Stocks Move Lower Overnight As Markets Wait For Powell

Hi guys, good morning. It is Wednesday the 13th of November. We'll have a quick look over the markets and stories that have got us to where we're trading today, quick review of the week so far and look ahead for the rest of the session. And what promises, on paper anyway, to be the best day of the week, I would have to say, and I'm really looking forward to it. In terms of how we're set up and also the data points that are coming out. And of course, Jerome Powell speaking later on, uh, and Trump's impeachment hearing all beginning today. Powell's a two-day event, of course. Yesterday in the markets, quick summary, uh, currency-wise, we saw the euro just drift lower, which it's been doing, yeah, in fairness, for the last few sessions. No major headlines coming through, it's just been trending, uh, to the downside. The pound, uh, pretty much the same. We'll come on to a couple of stories, uh, about, uh, that which could affect the pound in coming times. But as we know, this is really going to be dominated by, I guess, over the next 5 weeks, uh, the polls or any developments on, on that front. We do have some UK data at 9:30, so just as we're coming down to trade on this, uh, this pivot and low of the day, something to, to to bear in mind there. Uh, S&P and equities in, in general starting the day, uh, very positively, pushing to new all-time highs, hitting 3,100 on the futures for the first time ever. You're witnessing history here, only to drift down into the close. And with that drift down, we also saw a push higher for gold, and this could be significant, or the start of something significant for gold, as it's battling to get back above those key levels it had been breaking through. Uh, here you can see gold now trading on $1,460. $1,666 is quite an important level, so it'd be one to watch for the, the remainder of the week. But here, just looking on this longer term chart, let's just put it onto a daily. Here you can see those levels that we did break through, we're still underneath, sure, but, uh, only just $5 now below that. Looking perhaps like it wants to start to turn, but you wouldn't be too confident, uh, in staying, uh, sure. Well, there's your line in the sand. If you're, if you're short, you'd be happy as long as it's below that. If you're long, um, or you're waiting to get long, above that level would be how to look at it. In summary of last night, because of course Trump was speaking, it was pretty much a non-event, I have to say. I mean, I came back from, uh, the gym first time in, in, uh, in 3 months other than going to the sauna, uh, to, to watch the, the back end of his speech. And the only thing of note I would say that he said was, um, he said a deal could happen soon but warned of tariff hikes without an agreement. So while this is nothing new and is kind of in line with what he's been saying, the S&P of course has been on this massive FOMO push higher. And let me just remove that down there. And it's kind of like, without this overall confirmation yet, uh, and the idea that he could still be hawkish with the, uh, the tariffs about the agreement, that maybe stocks just needed to, to come down a touch. And that is kind of what, what happened. I was looking at the, the S&P, um, for an opportunity to, to get short last night and we had this trend line that had broken. Let me just get this on from the upside. You also had previous low, and it, it did come, uh, up towards that point, uh, just sort of looking to get in on there. I didn't write it all the way down, but you can see a decent push once, uh, we got into 7 o'clock and beyond. And that is at that time, uh, that gold started pushing higher. So that correlation working okay, perhaps The market's, uh, just sort of taking the no final agreement yet with a bit of an unwind. Of course, this market has just been on an incredible drive higher. You can see that longer-term trend line here breaking on the first of the month, and, and since then we had gone yesterday, uh, to that high, 50 points higher from then. So a decent push, uh, we'll come on to a record that has been broken in the S&P, first time this had happened since 2012. So we'll come on to that later. You're not just witnessing history with the 3100, but also something, uh, something else. So headlines overnight, the main Bloomberg title of the, the market wrap: stocks retreat as investors mold trade. I think that is fair enough. It's just trying to gauge what's happened so far in the week in what has been relatively quiet, but this, this for me is, is going to be, on paper anyway, the better, the better one. Overnight headlines to, to be aware of: the, the R— the Royal Bank of New Zealand— sorry, they're getting words mixed up— the RBNZ keeping rates on hold, which was a bit of a shock to markets. So 16 of 21 Bloomberg economists were expecting a cut. Um, reasons, uh, for the rate on, on hold— there were signs of domestic economy will stop slowing and that inflation will pick up. So actually the currency overnight and into this morning jumped. Pretty decent move here. Just gonna have a quick look over at the Kiwi. 1% on that announcement, and it's Retained a lot of that push higher, still only a tiny bit off those highs. Decent move, uh, following that. Um, a couple of comments, uh, we'll go through in a moment. And they also said economic development since August— where was the last time they had a cut— um, did not warrant a cut now, but they will add further monetary stimulus if needed. So kind of a wait-and-see approach, much like the, uh, the Fed and the RBA, which have all this year cut 3 times and have all in their last meeting, uh, put rates on hold. So a bit of a theme, uh, coming there from those 3 central banks. The RBNZ starting things off in the beginning of the year by cutting, uh, they've all now cut 3 times and have all kept rates on hold. Of course, the RBA most recently doing that last week before the RBNZ, the 30th of October for the Fed. So a couple of comments from the, uh, the RBNZ. We expect economic growth to remain subdued over the remainder of the calendar year. Still, domestic economic activity is expected to increase during 2020, supported by low interest rates, higher wage growth, and increased government spending and investment. The low level of the OCR has flowed through the lower lending rates more generally, which supports spending and investment. The interest rates will need to remain at low levels for a prolonged period to ensure inflation reaches the midpoint of our target range. We will continue to monitor economic developments and remain prepared to act as required. So are we now starting to see a theme across markets where we've done the the cuts, and we're now looking to go more on a hold basis throughout next year, and then potentially look for, for cuts, uh, for hikes to come back in, especially if the trade deal is going to get agreed. That could well be the case because, of course, a lot of the, the times where these central banks were cutting rates, the main reason, or one of the main reasons they were always citing, was the, the trade war situation and how that had led to a global slowdown as well. So the rewind, reverse of that, the rewind of that, and we're gonna have to start looking to, to raise rates as global growth starts to pick up again. Of course, yesterday, while trade comments on China was limited, we did have Trump attacking the Fed. This is nothing new, of course, but a couple of his, his comments worth keeping an eye on how they are. We are actively competing with nations who openly cut interest rates, and now many actually are getting paid when they pay off their loan, known as negative interest. Clarida did come out and say later on that Trump— he doesn't know if Trump actually does want negative interest rates. And there's an article not long ago we went through from the beginning of September where Trump was, was talking about negative interest rates, but how the US didn't really want it. So more hot air from, from Trump here. But, uh, some other comments: give me some of that money, I want some of that money, our Federal Reserve doesn't let us do it, Trump said, which obviously drew a laughter from a crowd. It puts us in a competitive disadvantage to other countries. We're actually paying high interest rate, high interest. We should be paying by far the lowest interest. After noting the gains, of course, in the stock markets, which are are up 25%, uh, or sorry, are up massively, uh, in his spell. He was saying they could have risen a further 25% if we had a Fed that worked with us. Also an article just going on to talk about, um, Fed policy. There's an interesting point here where George Bush was, uh, who criticized the then Fed, uh, chairman at the time, Alan Greenspan, for costing him reelection. So no wonder Trump is wanting to try and get the, uh, the Fed on side. And of course, we know that the, uh, the equity markets are his baby. So if he was to get anywhere near that 25% push higher for next year, well, you can pretty much say the he is a shoo-in for, uh, the, the reelection. And going forward, as we get into more mid-part of next year where the polls start making more of a difference for the, the election, any chance that Trump isn't going to, to get that, you know, stocks have got to come down quite aggressively, uh, you would say. So yes, Trump yesterday, a bit of a letdown in terms of market activity, but having another go against the Fed. We do have Powell speaking today, um, so worth keeping a watch on that, 4 o'clock UK time, uh, as he speaks in the, in the morning in the US. 2 days, um, likely to signal again that this week that monetary policy is on hold, uh, but saying the belief as well that he may steer, may steer clear of action through 2020. Which would be a historic anomaly. So I just go back to the top here. So we're really witnessing history today, or potentially, uh, shall we say, uh, that would be, uh, the— well, the first time that the rates have— well, their monetary policy has been sort of kept on hold. The Fed has changed policy in one direction or another in each of the last 10 presidential polling years. So the Fed really not worried about changing rates either way during an election. You can see here, going back to 1979 through non-election years and election years, there's not really much difference, uh, at all. So the Fed perhaps right now are not expected to change policy next year, or this is what Powell is perhaps going to suggest, uh, today. During 2016, of course, they didn't do it before the election, they did it after, after that November election as well. So Powell likely to, to keep things in line and, and say monetary policy is on hold. Any comments digressing from that will, will be of note. The S&P creating history not just by hitting 3,100, but the 25th time that the equity benchmark avoided falling in consecutive sessions, the longest run since 2012, which is quite remarkable. And it really is that whole idea of FOMO really taking over. Yesterday we didn't get a confirmation at all and stocks hardly came down. You know, he also was hawkish on the idea that if there is no agreement, we're gonna put the, the tariffs back on, and stocks are still high for now. So this FOMO, I think, is, is the main reason we are dragging higher. You speak to to everyone. It's, you know, surely it's got to come down at some point. But the, the buy in the dip mentality is still there, and these dips are getting smaller when they're getting bought into. Uh, in this case, over the last 25 days, any down day is then being bought up. The S&P 500 last fell more than 1% on October 8th, so over a month. And then since then, there has been no daily loss which has exceeded 0.4%. So that S&P 500 25-day run, you can see going back here, it has been a grinder, which we know is what stocks love. What's gonna get us down there? Well, Trump is starting to attack the Fed again. He's near a deal with the trade, so he's perhaps gonna step up, step up that hawkish rhetoric and you know, this deal is not going to get done to get the Fed on side ahead of next year. Because if trade talks progress, we get a first part of that deal, and that continues to look positive into next year, the Fed aren't going to cut rates. Elsewhere, other central banks aren't going to cut rates. So surely then equities do have to come under a bit of pressure. While obviously, you know, I'm a long-term equity bull, uh, surprised to see this market just grind all the way to next election. I do believe there will be a bit of a correction, if you like, before this time next year being on those all-time highs. But for now, with FOMO taking over, stocks still, as you can see, pretty much bang on all-time highs. Uh, 3,100, uh, tested yesterday. Unbelievable. Also, yes, overnight headlines Regarding Brexit, so what the papers are saying, probably the, the main point of note here, uh, on Farage is that, uh, or the, the story on Farage, that he has been urged, uh, to remove more seats, uh, in the, the general election, take his chips off the table. So he's come under renewed pressure to give Boris Johnson a clear run in Labour, at Labour, in key marginal seats, and This was something I was saying to, to Ant yesterday on the pound. And obviously we had this, this decent push yesterday on the idea that Trump— oh, not Trump— Farage is unwinding 300 or so seats. And yes, fine, the pound absolutely should push higher off that, but it still, you know, brings in a bit of a worry that he is going to, you know, run seats in, in those Labour and Lib Dem areas where if he does win you know, he's just going to hold those chips where it goes down the line, and maybe Conservatives then need the Brexit Party for a coalition. And that is— that isn't pound positive, that's pound negative. So for me, this pound move, um, not really justified. Yes, a bit of upside, fine, but for it to really continue, Farage has to come out completely and unwind, because as long as he's there, as long as he's taking any votes away from Conservative, regardless of the, the place, uh, the, the constituency is going, uh, that's going to increase the chance of a potential coalition, increase the chance of a hard Brexit, no deal, i.e., the deal now not getting put through. And that is just more uncertainty for, for the pound. So in the meantime, while it's set, it is— I don't see the pound pushing higher until polls really start to change. Um, the, the Times overnight, uh, reporting that the Conservatives are opening up a 14-point lead over Labour on the back of those Farage comments. So fair enough, but how long that can last unless he was to withdraw more Brexit Party candidates, I'm not too convinced on that. Looking at the pound on that longer term chart where we are trading. You know, we in the, in the strategy report on Monday, we're talking about where, uh, the, the pound could get to on a conservative majority. And I think we definitely could get up towards these highs that we had from September, uh, '18, March 2019, 1.3536. I see that as a decent opportunity. So much like the stock market, I do see a dip buying opportunity if we were to come lower in the pound. But if Farage is to still, uh, go through with running for all these seats, I think that is a problem that needs to be taken into consideration before that result does come through. Having a look at the calendar for today, it, uh, is a good one. And speaking of the pound, we have some inflation numbers out at 9:30. The year-on-year figure there expects at 1.6, the core 1.7. So worth keeping an eye on that. Obviously we know the pound is not going to be moved too much by data, but remember the, uh, the MPC just last week, a couple of, a couple of the members there wanting a cut of rates. So worth keeping an eye on this data just to, to see in the medium term, uh, what they may be thinking ahead of that next meeting. But as said then, as said now, Brexit and of course the general election are going to hold a lot more weighting than a monthly data release. Into the latter part of the morning, we have EU industrial production, uh, at 10 AM, and then US inflation numbers at 1:30. So already shaping up to be a pretty good day, um, ahead of us and With the, the bank holiday we had on Monday, the API inventories are out this evening rather than last night. So of course no DOE today, that will be tomorrow. But we do have the Powell testimony— testimony, uh, testifying, I should say— 4 o'clock, and a couple of Fed speakers after that as well. So on paper, looking like a pretty good day. Uh, the rest of the week, how it's shaping up— Thursday also you've got some Australian data overnight and Chinese numbers, UK retail sales, quite a lot of Fed speak, the, the DOE numbers, uh, and then Friday we got the US retail sales as well. So the week begins now, I would say. And in summary of, of overnight, last night Trump speaking was a non-event, uh, but FOMO has overtaken, uh, the, uh, the S&P to drag us higher. So a bit of an unwind last night from that, that the deal could happen soon and it's not happened, uh, and then tariffs could, um, be hiked without an agreement. So gold getting a bit of respite on that. S&P coming down a touch. The currency pairs, the pound and the euro, off a bit of dollar strength, have been drifting lower, but nothing really more than that. The RBNZ keeping rates on hold, which has led to a push higher for the Kiwi, uh, the Aussie, you know, following suit in the morning, but that's been pared back quite dramatically, uh, already, uh, as well. Uh, Brexit update, really it's a case of waiting for those polls and to see what Farage does with these seats. Is he going to run, uh, or not? And of course, looking forward to the data, uh, as well. Any questions, uh, please do, uh, let me know. So you'll be on the mic throughout the day and be posting some of the technical setups up on the, uh, Twitter, uh, as well. Catch you all in the chat and hope you have a good trading session.