Stocks Rally On Trade Talks But Will It Last?

Okay, very good morning to everyone. It is Thursday, 5th of September. I hope everyone is doing well. As you can see to the side of me, quite a significant headline overnight and a decent move in financial markets across asset— because as we know, despite all of the ongoings with Brexit, definitely from a global perspective, asset, the China-US trade talks are still the number one kind of story in town. And let me just quickly transition my charts so you can get a feel for what's been going on. And obviously when the news broke, you can see here on my center charts, it's the NASDAQ future. So kind of like 1 o'clock, I guess, early Asia-Pacific session, really strong move in global equity futures across the board. However, we have started to fade already, and I'll get into some thoughts about why I think that is occurring. But quite an injection into the equity market overnight. Um, let's just have a look. Actually, I've not looked at the S&P on a slightly longer time frame. Where are we at the moment? So remember yesterday we were looking at this S&P, we're looking at that kind of range that had been containing a lot of the price action over the course of much of August. and we've now broken above that, in fact finding a little bit of a floor for a further push on. So a meaningful technical break as well from some of the top side of the range that we had been in over the previous couple of weeks. As we go back to the headline, we could move back into the latest phase, which is that China and the US are to hold trade talks in October despite the fact that this apparent mistrust is continuing. So if you remember We've had quite a, quite a breakdown in the dialogue of late, particularly given the fact that on the 1st of this month we had those tariffs come into effect. That was despite sources suggesting that China were looking to again delay that, Trump not backing down, implementing those, and as such then we've had a couple of days of some pessimism about what's going to happen next. So quite a sharp relief, I would say, but ultimately I do think going to be particularly short-lived. And the reason for that and why I think that is because this graph really— it's a graph, it's more of kind of annotated with some of the latest trade headlines that we've had. So, you know, moving from left to right: tariff increase as talks start to slow, China announces increased tariffs in response. The market was depressed at that point. So then out comes the Trump-Xi phone call, markets rally. G20 truce, market rallies. Market hits all-time highs. And then Trump comes out and says, okay, more tariffs. So this is that negative feedback loop that we've looked at before. And then we've gone through this kind of different phases to the point where we are at the moment. They agree now to have talks at a low level, but looking to just, you know, pick up the dialogue again in October. So point being, I think markets are now fully up to speed of what they think about this type of thing. It's likely to be short-lived, it's likely to break down again before then going positive. And so I think when you get these kind of relief rallies on the back of these unscheduled headlines like we had last night. Not forgetting it comes out during the Asia-Pacific session, so generally speaking volume liquidity is a little lower, tends to exacerbate some of the price movement. I mean, that's a decent move of close to 100— and well, I was just having a look, 100 pips or so in the, the NASDAQ, 100 ticks. So it's pretty punchy, uh, but the idea being then after that fast money the speculators have booked their profits, reality kind of kicks in. And it's not like this is going to be a wholly new development in finalizing a trade talk. And we know that it's subject to change quite rapidly. And so after that fast money moves being, being handled, markets just pull back and reverse course. So I don't think this is really something to get overtly excited about. Or anything to reinitiate more medium-term positioning. It's just, uh, you're either part of that move last night or you weren't, and that's probably how I'd look at that. So the big story this morning certainly is that, um, T-notes down 9 ticks, gold down 3. So moderate risk on, on the back of that comment, but as I said, already starting to fade to some degree. Moving on then, Brexit. Plenty, of course, going on from yesterday. MPs took another step towards delaying Brexit beyond this 31st of October deadline to 31st of January of next year, and they rejected Boris Johnson's call for a general election. So I put together a couple of— I picked out some headlines from a research report I read this morning to try and summarize the situation as neatly as possible as to what's happened and where do we go next. So a couple things, two points to start with. First one, Parliament built on Tuesday's vote by deciding with a majority of 28—327 to 299—to pass the bill to delay Brexit until January 31st, 2020, to prevent this no-deal scenario happening. At the end of next month. The 3-month delay must be used then— this is what this legislation means— to try and pass the withdrawal agreement rather than a second referendum. And this is what's kind of set Twitter alight last night. And Sam came in this morning and he was asking me, so you're telling me Labour and opposition want Boris to go back with Theresa May's deal? So how does that make sense? But yeah, I mean, that, that's kind of exactly what they want. Um, they want to try and pass the withdrawal agreement, and this is obviously something which they'll be talking about in terms of what concessions can come of that as well in the negotiation. Point being then, from here, um, for it to be written into law in terms of the vote that happened yesterday, the bill now needs to go through the House of Lords before Parliament is suspended sometime next week for prorogation. So again, the way the process works is it goes— everything is heard and comes from the lower house of Commons, the MPs, the parliamentarians. It then needs to be ratified by the upper house, the House of Lords, for it then to go back down into the House of Commons. Apparently that House of Lords sign-off will come by 5 PM on Friday. In terms of timing, that could mean then that there could be political business happening over the weekend. It's not— wouldn't be unusual. The second point, because I said there's two— point two is the MPs voted against the Prime Minister's call for an election on the 15th of October. 298 of MPs who voted for the election fell 136 short of two-thirds of MPs. 434 is the magic kind of marker required to sanction an election. Two-thirds of Parliament. They were 136 short, so well short. Mainly the Labour Party opposed it because it doesn't want to grant an election before the law that was passed in the lower house yesterday, that needs to be ratified by the upper house to come back to the lower house in the coming days, gets written into law. Only then Corbyn has said that he would be willing, uh, to put the backing towards then an election. Now that in itself is quite interesting because the Prime Minister, you know, the idea now that the press is making about Boris Johnson's had multiple defeats, it's the first time a Prime Minister have had so many defeats so quickly in his, in his premiership, he's suffering serious strategy blows. I still don't, I still think that's very sensationalist because ultimately the Prime Minister here could try to force using an amendment to the Fixed Term Parliamentary Act, or if someone puts forward a motion of no confidence in the government. Not forgetting Boris doesn't have a majority anymore, so realistically, if it wasn't for the strategizing of the opposition, this really should be a vote of no confidence at this point. But either adjusting the Fixed Term Parliamentary Act or a vote of no confidence Both of those require a lower bar of just a simple majority, half of MPs to grant them. So half of the House of Parliament plus one, not two-thirds, which has been the process of what we've had, which failed yesterday. Um, what that would mean then is that basically, based on the vote last night, you would— 20— you'd need 28 MPs would need to change their mind. So remember, for the, for the sanction of an election yesterday, it fell short by 136. Moving to a simple majority would mean then you only need to convince 28 of those to change their mind, not 136, and then you've got your election. So for me personally, I don't think, um, an election now is completely off the table. I just think that it's just been delayed perhaps by a period of time. I still think the general election is going to happen at this point. A general election itself, um, from a market reaction point of view, is a little bit interesting as a topic to debate because it, it does have different opinions. The one thing that you can see quite clearly from cable, sterling-dollar, is that we've appreciated quite sharply Obviously this has been going on for 2 consecutive days now. The more that Parliament has wrestled back some control, now that you've had basically this passage through the lower house, it's highly likely this will get passed by the upper house and get— go into law. I don't think there's really much to stop that from happening. So delaying Brexit or reduction in the risk of no deal has happened, and so the pound's got to appreciate. Some people are looking at this as well, and the fact that if there isn't an immediate general election, well, that lowers the risk of potentially a Labour government. A Labour government is seen as negative for the pound because they would be anti-business and high taxation, which would promote then weakness in the pound. So the fact that there's no immediate election, the pound's actually rallying I actually think this is more down to the idea that it's just offsetting some of the immediacy of the looming cliff edge of October 31st. So yeah, I mean, where do we go from here? Well, we've got to wait now for the, the Upper House to go through these, these processes. So actually, I don't— although we're going to get a lot of Brexit coverage and comments I don't actually think, um, we're going to get the big move in the pound now until possibly late Friday weekend for the reopening of Sunday markets. Because then, if it all goes as per how it's shaping up, it should get approval. What has been discussed and voted upon last night, that should then get ratified into law, which then means that we go down to those 2 suggestions, a tweak, an amendment to the Fixed-Term Parliamentary Act by the PM, which then goes down the route of looking to get over the line for a general election. Or you have this vote of no confidence in the government. Either way, an election still looming in that scenario. Okay, enough Brexit talk for the moment. Moving on, this is one of the other important headlines Um, we looked at markets yesterday and we were talking about the fact that generally the economic environment has soured somewhat. U.S. economic activity, epitomized by the contraction for the first time in, what, 3 years in the ISM manufacturing space, was meaningful. This of course comes after some big jobs data, or comes ahead of some big jobs data we're going to get today and, and tomorrow on Friday for non-farm payrolls. And it's all coming as we try to position ourselves for how the Fed are going to communicate to us with the Summary of Economic Projections on September 18th for the next big meeting. The other interesting key part though that's helping general, I guess, stability in markets despite some of this very short-term volatility is that China really have committed now to doing whatever it takes, and more of that rhetoric coming out overnight. In the form of China signaling further stimulus coming as economic headwinds rise. Their economic data also continues to be fairly precarious, and so measures and, and verbal intervention of this nature is, I think, warranted. But the point being is, as long as they continue to really commit down this course of action, well then I don't really see any risk of a big sell-off in markets. As long as trade talks are being managed, of which we're now in a positive phase, as long as China commits to doing whatever it takes. And what they've been talking about here is more broad in addition to targeted reserve ratio cuts, RRR cuts, which they've done multiple over recent years. The reason they say broad and targeted, they can either do large or small firms and so on. Also, they're looking to accelerate the issuance of so-called special bonds in China by local governments. These are specifically meant and geared towards paying for infrastructure spending. So that's that kind of way of China looking to, uh, kind of prop up the market in a sense, uh, continue their economic growth ambitions. And so that, in combination with all those other factors and easing of monetary policy globally that's going to be happening, um, that's why— and why I've been saying in recent weeks I'm not so panicked about this inversion of the yield curve at this point, certainly not in the near or medium term. And so, yeah, this is still happening. Goldman's just coming out, research report this morning saying about how this meeting that the Chinese officials had yesterday was the strongest signal yet of easing to come. The other positive thing happening at the moment as well is— let's just eliminate that German headline for the moment— but Italy announced their full cabinet team. Obviously you've had this PD-Five Star hookup now, which has alleviated tensions, and we've seen that response in the decline in Italian yields to record lows in a 10-year space, and so retightening of the BTP-Bund spread, and Italy have done quite an interesting thing in the appointment of their new finance minister, and what the headline's suggesting here is a peace offering to Europe. So Roberto Gualtieri, as far as Tommaso has told me is the correct way to say his name, has been appointed to the new cabinet. Now, why is, uh, Gualtieri so important? Well, he's a veteran European lawmaker He's more known in Brussels than he is in Italy. But that is the beauty of what this Italian appointment has meant. Appeasing the European bureaucrats when you've had a highly fractious relationship and you've got a very difficult budget to manage in the near term, that's a good move, I think, by the strategy team in the new government makeup. During his second term in European Parliament, Gualtieri became the head of the Economic and Monetary Affairs Committee. He actually played a leading role in steering the European Union's financial integration agenda. So he is an absolute, you know, kind of a linchpin of that kind of ideology of eurozone integration and so on. So So perfect person to act as a bit of a middleman to appease Europe. But also, you know, I am slightly surprised that they've gone that far with the politicians in Italy. But perhaps this was the, you know, this is the way forward. But as far as markets are concerned, this is a big positive development, albeit no real meaningful impact right now this morning because it's been largely priced into markets. All right, other than that, Bank of England, just, just a quick note on this. They've basically— Mark Carney spoke yesterday, you remember, he was appearing in front of the Treasury Select Committee, and he's basically scaled back estimates for a worst-case Brexit GDP. You can look at this, I think, two ways. For one, the, the actual thing that he said was because of the Brexit planning that's happened, it's going to offset some some of the negativity of the ramification of a no-deal Brexit if that worst case was to materialize. So instead of GDP in our country decreasing by 8%, it's now forecast to decrease by 5.5%. So still a pretty catastrophic hit to GDP, but not as bad as what was tabled before. Politically, although this isn't what's intended, I do think it's quite interesting. You know, it kind of lessens the ability for Boris if we go to general election campaigning to use this idea of Project Fear, if what Mark Carney is saying, well, actually, is that it's not going to be as bad as what we thought, he kind of removes some of that power a little bit from Boris. I don't think that's the intention, but that's the repercussion of what he's saying. So I just thought that was quite an interesting headline. The other thing we've had this morning is I've talked about positive China. Trade talks with the US. I've talked about some positivity for the pound in the short term as Parliament has gone through these relevant procedures. At least in the short term has been positive, positives in Italy. However, Germany, I'm afraid, not so positive. You've had German data this morning, German factory orders sink, raising the risk of a recession. It came in at -2.7% in July, expectations were for -1.5%. 4, so almost twice as bad as expected. Manufacturing slump drags on, trade tensions, Brexit uncertainty. Yeah, it's— this is one of the big issues obviously facing the eurozone, and this is one of the key reasons why economists, if you remember yesterday in that Reuters survey, fully expect the ECB to cut rates. I think they're meeting 13th of September, or coming up in the, in the next couple of days. Going to cut, even, even some being priced in for a 20 basis point cut, and also the commitment to the recommence of QE to restart then in October, in October. So yeah, is the market reacting to this? Well, this is a very important point. I think your interpretation of news is that no, the market has not reacted to this. The euro is not sinking, the DAX isn't falling through the floor. The DAX has just pulled back in kind with all the other stock futures after some of the profit taking after the jump overnight on the Chinese headline, as we discussed. The point being is that this is a continuation of a trend. It isn't anything particularly new, albeit granted it was worse than expected. But if you feed a negative headline into an already negative setup then basically you've met expectations. So yes, this plays a bigger part in the mechanics of the overall decision-making of monetary policy to come, but as a near-term trade decision, I wouldn't be taking this as a, as a sign that you need to be really changing positions at this point. Calendar-wise today, very much a US-centric session. Obviously the Americans have not seen the latest US-China headline because that came out about 1 AM London time. So do be mindful of that when we get into the US North American crossover, kind of 11, 11:30, a few hours time this afternoon. Then you've got ADP employment change. This, of course, the precursor to non-farm payrolls tomorrow. This is what ADP has looked like over the course of the last couple of readings, and actually After a depressed number back in May, it's been recovering. The last print, 156,000, of which is pretty close proximity for what nonfarm payrolls is expected to come in at. As a headline tomorrow, I think it's 160. What is ADP expected at today? Um, 149. Got a range of 110 to 175, so do look out for that at 115, always important. Um, we then get the final readings for the services PMIs US factory orders, durable goods revisions. So the factory order is definitely more important, as is the ISM non-manufacturing PMI, and also looking out for the employment constituent of that report. The ISM non-manufacturing PMI has been decreasing, obviously not near to contraction and not expecting a contraction in the consumer, the more service-led sector. Remember, the consumer part of and consumption in that respect in America has been holding up. It's manufacturing activity that's been decreasing, but the employment constituent will be quite key as well to look out for. Other than that, weekly oil inventory numbers. Just a reminder, because of the Labor Day holiday on Monday in the US, the oil inventory data is not at 3:30 as usual, it'll be at 4 o'clock. So I'll get Sam— I'll pop the API numbers in the chat, and Sam can go over when I swap with him in a second, and he can go through those. But speakers, couple, uh, Bank of England member, uh, Tenreyro speaking at an ECB research conference later this afternoon, a couple of BoC members after the rate decision they had yesterday. You've also got the Brexit Minister Stephen Barclay taking questions in Parliament this morning. Could be quite interesting if he says any specific updates, but I wouldn't be expecting too much, to be honest, in the way of market-moving headlines coming out of, out of Barclays. And that's it. So going to hand you over to Sam and wish you a good day ahead. Hopefully, um, that was as clear as I can make it with the Brexit situation. I know it's not completely straightforward. What I will do is pop all of that summary that I went through onto the chat so you can review it in your own time if that helps. Okay guys, thanks very much.

All right guys, hope everyone's doing well. Start off just having a quick look over the currency pairs and the euro actually just strengthening a touch as the dollar weakening across the board. The pound as well just enjoying a bit of movement here. Uh, let's have a bring in of the euro to start. And you can see just how important the level is. We've tested up at this area 1, 2, 3 times in the last— well, how are we talking there— since 7 o'clock last night. And was also a key point at the back end of August before we broke down, uh, as you can see on that last trading day of the month. So key level, multiple tests, uh, could be your line in the sand as good as now. Really. So keep a close watch on that. Above there, then you're really just looking towards the, the higher point of that day of the 30th. Um, if I see— I can't find my longer-term euro chart, so have a quick look on this one here. And you can see when we were talking about the, that trend channel coming in, the retest of that obviously would be still a a fair bit to go, but certainly the, the break— I don't know if I've got this absolutely perfect— but the breaker that happened on the 30th, so retest of that whole area, 105— 110.53, sorry, I should say. 105, I wish. We'll be keeping a close eye on that certainly over the coming days. If we can come towards it, I think will be an interesting reaction, all all around that area. And you can see, of course, was the, the low of the 1st of August as well. So the euro, uh, perhaps going to be interesting over the coming days. Euro pound as well, before we come on to, uh, the cable market. You can see just knocking on the door of another interesting level. So the euro across the board has some really interesting points. The euro pound, you can see, was until we broke down late last night, was the low of 1.24. Sessions going back to the 27th of August, and we're retesting that now. So the bears will obviously want to defend that, and the bulls above, well, then we haven't seen anything really stopping a decent move towards the R1 there. What's the pound gonna have to say about it? Well, you can see as well with the dollar weakness, shall we call it, we are now up on the day after making a new low. I guess when we, we lower this time frame down, you can start to see where perhaps there's, you know, while the trend won't be absolutely perfect, you can see from the, the high that we made, uh, yesterday, we're just almost— well, we are testing that, that level now, the third test of it. So again, like the euro, at a pretty key junction, uh, not just from the top end of the trend but also this one here, which you can see see after the breakdown around 7, just this whole area where we're testing— let's call it 122.46 on the futures— an important point. So close watch on that. The euro, obviously, with that key resistance point as well. What happens in these markets will pretty much be determined by what happens right now, perhaps for the rest of the morning. Obviously, we've got that US data set in the afternoon, which could drive things. But certainly in the morning, you imagine the euro and the pound to drive the, the dollar elsewhere. Oil, just to, to start off with, I've got a nice trend line I think to, to be aware of. And just the way oil can move, regardless whether you think, you know, it's going to go higher or lower from this, this again, it's that line in the sand. You've got the nice top end of this trend here. We're going back for 13th, the 21st, 29th. I'll be keeping a close watch on, on that should we come back up to, to test it around what would be then the, the high of the day as well, which is also nice resistance from the last day of August. So really keeping a close watch on what happens around 56.50, 56.64 to, to the upside. And then to the downside, obviously, if we were to break the low of the day, which is been tested a few times, the pivot. And just below you've got— again, it's more of a zone from the lows of the 28th and 29th to the highs that we had back on the first trading day of the month, so the 2nd, coming in around 55.17 to 42. It is a big zone, but certainly, you know, with the DOE, it's a point that I would be aware of, uh, for that, for that coming, um, in today. And of course, Thursday the DOE, not its usual Wednesday slot because of Labor Day back on Monday. And just having a look, if we just drop that down to 15-minute, you can see the 9:30 candle was to the downside. However, we did recover. The crude number was a build of 400,000, so we actually had an expected draw of 2, so it explains the, the move to the downside. However, cushion and gasoline and distillate distillates were all draws, and in some cases, like distillates was, uh, you know, better for, for price than not, as we had expected a build there. So a bit of a mixed reading, I guess, for the move to the downside. Can understand that as the last few APIs have seen price push on, um, on that Tuesday and confirmed Wednesday. So be interested to see what happens. I mean, are we going to break out the, the range of, uh, you know, 56 to 56.64 before, uh, the, the 4 o'clock slot. Time will tell, but certainly that trend line and the zone below, something to, to keep a close watch on. S&P, as Ant mentioned in the early hours, breaking higher, and you can just see the importance of, uh, the, the level we've been talking about for what seems like the, the whole of August. We're above there now, so keeping a watch what happens if we can come back to retest it. 2945 is, is really that, that, uh, that level which was the high of the 30th and also the resistance point that we had back on the 2nd of last month. So it's certainly somewhere I would be, be keeping a watch on. And again, thinking about the, uh, the close of the, the day as well. If we have a quick look at the percentage away from all-time highs where we're trading right now We are 2.5%, which is nothing, which is nothing. I mean, you literally could make that this week. I wouldn't expect it to, uh, as you'll remember I said I would not want to be long S&P unless we are above this level. We are above this level now, so I'll be keeping a close watch on 2945 for sure. Gold, you would have expected to have come under a bit of pressure from that, that move, and, and it did to an extent, but still relatively elevated, nowhere near the, the move, uh, that S&P saw for, uh, this market to the downside. Yes, we drifted lower overnight, but nothing too concrete. However, we are just making— and this would have been just recently, you can see here the third test of that trend. And like oil, the way we can move here in gold on breaks of these trends is, is very, very, uh well, can be very aggressive. So keeping a close watch on that, starting on the low of the day, then the low from half 6, and now just now as well coming in on the futures around 1555, uh, no, 1552. Don't know where I got that 5 from. So keeping a watch on that, a break to the downside, I'll be targeting, uh, 1548.4. If it holds, then you know, why not? Gold is still attractive, it seems. Um, I'll be looking for the price to get to back towards, uh, the pivot. But arguably the more important level you can see here, uh, is, uh, 1559 on the dot. It was the high of the third, morning of the fourth, resistance, uh, later that day. And then you can see again twice already, uh, on this morning. So really key points, I would say, there. 1548, 1552, and 1559 as well to keep a close watch on. Quick look over the DAX. You can see it breaking out of the top end of that range. We've already had the, the retest of a level and it's acted pretty well as a, as a point of support. So especially if we can hold there and S&P manages just to drift a bit lower, for those that, that, uh, that like that area, that would be, uh, that'd be a good point to get in. But certainly maybe as a guide for this morning, we'll be keeping a watch on what happens there for the DAX. And like the gold with, uh, its resistance point, you can see another well-respected technical area on the DAX here was the low that we had around 5 o'clock, retested that as well. So the DAX being relatively technical, which can't always be said for, for that market. As usual, any questions, uh, please do let us know. Some interesting points where we're trading right now most notably in, in the main currency pairs, the euro and the pound, and then the euro against the pound, using that pivot level and retest of those lows. S&P, now we're above that, that key resistance point. What is going to stop us getting to those all-time highs? The high that we had was the low that we had back on the 19th, so understandably people taking profit there. Are we about to go into this new range, just 2.5% away from all-time highs? Oil, of course, keep an eye on those levels mentioned ahead of the 4 PM data release. And so we'll see some nice US numbers to come out. Should be a decent session ahead. And of course, ear to the ground for any Brexit-related comments. Hope you all have a good trading day, and any questions, please do let us know.