boost for the, the push higher. We have continued to push on following, uh, the area of support around 71.5, albeit we had some comments overnight which, uh, sort of helped push oil higher. Let me just transition the chart. So, uh, Energy Secretary Rick Perry says he isn't considering release from the Strategic Petroleum Reserve to offset American sanctions. So this really helping to sort of push, uh, oil price higher. So they're not concerned about using those, uh, sort of reserves to bring oil price down. That in turn has sort of led to this move higher in oil, and I think you know, all things considered, that double sort of top you've got from the Monday and Tuesday could well come into play this morning as we continue to push higher in what has really been a quite a nice trending market. We mentioned yesterday, uh, closer to 3:30 for the release, that any sort of move lower would just attract dip buyers effectively to get back in long. Yes, you would have been helped by, um, these comments overnight, but definitely a market to, I think, go into each day sort of favoring the upside, you know, headline permitting. Uh, what the market was waiting for, and I'm sure you guys at home are waiting for as well, was the Fed announcement that we had at 7 and the press conference at 7:30. If we just have a look at the, the actual markets as a, as a whole, the reaction you can see from the, uh, the top right. I want to just go through one by one. You've got the euro on that Fed decision push higher to come back low and really finish that sort of hourly candle from 7 o'clock pretty much where it started. And that was how the, the dollar index itself kind of finished for the day, quite flat. Uh, the pound, very similar. Let me just bring up the pound in terms— you had to push higher initially, sort of perceived as dovish, and then, uh, coming back to neutral. So quite sort similar reactions in both the euro pound. Interestingly, the Aussie dollar, as you can see here, real big push to the upside. Uh, New Zealand dollar also following suit, finding resistance on its weekly high before coming back lower. Um, I mean, at the time I was speaking to a few people and they said they felt that was a, an overreaction anyway. And we have continued to come lower, uh, and test the S1 in the Aussie dollar's case, and the New Zealand dollar sort of near that weekly low. As the dollar has started to strengthen a bit more, uh, this morning. Not necessarily because of the hawkish reaction we saw last night, as that didn't really filter through. What were the key points from, uh, from yesterday? I'll just transition over. I've sent out in the research quite a decent article, I think, from ING, just sort of summarizing what happened. If not, it's on their Twitter. We saw this week in the language the removal of of, uh, the accommodative, uh, monetary stance. Um, we saw the dot plot revision. You can see here, uh, similar or the same exactly for 2020 and 2021. I think quite interestingly from a market reaction, it sort of showed, uh, neither it to be dovish or hawkish. We did the poll earlier in the morning yesterday, um, the sort of between the two or three reactions: hawkish, dovish, or neutral. Neutral didn't really get much of a, much of a vote, and I guess that's how it ended last night. I mean, my personal opinion is, is that it's, uh, you know, there's a fair bit more dollar strength to come. I feel, you know, the market— well, we saw the, the Bloomberg survey, um, from I think it was last week where they're predicting there to be 3 rate hikes next year. The dot plots would suggest that as well. The market, however, only really pricing in one for now. So, you know, all things considered, you know, the dollar should start to strengthen given the fact that, you know, Q3 GDP is expected to be, uh, above your sort of 4% again, uh, which would obviously be a, a good figure. Inflationary numbers from the Fed all above their sort of 2% target. Wages are up, unemployment expected to sort of drop over the coming times to that 18-year low at 3.5%, which is quite incredible. Um, December hike is priced in. 12 or 16 of the, of the, um, of the Fed members believe that to be the case. So, you know, maybe we'll, you know, while December is already sort of, you know, that's now going to be priced in and it's going to be, yes, about next year, but with the one hike really priced in what's going to happen with the other two on top of that. Maybe a bit more sort of dollar strength going to be left on the table. Uh, in that article, mind you, they mentioned a couple of the sort of tailwinds— or the headwinds, I should say— uh, to sort of restrict number 3 of those hikes to happen. Uh, obviously you've got the fiscal stimulus gradually fading away, borrowing costs are now higher, of course, stronger US dollar Yes, to an extent that could sort of impact that. But, you know, Trump has had his way really. The dollar has weakened over the last few weeks. I know not literally since the 19th of July when he start— first started talking about it, but, uh, over the last few weeks we have seen obviously euro push higher, pound push higher, perhaps for other reasons as well. But the dollar has weakened really going into this meeting that maybe we'll start to see bit of dollar strength go back, uh, into these markets into the remainder of the year. And that is my personal view. I do feel, uh, we— well, the markets haven't quite priced in the full extent of what is to come on the, on the US dollar side. And arguably that could be seen in the reaction that we saw in equities, uh, last night. Let me just bring the S&P into picture here. So you had that initial— I'm going to drop it down to a 5-minute timeframe. You had the— what have we got— the initial sort of headline area, uh, 7 o'clock announcement, higher on the sort of more dovishly perceived, uh, numbers that came out and comments, but only to sort of really push on. This is post, um, press conference. So as we come here, 8, 8 o'clock down, making new lows, breaking the, uh, sort of low of the, the day there quite convincingly. So equities in the US did come under quite a bit of pressure. Uh, you know, some, uh, people, uh, attributing this to, uh, comments in the press conference where, uh, you know, Jerome Powell said this, uh, he's relatively upbeat on the economic prospects of the US and a particularly bright moment for the US economy. I think it is. You've got, uh you've got a lot more to come, I think, from the, the way of the dollar. Yes, this morning I think we can attribute the move lower in equities to a bit more of a risk, uh, play. If you look again, we'll have a quick look at the DAX to see how that's progressing, as we've had another leg down just in the briefing, uh, so far. So worth keeping an eye on, on the DAX and Euro Stoxx here, which are really sort of leading the way. Euro Stoxx on a bit of support that we had a couple of days ago, last week's low, just a bit of a bit more of a move lower as well. But also on, on the, the topic of US equities, I think it was relatively interesting article on the Financial Times. Let me just bring that into, uh, into picture. The headline: Runaway US stock market prompts investors to look overseas. You know, so had this sort of the biggest divergence from the S&P versus the rest of the world, and now its most extreme level since 1970, which is pretty crazy. But, uh, understandably the US is doing well. You've had this obviously big fiscal stimulus, um, the numbers that are coming out are fantastic. The consumer confidence was, as we saw a couple of days ago, great, while in Europe it's, you know, multi-year low. Um, so understandably we're pushing on, but that divergence I think is starting to become a bit of a worry. Not to say that, you know, the emerging markets or putting, uh, sort of this equity, US equity, um, money elsewhere right now is, is going to be the, the sort of the play to go for, but it's just something to think about. I do believe— and I'm going to go back to the S&P chart here— I, I did feel we would make a new, uh, all-time high effectively, and you can see we continue to push on But my next point being, I do feel we've got a bit left in the tank for a push higher, maybe, you know, into the sort of the back end of the year, and then we start to sort of come back down if we do start to get, uh, these trade talks. Again, another sort of headwind that was sort of, uh, in the back end of people's minds for these US hikes. If that starts to kick off, obviously that will have an impact. Um, but the, the free rate hikes, those do get priced in, you've got to imagine it's going to have a bit of a weighting effect on the S&P and US equities in general. And that maybe we then start to see a bit of decline next year. Anyway, that's for now my sort of opinion. Absolutely, that could change if trade talks, you know, disappear and the negative side of it disappears. And, you know, actually the US data that doesn't— that comes out isn't amazing. And actually, yeah, only that one hike that is priced in is, is the way it goes, then yeah, we can continue to, to push on. And while Trump is in charge— and you've got to probably say Trump wins yesterday against Powell, uh, in terms of the reaction, uh, he wants this weaker dollar, you know, wasn't overly hawkish from the reaction we saw, uh, you know, the equity markets are his baby, you know, it didn't take him long, did it, to sort of tweet when we made a new all-time high in, in the S&P and of course the Dow, which is what he was tweeting every single day in January about. As we made a new all-time high, he did again come out. So you could attribute maybe a bit of this down move here, just a bit of profit taking. New all-time high as well, come back down lower. Um, so a couple of sort of factors sort of driving these markets. I think looking back at the last couple of weeks, obviously We've had meetings from the Bank of England, quite boring. The ECB, probably even more boring in reaction that we saw. That I think a lot of people were expecting this to be a massive monumental decision where they're going to give so much information about next year that perhaps isn't priced in, and the markets is going to go really high or really low very quickly, and sort of disappointed in that respect. I think it sets things up quite nicely for the next few months of the year. However, my personal view, as I mentioned, I do feel there's a bit of dollar strength to come in this market. But, you know, the numbers that come out will, will perhaps change my mind going into the last few days— a few months, sorry. Obviously, the last couple of days of the quarter coming up now as well. So that was really, you know, the Fed from, from last night. We have a quick look at that dot plot. Um, again, you can see, yeah, 2021 and 2020, that's where it's sort of looking to, to flatten out before coming back down. So it will be interesting to see come December how this perhaps changes. Uh, just worthwhile thinking, uh, that December is priced in. So really it's all about 2019 onwards, uh, that will, will move these markets. Looking at the euro, I mentioned we had a bit of a further push lower today. You can see stuck between the S1 and S2, actually acted quite technically, hasn't it? Broken the key level support that we had at 1.18. We know how, uh, massive that technical area of resistance previously was. You can see the high that we had on the 17th, 18th, 20th, and then breaking through. And previously, going back a few weeks and months as well. It's a key level. We then found support once, twice, and then just this morning having broken through. So technically acting very well, uh, the euro in terms of areas of resistance, support, and then once broken, broken, uh, offering the, the sort of opposite of that. This morning, comments, uh, that came out, uh, reason for the quick dump in euro. It's quick— click on the comment— Italy's 2019 budget meeting has reportedly delayed. Some more concerns going on within Italy and that having a negative impact on the euro. Yes, we had a bit of dollar strength this morning, but I would say this is more, uh, a mixture of the euro and the Fed than just elsewhere. We pushed low, we broke through that low of the week, uh, you can start to see now on the chart having broken through. The euro pound as well did come down at the same time, so it was a euro-related move. However, we have recovered, uh, a bit, uh, as well. All Also overnight, one of those sort of mornings it seems where the negative headlines for Brexit actually lead the way rather than the positive ones. This was run by The Times: Theresa May losing cabinet support for no deal if EU talks fail. Let's have a quick look over how the pound is trading. Similar to the euro, if you didn't have the numbers on the right-hand side, you could sort of half presume that they were the same chart. Push lower, broke through yesterday's low. And, and again, worth noting just how technical that has been. That low of yesterday first acting as support, usually that first retest or first test is going to be the strongest. We then broke through that and the S1 to come back and then find resistance there for that further, uh, push lower. So worth keeping an eye on the pairs, worth keeping an eye on the, the dollar index, which you can see here. If I just Is that clear enough? Yeah, that should be. We're just, uh, you know, flirting near, uh, the high of the day, albeit the sort of, uh, going sideways for a bit, having had that push higher really as money's sort of coming out the euro rather than, uh, dollar strength, uh, as such. Uh, so quick look what else we, we had. Um, yeah, comments this morning on my way to the work were really just sort of saying how The stocks are muted. It wasn't a massive reaction that we saw. A lot of markets did finish, uh, flat. So it'll be quite interesting to see today how the markets, um, sort of pan out. Let them tell you what is going on. I think it, it's— well, let's have a quick look. Let's run through, uh, the sort of the setups, how it's going. The DAX has continued to go lower. Equities in general are on their lows where you've got the more safe haven considered markets higher. T-notes, yen, uh, gold even actually catching a bit, which has been unusual in recent times as it does act more off the dollar side of things. If you were to go purely off the, the dollar strength we've perhaps seen this morning, you would expect to see gold come lower. The reaction we had from gold last night was again similar of, of the, the US dollar in a bit dovish, then, uh, sort of the pullback of that So it will be interesting to see how, how gold pans out today. In terms of equities, um, if I just bring in the S&P to picture, I mentioned we are pushing lower and you can see that low from yesterday, yeah, was, was touched there to, to the tick. I think the key level, uh, for today's price action and whether we can actually get, uh, a reversal or not. I think the pivot is key. You had those lows from the Monday, the Tuesday evening. So the pivot for the S&P, yes, I know that is quite far away, but in terms of looking to go long, I wouldn't really be wanting to, to sort of to buy the dip right now. I'd rather let the market tell me we're going to go higher, and a break above that pivot would, would be the sort of the key, key, uh, sort of signal for that. The pound, I think it's going to be unfortunately one of those days where the— well, not necessarily, unfortunately, depends on your, your bias, I guess— where the headlines are more negative overnight. So to sort of go along with looking for places to go short, I think would be my, my view for now. We are coming obviously lower. Let's have a quick look at this potential trend line from those lows. I guess you can see we're sort of finding a bit of support on that, uh, having had the sort of the lower the Friday and then Monday also. Matching up quite nicely now. And you've got S1, S2, and the low that we had from, uh, the 25th, so Tuesday, there as well in the mix. So a bit of support coming up for, uh, for the pound, uh, as well. So you had those comments overnight for— from oil, from, uh, the energy secretary. Have a quick look at how oil is trading. The high of the day almost being tested. I think you have to favor the upside um, for oil, whether it's a break of those highs to then target the, uh, the overall high of the week. I think that's not a bad option. Or, you know, looking for a bit of support, if we lower the time frame down and you can see just how good 72.20 area— we found support before breaking down, then resistance. So it's been respected, yeah, quite a few times already. Quite a key level around here. Other than the low of the day, I think that's not a bad place to look to go long if we weren't to break that high. Worth keeping an eye on Brent as well, of course, which is sort of leading the way to those multiple year highs and dragging WTI higher sometimes as well. So I've been looking at that correlation, how that is, is panning out as well. Um, let me just bring in the, the calendar for today. We had some, uh, European numbers out this morning, and if I just lower this down to 8 o'clock Let me see, where's— we did actually— well, you can't really see it from this candle, but we did push higher off, uh, off the back of those numbers coming out, which were better than expected. However, you can see we're still stuck within the, uh, the S1 and S2. So going into the morning, what have we got? We've got some economic sentiment coming out of, uh, of Europe at 10 o'clock. It's not going to massively move the markets, but something just to bear in mind. With the European equities on their lows, with euro on their lows, maybe it could, uh, sort of give it a bit of a respite and, and help us push, push higher. That remains to be seen. Going into the afternoon, um, 1 o'clock, got there some German inflationary numbers and, and US numbers also out half hour after that, 1:30, um, as well. Worth noting those GDP final readings from, from quarter 2. They are final readings. While the range is, uh, 0.5 big. I wouldn't be expecting too much unless the low end or the high end of the range really is met there. Quite a lot of lower tier data to sort of figure your, you know, slalom your way through today. Speaker-wise, we've got a few in the mix as well, more so in the, uh, the sort of the post-lunchtime era with Haldane coming out 12:45. You've got Draghi again. He's— you can't keep him, uh, off the headlines at the moment. Quite a few comments last week. We've already had a couple this week, so worth keeping an eye. 2:30, uh, for Draghi. Carney as well, 3 o'clock. Um, and then some more Fed and ECB speakers as we go into the back end of the day. So quite, uh, an important morning session, obviously, just to see if we can get a continuation of any of these moves that we have had in the early part. What is the, the DAX going to do? Is that going to then have a drag on, uh, to US equities? Is there going to be an opportunity to, to sort of get long, or is this just the start of, uh, sort of a further unwind into the back end of the quarter? Interestingly though, I would say you have actually got gold pushing above that $1,200. Usually this market reaction that we've seen, um, is when you would see gold under a bit of pressure here. So maybe worth sort of marking up that bit of support that we had from last night And if we do get below there, that could be the opportunity to then get short. That's something I'd bear in mind coming into sort of the afternoon perhaps. Euro and pound under pressure quite interestingly there as well. More European headlines, Brexit negative headlines as well. Oil, a favor to the upside. And then just getting a sort of an idea for, for sentiment, what, what the DAX does around these levels. Still a bit of way to go. To that key sort of top from the, the previous range that we had from the 19th, breaking through on the 20th as well. Any questions, guys, please do get them in the chat. Um, we'll see, be posting some, uh, some charts throughout the day. If I don't speak to you in the morning before I come on, sort of around midday, I hope you'll have a good trading morning. I'll catch you later.