Pound Continues to Rise as Stocks buoyed by Positive Earnings

Hi guys, good morning. Just gone half 8 here in London, Thursday 24th of January. Uh, just had the data out of Germany, the composite manufacturing and services PMI, which you can see on my right-hand side here, following the French numbers at 8:15, which were mixed but mostly, uh, important because of the, the numbers below 50 for the market composite and services numbers there. The follow-through that we've had into The half-eight releases mixed again, which makes it a bit trickier perhaps. And we, we have the, the main European data at the top of the hour, but the manufacturing number below 50, and that's the first time in quite some period. You can see last time we were below 50, we're going back here to, well, sort of 2013 by the looks of it. So quite some time there for for the German manufacturing PMI, which has been on a downtrend. Let's have a quick look over at the follow-through that we've seen across European assets this morning. So the French numbers— and I'll bring euro into the picture to make it larger— following that, that release at 8:15, you can see we did push lower. And usually the sort of the, the picture you can gather from these releases is that the, the French numbers lead on to the German and if they're all sort of in line, then the European numbers are expected to be exactly the same. We saw the follow-through, came to the German numbers, which like I said were mixed, but two of those readings were positive in the, the composite beating expectations at 52.1 and the services, uh, 53.1. So a bit of a relief rally that you're seeing now. And the French numbers, as of, uh, well, as of now, have been completely unwound there. Uh, you're also seeing the Bund push to, uh, sort of the, the highs of that release. However, starting to come back down now as the euro just strengthens a tiny bit more. And the DAX, similar to the Bund, in sort of the, the monetary policy move as well. Obviously got the ECB later today, not in the way of too much expected there. But if we had seen a really bad, uh, trio of results out of Germany, it might have led to a more interesting meeting. I think, as I'll cover, it seems as though they may well wait for March where the economic predictions, uh, outlook comes out as well. So just to start off the, the brief and have a quick look over how markets were trading yesterday to get to where we are now. You can see still on the, the charts here, looking at the, the middle two, uh, and on the right we've got the S&P and the Dow both at a similar sort of time were breaking, uh, the trend lines. As you can see here, offered a good opportunity to get short on, on not just the S&P but the Dow and the NASDAQ, very correlated on, on breaks of those levels. But yet again, into the close, we saw a bit of a recovery in this sort of, this period where you've got the earnings coming out, it's always quite important not to, to hold trades for too long, I would, would suggest, even in the case when the momentum seems like it's picking up a bit more like it was yesterday afternoon. But the, the corporate earnings, IBM in particular, is helping to sort of boost US stocks, and the Dow in particular recovered quite nicely. Still within this, this sort of range from the high that we made, and just this consolidation period I think will likely continue. However, I've got a bit of a theory about the, the positive, positive impact of stocks, on stocks, for, of the, uh, the government shutdown, which I'll, I'll cover later. I might be going crazy, but it'll be interesting to see what you, you guys think about that. Also, yesterday evening we had the API out of um, uh, at the States for the, the oil numbers, to switching over there to look how that came out. So you had the crude, quite a big build, a lot more than expected, and you've also saw builds in Cushing gasoline and, and distillates as well. The reaction into the market, obviously we know it's quite limited, uh, historically. And if we go to the, the 15-minute period, you can see if I just circle that up the move wasn't, uh, too big at all. I'll be keeping an eye on these lows. Uh, the, the move that we saw in stocks late last night, or late afternoon session I could— I should say— happened at the same time the trend line in oil was breaking lower as well. So that correlation still really, really is in play and one to keep an eye on. The DOE numbers, uh, on, uh, not on their usual, usual day today because of the bank holiday we had Monday. So it's gonna be 4 o'clock instead of half 3, and obviously Thursday instead of Wednesday. We'll run through the, the calendar in a bit as well. Also overnight, in terms of, of moves to have got to where we are now, if I just bring the, the Aussie dollar into picture, we had the employment numbers out which were better than expected. So to look at this chart, and you can see when they came out, we did actually push to above the, the morning's, uh, or the evening sort of high that we had on the 21st, breaking through today's R2. However, the, in the sort of the breakdown, uh, of, um, the, the data release, solely the main reason for the increase in employment was down to part-time jobs and the participation rate, I should say, also decreased, which saw this follow through to the downside. And actually, we're now making a new low for the week. Uh, quite a few analysts— I know a few guys in Trading Live, you were talking about this earlier— have said how they can see Aussie going, um, quite a lot lower over the next part of the year. And would be again an interesting market to have a look at. But that data Initially positive on the first outlook. However, the, the main reason was sort of drifting back lower due to those numbers actually being more part-time. In terms of important levels, just in case anyone is currently short, I'll be keeping an eye on the, the high that we had at the back end of last year, the 28th of December. You can see just the importance of that follow-through to the upside that when that had broken, um, obviously following the flash crash that you see, the main reason we went lower on the 3rd, 4th of Jan. But this area, about 30-odd ticks below where we're trading now, I think is definitely a point of interest to keep an eye on. Yesterday as well, you know, I'm sure you're all up to date with the markets, but just in case, we saw pound continue to push to the upside and, and breaking briefly the, the 1.31 handle. You can see actually now pretty much testing that as well. And a lot of that down to the idea, uh, of the no-deal Brexit risk being pushed back. Uh, an interesting headline, if I just bring this into picture here: no-deal Brexit risk recedes as calls grow to delay the divorce. And that's the main reason we're pushing higher. While the ECB perhaps has taken a bit of sting out the, the euro-dollar price action over the last couple of days in anticipation for that. The pound's doing its own thing against a rather mixed greenback, but the pound pushing higher. No-deal Brexit risk recedes. It's had backing from parts of Europe as well in, in the idea to increase the, uh, the Article 50 delay, uh, the deal to avoid this no-deal, and I think as long as that continues, we'll, we'll push higher, uh, for the pound as well. Uh, the, the dollar yesterday, uh, like I just said, quite mixed, really lacking direction, uh, at the moment. And it brings me on to, uh, this— I guess you could call it conspiracy theory, but it's quite interesting. There was a headline, uh, ran today and it got me thinking. It was about the whole idea of this prolonged shutdown. Of course, we're into the record now or have been for some, quite some time, or the risks fading appeal of the dollar. The, the dollar index, if, uh, or if you look, or certainly Bloomberg's dollar index, it will be a bit cut up here. But you can see near where we topped out last year on the dollar was actually when the government shutdown started. And now the idea here is, and I was doing a bit of research because in the, the article it mentions, uh, the, uh, the the, the credit rating downgrade in 2011. And anyone that's done the, uh, done our portfolio management simulation will remember that, uh, in August of that year. But also that year you had a government shutdown, uh, in, in the months leading up to that. Now at the time the dollar was weakening, and, and this article sort of goes on to suggest that during the government shutdown, money is sort of taken out of cash, it becomes less appealing. We had comments overnight from the White House advisor Hassett who was saying how the, the government shutdown is to weigh on growth and potentially a GDP reading of zero is expected for Q1. So this idea of this weaker dollar in turn could do what? Boost stocks. And what have we seen since the shutdown? Stocks have pushed higher. Um, just a potential idea that— because I remember speaking to, to to a couple of the guys in the office on Monday. It's like, is there— has to be some sort of correlation here with this government shutdown and stocks going higher. And potentially this could be that. So just be something to bear in mind that if, you know, the, the government shutdown is ended and, you know, the dollar starts to pick up again, that could be the key to, you know, not be looking to, to get long too aggressively on the stocks. Now, uh, I'm sure there'll be plenty of people that don't necessarily agree with that, and maybe the recovery we've had for stocks is just down to the trade talks getting better, uh, the unwind of recession fears. But, you know, we've had some harsh, half-negative sort of sentiment this week in the downgrade of growth. Again, again, not necessarily new news, and the stall— stallement of, uh, uh US-China trade talks. So yeah, just something to bear in mind. And I did say briefly in the briefing yesterday, uh, but with the 1st of March deadline for, for the sort of the next sort of round of tariffs, and obviously Trump was, was saying could increase tariffs if no deal, uh, is reached. They've got their own problem with no deal, it seems. But, uh, I feel he's got a bit of room to, to play with now, Trump, and he will be more aggressive in nature to— with, uh, with the trade talks. And, uh, you know, he's seen what happens when the, the trade talks do become more positive. The recovery, recovery we have had, uh, since that sort of Boxing Day low to where we are now, still 13-14%, uh, a positive day yesterday, albeit, uh, helped by earnings into the back end of the session. It does feel like he can start to be slightly more aggressive. And, and, and where we go from here, uh, will be, uh, quite interesting to see. Obviously it'll be, as, as mentioned quite a few times, be keeping an eye on the oil numbers today for a sort of short-term price action and other earnings that do come out. And, uh, you know, I think short term, while I mentioned yesterday, I do see the, the all-time highs getting, being hit again shortly. I do think there's a couple more negative sentiment headlines that are starting to come into, into the market. Just to prepare us for the, the data that's coming out in 15 minutes, if I just bring that calendar in, uh, just to reiterate, the French numbers were mixed but overall weaker, and the German numbers were mixed but overall slightly better. And the worry of all those numbers being in contraction, um, were dismissed there with just the manufacturing which is the first time in 50 months, which is obviously an incredibly bad reading. But with the other two above 50, we have seen that slight recovery. Uh, the German, uh, the European numbers, manufacturing 51.5, composite 51.4, and services 51.5 as well. I would be looking at the, the trading economics if, uh, you, you have that open, just to, to gauge, you know, what could be a good or bad reading. And you're seeing that correlation come proof of composite here, and very similar to the German readings in that it has been coming down for quite some time. And if we put this on a longer term chart, even 5 years, you can see, well, we haven't been below 50. 10 years, we're going back to, well, yeah, 2013, end of 2013 there. So the, the numbers that come out, the best opportunity for me is going to be— and there's the manufacturing as you just saw, and the services Um, sorry, it wasn't sharing my chart, so let's go over those again. You can see we haven't been below 50, but the downtrend has been there. So the best opportunity for me is going to be if those numbers come out weaker than expected. The euro should in turn push lower, and that will make today's potential, uh, opportunity for the ECB meeting just a bit more interesting. We'll, we'll do a a larger rundown as we come into, uh, the, the sort of the, the 12:45 statement and then press conference. But if we were to see these, these numbers coming quite a bit worse, you've got to imagine there'll be a couple of questions about that. Uh, the, uh, if I switch back to the charts of where the euro is currently trading, we are coming into the— or we were just in the lower part of that that longer term or medium term downtrend channel. And you can see here, if I just remove the, uh, pivots and put on this trend channel, price action really had been contained. You had, you know, albeit little tiny breaks either way, but price action really struggling to break out either side of that. I think potential for the ECB, if these numbers are bad you could see a real sort of negative, uh, push here. Uh, the main meeting I think in the short term to be aware of, uh, that a lot of the analysts are expecting to see the main movement is going to be, uh, the, uh, the March reading when you get the macroeconomic projections. And, and then, you know, that will present more of a sort of definitive judgment. Potential changes, uh, and I— and things to, to keep an eye on In terms of rates, that's sort of beginning— I mean, sort of the end of last year, the market was expecting end of summer, Q3, Q4-ish, towards the end of potential rate increase. That's now been put towards the beginning of 2020, but nothing in terms in terms of the press conference and the statement in, in way of anything expected to change there. Asset purchases, it's expected to sort of stick to that in the, the previous release that we had in December. And growth and trade, as this is probably the most important thing, or this is what analysts are expecting to be the most important in way of opportunity The deterioration in the euro area manufacturing sector has continued. So obviously these numbers are even more important. And if that is to, to happen, then they're leading to risks of a potential German technical recession. So obviously the, the definition for that would be two GDP readings in a row that are negative. We had one at the back end of last year, so you know, when that comes out, that'll be definitely one to keep an eye on. But the balance of risk is moving to the downside. If they were to say that, then obviously the this is going to be, uh, you know, more, uh, dovish in the— in, uh, in reaction. And I think this trend channel will go, and the low that we had from early on in January, I think that's going to go as well. And obviously below that you have the, the 2018 lows as well. So I think more opportunity will, will happen in, in this meeting should these numbers be slightly worse in 10 minutes. I think it would be more shock if the ECB were hawkish, and you know, that would present perhaps the best opportunity. But if these numbers are bad, then we'll get a follow-through from that. Just having a quick look over, uh, at the calendar for, for today. While this week has been relatively quiet, um, on, on many fronts, today offers, I think, a better opportunity data-wise. We've already had some half-decent movement in the markets following the the French numbers and the German numbers, and we've got the euro as a whole at 9 o'clock. You've then got the, the ECB 12:45, 1:30 is the press conference. Also at 1:30 you've got the weekly jobless claims out of the US. Very rare to see too much in the way of movement there, that number's pretty solid at the moment as well. Into the afternoon coming up to 2:45, so 50 minutes after cash open, you've got the, the US manufacturing and services numbers, uh, both here expected to be over 50 as well. So, you know, looking for that continuation of the expansion phase there for those numbers. For oil, mentioned 4 o'clock, so that's one to keep an eye on there, especially given the correlation with stocks. And just remembering that the number that we had out last night of the API was was pretty negative, uh, so whether we can get a follow-through of that as well. On the— let's have a quick look over the charts at potential opportunities. Euro, I think you're gonna have to wait for the data and the ECB. The pound, I think favoring the upside and buying any potential sort of dips would be a good way to go about it, as the dollar at the moment is quite unsure. Uh, the, the growth scenario you know, which I just talked about with the shutdown in place at the moment, might be more beneficial to look for short the dollar anyway. So I think this market looks quite appetizing. If we were to come back down to the high that we had, for example, on the 17th, looks quite good. About just a bit below 1.3050 was also the initial high that we had yesterday morning. So if I just bring a rectangle into picture, this could be an area that I'd be looking at. To continue this, this trend to the upside. Oh yeah, switch over. Sorry, just talking about the pound net and the opportunity I was looking at for potential here using the high that we had from the 17th yesterday, and, and there as well, on the idea that this no deal is, is being pushed further away and this extension of Article 50 as well. Looking at the— at, uh, gold, we talked yesterday about the, the 1300 handle, just how important that was. And each, uh, day you're getting quite wild swings at the moment, but it's coming into this new range. You can see the, uh, 1286 to the low that we had this week, that's the new range that is coming into. If we look top left now, you can see the previous one, uh, just go a few more days, you had that 1300 handle. It seems we're just going to this new consolidation phase, and I favor the break of the downside, and that would be something that I'm looking at as well. But also the opportunity should we break above 86, I think would be equally as good. Just to follow through that we've seen this morning, uh, in the DAX, you can see pushing above its high, and the Bund following suit here. Obviously this would be indicative of a sort of a dovish ECB later as well. So something just to bear in mind as we come into the ECB announcement, how have the markets been reacting? Obviously, if the Bund and, and DAX are on weekly highs and really pushing on, then, um, you know, even if they were slightly dovish, how much more could the market move? But as mentioned, we'll, we'll do a, uh, a rundown closer to the time. You've got just over 5 minutes now until the, the European numbers that do come out. So I'll leave you guys to prepare for that. Obviously, uh, that will come through the squawk and, and be a decent opportunity, I would say, if the numbers are below 50. The, the lead that we can get, if we just have a quick look to finish up, from France and Germany would be that it's going to be mixed, which would be quite, uh, quite choppy. I think the initial move, uh, if it was mixed would be to the downside if there was any— if there was even one number below 50, as it would be the first time for quite some period. And then we just give Draghi a couple more headaches, 12:45 and 1:30. I'll be in the chat for the remainder of the day, and we'll get on the mic around sort of 12:15, 12:30 for a bit of an ECB rundown. But if I don't speak to you, I hope you all have a good day and good luck.