Risk Off in Markets As Trade War Fears Pick Up

Okay, very good morning. It's Wednesday, 20th of November. I hope everything is going well with you. I'm going to talk about, from my side, two things: the ongoing US-China trade war and an impact it's having on market sentiment at the European Open this morning. And then also you're going to have a talk about my feelings after the first televised debate between the two party leaders of Labour and Conservatives on ITV last night and any implication that might have on polls and thoughts about the general election going forward. So that's what's on the agenda for me. Then I'll hand you over to Sam and he will go over the charts in more details. But starting off, just a quick overview. We've got a distinct air of, of risk-off going on this morning. Gold and the US Treasuries Bund have been moving higher in somewhat of a flight to quality move. Equities a touch softer as well. You can see the DAX and Eurostoxx already on the back foot this morning, just following a slight downtick that was seen in the overnight Asia-Pacific session in global index futures. The main gist of this is coming on the back of two real things. One, a US Senate hearing and development that happened yesterday, and then a comment out of China both overnight and from that kind of talking— well, let's call it a talking head. It's kind of a journalist at the Global Times, which is very much associated with the Chinese government, who's communicated on Twitter this morning. And we'll have a look at those comments. So as you can see here, bottom right, T-notes up about 12.5 ticks, which is a fairly decent sized move given the time of day. It's only just gone 8 AM here in London this morning. WTI crude also a little lower. We've also got obviously the oil inventories which came out last night. The headline reading was a build of about 6 million, which was far larger than anticipated build of 1.5 million as well. That coming with the negative development in the trade dialogue has put crude just slightly on the back foot. But you can see some of the movement just continuing from what we had from yesterday, threatening down at those lows from when— or Tuesday's session. So let's get straight into the headlines. I'm going to start with this. This was the first piece: the US Senate unanimously passed a bill Tuesday aimed at supporting protesters in Hong Kong and warning China against violent suppression of the demonstrations. Again, this is coming after months and months now of escalation that we've had of more violent protesting in Hong Kong. Now, as we know, anytime that the US has spoken out on this specific and very sensitive issue, China have always responded quite forcefully. And once again, overnight, China reiterated a threat to impose unspecified retaliation if the bill is became law and urged the US to stop meddling in the Hong Kong affairs. So that continues down that line, and more so, this is the head of the Global Times, which is very much seen as the kind of the government's Western messaging tool to counteract Trump on Twitter. So this is that journalist who tweeted only about 20 minutes ago that few Chinese people believe that China and US can reach a deal soon. Given current poor China policy of the US, people tend to believe the significance of a trade deal, if reached, will be limited. China wants a deal but is prepared for worst-case scenario being a prolonged trade war. So once again, it seems like we're arriving at this juncture of the, the endless trade war cycle when it was all looking so positive. Equities are kind of ripe for a little bit of a pullback given the extension to all-time record highs in recent sessions, and seemingly things are still stumbling right at the final hurdle, it seems. So definitely, as we go through the session at the moment, you can see already the DAX has just taken another leg lower as I've been talking. I'll be interested to see as well when the US come into market how they interpret these latest things, and do we get a bit of a secondary phase move to this risk-off developing so far. This morning. So definitely that's to look out for, given the commentary from both China officially overnight and this journalist this morning. I certainly would be mindful of any tweets coming the way of Donald Trump as we get into the North American trading hours later today. Moving on then, let's talk about the debate. Not sure how many of you caught the debate on ITV between Jeremy Corbyn and Boris Johnson last night. Gonna run you through basically a series of graphics from YouGov because YouGov did an immediate, almost like an exit poll of people's interpretation. I think it was a survey of about 1,600 people in a YouGov commissioned by Sky News poll about how did they feel who performed the best on the night. And viewers were split on who performed best. It was actually Boris Johnson at 51, Jeremy Corbyn for 49. Um, rather than give my opinion, uh, I'm just going to run you through a series of other questions of which this same sample of people were asked, and I think it really says it all. So this was the overall top-level figure. Basically, they were neck and neck. There was no real outright catastrophe. There was no domination of one candidate over the other. It, it almost felt like who's the better of two bad candidates, to be quite frank. But here's some other questions. Viewers think both leaders did well in the debate, but Corbyn edged out Johnson. Now I would agree with that. I think that overall it's kind of one of those situations where it's kind of Boris's to lose at this point, and it's only upside for Jeremy Corbyn. And I actually did think that Corbyn did come across perhaps a touch more witty than what otherwise Johnson is normally known for, even though I still feel that, as per all of the polls would suggest, that there's many elements of which Corbyn falls drastically short of the measure of really acting as prime minister. But I think in terms of their own personal benchmark performance, I thought Corbyn did better than expected. I thought Johnson was pretty much as expected. But that, if anything, if you think about the polls, Johnson is miles ahead of Corbyn. And last night they came out absolutely even. So if you were going to say who actually performed better, I would say, and I agree, Corbyn was probably a touch better on the night. The other questions, though, Johnson seen as the most, or seen as more prime ministerial and likeable. Corbyn as more in touch and trustworthy. Uh, Boris was asked a number of questions about obviously a lot of the things that he's done in the past, a lot of the things that he's been promising. And so what's quite interesting is if you look at these 4 areas of which this poll was asking questions upon, both these guys are seen as incredibly untrustworthy. I mean, what a state of affairs we're in. Uh, both those figures under 50 Jeremy perhaps just a touch more trustworthy than Boris, but both scoring particularly low in that area. Johnson still seen as more likeable overall. In terms of being in touch, I don't think that's a surprise. Corbyn obviously way more higher in that factor. And then, as to be expected, Boris seen as much more prime ministerial qualities, let's say, more than Jeremy Corbyn. The next one though, I think is the most important one, and that is Boris came across better on Brexit, Corbyn on the NHS. Now if you look at this, on Brexit Boris scored at 63 against Corbyn at 27. Now I did do a count last night, it's kind of sad guy that I am, and I counted that Boris said Brexit 19 times. Comparative to Corbyn saying it just 5 times. Now for me, this is a, this is a big deal because for me this is not an election about so much the NHS or police or education. This is a very unique and unprecedented general election we're heading into, and as per the evidence from what we've seen before, that what's going to win this election is really, this is a polarized specific and simple decision between what is your thoughts on Brexit, do you want to leave or remain, and it's as simple as that. And so that's why I think these strategists would have been, or the masterminds behind Boris Johnson, Sir Dominic Cummings, would have been saying, look, anytime you get questioned on anything, Boris, just talk about Brexit. And that is exactly what he was doing last night. It was actually little bit grating because he was— he's not— he wasn't exactly that tact about it. But I think that's the important message. He just banged on about Brexit, getting it done. And as much as we know that he was saying getting it done by January 31st, I mean, may I remind everyone that that's not getting Brexit done. We still need to implement the thing. And we haven't even, even discussed the line-by-line trade tariffs, which is going to take several years. But we'll leave that aside for the moment. The whole point is I don't think that last night changes the game personally at all. So if you're looking for shifts in opinion polls, I think that's not going to happen. I think last night moves the needle not one iota. I think that It remains the case, even though Corbyn might have done a little bit better on the NHS front. Brexit's the main story, and Johnson really dominated that. The final graphic I think is the best one and really summarised the state of affairs for me, and this is this: What feeling did most viewers come away from having watched the debate? Number 1: Frustrated. Couldn't agree more. I would have absolutely have ticked that box number 1 as well. Just absolutely, it's just mind-blowing watching the two discussing yesterday. I mean, no wonder Nigel Farage is so popular. At least the guy is charismatic and has some purpose about him. But obviously that's easy to do when you're a party which is going to have— potentially could play a kingmaker role. But ultimately, um, it's easy to talk the other side when you have little credibility of having a position of influence truly at a top ministerial cabinet level in the future, because therefore you can say the world, but you'll have to deliver nothing in future. So overall, as I said, I would say last night's TV debate, although I did watch it, I'm never going to be able to reclaim that 1 hour of my life back, I'm afraid. But you didn't really miss a lot if you, if you didn't see it. More of those to come, I'm sure, over the coming weeks, so we're gonna have to put up with it for longer. The other thing I wanted to mention, and the final thing before I look at the calendar, is really looking at the FOMC minutes. They are coming out later today. So what are we expecting? Well, these are a little bit dated. Don't forget, this came after the Fed delivered their third rate cut of 2019 back at the end the, uh, of October, October 30th. So it's a little bit dated, and since then we've had Powell address Congress, and so you've really got his latest insight as to his thinking there. He did maintain his view last week that rates are in a good place following that third rate cut, and provided the outlook does not suffer a, quote, material reassessment Now, they were his words, and now those words I think are particularly important for what we're looking out for in the minutes tonight. And in particular then, it's what is it— how do they quantify what would entail a material reassessment? That's what traders will be looking at as their cue to potentially trade if there is any opportunity for later on tonight. More recently, the New York Fed President John Williams Anthony Cheung, he spoke yesterday, stressed that judgment on any particular policy maneuver wouldn't be done easily. He said, on this question of materiality, you would have to make sure we're not overreacting to one individual data point and really thinking about where is the economy over the next 1 to 2 years. So really, this idea of trying to dispel markets being so sensitive to one piece of data causing these flash movements in markets, that they're looking about the whole sum of its parts of an economy and not thinking about the here and now, the next meeting, managing in, let's say, December 11th. They're thinking about the next 1-2 year period ahead. Now, since then as well, since they decided to cut interest rates for a third time, don't forget, actually we've had some actually positive data surprises. Uh, the US non-farm payroll reading came out better than expected. That was even with a substantial amount of workers, um, from the GM strike that would have influenced the numbers in a negative way. Household spending has also been supportive of growth. So all things being equal, I'd say I'm not expecting too much from the minutes tonight. The one thing I am looking out for with some interest though is that specific detailing, if any, around what would entail a material reassessment, and therefore that would give us a hint to what to watch in future. Um, before we look at the calendar, we do have the oil inventories coming out of the DOE later on this afternoon. This is the current state of play of what— how the markets are positioned. So we had a much larger than expected headline build in crude of just shy of 6 million. Anticipated on the street was for a build of 1.5 million. Cushing though was a draw, 1.35 million. Gasoline build, 3.35 million. Distillates, a draw of 2.2 million. Uh, overall combination really of that headline print with the Chinese numbers this morning, you can see here down on my bottom chart, WTI crude has already been, uh, moving lower this morning. If I put this on the 30-minute, you can see we've just broken the lower bound of price activity, which acted as some support late in the US session yesterday and first thing this morning. So a breakthrough to 5517 in the futures has seen us run through 55 this morning as people fret over the situation of completion of that Phase 1 trade deal between the US and China, and with the infantry build that we saw last night. Otherwise, on a calendar, it is pretty quiet today. There's no real major economic data coming out of Europe this morning. Nothing really out of 1:30 in the US. You've got the oil data this afternoon, 3:30, and the FOMC minutes, of course, not until later on this evening, 7 PM if you're looking London time, 2 o'clock in the afternoon if you're in New York. Um, so with that, I'm going to hand you over to Sam, let him talk over some of the charts, and I'll catch up with you guys later on.

Thanks very much. Hi guys, good morning. I hope we're all doing well, even Tottenham fans that have been blessed with José Mourinho. I'm here for you. Just give me a message if you want to talk it over. I'm more than happy to have that conversation. Just having a look over at gold, and it's coming to probably the most interesting point of any chart today. Day, I would say, in— but just pushing high. And that $14.80 is, is just such a massive, massive area. It was so key. And obviously you can go a couple of, couple of dollars either way. It was $14.82 for a long time that we were looking at. And you can see just going back to beginning of October and then quite a few days there as well before we finally broke down on the 7th of November. And we're just coming back for the first real test, or retest I say, of that level. So keeping a close watch on what happens here, uh, fundamentally makes sense why we pushed higher this morning, but technically that is just such a big, big level, uh, to keep an eye on. So we'll, uh, we'll have that marked up and be looking. I think if you're looking to get short there, you almost want that false break to happen before getting in, because while the first test you would, yes, expect a bit of a reaction, you probably want a bit more than that. Before getting short this market, which has, as you see from the 12th, been pushing higher on the perhaps stalling of trade talks. Whether that is the case or not, we'll see when, when Trump awakens and what the US decide to do. But yeah, just above where we're trading here, 14.18, any of these lows here from the 5th and then the 7th of that morning are all going to be significant all the way up to really R2 today. So quite a lot of resistance there. And then below where we're trading support-wise, any of those previous highs from yesterday afternoon and morning, and then the high of the 14th, perhaps creates now a, a new mini zone that I'll be focusing on as well. S&P, NASDAQ, Dow Jones, DAX, equities in general under pressure as you would expect. Um, relatively, you you know, small move. This had been in the, uh, the afternoon, I reckon we'd have had a bit more to it. So it will be interesting to see what happens, um, as we get into that latter part of the day. 3100 remains key, along with the low that we had from the 15th. It was also the previous high that we had on the 12th. So really key place to keep an eye on that, about 8 points below where we're trading. So we'd have that marked up just as a level of interest. Where we're trading now, uh, just testing the, the S1, um, trying to confirm a break below there at the moment. We didn't have that on the 15-minute, and just given the time of the day, I would have wanted a bit more confirmation before maybe looking to see another leg lower. Also to the upside, perhaps now we are in that little mini range like gold, but the other way around. The, the previous lows that we had in the back end of the session yesterday are the highs from this morning, uh, and you can see now looking up there around, uh, 31.17, and then to the downside, 0.8 as well. Understandably, markets moving the way they are will be one to watch on as we go into the back end of the day. Euro coming under a bit of pressure here as well, but not to get too carried away as we are just on exactly yesterday's low now. So Again, given the time of the day, you probably want just a bit more, uh, confirmation before looking to get short here. Having said that, S1— uh, S2, sorry— looks like a good level of support perhaps for an opportunity to get long. You got the lows there from the week as well, uh, and of course some resistance from Friday, uh, for that market. Um, also if we were to at some point push higher, you can see we have just been trending lower, so worth getting on one of those trend lines and then potentially looking for that break above there later on. The pound, similar to euro, and just drifting down towards that low with the S1. Just be wary of that really good support point from, uh, well, the end of Friday. And it was a shame this, this move here, uh, happened on the S1 late last night because it was such a technically good place. You had the, the gap from the the, uh, the weekend as a level of support. You also had a trend line, I think it was from the start of the 31st, that came through. And you can just see how good that was and just what an opportunity it was to then target the previous low of the day. What's that, 37, 16 pips? I mean, you'd take it, wouldn't you? However, that trend line now not one to focus on, and keeping an eye on that S1, that low for a potential move lower, 129 and change, just a bit above as a potential target for that. Having a look over at oil, let's have a quick look. Just pushing to the low as Ant said, and that trend channel we had on yesterday had broken. The range also had broken. Let's just have a quick put of that trend channel on. Decent move lower, breakout of that range, and we're now down at 55 And when we look back here and see how we just could not get above those highs from the middle part of October, and we're now, well, almost $4 down, which is, uh, pretty incredible to think. Uh, below where we're trading, uh, you can see perhaps looking at some of these previous lows that we had on the, the first of the month, or previous highs before they broke through, $54.76 and $61 will be points I'd be looking at, uh, on, on oil as well, just to keep a watch, uh, on, on that. Have a quick look over at the DAX. Let me just move this chart out the way just to see how we are moving. And with, along with US equities, we are on those lows of the day. But more importantly, I mean, I said gold is at the most important level. This one for the DAX is massively as well. You've got the really key level of support going back to the 5th of November. Remember, remember, uh, 1, 2, 3, 4, 5 big tests on this level. Can it hold? Uh, well, we'll soon find out. And if not, it wouldn't be a surprise to see a push down towards 13,000, uh, or even, uh, the high that we had on the 28th. So equities, um, at interesting levels. 3,100, the one I'll keeping an eye on, on the S&P. Gold at $1,480 is massive, absolutely massive. And the pound, euro not doing too much. I'll just be a bit wary about getting too involved in that. T-notes and Bund up as well. Oil under pressure. So we're having clear risk-off in the market here. How long it will continue, might have to wait till Donald Trump in America wake up. Hope you all have a good trading day. Any questions, uh, let me know. And as mentioned, if you do want to talk about Mourinho, I am here for you.