Morning Briefing - 9th Oct 2018

Hi guys, it's just gone half past 8 here in London, Tuesday, 9th of October. Uh, get the briefing underway. Start by having a look over how the markets ended up, uh, finishing yesterday's session, the news that's driving price overnight, uh, and into today's sort of morning session here in the UK. And then what as well we should focus on going into the back part of the day and the rest of the week. Starting to have a look at what, what drive price yesterday. Coming into the office, a lot of the talk was about Italy situation, yields obviously increasing to move higher. We had the oil situation, we had just been coming down a bit and it looked like Trump had been winning after his comments on wanting price a bit lower. If we start off looking by looking at the euro, saw a bit of dollar strength come into the market into some sort of the, uh, sort of morning session. We broke lower, the bit of a trendline break into the afternoon. I know a couple of people were, were looking at this, this trade on the sort of the break of the S1 and, and what was Friday's, uh, low from, from non-farm payrolls. It was a pretty good, uh, opportunity there. We'll come on to look at the, the charts this morning slightly. We've seen the dollar push to a new high, uh, and the index not far from 95.5 there, but we're just recovering a bit for those that are looking. The pound as well, similar sort of story in sort of breaking through into the sort of the early morning. We saw a bit of recovery in both those pairs though into the back end. We had some, some Brexit talk out. If I just sort of highlight where that came, literally right down near the low, uh, well below the sort of the S1, around 130.71 on the futures. Which would have normally been perceived quite negatively, uh, about there being no such deal sort of reached come October. But we sort of know the summit in November is more the focus now. So would have moved markets before, but no real reaction, uh, from them as well. With this recovery in those dollar pairs, we saw Aussie dollar as well just have a, a decent push-up really for the afternoon. I know, uh, Charlie in particular had a good trade on this on the sort of the pivot, the classic long from the pivot after breaking through to target up towards the, the R1. And we, uh, up until sort of 5, 6 AM this morning, it had been continuing to push on. And what was quite a good resistance area— I'm not sure if anyone was sort of awake to get that on with the 71 handle, the R1, the highs that we had on the 4th as well— was a really sort of nice range-bound trade, continuation of the overall, uh, direction. With the yield story, uh, we obviously saw safe haven flow especially really kicking on yesterday morning and then throughout the day for the yen, breaking those lows, breaking Friday and last week's sort of support into the back end, and continued lower until really sort of 7 o'clock where we saw a bit of a recovery here on the dollar side of things. As that happened, you saw S&P, the NASDAQ, and the Dow, as I'll show you in a couple of minutes, do exactly exactly the same thing. The, the S&P, uh, in particular had, uh, quite a lot of support just near those lows. I want to make this chart a bit of a smaller time frame. You can see all this sort of area here, really important. Those lows from the 6th, 7th, and the 11th, uh, tested, failed to break lower, uh, and then we had that reversal. So there's still a few buy the dippers left in the market. Quite key level we'll come on to later today, uh, later in the session, I should say, uh, of the sort of Friday morning low to yesterday and overnight's, uh, sort of high as well. So keep focus on that. As mentioned, 7 o'clock, that sort of time period yesterday, the Dow Jones recovered nicely as well. And you can see the similar point of interest, uh, of that sort of effective resistance level now, uh, for the Dow and the NASDAQ there. Decent recovery, uh, as well. And a very similar level marking up today's R1. So today technically, you know, can let the market for these equities tell you what's going on. Uh, if we go over to the oil, just before we go to the sort of the story on where yields are trading, I think quite interestingly for, for oil, which have been coming down Thursday, Friday, uh, since that high that we made, interestingly sort of from the sort of the increase in volume we, we get at 2 o'clock, we, we pushed higher and have continued to do so. Now. So the sort of the, the potential void left by these Iran sanctions, has that now been priced in? You know, you could argue that potentially that the market is telling you it has, and maybe normal service may resume here for oil after this overall uptrend that we've seen for quite some time. Some key sort of technical breaks along the way yesterday into this morning, and as well, uh, to sort of be aware of, uh, stories from, from overnight. Nothing like necessarily that new. If we have a look at the, uh, sort of the main headlines, what you need to know, quite a good sort of summary done on the FT each day. Um, you had the Asian stocks mixed but slightly recovered after quite a sharp move down yesterday. in their session. So that sort of is something to bear in mind. We've seen in, in Europe, uh, equities this morning near their higher points but not moving too much. So I think it's very much a case of the morning, let it sort of plan out, uh, before sort of taking an overall direction. But the fact that we aren't perhaps making new lows already suggests that maybe we've had that sort of storm and the calm is coming. Uh, 10-year, uh, Treasury yield touches 7-year high. You can see that here on the chart, really pushing on. Uh, if we have a quick look at Take Your Tea Notes on the chart itself and we bring that into picture. So yesterday we had— let's bring that up there— you can see a bit of a recovery, albeit we then drifted a bit lower overnight into this morning. And that 7-year high, something to focus on, uh, going forward. I think quite interestingly though, I saw this, this tweet um, you know, what level of rates at which we go back to bonds. And, and historically, and this, this, this indicator from 1985 to, to now, September 2018, uh, 5%, uh, yield on the 10-year was the breakpoint for which stocks sort of lost, uh, that sort of move to the upside. So I think we've still got a bit of room to go. I think interestingly as well, you've got the midterms coming up soon If this yield keeps rising, stocks should come down. Trump's not going to want that. Trump's going to be in the ear of Jerome Powell, and maybe the Fed will sort of come to the rescue. I think it's worth just bearing that in mind, not necessarily to say, you know what, December, we're not going to hike. I think that is, you know, all but priced in, 83.8% at the moment for that December hike on the 19th. But maybe it's going to be more about the guidance given there about the year ahead in 2019, you know, how many hikes. See, at the moment just the one priced in. I think if that still remains, then why can't stocks go higher? I think there's a bit more room to go. And while Trump is, you know, still, still in the, in the hot seat, I think this is just a bit of a, bit of a lull before we continue to move higher. In terms of equities, I think another quite interesting article I saw this morning, and obviously not really for right now, as in, in this day, but perhaps down the line, maybe into the back end of 2019, the sort of the shift from US may drift over into Europe. Of course, the European markets have been heavily underpinned at recent times. There's been that divergence while the US is making those all-time highs, European equities are some distance off. So we might start to see that divergence come closer together in 2019, and as the sort of the US growth perhaps stalls down a bit— and they're expecting this sort of Q1 to Q2 in 2019— something to bear in mind. And here you can see actually that, that divergence really kicking on since May of this year. You can see while since that May time US stocks up near— and S&P 500 in particular up near 7% while your Europeans down 4%. So something to bear in mind as we come into the next year. Also overnight, IMF cuts forecast for global growth. Trade war takes toll. The markets just don't like the uncertainty. We've been here before, in my opinion, from the beginning of the year. We saw this, you know, the yield story with the trade talks and weighing on equities. And then it sort of comes back. Yes, the trade war would be, uh, you know, not beneficial at all for, for global markets, and the growth would definitely stagnate. But I do believe this is just a bit of a blip, and, uh, that maybe that you want to sort of let the markets tell you what to happen, uh, and, and I'll come on to that in the U— in, uh, US equities and those levels to break. Um, but I don't believe, uh, it's right now is the opportunity to go short for a long period of time. Let's have a quick look at those, uh, sort of cuts in the forecast. You can see, um, should be a bit lower down. Okay, maybe they changed it up a bit. But here you've got the sort of the US remaining the same, China remaining the same. So it's just Euro area they've sort of downgraded a bit. The world from 3.9% to 3.7%. So that's, uh, just coming under a bit of a, a bit of a cut there. But usually, uh, as mentioned in the chat, the, uh, IMF rarely moves the market with their forecast. But something just to keep an eye on as we start to slow down. But growth, you know, still not too bad in the, in the world as a whole. Um, if we have a look at the markets, moving on to sort of how we have traded overnight, and mentioned the dollar was stronger this morning You saw EUR/USD, uh, push to the lows, almost reaching the lower point of yesterday, S1, quite a good level. And you've also got Thursday's low in the mix there as well. We've had a bit of recovery here, but definitely worth keeping an eye on this level. I saw, I think it was Alex in the chat, looking at the possibility, uh, or the potential idea, I should say, of the sort of the break below there, almost looking for the market to recover before really getting that, that push on. And that's something I would be looking at as well, break of those levels, uh, to then find resistance on what was that— has been decent support as we go through. Pound similar in terms of pushing low just to recover back, uh, back a bit slightly. If we have a look more sort of in depth, that pivot and those previous lows from the morning holding as good resistance. Aussie dollar, we talked about that R1 acting very strongly as a resistance level. I'll be keeping an eye on this pivot, how it sort of pans out as we go into sort of the, the main part of the European session. Now if we have a quick look over at the DAX, you can see over the last sort of 15 minutes or so we have been pushing on to the top end of that range. Quite a lot of resistance, uh, not too far from where we're trading, which we're almost coming into picture now. So I'll be keeping an eye on, on these levels. If that was you know, to remain, uh, sort of elevated through there, then yeah, sure, we can get a bit of a drag higher in US equities as well. Quite a key trend line I would suggest having on. Let me just get that on the chart that we are breaking this morning. Can we confirm a break above all that area? Will be, will be quite key to have a look at. The Bund coming under a bit of pressure this morning. Um, to sort of to test almost its lower level around that S1. Be keeping an eye, uh, on, on yesterday afternoon's low as a potential resistance point going forward there. That's also having a sort of a drag through on T-notes, which you can see looking very similar in terms of making a new low, albeit just to recover slightly. Um, the calendar for the day ahead— let me just bring that, uh, into picture here is like Monday, like after most non-farm payrolls, the, the sort of 2 days after that, the calendar is very quiet. It's, you know, built up to be this, or was built up to be the sort of the main event of the month, most volatile release, and it sort of lost its importance, uh, slightly. I mean, arguably the, the hourly earnings, uh, is the main event now anyway. But yeah, the calendars for today, you can see very quiet, uh, trade balance out of Germany, the only notable— or half notable thing, I should say— at 7 o'clock. But I almost, you know, forget about that really, not to sort of focus on, on that, how it came out. So maybe focus today, and we'll come on to the speakers in a minute, but, you know, let the markets tell you what's going to happen. I'll bring the, the equities into the picture and mark up those key levels. You can see we're not too far away from from where it is now. I'm just going to make that a darker line just so you can see it a bit more clear there. I think if we can get above this, that's, you know, almost— and of course cash open can change things as we know in comments as well. But for me, we break above that today, uh, then I believe we're just going to continue to, to sort of push on really in US equities, and that it was just a blip. You know, China coming back, uh, as well, had a bit of recovery overnight Yes, we'll be keeping an eye on the sort of Italy situation as well. But, you know, European stocks pushing on this morning. We had a couple of comments out overnight as well, um, from, from Italy. Uh, no one in the government wants to leave the EU, and they believe Draghi will help prevent, uh, another sort of crisis within that as well. I don't know, a bit more positive sentiment, I would, would suggest. But yeah, this is the level S&P on the futures that sort of low of the sort of early afternoon on the 5th, resistance, uh, then overnight on the weekend. The Dow Jones, very similar, very similar. That sort of 1 PM low, we almost tested it again this morning. Can we get a break above that? Uh, if not, then sure, yeah, we can continue to come lower. Absolutely. Uh, NASDAQ, we've got a bit more to go here to that similar level up at R1. So as yesterday was an interesting cash open and then we had the sort of the follow-through to find support yet again. And you can see just how aggressive the buyers were into the back end of those sessions for, for all those equities. So you'll be keeping an eye on that. Speaker-wise, as we come into the, uh, sort of main part of the morning session now, we've got speakers out at 9:30, the ECB, uh, Mersch. So be keeping an eye, uh, on sort of your Twitter and obviously the squawk as well. for any, uh, sort of opposing views. Is he primarily hawkish there? Into the afternoon, we've got a couple of, uh, Fed speakers, and you've also got, uh, Bank of England's Carney at 8 o'clock speaking just around the corner at Mansion House. I think my, my invite must have got lost in the post there, uh, slightly. Speaking of sort of the Bank of England and the pound, we did— we've got some, uh, articles out overnight. UK retail sales grow at weakest pace in, in 5 months. So, uh, it's worth keeping an eye on these numbers as they are starting to sort of come out. No real developments Brexit-wise, I would suggest. Anthony did mention in the, in the briefing yesterday it could be a relatively, uh, sort of quiet week. I'd obviously keep ears to the ground for any potential new comments, but as things sort of go from now, not expecting too much. In terms of, of oil, I mentioned the sort of Iranian sanctions. Are they perhaps priced in? You know, they're quite, uh, aggressive buying yesterday and again into this morning. Where could be a good opportunity? I mean, technically, uh, be looking at yesterday's highs around sort of— let me just bring that into the picture on the futures. Can you see that? Yes, you can. Around sort of $74.40. to 34, I think it's a good level, uh, of interest. Could we get, um, a break above our 1? Yeah, why not. And then you'd be really looking for 75.22, another key area. We had a bit of support for the breakdown, uh, on Thursday as well. So between sort of 22 and 44, uh, 75, uh, 22, that is, and 74.40 would be the sort of the areas that I would be looking at, uh, going forward. Data-wise, as mentioned, not expecting too much. So it might be more, uh, wise to let the markets tell you what's going on, waiting for the speakers, any potential comments, uh, that come out as well. Um, it just seems to me that we're starting to pick up a bit more positively in the sentiment, uh, but of course that can change. And, you know, trade what you see, not what you think, of course. As well. Any questions, as usual, please do get in the chat. I can see a couple now, so I'll respond to those just after the briefing. I hope you'll have a good day ahead of you, and I'll catch up with you all shortly, I'm sure.