Morning Briefing - 6th September 2018

Okay, good morning guys. Thursday, 6th of September. This is your market briefing. Uh, let's just check the charts just to see what's happening. We've been through European Open and here's the DAX, and this kind of tells the story really, with the DAX opening lower and testing the key psychological level of 12,000. Let's go back to a daily chart just to kind of get this in perspective, because yesterday was really important technically. Uh, the DAX broke this kind of double bottom, the June 28th low, and then we hit that kind of same area on the 15th of August. And here we are yesterday breaking and closing below that level, and now that's set up of an immediate test of 12,000 here. If you go back to a weekly chart I mean, you can see that the last time we were testing 12,000, this was back in April. So, yeah, 5-month lows here. You know, we're, I guess, used to reading about, you know, the almost permanent upside trend for US stocks and new all-time highs and new all-time highs and so on. But actually, the divergence with pretty much the rest of the world is now pretty pronounced. And here in Europe, the DAX at a 5-month low, breaking the key double bottom from— I guess let's call it the summer double bottom being taken out. What we have had this morning kind of to help with this— well, I mean, we'll talk about the emerging market space in a minute, but we had data earlier this morning from Germany itself and the numbers were weak. This is industrial orders. So unexpectedly dropped in July, which kind of went alongside the big drop that we had in June. Um, obviously you can see on this chart May was a strong month, but this is crazy. Look at this, we just had the 7th month date, the 7th month of the year, and look, 6 out of 7 months this year, uh, negative prints on industrial production. So You know, this is definitely a really clear, really clear evidence of what's happened in 2018. And what's happened is that, you know, quite powerful economic momentum we saw on the back end of 2017 in Europe has definitely hit a kind of soft patch. And so this is why— I mean, go back to the DAX chart. Why is the DAX at a 5-month low? Why is the DAX trading the same prices that it was trading back in February? And it's because we've hit that kind of bit of, bit of a brick wall on that European economic momentum. If you, if you have a look at the S&P chart, of course, it's starkly different. Yes, we've had some downside over the last couple of sessions, but look at the weekly chart for the S&P. It's massively different story. Let me just get rid of some of these lines here, tidy this up. You know, we're up here, 28 85 currently trading. Of course, the all-time high set back end of last week, up just above the 2,900. Where was the S&P trading in, in February? Well, it was trading obviously quite dramatically lower. So whilst Europe has just stumbled a little bit, obviously there's still decent growth. It's just that that momentum, that acceleration in growth from 2017, has not followed into 2018. And so Europe sideways. Of course, also, uh, you know, the kind of key factors why European stocks are struggling relative to the US is because of, um, obviously risks specific to this continent. Number one being Brexit, uh, number two being Italy, uh, number three you would say Turkey and that situation. Of course, much more exposure to Turkey and to Turkish banks here in Europe than there is in the US. Also, technology, you know, technology is a big part of the S&P story. The biggest sector in the S&P is technology, and you've got your Apples and your Amazons, you know, gunning up to $1 trillion valuations. And so that's obviously helped to spur outperformance on the US stock market front. Of course, in Europe, we're kind of more heavyweight banks, and it's that banking sector that's really struggling. So that's kind of reasons for your divergence. So that's one reason that's kind of feeding this negative sentiment this morning as Europe gets going. German factory orders number not what the doctor ordered. There's other stuff. Let's have a check on the headlines. Trump in the news inevitably. Trump tells Times to unmask op-ed writer on national security grounds. So just yet another kind of episode in the soap opera that is the Trump White House here. You've got an anonymous source inside the Trump administration writing, or responsible for a kind of piece in the Times. And it's just another Trump story. I mean, it's not really anything to get excited about, but the person, the individual, is saying that internally there is a movement going on to try and thwart Trump, thwart the president's more misguided impulses until he's out of office. The root of the problem is the president's amorality. Anyone who works with him knows he is not moored to any discernible first principles that guide his decision-making. Of course, Trump has been all over this, tweeting things like treason, uh, and trying to get the Times to reveal the source. So it's just a sideshow of the soap opera. You're not getting any market-related influences here. What's more important is Asia. So further negative sentiment through the Asian session. So that ongoing, um, well, one of the big stories of the summer. Turkey, Argentina, more broadly you're getting FX weakness in other nations that are carrying trade— sorry, current account deficits. So you've got the Indonesians, you've got the Indians, you've got the South Africans, all of these lot, a lot of weakness in their currencies. And of course, this is spilling into the equity space. So This is, uh, talking about divergence amongst stock markets. I was talking about the DAX and the S&P a minute ago. Well, here we're looking at, um, the All World Index of developed stocks, so that's the blue line, and then you've got the Asia Pacific Index is the white line. So I mean, this blue line, uh, obviously has been trending higher, but as we've just discovered, that's pretty much entirely due to US. Obviously, this, this blue line, which is the all-world developed stocks, not getting any upside action from anything going on in Europe, of course. So it's really more of a US story, but certainly a pronounced divergence versus Asia. And you can see the timing of this divergence. Of course, it's definitely trade war risk, and today is an important day on that front. This is where the public consultation comes to an end. And this is where Trump has been asking the public and consulting with the public on what products would be appropriate to add tariffs to. And he's eyeing up a further— he's eyeing up tariffs on a further $200 billion worth of Chinese imports. Okay, so that will take— we want to hear news on that. It might not be until tomorrow that we get more news flow on that, but that's something to be mindful of in terms of timing, but certainly the divergence is very pronounced. And what's happened overnight is actually you've seen some of these Asian stock markets hitting bear market territory, which means they're 20% down off, off recent highs. So, you know, just more of the same. You know, this story, of course, has been shaping market sentiment for, for weeks now, and the story's still here and it's not going away yet. Yet. Um, so let's have a look elsewhere. We're talking about stocks. Um, let's have a look what happened yesterday with regards to the pound. Uh, let's talk Brexit. So here's an annotated chart just looking back actually over the last week, couple of weeks really, in terms of how the value of the pound has been, uh, shifting relative to the value of the dollar. So plenty of volatility here, and a lot of this is due to commentary coming from either the British camp or the European camp, commentary with regards to how the Brexit negotiation is developing and progressing, and are they going to be able to make an agreement on trade, and are they gonna— if they are, they're gonna need to do this pretty soon. That March 2019 kind of line in the sand is of course getting ever closer. So this is the volatility in recent weeks. Now we had a big move to the upside back on the 27th of August. This is off positive comments from Barnier, so the guy heading up the, the negotiation from the EU side. He made some positive comments and you saw cable here ramp higher. That all kind of then dissipated and we kind of drifted back lower over the— into Friday was a negative session, and then the this week. On Monday, we kind of got going on the back foot as Barnier then kind of reversed the comments that he'd made earlier on the week before. Then we're down, down, down yesterday. Big spike to the upside, more than a 100-pip move, a 150-pip, you know, straight line to the upside off the back of a Bloomberg headline that suggested Germany and the UK are looking to drop key Brexit demands, i.e., suggesting that, you know, major progress has been made, a breakthrough in the negotiations, and things ramped higher. But then later, an hour or so later, the German government, through a spokesman, said that actually their position on Brexit is unchanged. So this is via Reuters. Obviously you've got Bloomberg and Reuters here, obviously the key rival news agencies. And so, you know, Reuters coming in with a counter headline which of course brought things back lower, although cable has consolidated around about the midpoint of that initial spike. So as we were speculating yesterday, you know, until the German or the UK government themselves confirmed that rumor, it was, you know, it was likely to potentially be not quite as sensational as the Bloomberg headline initially suggested. So that indeed was the case, and we've consolidated. And actually, what's happening here, if I go to a daily chart— sorry, hang on, let's take this— hang on, let me do this differently here. Daily chart, let me take that trend line off there. So, you know, more broadly, the pound has been weakening, of course, through the summer, generally speaking, as, you know, a lack of developments, a lack of progress on the Brexit front. Of course, key break lower start of August. And where are we? Yes, lots of volatility over the last couple of weeks, but where are we? We're still below the 130 handle. And, you know, that's a key price point. We tried to get up through that last week off that Barnier comment, but it failed. Yesterday we tested that area. It failed. And so ultimately, whilst, yes, a bit of upside, we're still technically right down at the bottom here. We're still technically in this downtrend that has shaped the summer. We still do not have any kind of major breakthroughs and progress on the Brexit negotiation, which is continuing to weigh on the value of the pound. So certainly, despite that headline from yesterday, technically still bearish here. Let's have a look elsewhere. What's going on on crude oil? Here's the— Here's the crude oil chart. I'm going to start with a daily because we're kind of bang in the middle of the range of the last few months here. Um, key move to the upside, of course, Monday, which saw us break that $70 handle, and that was an important kind of moment. But of course, it didn't last, and it all came reversing back lower. And the key thing about that was— well, the key thing about this rally in the last couple of weeks is that we have not really managed to get above $70 properly. Yes, we've had intraday moves, but really we failed to close— well, I guess on Thursday last week we did close above $70. We closed at $70.05. But my point is, we haven't really managed to close, you know, a decent distance above $70. Yes, intraday moves above $70, but really in the longer term, kind of a failure here at $70. And yesterday kind of confirmed that with downside. And we've kind of hanging around the kind of low points from yesterday's session now. So it does look for now that that attempt at mounting a proper move up through $70 has failed. So we move into today's session. We do have the oil inventory data, of course. A day late because of the US bank holiday, so that's going to be hitting the wires later on. It's actually at 4 PM. We're going to look at the data calendar in a minute, but last night we had the, the API figures announced, and I'll be covering that as we prepare for the inventory data later on. So oil, yeah, hanging around yesterday's lows. You know, a key kind of failure at $70 in the end so far this week, you would say. All right, let's have a look at what else is happening. Here's, here's another article just catching the attention. Bitcoin tumbles to 2-week low. We don't talk about Bitcoin much, but, you know, we have had some weakness earlier on in August that seemed to have gone away and Bitcoin driving back up above $7,000. But, um, what's happened here— sorry, you can't quite see the headline— Bitcoin Drops on Report Goldman Sachs Shelves Trading Desk Plans. So this is Goldman's putting on hold any plans for a cryptocurrency trading desk. So that alone is enough to take Bitcoin down almost $1,000, uh, pretty much in a straight line. So we do have a very important, um, double bottom. And if I show you actually on the futures chart, um, keep an eye out for this. Um, so this is that kind of steep downside we've had yesterday and then steep downside overnight. Uh, but if we look at a daily chart, uh, the key levels, that key double bottom for the summer on the futures is at 5,800. So $5,800 is absolutely the key price point for the summer. Um, and if you go back further, of course, technically this is beautiful. Uh, the low of 2018 is pretty much— it's at 5980 and then 5800. And really, you kind of got a triple bottom here. Um, and but the key thing to note is, look at the squares on this chart. Each time we hit this support level, we bounce, but each time the bounce is less strong. Each time the rebound, um, gets to a, a lower— so we're getting lower highs here on the rebounds, which is a classic kind of bearish technical setup. We've got a descending wedge, and I would say, you know, each time we test 5800, the more vulnerable that support level is. And any break of 5800, and I'd say you get a pretty straight line down to 5000 in very quick order. This is very technically driven, behavioral driven. Any break of 5800, and 5000 is going to trade like that, I would suggest. So keep your eye on Bitcoin. It might well start to grab the headlines a little bit more. Got some attention overnight. So let's have a look at the data calendar for today because we've got a decent amount going on this afternoon. Not so much this morning, though. We had that German data at 7:00 and that's it, really. Nothing else with regards to any key European data. But certainly this afternoon's looking interesting. So we'll have the ADP employment report coming at 1:15. Let's have a look at that chart. Um, he says— here it is. This is measuring, uh, private sector employment growth. And so what was the expectation? Let's have a look. So 190,000 is what we're expecting, which would be a slight drop from last month's 219,000. So we had a very solid reading last month, better than expected July. That was the best reading since February. We're expecting it to slide a little bit. But look, you know, anything around the 200 mark is fine. And if that happens, if it's anywhere near 200, I think it's really going to be a non-event from a market kind of sensitivity point of view. I think really to get the markets interested, you're going to need a number south of 150, which would put it at a 12-month low, or anything above 250, which would, as you can see, put it at a 12-month high. I think you're going to need to see an extreme reading of that nature for financial markets to actually be impacted by that. So that's ADP. Back to the calendar, more stuff, and perhaps I'd say more interestingly coming at 3 o'clock. So I'd say the big figure of the day is that ISM non-manufacturing. We've got an expectation of 56.9. Remember that back on Tuesday we got the, the, the manufacturing number So the ISM Manufacturing, which came in at a 14-year high, quite a phenomenal print above 61 for the first time since 2004, indicating that quite stark contrast to Europe, actually US economic momentum is really powering on and powering forwards. And as I mentioned on that day, Tuesday, as a result of that kind of data, the Atlanta Fed GDP tracker, their GDP growth forecasting model ticked up to print a 5.1% growth rate for Q3. So growth momentum in the US still nice and solid, which again is that key reason why— well, one of the reasons why you're getting US equity market outperformance. Now it's time for the ISM Non-Manufacturing today. Okay, key data points this Now, July was really bad, as you can see. July dipped below 56. That was the worst reading for 12 months. Um, the— what we're expecting today, 56.9, uh, so that would put us, uh, well, back up into the— maybe you might call it the, the middle portion of the range that we've seen. Okay, anything below on the downside to look out for, anything below 55 would be notably be bad. Anything back up around 59+ would be very good. Anything above 60 would be extraordinary. Okay, so that'll be data coming later on at 3 o'clock. Um, back to the calendar then. That's, that's— then we're into the oil inventory data. As I said, it's at 4 o'clock. So whenever we get a bank holiday Monday in the US, it bumps that oil inventory data forward by a day. but actually comes at 4 PM rather than the sort of 3:30 PM that we're used to on a Wednesday. It's 4 PM on a Thursday, so we're expecting a build, a slight build in crude. So we'll cover that nearer the time. Obviously that's later on this afternoon. In terms of monetary policy speak, we've got ECB's Lautenschlager hawkish talking around 12:45. We've got the Fed Fed's Williams also talking later this afternoon. Okay, so that's the shape of the scheduled news flow that we have for today. Just back to finish on the charts then. Yeah, obviously negative sentiment. Let's, let's just check back in on the DAX to see what's going on because it does look like we flirted with 12,000 here, which is S1 this morning. We spent a good half an hour properly having a go at that level, and at the moment we've just lifted a little bit higher. What, what's important is where we're trading now is kind of yesterday's low, um, so we're just trying to get above that. So we've got a key kind of battleground here. Opened lower for now, S1 and 12,000 just about propping things up, but we kind of need to get back up above yesterday's low to really be confident that that 12,000 handle is going to remain intact. I'd say the next sort of 20, 30 minutes are quite critical here for the session. Any moves back to, to S1, and I think we might be vulnerable for a break lower, but, but any move back above yesterday's low will settle the nerves. The buyers will just take some confidence from that. Um, so yeah, quite an important 20 minutes or so, I'd say. Keep your eye on the DAX as that kind of lead indicator. Just gold's caught my eye because as you're getting a bit of negative sentiment, you're getting gold lifting higher. So we— this morning we've traded up above yesterday's high. Let me just draw a line at yesterday's high there. So far today, our 1's done the, the business in terms of resistance. So we're kind of back above the 1,200 handle. We spent obviously a few sessions south of $1,200. So gold just trying to form a platform at $1,200. That was the pivot yesterday. It's the low of the day today. So that's a key kind of support area. Obviously, we've tested it today. It's held nicely and we're kind of now having a go at getting back to R1 and maybe moving north of that. If the DAX, let's say, breaks lower, then you may well see gold Enjoy that, uh, and make a move above 12.05. Um, okay, that's it from me for now then. Um, enjoy your session, and we'll be on the mic throughout the day. Okay, thanks a lot.