MP's Reject Snap Election So What Next For Brexit

Okay, very good morning to everyone. Hope you're well. Tuesday, 10th of September. I understand Will is listening to us live in China right now, so hello Will and everyone listening there. Going to go through the usual routine. I'm going to go and run through some of the headlines in regards to Brexit, Chinese data that came out overnight in the form of inflation, so PPI and CPI we can have a look at. We're also going to have a look at energy prices because WTI crude oil continues to rally, looking to put in one of its best gains that we've seen in about 2 months actually, in terms of consecutive sessions moving to the upside. But before we get into those individual stories and look at the calendar for the day ahead, let's just have a quick review of the charts this morning. And it's a relatively quiet open, all things being equal. A little bit lower in stock futures, but I would probably classify them more as flat at this point. One thing that we are seeing is a bit of a pullback in— interestingly, gold is back below, uh, 1,500 in the futures, and obviously that's been a, a big psychological level of late. We managed to get all the way up to north of 1,560 in the last week or so, but we have seen a break of that level overnight and Consequently, that has acted, as you can see here, is a little bit of near-term resistance on the pullback after the initial break. So if I just highlight that price action here, so dipped lower overnight, broke through its respective S1 in the daily pivots. And this is quite often what you see when you get these kind of fast money technical-led moves in a fairly illiquid part of the overnight session. And the market kind of chases down to the next logical point of technical support. You can see that provided by S2. You've then grinded all the way back up and found some resistance then on the point of the original break, which actually lines up pretty much to the, to the cent of what would be the $1,500 level in the futures space, at least on the daily pivot. So, uh, range formed then over the last several hours between that S1 and 2. As you can see, but a little bit over-accentuated perhaps the downside in gold overnight, just giving the meaningful break of the technicals rather than something I would say specifically on the fundamental front. And we trade down about $12 at the $1,500 figure for the moment. Elsewhere, T-notes a little lower as well, down about 7.5 ticks. Bunds actually, if I just quickly bring the Bund future into shot. You can see here again, I'd say technicals coming into play to some degree. You can see the overnight range and yesterday afternoon's low just being broken, and that also taking out the low print that we had going back to the 5th, which obviously was the middle of last week, last Thursday. And so just a bit of a test on that level. Is there anything behind these moves this morning? I wouldn't say there's a headline behind them specifically. Obviously the market though, things like the Bund have seen a particularly good run with this whole idea of further accommodative central bank policy action to come, particularly this week with the likes of— you've got the ECB, got the Fed next week, and all the other kind of dovish signals that we've had from global central banks of late. So perhaps just a little bit of unwinding or profit taking from some of those moves just coming in, but As I said, overall on the charts, I'd say it's relatively quiet. Currencies, quick roundup, the DXY is trading flat but has backed off and broken its overnight fairly tight range. And so it was up generally overnight, and as it's pulled back, we've just seen a little bit of an upside move in cable towards retesting the intraday high that we've seen yesterday. We're going to get into all the details, of course, but now Parliament in the UK has been prorogued, which means that now it's been signed into law, received royal assent yesterday. Brexit, all things remaining equal, is now going to be delayed unless Boris Johnson is going to challenge this in the courts in regard to the legal wording surrounding that latest Hillary Benn bill. Otherwise, WTI crude a little bit more positive, as mentioned, continues to add to gains. I wouldn't say this is so much anything like a supply risk type headlines that are, that are going around. Nothing really on Iran for quite some time. In fact, what this really is, is expectations are that we're going to be in for another drawdown in the inventory situations for another consecutive week in the numbers that will come out. API tonight, DOE tomorrow. And then also as well, we've got the Saudi oil minister change that we saw at the weekend and a commitment going into the JMMC meeting in Abu Dhabi on Thursday that Saudi will continue to form a fairly cohesive relationship with Russia and that they will continue to commit to cuts, if anything. Some speculation that they could go further and cut even deeper, helping keep keeping the price of oil propped up for the moment. So that's the overview. Let's just get a bit of a roundup of what exactly has happened with Brexit. So Boris Johnson, of course, called for a second time for a snap election and lost. Many Labour MPs abstained in the vote. Only 293 voted for an election, 46 voted against. This is well short of obviously the two-thirds of majority that would be needed. Interestingly, UK Parliament also had a secondary vote where they voted 311 to 302 in favor of forcing the UK government to show all documents regarding its no-deal planning, as well as private messages in relation, in relation to the decision to suspend Parliament. I'm particularly interested to see what is potentially a complete lack of planning in regard to actually trying to broker a deal in itself, given what Amber Rudd was saying at the weekend when she resigned, that the government is kind of wholly focused on just dealing with no deal, not actually trying to secure a deal, which is, may I remind you, still to this point the government's actual mandate, at least for the moment. And private messages going around about the suspension of Parliament. I'm sure that's going to be some interesting Conservative WhatsApp groups, um, that are going to come to light. And all of this, of course, is going to be reflected quite negatively on Boris Johnson, which comes after what the headline was— has suggested on Bloomberg, similar to this— that he's lost 6 votes so far as Prime Minister. So if you thought Theresa May was bad at securing bills through Parliament. Boris Johnson is doing a pretty good job himself at the moment. Other things that have happened: the Prime Minister, of course, and just to re-emphasize this point, promised to commit himself to trying to secure a revised Brexit deal at the EU summit on October 17th and 18th. Remember, Parliament now is in suspension so that we have this normal period of where the political party conferences will be happening. Labour end of September, Conservatives early October. But the additional couple of days, of course, given what Boris has done in his latest move to a pro-rogue parliament. So the Queen will reopen effectively the lower House of Commons on October 14th with her speech. That then gives the EU summit on October 17th, 18th, which is where Boris is hoping to strike some sort of deal concessions from Europe. He has angered MPs though by suggesting he could defy a new law, the law that passed yesterday, by pressing ahead with no-deal exit if he failed. So i.e., if he can't get a deal at that EU summit in mid-October, then he's still going to have a no-deal, irrespective of the new legislation put into law yesterday. Now, this is quite a contentious issue because some suggest that he could actually face jail if he did that because he would be in effect breaking the law. I think that's completely sensationalist. The thing here about UK law is it's very nuanced in your interpretation of the wording of legislation, and so what the government are suggesting is that they can bend that as far as possible as to how they deem what it is supposed to reflect, and that they still reserve the right to potentially have a no deal. However, I do definitely think that this is just posturing from the Johnson camp. He will have to buckle and pay heed to the new law that's passed, so it will be delayed is my point of view here. A couple of other things that happened yesterday, of course, which were, which were meaningful in some respect. The Speaker John Bercow announced he would be stepping down, but of course only after Johnson's proposed Brexit day of October 31st has passed, because the Speaker will, I'm sure, play quite an influential role when Parliament reopens in mid-October, in that 2-week period before then we do indeed seal the fact that it's going to be delayed until January 31st, 2020. Now, the other thing that's been Interesting has been that Boris Johnson, the Prime Minister, was in Dublin meeting the Irish PM yesterday. Of course, the biggest sticking point remains that of how they're going to address the issue of the Northern Irish border. And the PM has actually softened his stance slightly, confirming he was ready to leave Northern Ireland in the EU single market for food and agricultural purposes to reduce the need for checks at the Irish border. Now, that has been a little bit warmly received, that we're making a bit of headway. However, EU are very unlikely to accept that alone as enough of movement on that commitment on the backstop. And importantly, of course, the DUP would be absolutely against that, having then the fact that Northern Ireland would have unique rules keeping it aligned for food and agriculture to the EU single market, which would effectively put an Irish Sea border, meaning that then Northern Ireland would be treated slightly separately from the rest of the United Kingdom, which is absolutely against what the DUP would want. So yeah, a little bit of softening of the PM's stance. I do think that's quite telling considering how harsh and deliver this and that he's been He's already making a little bit of movement in that regard, which I think still, uh, is necessary to get this deal over the line if there is to be one. Now, on the point of what is the probabilities that most economists at the big bank— banks are thinking, well, this is the latest out of a Reuters survey that came out overnight, and effectively, as the headline would suggest, Brexit to be delayed. The chance of a no-deal departure I believe it's 37 banks that were asked the question. They put the probability on an average at 35%, just given everything that's been going on. So still a chance that it could happen, but only at 35%. The range was 10 at the low to 1 outlier at 60% at the high. Um, what does this mean then for the pound for the moment? Reality is, I think the, the pound has already really shown you what all this means for the pound, which is that Brexit is going to get delayed till January 31st. So when we were looking back at the pound, of course, and it was flirting with these really quite interesting long-term levels, we momentarily printed the lowest level in sterling-dollar cable since 1985. However, it was only for a fleeting moment in time when we retested and broke through that double bottom post the actual EU referendum price action, when obviously no deal or hard Brexit was first mentioned. But we have seen a very strong recovery in cable since then. I mean, me and Sam were talking about it just the other day. We were like, you know, God, have we missed the opportunity here of a lifetime? Time to get in on that, that move when we've had that pullback. Just having a look on my currency indicator here, the pound has rallied over 3.5% over the course of that initial low happening. I think a lot of that was accelerated on the initial bounce through a bit of a short squeeze. I think a lot of people would have been trying to get short on 120 and would have got stopped out quite aggressively on the back of that, and that helped the initial move But now this legislation being receiving its royal assent and going into law makes it incredibly difficult for Boris now to, to do this in order to get a no-deal credible threat. And I think as that gets priced out, the price has got to continue to move higher. Again, just to be clear, does this rule out a general election? Absolutely not. A general election is still the base case scenario. But the expectation is now that that will only be agreed to, um, once then we come back, reopen in Parliament in October, given the legal timeline for a general election to happen. Most expectations now that that will happen in mid-November is when a general election is now anticipated. Any further upside in the medium to long term in cable, then I'd probably be looking at around these levels: 124.17 in the futures. 81 then starts to bring in the low point of the December 18th low. That was when Theresa May survived that vote of no confidence, if you remember. And so, yeah, a couple of upside levels as we continue to recover coming up that might provide some medium-term resistance to the price of the pound. Okay, a few other headlines to be aware of. This was overnight Chinese data. We had China's factory gate prices shrunk at sharpest pace in 3 years in August, falling deeper into deflationary territory. As you can see here from this orange line, well below zero, -0.8%, definitely reinforcing the need for further economic and fiscal stimulus coming out of the Chinese authorities. We saw that at the end of last week, they cut the reserve requirement ratio for the 7th time since early 2018. Seen. Fiscal spending continues at a pace, and this all to counteract the downturn in economic activity domestically, translating into diminishing demand and consequently a consistent pattern of weakening PPI that they need to counteract. As you can see though, a continuation of the divergence between falling PPI and accelerating, albeit a slightly more moderate pace, in CPI. CPI in line with expectations, 2.8%. But check out some of these numbers. Food price index, when you look at CPI, rose 10% on the year from a 9.1% jump in July, at the highest now since January of 2012. Pork prices were up just shy of 50%, an increase of 27% in July. This all coming, of course, after the African swine fever, meaning a complete culling of a large amount of the pig population in the agricultural sector, which is squeezing then the price of pork ever higher, translating and spilling over into other prices and accelerating food price index, which is helping underpin the CPI number. For the moment. What does that mean again for China? As mentioned, um, it doesn't really translate into something immediate on the charts this morning. It just means that then, uh, it gives further explanation as why China are doing what they're doing from a policy perspective at the moment, and that will continue for some time to come. Oil, we, we already mentioned and looked at the chart, so not really much more for me to add on this point, the takeaway, of course, from Prince Abdulaziz being put in place, the first actually kind of member of the royal family to take the head of the oil ministry position, which has always been, you know, such an important role, of course, being at the head of the state-owned Saudi Aramco and so on. The first time that it's been taken out of the hands of a kind of, quote, outsider and brought more in-house into the royal family. But I guess from a market participant point of view, the fact that there'll be no drastic shifts in policy and Saudi look to continue to align themselves with Russia with a coordinated approach is what's important for the time being. Okay, quick look at the calendar. What have we got to come for today's session? Well, Chinese data already out the way, so if I just blow this up a bit bigger so you can see. We've got UK data at 9:30. Given a lot of the political headlines at the moment, I would say now that Parliament has been suspended, actually Brexit headlines I think will come off the boil a little bit. It really peaked at the weekend, the end of last week, with the resignations of Joe Johnson and Amber Rudd and the law that happened in the late night in Parliament. They didn't wrap it up till about 1 AM last night. Now that that's all done, I think actually Brexit headlines might, might drop off a touch. Does that mean the UK average earnings data will become more important? Well, not so much. I was looking at a graphic, um, that Eddie sent me yesterday about market pricing for central bank rate changes. And although all of markets are pricing in potential easing pretty much collectively across the globe, the Bank of England's probably to the lesser extent. And that's because obviously the uncertainty surrounding Brexit is kind of really shackling the, the policy maneuver capability of the monetary policy committee at the bank. So I don't really see this data being too much to worry about. There is a technical level of support support, which was a retest of the high print from yesterday in cable that, if broken, might well help push us on up until the R1 in the daily pivots and potentially beyond, just given the favorable news that's happened politically that should, if anything, just underline that trend of a further sterling recovery. So yeah, to be aware of, but potentially not massive breaking news. Um, US session relatively quiet, no major data coming out. We can continue to obviously keep an ear out for any updates on the trade war side. You probably would have read a lot about the JPMorgan new Vol-FiFi index that they've created, which is basically mapping Trump's market-moving capability that he has in the rates market through commenting on things like the trade war. The point being is that at the moment, the Treasury Secretary Mnuchin has said that talks continue. Some progress in dialogue being made, and of course they are set to meet sometime next month. But obviously at any given point in time, we could hear of updates on that, on that matter. Trump, of course, you'll be looking out for in a few hours' time when he awakens from his slumber and hits his Twitter account, if he says anything. I guess these are ongoing risks to be aware of And definitely, I think if you were being prudent, I would mark up the charts accordingly. If anything, everything's in a fairly— not a positive state, but things are moving in the right direction. What I'd be interested in from a market reaction point of view is he comes out and says something quite aggressive. There was that Chinese journalist which is often— who is often closely followed as the mouthpiece in the Western world of what Chinese government stating. He was quite critical about the US last night, which might rile Donald Trump. And just going back to the charts for a second, given the close proximity to the low that was seen in yesterday's session in the futures market, you've got that S1 and the low point that was seen there in the S&P. It'd be quite easy to mark up potentially those downside levels if Trump was to come out and, and say something in response to those, those comments. Otherwise, API oil inventory numbers will come later on tonight. Mark Carney is speaking at a Council on Foreign Relations. Um, obviously whenever a head of a central bank is speaking, I'd keep an eye and an ear open, but not expecting anything from Carney today, quite frankly. And then for anyone trading US 10-year, you get the first of the weekly round of issuance coming out from the US, $38 billion coming in the 3-year note auction, longer-dated maturities to come later. If you're trading in German fixed income, you've got the Bund, Bobble, Schatz, SEP19 futures expiry, so the rollover will continue throughout the session today. All right, that is it from me, uh, that's all the news for this morning, so have a good session ahead. And Sam's going to run over now some of the charts in more detail. Thanks very much.

Hi guys, good morning. Hello to Will in China as well. Hope everything is going well there. We'll have a quick look over equities to begin with. As you can see, just over the last 20 minutes or so, just coming under a bit of pressure here. We'll start off with Europe in here and the DAX. Just coming to quite an interesting zone, and it would be one that I'd keep an eye on just from all of yesterday. And, and the very small gap open we got in the futures is just below here as well. Worth keeping an eye on that. You can just see the importance of this support point, and we just failed to really push above the pivot this morning, which was a previous low. If you have a look at the FTSE on on your, on your own charts as well. You see, this is kind of what the FTSE looked like 24 hours ago, and then we got the, the break lower in the FTSE. We got the retest around 3 o'clock and also overnight before pushing to the downside. So just from a technical point of view, if we were to clear that area in the DAX and retest it, that's a strategy I wouldn't mind looking at too much. So for equities in general, just under a bit of pressure, but coming to important support points. And, and that is the same for the S&P here. You can see yesterday's low is also the low that we had back on the morning, or the overnight, uh, low on the 5th, and then previous, uh, area on the same day as well. So coming to important support points, by no means is this now ready to go short and hold for a while. But certainly if we were to get below there, just from a sentiment point of view, you know, those are the, the lines in the sand that you would want to, to have on for, for sure. If we look to the upside in U.S. equities, and again focusing on this would be more into the afternoon, you can see you'd be happy if we were to get back above that trend line and also this morning area of resistance around 2977.5. So that'd be a point where maybe later in day, if we get a push above this, then you'd be more comfortable, uh, for holding a long position. But at the moment, as you can see, stocks just, uh, under a tad of pressure coming to those lows. Obviously the DAX more likely to, uh, be the, the lead here, so that's one I would be focusing on. But with US, the NASDAQ, Dow, and S&P not far from yesterday's lows where there is key support as well to keep an eye on. Yes, we've got some UK data at 9:30. Likelihood is it would just be a short fire reaction. The pound just perhaps is drifting lower after a decent push higher as the dollar weakens only against the euro anyway. The pound, yeah, like we were saying, have we missed what, you know, have we literally seen the, the low of the next few years? You You never know, uh, with these markets. But what a level to have got in on, on the false break of 120. If you remember to our, uh, the Q&A we did, I think it's back on the 18th, when we were talking just about the pound here. It's all about where it closes on that 120. Below, we close below, then yeah, see you later. We could get down 115 pretty quick. Uh, the fact that we failed to close below, you can just see since then, update up there. Yes, we had a down day on the 6th, but another one followed yesterday, and quite a strong level as well. Looking at, uh, more intraday, the pivot looks pretty important, or just below as an area, uh, 123.20 on the futures. A good support point from yesterday afternoon. So that's somewhere I would, would have focused on there. Just coming down though, you know, relatively strong, uh, move here, not far from its low of the day. So keeping a close watch, maybe how— if we were to break that low before making this decision to, to get in around that pivot or not. You can see there, just getting that test of that level. Euro pound up to an important point as well. So let's just bring that in. You can see here— oh, typing the wrong code. Euro pound, you can see just coming up to test that pivot level. Was also— and this is the futures— but also a decent low from Friday, albeit chopped through a touch yesterday. So the pound is under a bit of pressure, uh, this morning after actually pushing to the upside. The euro, you can see, had a bit of strength, uh, certainly against the pound recently, but also similar in that move. We saw a push higher, and the euro— I just want to bring on this, uh, it's not the most accurate trend line uh, that you'd ever see. But certainly you can see here over the last few weeks, uh, we're just coming to test the top of that now. So as an important level, you know, those, those trend lines, again, it's all about the closes of them. That's something that I'd be focusing on, and I've got it on a few of my charts. And actually a few of the euro pairs as well look relatively similar. To the downside, you can see as well we're just starting to get squeezed. So price has got to make a decision soon, and the way you could be looking at it is obviously either the break above or to the downside. And that's how I would really focus. And it looks kind of like oil does on a, on a daily chart— price just getting squeezed in, which you'd half expect ahead of the ECB on Thursday. So maybe not expecting too much in the way of a big move, but certainly those trend lines from the bottom and the top would be something that I would have on there as well. Uh, quick look over, uh, what gold is doing. As I mentioned yesterday, we had that lovely, lovely trend line that broke into the afternoon. Um, let me just draw that on as well. You can see I was monitoring this at the time with the, the interns, and we've got the break, got the retest. Might have maybe stopped a few people out on that, but a decent push lower and and we got that 1500. We were saying a couple of times just how 1500 did look like an area we needed to go and test, just because you can see all these, these lows around here going back from the, uh, the 13th, 19th, 22nd, 23rd, and we got that, that push there. So on the retest of that area, 1503 would be certainly one to keep an eye on, especially in the lower volume morning trade for their range trade from around there. Not the, the worst idea in the world. Of course, want to keep an eye what riskier assets are doing at that point. But as an important level, 1503, certainly an area I would have marked up on that as well. Oil made a multi-week high yesterday, breaking above, uh, 58 $58 initially, actually literally right on $58. And we can see, uh, here if we just put it on the longer chart, and you can see how similar it looks to euro. But on the daily, we've got that finally, that close above here. And, um, in the strategy I was talking about how, you know, we needed to really break out of here to get, um, a decent move. We just kept getting squeezed in between, uh, that those two trend lines. We're now above it, um, and the next real key, I guess, technical level, if we're looking from a market point of view, uh, is the high that we had back on the 31st of July. So keeping an eye on that, but also of course any retests of that trend line again to come into play, and also previous highs as well. You can see that's already worked. What was the high of the 5th last night acted as such good support around 57 76 for the, the classic, if you like, before that push to the upside. And some other key levels as well that haven't quite maybe been retested as well, 57.28 for, for oil. So break of that trend line, pretty bullish, um, ahead of some OPEC comments and meetings and so on. A quick look over the DAX has bounced from that level, just shows how important that is and just reaffirms the idea that if we were to break, you could we can expect a decent enough move if we were to get the other side of that, that zone. So definitely want to keep an eye on, on the DAX there. I've got orders on the FTSE, which has already broken through. So say this was the FTSE trading around here at the moment, I'd be looking for it to retrace to get in that short again. Ideally, we'd probably want the DAX to be breaking at a similar time. As well. But the pound, let's have a quick look, just bouncing off that low. Got, uh, obviously just under an hour till that data release happens. As usual, any questions, obviously please, uh, do let us know either in Trading Live or YouTube on the chat. Um, obviously got the data coming up in, uh, in a bit, so we'll be on the mic throughout. I hope you all have a good trading day.