Morning Briefing - 6th November 2018

Hi guys, good morning. Just gone half 8 here in London, Tuesday, 6th of November. So we'll start off by doing a quick recap of the market moves yesterday and, and leading into today and this morning, what currently is driving the price. And we'll have a quick talk about the, uh, the midterms ahead of, uh, this evening and what will probably be similar price action to yesterday in the, in the build-up to that. I wouldn't be looking to get too aggressive this morning. You can see just from my shared chart that the pound is, is currently sitting 131 on the futures, uh, 2-week high, uh, there. So you can see even just looking back at the, the previous day, just how choppy price was. And, and that really was, uh, how it went yesterday. We came back over the weekend, the pound had gapped higher. We had a couple of comments out through the day that you can see the pound would have moved off If I just bring in my shared screen, we'll start off by going over the first sort of headline for the, for the pound was off, or rumor I should say, it's not really a confirmed headline, was a rumor UK Brexit Secretary Dominic Raab might resign. And off of that we saw the pound push lower, albeit very briefly. And if that was, would have been a true story, I was speaking to Anthony at the time, he rushed over as he heard it. Thinking, you know, the pound should be going low, and it should have if, you know, any sort of concrete, uh, sort of belief in that rumor. But yeah, touched the low of the day, and you can see what happened there. Once we hit the low, uh, the first test of that low, sort of the gap fill, we then pushed, uh, higher again, uh, to sort of test the, the high. The dollar at that time was sort of weakening a bit, um, similar sort of time actually to that Dominic Raab comment. We had, uh, some talk out of the, the euro. So you can see where we spiked lower here me just highlight that area, um, would have been off this comment. Again, nothing really new, and the market literally just sort of blipped lower on this. EU Commission to propose disciplining Italy on November 21st. Of course, November 21st was the, the rumor of this Brexit deal getting reached. There's a couple of comments early doors yesterday about that there was going to be no deal this week. Again, market not really blinking on that. Going back to that euro move that we did see lower at exactly the same time, so this is sort of coming around quarter to 1, more— well, closer to 1 actually. In that 15-minute period, we saw gold really sort of spike lower. That— if I put this onto a 5-minute time frame, you can see here on that period, 12:45, that 5-minute period where gold spiked, uh, retraced a bit before coming back down and making that new low. And then really from then it got quite choppy, which was story of the, the day going forward. While there was more rumors, and again positive for pound, that there was sort of going to be a compromise on the sort of the Irish deal, which of course would be, uh, you know, good news for now, we saw that the pound then continued to push up. We'll, we'll come on to, um, sort of the, the pound-related headlines, uh, in a bit. But just worth keeping an eye here actually on gold, as you can see, just testing the top end of this, this trend as we come down. Worth having this on perhaps if we were to reach— so yesterday, uh, didn't quite reach it, but this trend you can see there just getting broken through. So worth keeping an eye on gold coming into a bit of resistance from yesterday evening, but with this sort of weaker dollar that we've seen this morning, you can see gold just pushing up. And the euro just faulting near that high in the pound, and Aussie dollar pushing on as well. So a bit of a weaker dollar this morning. Elsewhere, if we go back to yesterday, oil, you can see, started the day quite choppy, which was the sort of story of the day as mentioned before, pushing higher. So despite the, uh, sort of nonchalant start, uh, for oil, pushed on really from the afternoon almost and testing yesterday— or Friday's, it would have been— high in the $64 handle before coming back down. We've had the Iran sanctions put in place and I would have expected a bit of a move higher, and you got that. But really, you know, we came back down on sort of the idea that some countries will sort of be wavered to those Iran sanctions anyway. We had the Mnuchin comments out as well, that he hopes some European countries stick to that, which sort of perhaps sort of weighed a bit on, on that price. They're worth keeping an eye on oil as well. We'll come over and have a look at the the different technical setups. But you can see here, respected very well, uh, this trend going from yesterday's low to yesterday evening's low, and then today as well. Data-wise, obviously got the APIs out later. We'll have a look at the calendar, uh, in a bit, but I wouldn't really be expecting too much in the form of sort of movement, uh, off data releases ahead of the midterms tonight. We do have some data out in 20 minutes. I will wrap up before that, uh, out of Europe. But just be, be cautious would be my advice going forward to today, if any— if yesterday was anything to go by. Uh, looking at, uh, the equities, you can see here this was the, the story of yesterday. S&P, uh, pushing higher, breaking through that high into the back end of the session, albeit coming down a bit today. And what was very correlated with the S&P was the Dow Jones, very similar, uh, in pushing higher. However, the NASDAQ, you can see pretty much from the, the cash open, which of course now is back to normal time have— as the, the clocks have gone back to, uh, normal in the US, uh, you can see from 2:30 NASDAQ came under pressure, and that was really mainly driven by Amazon and Apple, which were at times down nearly 4% each, recovered a bit into the back end of that session. You can see here is the, uh, the chart of the companies within the S&P and the, the largest sort of caps there, Apple and Amazon, under significant pressure. So while the sort of financials outweighed, which obviously boosted the Dow and the S&P quite nicely, uh, that's the reason why we had Amazon— I mean, uh, the NASDAQ just slowing down. Worth keeping an eye actually on these current levels as well. It seems as we're doing the briefing, everything's coming to an interesting point. You can see here in the NASDAQ where we had found resistance pretty much off Friday's low, and then we broke through that to find support. We're just testing that area now. S&P, you've got to imagine, is coming to a similar point, and it is with the pivot and yesterday evening's sort of low. And let's have a look at the Dow. Okay, it's on yesterday's sort of high before breaking through. So quite an interesting point here for, for US equities. Whether you'd want to be getting in too aggressive today, I, I wouldn't really favor that. Uh, the midterms coming up, I think, will offer opportunity, uh, going forward. But you've got to imagine that ahead of that, it's, it's going to be quite cautious, a bit of pre-positioning perhaps, or unwinding of positions going into what could be quite a, a large risk if it was to go one of three ways. And quite an interesting, uh, article was sent out in the research, and I'll post the link into the chat shortly, from Zero Hedge, just about the possible, uh, ways price could go in, in certain markets. So you've got the Scenario 1 here, the gridlock. Uh, we've got Republican Senate and Democrat to take the House. Equities will come under a bit of pressure here, the sort of limited impact on the dollar. So this is probably the most likely scenario, uh, where it's kind of been priced in. And I think going back to the briefing a few weeks ago where you had equities coming down really from the 10th, it was, I think, of October. So we're almost a month past that, and we, you know, recovered off these October lows. But if you look at the sort of risks that were really present at the time there, you had the Italy scenario, which is kind of taking a back page at the moment, I would say. Um, while obviously still, still there or thereabouts, it's sort of been brushed aside. The headlines are starting to get a bit more tired. You had the, the rate hikes. Canada had obviously just raised their rates the second time this year. The hike in December for the Fed was more priced in than it is now, and obviously they were— the talk of, uh, 3 next year was what they were suggesting, despite maybe that not all being priced in anyway. Of course, Brexit as well, about a month ago or just under, was really kicking on. The pound since then had pushed to, uh, the— well, the second sort of part of the, the low of the year. I didn't quite make it. Now breaking that trend line as well. So that was the, the negative sentiment going in. Obviously the trade war talk as well weigh in on equities. Uh, US earnings weren't actually that great, but half expected. If you remember from Q2, a lot of analysts were saying, you know, is this— well, this is probably going to be as good as it gets this year. And of course, all of that including sort of political drama as well going into the midterm. So we're here now. While scenario 1, I would say, is pretty much priced in, I think best opportunities will be scenario 2 or 3. I think, to be honest, I mean, while like I said scenario 1 is probably priced in, I would say scenario 3 of the Republican Senate and House, I think that looks the most interesting. And, you know, while people might say scenario 2 could be more likely, perhaps, you know, we go to scenario 3, Trump gets it done at the end of the day or tries to, you know, figure a way to do so. Um, so yeah, if that was to happen, I think you— well, while, you know, Zero Hedge here would say short-lived, uh, risk-on, I believe, you know, that would, would equate to equities really pushing higher. And if we have a look at the, the S&P in just terms of where we stand, I'll just clear it up to make it a bit clearer to see and put it on a longer chart. Let's have a quick look. You can see that October low is sort of in the distance now, and Scenario 2, Democrat Senate and House. Yeah, sure, I think we can make our way back down there. I think that would be a pretty big shock to the market and we really would push on. I think scenario 3, Republicans steal the show. I think within— what were we in, early November? I think, yeah, by back end of the year we'd be back to the all-time high. Of course, you know, there could be all sorts of dramas from that as well. Every time there's sort of their new trade comment, we get a blip lower or higher. And you know, it wasn't too long ago where Trump was talking about how the US and China are going to have a deal anyway. So it is still his baby. He does care a lot about the stock market. I think you just got to ride with that. I posted the other day this trend channel as well, which I'm going to talk about. It's just unbelievable, those lows. Look at that, absolutely perfect. So it might be that price is contained. You know, we actually— it wouldn't surprise me if we've made the the low and the high of the year already. I think you'd have to see something quite big, uh, to sort of extend a push to the low. And I think maybe the Democrat Senate and House would, would do that. Whether we can, you know, get much more than that or not remains to be seen. If we have a quick look over at the, uh, the calendar as well for today, let's bring that into picture. I mentioned you've got the, the data out 9 o'clock out of Europe and while that might be a bit of a driver going forward for the euro, I wouldn't really be expecting, you know, too much in the way of that. You've got the, the final readings for the market service and composite PMI expected to, to be exactly what the last reading was. So I think that tells you all, yeah, all you need there. You would really want to see a big breakout at the low end or the high end of the range to see any significant reaction. And of course, focus is on other things going forward here. You've got some lower-tier data out the US at 3 o'clock, and then the API is back at its usual 9:30 slot, having seen the clocks change. And regardless of the fact that it's midterms, you know, historically, um, the Monday, Tuesday after non-farm payrolls are always quiet anyway. I think Monday was, was sentiment to that. Even with the Brexit coming out every few minutes, um, the, the market didn't really budge too much. Going back to those comments, if I just drag this out of the picture, we also had— well, I mean, whether it was to do with this comment or not is up for debate, but at the time the pound did actually push higher. We had Farage coming out and saying, my guess is that PM May will get her Brexit deal, UK Parliament. The pound at the time did push on. We helped then to sort of break the high of the day that you see here and then pushed on into the evening as well. Going back to the— I think there's a bit of a chat in the, in the trading live room on the program that was on TV last night, which was called Brexit: What the Nation Really Thinks, which Anthony asked the question, did people watch it? And it wasn't a resounding yes. When they say the nation, they really mean 20,000 people, but Uh, yeah, some interesting sort of points were made in the, the sort of the conclusions of this, in that if there was to be another referendum, Remain would win. You can see that turnaround there if you have a look at the sort of the area that I'm hovering over my mouse. I'll just highlight it. Leave would be 46, Remain 54. And at the sort of time you saw the pound perhaps push high, we gapped higher as well, and we continued to go on. Whether that would be the case or not, I'd I'm not too sure, to be honest. The dollar's slightly weaker. The pound sentiment actually does appear to be slightly better anyway. But again, I'll post this in the chat and it's worth having a quick look over whether, you know, this actually does mean too much or not. I'm not entirely sure, but quite interesting to see that there has been this change. And I was mentioning to Anthony, really, it's been since the, the referendum however many months ago that is now. Um, it's just been talk about doing everything that possibly can to stop Brexit from happening, and that seems to be the way. In terms of sort of the outlook for the pound, we posted in the, um, the weekly strategy report quite a key trend line. And you can see if the pound continues its sort of push higher, we're going to be testing that in the not too distant future. Obviously I've got the trend channel on here. Let me just put that down there to get out of the way. So it wouldn't be too far away. Could we get there today? Why not? And the way it would sort of come into, uh, play as well, you've got quite key support from the middle of October here that we had broken through to retest. So, you know, worth keeping an eye on from a technical point of view. Sentiment really does feel, you know, that is switched around for the short term on, on the idea that there may well be a deal that's done in, in the not-so-distant future. Obviously you've got this sort of emergency summit coming into play soon. The idea of this sort of 21st November deal to be done by— while we saw a bit of a reaction to that last week off what was actually quite an old report, um, you know, the market is sort of taking more positive news. And we've talked about how the market was quite heavily short before and maybe just an unwind of that. So for a technical point of view, looking to sort of take profit, I would say around here would not be a bad idea, uh, having seen that break, uh, as well. Euro on that longer chart, you can see quite a key rejection yesterday on that sort of Friday non-farm payroll of the retest of the similar trend line. I'll be looking at how we, uh, react to that in the, in the sort of the coming days and weeks and Also going back to the pound, the 50-day moving average was, was one worth keeping an eye on. Actually, let's have a quick look how we're trading with that. You can see if I just add that on— give me one second just to edit this— as we had found resistance on there a couple of times on previous days. You can see now we are above that, we closed above, which, you know, technically is quite key, uh, I would say, going forward. So sentiment definitely to the upside. As well. Elsewhere, if we have a just a quick recap of sort of the main moves from, from overnight, European markets were looking like they were going to sort of open higher. But then the main point here, and this is quite a good summary each day that the Financial Times do, just a what you need to know, if you like. And I think that that first point is the only one you would really need to, to sort of have a look over, to be honest. US midterms elections leave investors in cautious mood, and I think that's going to be the story of things going forward today. Would you really want to get in full size on, you know, a trade unless there was a game-changing headline? I'm not too sure. I think going forward, the, the short-term sentiment— the pound, yeah, sure, go positive. Euro, more undecided. I think the Italy situation is still lingering about, uh, a bit as well. Um, I think if we actually have a look at a couple other dollar pairs, the Aussie dollar um, as well. I know a few people were looking at this not too long ago with the sort of retest, if you like, of the, the trend line from the high of the year. You can see that comes on here. Let's just draw that up. Maybe if we were to come back to retest what was the sort of the high of the middle of October and the low of the early— so you can see like a three-way break there. And you've also got, well, the 50-day moving average, which isn't too bad. So maybe if we get a test back of that on a more sort of medium-term, uh, trade, that would be quite good. I don't think the dollar is going to do too much tonight following the midterms. I think equities and perhaps gold as well will be quite interesting to watch. We, we mentioned a few weeks ago that gold perhaps have regained a bit of its sort of safe haven status. You can see this move here that I'm gonna highlight if I just bring that in. 10th of October. We just removed that there. So you can see 10th of October, talked about earlier in the briefing, is that was the sort of the main day where equity started to come back down. You saw gold push higher and we sort of continued to push on there. We retested a part of the area that we had broke through from a technical, uh, point of view and, and continued to, to push on since those couple of days. However, massive, massive level. And you know, this is on the daily continuation on the future, so the price will vary of course. But where we're trading now, keep trying to break above that. You can see was the low at the sort of middle of July. We came back to test it after breaking through. And also, just making this chart a bit longer term, was also that low from December last year. So massive level technically for gold. Can we push above that? Maybe we need a bit of a catalyst, uh, today. What could do that for the midterms? I think you've got to, you know, if we go back to the uh, the sort of scenarios I think you'd have here— Democrat Senate in the House— and I think gold would, would sort of rally a bit, uh, through that. Um, but, uh, remains to be seen, remains to be seen. I wouldn't really be looking to, to get long or short any market ahead of this. Elsewhere market-wise, let's have a quick look over at how oil is trading. We mentioned that trend line would be quite interesting to, to watch. Again, wouldn't be going in too aggressive really until the afternoon. Sentiment, I think you've got to favor again to the downside. Looking at, uh, the lot— I'm gonna put this on a 240. You can see, looking at recent price action here, going back to the 11th and 12th of— it's got to be October— you can see price just ranges for a bit. Let me just remove that out. Ranges for a bit, and then we break down. After that clear break that you see, price ranges for a bit, and we break down. Price ranges for a bit— you get the picture. So Are we start— starting to sort of see that again now? Uh, perhaps being not too aggressive is the way to go because going back to all these little patterns that you're seeing, 1, 2, 3, 4 tests each time to break that low before it actually really does get involved. So for oil, I wouldn't be too aggressive. I perhaps let this week sort of fizzle out, obviously let the Iran sanctions, which will be— it have been sort of priced in, do their thing and Uh, we'll see what happens from, from there as well. Treasuries, I know, will be half interesting tonight as well with the, the midterms, to see that reaction. Uh, yesterday very quiet, today pretty quiet as well. I wouldn't be expecting too much ahead of the voting tonight going forward. S&P, uh, we'll sort of talk a bit later about perhaps where we could end up, but for now short term, the pivot acting as quite good support for the Dow. That previous high from yesterday, similar. And with the NASDAQ, which obviously outperformed yesterday, that level we talked about acting as a good, um, sort of support, uh, to any sort of further move to, to the downside, uh, as well. In 4 minutes, just bringing the calendar back in, you do have that data. Um, so I'll sort of look to sort of wrap the briefing up now. But obviously main focus here is going to be on, uh, later this evening. Any questions, as usual, please do get them in the chat. If there is a reaction to the data, which I'll get on the mic and sort of talk through that. But 53.3, 52.7 expected, the final readings. I'm not expecting too much there, but I hope you'll have a good day. We'll be on the mic throughout. Um, but yeah, any questions, please do let me know. Take care.