MPs Vote Against Govt, So What Next For Brexit?

Very good morning to everyone. It is Wednesday the 4th of September. Hope you're doing well. As you can see to the side of me, major headlines this morning on UK Parliament: Wounded Johnson, Brexit plan in tatters as election fight looms. Somewhat sensationalist, I would say. But we'll go into the details of the implications of what happened last night and what we're looking out for today, and then subsequently and importantly, how that might impact the pound. Um, we're going to look at a few other things. Generally, uh, markets this morning— if I just transition my charts— equity futures are moving higher. The DAX already up 130 on the session. Just had a nice decent move through the kind of range high of the last couple of sessions. US index futures also on the front foot, so consequently, yeah, a little bit of risk on in reference to the fact that spot— or gold futures are down $9, having dropped through the pivot, and that level also providing some resistance after initial break that was seen very early when Europe came in. And in the US 10-year is down about, uh, that's about 2 ticks at the moment. So why is that, first of all? Well, I would say, as we're going to discuss, outside of Brexit, on a global front, uh, in short, in one sentence, further deterioration in the trade war and further weakness being evident in US economic data in the ISM manufacturing has factored in now more easing to come, not only from the Federal Reserve, but as we're going to discuss, from all the other central banks, the ECB in particular. There's a latest poll out this morning. So I guess we revert back to this idea that central banks need to respond because the economic environment warrants more easing and accommodation in regards to monetary policy. And so perhaps that's just prevailing for the moment and just giving equities a little bit of a bump. In the currency market, the Dixie's down about 1 or 2 tenths now, 1%. So both currency pairs in the top left are slightly elevated this morning. EURUSD up about 20 pips. Cable, decent bounce obviously after that breakdown to the lowest levels in, in what, 35 years on the snap through of the 120 psychological level, the post-EU referendum low. We've seen a meaningful recovery. We're trading about 1.5 points back above that level, 121.44 in the futures this morning. So yeah, I'll let Sam go into the charts, uh, in more detail. Uh, there was just one I wanted to mention, was with equities moving higher here. This is the S&P 500, obviously near-term intraday resistance. You've got the R2 on the daily pivots lining up very nicely with the high print on the 30th, so quite a clear level of near-term obstacle that we'd need to tackle for any further moves to the upside. But then looking at the daily continuation chart, you can kind of see where we are at the moment, and, and certainly a very important upside level that's really restricted the price action over the course of the month of August is back in play. So you can see there, just putting the rectangle, and that does start to also encapsulate the high that was seen in May and the previous time all-time highs that were printed before the stock market kind of rout that we saw in Q4. This was back in the late September, October price action of 2018. So significant levels. And as you can see with that trend line, the kind of pullbacks here that we were seeing in August with that high level of volatility, with the flip-flopping of Trump on the trade war, the pullback is getting more shallow. So technically indicative of that upside level likely to be tested soon. And I would say, just given the close proximity now within a 2-week frame of the Federal Reserve meeting, that level one way or the other is going to be tested at some point in the near term. All right, well, let's get into the headlines and let's discuss what happened last night. And a couple different things. Firstly, you had the emergency debate under that Standing Order 24 we discussed, which meant that— not sure if you were watching it last night, I can't believe what my life has come to. I've got a beautiful woman in my bed, the woman I love, my wife, and I'm there with my laptop in my bed watching Boris Johnson and parliamentary MPs discussing and voting over Brexit. So this was going on obviously until post-10 PM last night. I'm not sure if you're watching it. If you do want to watch that type of thing, one of the quickest feeds that I could find last night so I could watch it in real time was actually on Periscope. I do recommend that for anyone who does want to watch these things, because I would imagine this isn't the last late night of watching UK politics that we're going to get at that point. But what happened? Well, Boris lost obviously yesterday his ruling majority. One of his MPs defected. I'm not sure if you saw that, saw that video whilst Boris was delivering in the Commons. One of the MPs literally just got up and sat down beside Jo Swinson, the head of the Lib Dems, on the other side across the floor. So very much a two fingers to the Prime Minister. But what ended up happening was the vote last night was then to have the legislation heard, to take back control of the parliamentary agenda. So, to be clear, this— what happened last night, the vote was 328 to 301, of which the members of the Commons won against the government. But that means then that they take control and the legislation will be voted upon today. That legislation will seize control of the Commons agenda, put forward their own draft of the law that could then force the delay of Brexit till January 31st, 2020. So overall, 21 Conservatives defied Johnson. So 21 members of his own party, including of course people like the ex-Chancellor Philip Hammond, which doesn't come really of any surprise given what he's been saying in his stance of late. Wow, sorry, someone has just walked in beside me with a sausage sandwich or something. Jeez, trying to keep this professional. Who is that? God, you know what these traders are like. Um, we're just having a— yeah, going back to point here. Um, if the— so what we're going to have today is another vote, and after this briefing, once I can speak to a couple of contacts, I'll get the specific timings. But if the House votes for the bill today, the public will have to choose. This is what Boris Johnson said. Of whether or not it's either me or Jeremy that goes to Brussels to sort this out on October 17th, which obviously is the EU summit, which comes just before the official deadline as it stands in law at the moment on October 31st. So he's basically— Boris last night has already pulled the trigger that he wants to have a general election if that passes. Now, to get an election, Johnson needs two-thirds of all MPs. So that, in terms of parliamentary arithmetic, would mean 434 of them would need to back that. Now, important point here: it's not a slam dunk as yet that Boris will get his wish, but Corbyn told the Prime Minister yesterday that he could have the election if he first let the rebel bill pass into law, the one they'll be voting upon today. And that's a deal that Johnson might well take, is what some strategists are suggesting. If he wins a majority in the election, he can effectively go back and repeal the law. But obviously there's risks associated with this type of strategy. Keir Starmer, one of the senior Labour ministers, shadow minister for dealing with the Brexit situation on the Labour side, on the opposition, has said that it will not be an election. This is obviously something which Tony Blair has been also very vocal about, the former Prime Minister, of late. But let's just have a look at— excuse me— this graphic. Now I know this graphic is a bit small to look at on the screen that I'm sharing with you at the moment, but I will share this in the Trading Live chat room. You can also access it on my Twitter account. Of which you can see my handle below, uh, in the image at the moment. But looking at this, this infographic is divided into two halves. One is MPs attempt to take control. So discussing that one first, vote to MPs to take control of the Commons timetable. That's what happened yesterday, that passed. So we now move to the left-hand side of this decision tree. Now MPs try to pass the law to block a no deal. So So that's what's going to happen today. Now, that can either obviously pass or fail. If it fails, the government keeps control and we continue to head towards this idea of a no-deal Brexit. However, likelihood is, I would imagine myself, that this will pass. The government then can ignore this, but I would say that that's probably low likelihood of happening. So the government complies, but this is when then we go down that last route that I said, Corbyn's request about letting the rebel bill get into law, if Johnson's willing to accept that in order to then be a compromise to trigger an election, if Boris is truly confident he can then obtain a majority, of which does look likely as far as polls are concerned, he might well take that option because he'll feel then he can just go back and repeal at a later date. Vote of no confidence here, the government wins, government presses on with plans. Government loses, is there a clear alternative government? We've discussed this before. The idea is probably the fact would be no, because of this kind of cross-party Remain alliance. No one really wants Jeremy Corbyn at the helm, which then, then means we go into an unprecedented situation of Boris Johnson Anthony Cheung as a prime minister who's just had Parliament say they have no confidence in his leadership would normally resign, could then technically say, well, opposition are not forthcoming with a better alternative, so I will remain. And then we go to a general election at that point, which is this other option. For me, as much as this sounds like a quite sensational headline, as I've been saying in recent briefings, For me, this is all going as per plan. I don't think that this is Brexit plan in tatters for Johnson. I think this is as per going down this election route and continues to cement the idea which he will be using full-blown in his campaigning during the election period, if that indeed does happen as he suggested on October 14th. That it's going to be a people versus parliament situation, which I think will resonate strongly with the general public. What does this mean for the pound? Just having a look. Well, as I said, the pound had a really nice recovery yesterday after we broke that 1.20. You can see these really sharp— I mean, that— I did have a quick look back because I was off the desk yesterday morning. The only things I can assume here is probably twofold. One, confirmation that the Speaker would allow the debate, emergency debate, to happen. Or two, probably more likely the case— you guys were there at the time— everyone would have got short at 1.20, I would have thought, thinking that, well, now's the time. Technical breach is such a big level, little pullback, time to get short the pound now for a continuation to move lower. But obviously, if everyone is short, market comes up, they get squeezed, stops get run and you get this really wicked spike higher accentuated by the wick, which would be quite clear to me. It's probably a lot of stops getting run, shorts getting squeezed at that point. But then obviously as the votes goes through and it's looking likely that was going to be the case, confirmation last night, a bit of a mild recovery that Parliament's looking to wrestle back a bit of control, perhaps just helping. But also not forgetting when you're trading— sorry, let me just try Transition back. Yeah, so not forgetting, you're not— this isn't just a sterling story. The dollar is weakening at the moment because the ISM number was so weak. Um, you know, the latest reading for ISM manufacturing yesterday was the first contraction in the manufacturing sector in the US since January of 2016. So dollar weakness, more idea. We've had Bullard He must be one hell of a guy to try and manage if you're Jay Powell. But Bullard's come out and now he's saying we should do 50 again. So he's, uh, you know, the ultimate flip-flop, if you like, between what he thinks should be the appropriate course. I guess he will tie this to the fact that it's data dependent and the data now warrants more aggressive action. But if that's weakening the dollar, the combination with Parliament, uh, making some headway, um, in regard to potentialities, let's say, uh, to delay Brexit, uh, then all in all, a bit of a relief for cable. All right, let's move off of the, the Brexit subject. As I said, I'll update you later on specific timings, uh, after the briefing. So this is that ISM, um, manufacturing PMI number, and And as you saw yesterday, particularly weak, continues this deterioration that we've been seeing. But importantly, the first time in 3 years we've moved in contraction in the US manufacturing sector. What does this mean? Well, this was quite an interesting graphic that I saw on Bloomberg this morning. And there's 2 things on this chart that I'm showing you. The white line is the ISM Manufacturing PMI. You've got the, the index readings on the left-hand side. So as we saw yesterday, a drop below 50. The blue line is GDP, uh, GDP US chained 2012 dollars year on year. I know that sounds quite unusual, but essentially what this is looking at and what this chart indicates is that GDP growth tends to follow this ISM Manufacturing Index. As we know, the Manufacturing Index acts as a good kind of bellwether or sentiment to forecast about conditions for the future. And what this relationship between these two readings tends to tell us is that GDP lags by a 6-month period the ISM reading. And you can see here the tightness of the correlation between these two readings. Now what this would suggest then is that we are in— we are heading toward quite a significant slowdown in US economic growth. Now if you remember that is already happening between Q1 and the Q2 readings that we're already seeing. But what this would be indicative of is that Q3 and Q4, the US economy is going to struggle. This obviously is cemented by the idea of the inversion of the yield curve, which continues to happen and so on, and hence the reason why it's likely then that the central bank like the Fed need to step up their easing at this point. This is looking at, um, the ISM Manufacturing Report on business new orders and business inventories. And what's quite interesting here in regard to how people look at the constituent parts of this is that new orders and business inventories have changed. For the first time since 2012, new orders have dropped below inventories, which again would be another, you indicative, uh, signal that the economy is slowing, appetite is waning, and so infantry is being built, lack of demand and appetite for new orders is decreasing. Final exhibit, if you like, is the US recessions and the yield curve. We kind of know this quite well now, having discussed this over recent weeks. You can see the white line is the US recession indicator. So these little flare-ups of when recessions have happened before. The last, of course, during the financial crisis here. And then we're looking at the, um, basically the 2-10 spread. But the idea here is that that needs to move further, that inversion negative, in order then for the recession to hit. It's not unusual for a curve to invert. It's normally when we move deeper into inversion, as you've seen on these prior occasions. That were the prelude to each of these downturns. And we're not quite there yet, but we are definitely heading in that direction. What does this mean? Well, um, let me just flip over to— it was this tweet I wanted to show you. Donald Trump: Germany and so many other countries have negative interest rates. They get paid for loaning money, and our Federal Reserve fails to act. Remember, these are also our weak currency competitors. So Trump again, the Fed in the crosshairs of the US president. He continues to fire away his tweets at those guys, highly critical of them. Again, that kind of hedging yourself. If you're the president, the Fed either responds and you get what you want, it props up the market. They don't, well, you pass accountability that wasn't your fault on the trade war, it's the the Fed's fault for not delivering on easing policy. So Trump sticking to the game plan at this point. But then what have the other Fed speakers been saying? Well, as I said, this was Fed's Bullard, and it's been really interesting actually listening to Fed speakers because Bullard said the Fed should cut interest rates by a half percentage point at the meeting in 2 weeks' time. Both financial market expectations for a rate cut and global trade war become a broader reckoning. Over the world economy. However, then Fed's Rosengren: I think there's no immediate need to ease. Still strong US outlook hinges on the reliance— or resilience, excuse me— of the consumer, and we have been seeing this in US data. The yield curve inversion is driven by foreign demand for debt. So again, other reasons for why that is happening. Now, who are these two guys? Well, both Rosengren and Bullard are voting members of the FOMC. But both sit basically on the absolute extremity of the spectrum of the hawks and doves. Bullard here, you can see, is one of the most dovish, or is the most dovish of the voting members. And Rosengren is only outdone by Esther George on the hawkish scale. But it just goes to show then the indecision at the moment, which typically does lead to a lot of volatility in Fed pricing for a rate cut. And on that point, if you use the FedWatch tool on the CME, let's just have a look what markets are pricing in the Fed Fund Futures market. The probability of a cut at the moment is still heavily tilted to 25 basis points. 50 is now a 7% probability. But you remember, only a week or so ago, there was a probability priced in potentially we could hold rates. So very fluid situation at the moment. So big top-line economic data in the US will continue to be quite important. Remember, we've got ADP coming up, you've got ISM Non-Manufacturing coming up, and this week is bookmarked by Non-Farm Payrolls. So plenty more to come for sure. Um, what else does this mean? Well, if the Fed are going to keep easing, and the belief being now that they're going to have to ease potentially multiple times, well, this is what you're going to get. BNP Paribas releasing a note last night. They predict that there's going to be reductions at every other meeting until June 2020 from the Federal Reserve, and they see gold cracking $1,600 as the Fed goes for cut, cut, cut, and cut. And so as we're seeing then at the moment, I think this is what's chiefly leading to a bit of a equity rally this morning. It's that mantra we return to, that the central banks will do whatever it takes to counteract these downturns. Okay, a few other things. Talking of central banks, uh, I did tweet this this morning. It was a latest Reuters survey. It's not all about the Fed. We've got the ECB. I believe their rate decision is next week. And 70 economists, so pretty much everyone expects the ECB to cut the deposit rate. This is actually— it's the 12th of September, they're meeting. Majority predicting 10 basis points. However, eurozone money markets in the short end give a 60% chance of a 20 basis point deposit rate cut at the moment. 90% of respondents expect the ECB to announce the restarting of QE with monthly purchases of €30 billion from October. So definitely also going into easing mode. Finally, for me, two more points: China and then also the calendar. So from the Chinese perspective, Donald Trump, what's the latest on the trade war? Well, no, not much in the way of explicit commentary. Donald Trump did tweet though yesterday, what happens to China when I win a deal? He's talking to the fact that when he wins a second term, He said a deal would get much tougher. In the meantime, China's supply chain will crumble and businesses' jobs and money will be gone. So he continues to really be aggressive with his stance with China at the moment. So we continue to remain at an impasse. But remember, even though this is negative developments in the trade war, it's translating into more pressure for central banks to act. And actually, markets are rallying on the back of that notion. At the moment. One thing that you've also had though for China is good Chinese data, which is obviously a welcome relief domestically, uh, and for those who really, uh, you know, were very much looking at this idea about the weakness of their currency, the deterioration it was seeing, fairly consistent. But activity in China's service sector expanded at the fastest pace in 3 months in August. New orders actually rose, prompting the biggest increase in hiring in over a year. According to a private survey. So some light relief on the back of that as well. Calendar-wise, it certainly does start to get a little bit more busy at this point. You do have the various, uh, service PMIs coming out of the eurozone this morning, but I must remind you these are final readings, so unlikely to be too impactful. Retail sales out of eurozone never moves the market, so I wouldn't get too caught up in that. Um, from a US data perspective You've got, uh, ISM New York Index and the Fed's Beige Book might give a nice regional insight as to a little tip-off as to what they might do on the 18th, perhaps. So if you are sticking around late, that'll be at 7 PM. Then the oil inventories later. Canada, a little bit more interesting. It's obviously the Bank of Canada interest rate decision coming out later, always a volatile affair if you're trading that currency. I think when I last looked probability of a rate cut was priced at about 18%. So the overall majority expecting rates to remain on hold at 1.75%. Speakers, there's plenty today. Bank of England's Mark Carney alongside Haldane, Flager, Haskell, they all appear in front of the Treasury Select Committee later on this afternoon. But that's usually just them reiterating the current bank stance to members of the TSC. That definitely is a side order to the Brexit ongoings, which will be happening this afternoon. Fed speakers: Williams is a voter, speaking at 2:25. Fed's Kaplan and Fed's Bullard all speaking throughout the day, with Fed's Bowman later this evening, Fed's Kashkari, and Fed's Evans. Loads of Fed speakers. So by this time tomorrow in the briefing, we you should have a much better idea as towards what is it, given the nature of the hawks and dove extremities that have spoken so far at complete loggerheads between a hold to a 50 basis point cut. Let's see what some of the more centrist type members like Williams have got to say when they speak later. Okay, that is it from me. I'm going to hand you over to Sam. Apologies for the delay this morning. I wish you all a good day ahead. More updates to come on the Brexit situation throughout the day.

Hi guys, good morning. Before we come on to the Great British Pound against its counterparts, let's have a quick look over at equities. As Anthony mentioned, we are pushing higher and it's, well, the same old story, talking about this key level in the the S&P here around 2946 to 50, depending which way you look at it on the futures. Just this whole zone remains the key one. Can we get a break and close above there? And if you're trading the pound yesterday, that word close is the all-important one. So waiting to see what happens should we get up there and break. Can we get that confirmed close to confirm that the buyers are in control? And obviously that could then lead to a further push to the upside. And, you know, while we're, uh, here, let's have a look at some points where people might be attracted to, to get into, to attack this move to the upside. Any retracement back to, uh, 28, 29, you've got some interesting resistance and previous resistance there. Obviously could act as support. And while we have already broken through and had the classic on, on yesterday's high, that remains an area to keep, uh, an eye on should we have any retracement there as well. Of course, you, you know, would imagine people be looking to take profit on this trade around 2940, which is a bit of a breakdown area that we had back on the 30th. But such a key level at 46, not just for the S&P, but also you can see the NASDAQ and Dow Jones are going to be very similar. You can still see those lines are drawn on there, 7766 27, give or take a couple of points around there for the NASDAQ. And the Dow, where it has a bit more to go and is slightly more messy, but we're coming almost to the first point of that resistance before we did break through previously around 26,390, around that area. Quick look over at the, the euro as well. Let me just bring in this, uh, longer-term chart. Obviously having a bit of a relief rally higher. Dollar weaker, euro stronger on the fact that pound with Brexit just looking a bit better. Um, so it brings in this picture again about— and this is the daily chart— can we get back up to the retest of this trend channel? Something I'm waiting for. And that on the futures looking like it's coming in around 1.1030. Uh, obviously still a fair whack away, but certainly something to, to keep an eye on should we come back up there, uh, to get a retest of that for short, really to target those lows of the year again. Will certainly be interesting ahead of the, the ECB, as Ant mentioned, uh, on the 12th, so next Thursday, the previous meeting with the ECB playing, uh, sort of wait and see. And, uh, for the Fed, and the Fed have now obviously cut, so we're looking to price all of that in and this QE package. So yeah, keep an eye, obviously, uh, if we can get back up there, the pound on that 120. We— I think it would have been 18th, I think we, we did a Q&A and we were just talking about the, the 120 handle, just the importance of it. And it's all about where, uh, we closed the day. So we obviously came down to 120 here, uh, had the, the breakthrough, but the failure to close is a pretty bullish signal. And it has to be said, you know, worth keeping a close eye. And it's going to put put this on the, the daily chart again. What happens— well, you can see there, look how good that is. Retest of that trend line has happened today, and certainly again worth keeping an eye on where we close. There would have been people looking to have got short purely technically around there. Was also, obviously, other than the retest of that trend line, the low that we had at the 28th of August, 121.63. I mean, there's a technical level resistance resistance. You can't really get much better than that. Let's have a look more intraday as well, because obviously that's going to attract people, um, medium term, shorter term, longer term as well. Let's have a look, you know, if we can get above there. And again, it will be about that close on the day. You are looking, and then at the, the high that we had from the week, and what is a key resistance point as well, up at 122.38, where we had a bit of a double top around there. Key levels to, to the downside, obviously be keeping a close watch on any of these previous highs that we have had during the different sessions, uh, as well. 121.19, uh, or just a bit below there as well, higher points of the day. But certainly for the pound, I'll be keeping a real close watch on what happens really around here. Uh, Euro Pound as well had a bit of movement, uh, yesterday. That is— let me just put this on, uh, a longer time frame. There you go, just loading up. You can see the importance, uh, if we were to come back down to, to test— not too far away from where we are trading, but these lows of, of this weekend and last week as well, just around 90.34 area. Really key level of support. Uh, we're keeping a real close watch on what happens there. And if we can finally get a break below that whole area, you you may well get a closer run down to towards where we had the low down on the 25th. So medium-term opportunity, again, people may be looking at that. Dollar-yen, or actually we'll look at it as the, the yen-dollar here, uh, starting again to get relatively interesting. It's, it's been in this, this bigger range, but if certainly if equities are to, uh, to come under— well, not come under pressure, you'd see this push higher, but if the equity market was to continue higher and break that key level we're talking about, you may well get the, the yen certainly, uh, coming under pressure regardless of any dollar, uh, weakness or strength to affect this market. So that's something I'd be keeping a close eye on. And actually, intraday, let me just draw this trend line on from the last few sessions. We are just coming to get another test of that whole area. Again, a bit of a failed test, but a break close below there, I think intraday-wise a move down towards the low of yesterday and the low of the 29th isn't out of the question. Gold and silver spiked higher overnight, but understandably coming under a bit of pressure as equities are coming towards their, their higher points. The Dow just testing the high of the day as we speak. Both silver and gold on some key what could be support. So if that was the to, to break through, well, equities you'd imagine would be going higher, but also a further run down. Gold yesterday getting to that top end of that range. So we talked yesterday about the two ranges in gold. The, the break to the upside took us to the high, uh, of the previous range. So quite a nice trade opportunity there. Silver, that level to be aware of— just put this on the 15-minute— you can see all through, uh, yesterday and the previous session, that area of support. Also the higher third, um, so of yesterday I should say, sorry, uh, to keep a close eye on. If that was to break, then you've got to imagine there could be a further move lower. And of course silver has been on such a big run, you can see, to the upside, really playing catch-up with gold, and the highest we've been for, for quite some time. Quick look over at oil to wrap things up. You can see yesterday hitting a key level of support, low of the 25th, was also a good price action point from the 9th as well. We're kind of trading at a pretty important zone as well. You've got a key level of support from the last few sessions. We're looking here around 54.50. Can we get above that? And that's really your line in the sand. Yes, it is a relatively big one, but you can see that's really where the breakdown took place yesterday. So quite a key level for the bears to, to detect, but strong rejection yesterday of around $52, $53. So like with the pound and other markets, it's all about where we can close. And the failure to, to break below there, you can see that relief rally has come in and taken place. The DAX is pushing above its, its R2, so strong move already in the DAX. And having a look here just on that daily chart where And I'll remove the pivots. You can see we're coming up to a really key point, uh, in, uh, well, this is going back to the end of July, just where we found a bit of support before that, that push down at the beginning of the month. So again, be keeping a close watch on this. For us to close above that, I'd imagine the S&P, uh, would have broken, uh, and gone to test that higher range around 2940. 44, 2950. There's such a key level. Of course, other than where we're trading now, was also a previous all-time high from September and October last year. So literally, probably 365 days ago, we are now probably not far away from where we were in, in equities. Any questions? As usual, let's see, please, uh, do let us know. The markets are moving, there's plenty of opportunities about. It looks to be another interesting day ahead. So any questions, please do let us know. But if not, maybe you have a great trading day, and I'll catch you in the chat.