Stocks Slide As Curve Inversion Dents Sentiment

Good morning, it is Thursday, 15th of August. Hope everyone is doing well. As you can see to the side of me, quite the bloodbath we had yesterday. Absolute sea of red. The Dow, I was getting alerts on my, on my watch saying down, down 700, down 750, down 800 at the close for the Dow. And we're going to have a look at some of the reasoning behind that. Of course, this idea of really a buildup of multiple factors leading to people to get very apprehensive about the future for the global economy. That's kind of the overall bottom line summary, led by things like the inversion of the yield curve, which yesterday, of course, we saw this, which is the, not just the US 2s, 10s, but the UK as well, both moving for the first time since the financial crisis into inversion. And so once again, just given the historical significance of when this tends to happen in the post-war era, of what this means then for the, the kind of near-term horizon, is that typically we have a recession looming. And as we're going to run through the headlines, there's certainly— you're not short of evidence to support that argument if that was your view of financial markets. A few things though to have a look at the charts this morning. Things obviously have settled, it's almost like a bit of a rerun of this time yesterday when we had kind of big moves and then we kind of had this kind of eerie silence, if you like, before then the market shows its hand and goes again. And I do think that potentially we could be in for another situation like that because as we're going to look at, the economic calendar is particularly busy today and there are a number of interesting data points in particular coming out of the US. And when we are in this situation of the interesting moves we've had in markets, this pickup in volatility, and then also the fact that, you know, we're still in this uncertain period of what are the Fed going to do, irrespective of the fact that they've talked about this mid-cycle adjustment, the data points, given how many important ones are coming out this afternoon, could be quite telling in combination with this recent kind of the market being spooked by the inversion of the yield curve as to market pricing around the size of the cut to come next month from the US, but then how many cuts to come in the future as well. But just having a look at these charts this morning, currency markets are pretty quiet actually. The dollar index, in fact, is absolutely flat, largely reflected on both major pairs here in the top left charts. On my shared screen. Got gold at the top, uh, finding a little bit of near-term support by areas of where the price responded to late yesterday London time, so towards the back end of the US session. And also we've retested that this morning, which lines up with the pivot in the futures space in gold, down about $5. T-notes as well, just drifting a little lower at the European open as equities have just kind of risen off those initial— the overextension of the move somewhat yesterday. Now, looking at the sell-off yesterday, there's a couple of interesting things here, observations. For one, really, this is looking at the near-term price action, and that being of the last 24-48 hours. So we had this delay of tariffs, of course, and that was that really extreme move that we had because just given the timing around the open on Wall Street really sharp move higher in US equities. What was interesting yesterday was the idea— and this is when I think sell-offs in US equities can start to see potentially a rerun of those bigger retracements that we've had in markets over the course of really— this is a daily continuation now— those periods of selling that we had in February of 2018 or Q4 of 2018 or May of this year, and then the last kind of move that we've had at the beginning of the month. But what's, I think, quite interesting is that it's not one-dimensional move, a kind of catalyst by one piece of news, an immediate move. I think when you get those big shifts, it comes when the whole herd kind of changes focus and the tipping point almost falls into the more bearish category. And that reflects on price. In a more graduated way. So you can see here yesterday you had from really the European entrance, US equity futures and, and Europe followed in suit, it just continued to drift south all the way through the session. You had the open on Wall Street and the selling just continued. Obviously breaches of key technical levels help exacerbate the price action, but the point being here is that this is when I think sell-offs can be but perhaps a little bit more consistent from a multi-day point of view, is when you've got this. Now it's more of a herd behavior trades than it is in just a one quick fast money speculative kind of trade on the back of a headline. So interesting now where we go, and I know Sam's going to look at this in a lot more detail, but the pivot level on the S&P, which was the low point that we had before the positive comment that came out of the, the USTR about delaying the tariffs as that was an area of support, that will now be resistance. And that, that coincides with around that pivot. So, and again, talking to Sam, do we, you know, do we think we want to just get in short and, and follow the market lower? Really, I think in this situation you're best served just letting, letting the market play out and then just seeing how it reacts at these key levels. So identifying those levels but then seeing how the market reacts around them, you know, whether or not we could break then, you know, the classic to then try and follow the market back up, or to see how it responds, and then perhaps then at these other lower down points looking to re-enter to follow the move back down again. It really is not a case, I think, of forcing your opinion. I definitely don't feel as comfortable as it did the last time this happened to think that, well, the move of 800 points is going got to come back a little bit. It's a bit extreme. I would say that there's plenty of things negative that are going on at the moment that might sway your opinion that this could continue. Just transitioning my screens actually over for one second, there was one thing I wanted to do to draw out as a concept. So this is— if I just move this over, if you can see my screen. Okay, if I just draw out this, because this is one thing I think that's important from a strategy point of view to some degree. I tend to break up the day into meaningful sections. And so let's say this is London time, this is 6 AM. I would say this is then midday, so let's say 12, 4:30. So then you've got the cash equity close and then you've got the extension in the US session so you get to, to basically 9 PM. Now, how the market— and let's just combine all the different assets. Now, the volume profile for different markets and when are they traded is slightly different. I'd say the forex market perhaps slightly earlier. You tend to get the, the big banks, the institutional flow, and consequently the pickup on the charts for about 6:30 ish. Equities obviously a little bit later, cash open not until 8, but this is what we tend to see as just a general kind of profile of the day. So 6 AM, then 6:30, things start to pick up, and then once it gets to, let's say, um, 7, 8, 9, we've— we're already hitting the European kind of maximum of the day. That will include then all of the pre-market reaction to news in this kind of area here. You've then got corporate earnings, anything like that. Economic data is then littered in through the Eurozone and the UK, which kind of finishes at around 9:30. Then what tends to happen is you have a little bit of a lull as then much of the morning's business is done, lunch happens and so on, and then the US start to come in around 11:30. And then obviously with both UK, US, and Europe now in the market As we get around midday, that's when you have the biggest kind of peak of market activity. You have the 1:30 data kind of here, and the 3 o'clock data follows, and then you get the cash close in Europe, and then Europe leaves and it falters only to pick up then towards the end of the day. Now, one of the very important periods of the day, I feel, is really this period here. If I just draw a dotted line now I tend to break this up into almost phases of a day. So when you come in at 6 AM, this is when, you know, my job would be to interpret the news, understand then the intraday sentiment, looking at the charts technically, combining that with your fundamental directional biases, and then understanding what it is you want to trade. But by the time we get into the— this critical— this dotted line, I think this is where market sentiment can often shift, because that's when the US come in, and the US often will interpret not only sentiment in a different way, but that hierarchy of what they feel is really pushing the market as the main, most sensitive story can often be different, or they can have a different view. So point being of this, this discussion is that I just want you guys to be aware of that kind of shift here. So I think this does have implications then for your execution of trades, because if you're looking to execute a trade based on the information first thing in the European UK morning, I would say then when the US come in, you, you want to be mindful of the fact that markets can change direction even though the information in itself hasn't really changed. Now this can often be the case when You know, in part in the past when we've had episodes of, say, selling in the morning in Europe over Greece, only for the Americans to come in and go, "I don't even know where Greece is," and then they buy the whole thing back because they go, "This is massive value at these levels." Then the whole market goes bid. So these are kind of cultural shifts. This is why the market— and we suggest to our guys that really that 11 o'clock kind of time is not really a great time to trade. You've got a kind of generally lower volumes, uh, there's no real catalysts in the market. The morning's trades have kind of been done. You're waiting for the US to come in, and so, you know, you're in a market at that point that really isn't moving too much. Of course, talking of an intraday sense here. Okay, going back then to the charts, let's just continue our conversation about the news and then We'll hear what Sam's got to say. But let me run through some of the other headlines in light of the sell-off generally that we had yesterday. Oil prices, of course, coming under pressure. We're flat this morning. We've recovered some of the sell-off. We're trading, though, just a touch above $55. So we have continued to remain under some pressure in the crude market. I'm just sharing the graph here of the oil inventory data we had yesterday. The second consecutive back-to-back build. So not only have we got this growing sense of caution in the market about the kind of prosperity of the global economy, given the signals that we're getting in the fixed income market, so demand being questionable at this point, but then supply increasing. And the reason why this is important is because we had some really sizable drawdowns in the crude market over the period of May and June, and that's flipped in the last 2 weeks. So again, it's kind of dual measures, if you like, that are weighing on the price of oil at the moment. The other thing, of course, that is heightening these current fears— we had German GDP. So to recap, that came in at -0.1% yesterday, quarter on quarter. So that's from the kind of hard statistics. From the soft though, German ZEW, the lowest since December 2011. German manufacturing, latest reading signaled the steepest decline in overall manufacturing conditions since mid-2012. New export orders dropped the most since April 2009. You know, this in combination with the very weak Chinese data that we've had You know, this all adds to this reasoning behind what we had materializing markets kind of yesterday. And then this was another interesting one that I saw this morning. This was looking at European banks and basically their annual change in loan loss provisions. So if you like, preparing for worse times ahead. And if you have a look at that, it shows that European banks are preparing for a worsening economy by basically building up their provisions. To levels which really haven't been seen since, you know, in the aftermath of the referendum, when that obviously initial shock of uncertainty surrounding the result of the referendum. So again, more evidence of, uh, kind of protecting for downside. Moving forward to today, um, what have we got on the calendar? As I said, it is a busy one. Although it's a US focus, in the UK there are a few things to have a look out for, i.e. Retail sales, we did see obviously the UK curve also invert in the 2s, 10s. UK retail sales today, the month-on-month reading expected at -0.2%. This previously came in at +1. Now -0.2 doesn't really, I would say, uh, scare me in any way. As you can see from this data set, it does tend to fluctuate to a fairly substantial degree. The range on the bottom end is 0.5, and that would only put us back down to levels which would be akin to 2 months ago. So all in all, it's kind of similar to the reaction that the market had to the inflation data we had out of the UK a few days ago, where you have that initial blip, which is really more, I would say, led by algorithmic trading, just executing binary on the back of data, point A being higher than B and slightly above the range and so on. Executes, and then that's it. Because overall, there's no real carry-through in this type of data, not unless it's incredibly outlying, because of the obvious thing that Bank of England is not going to, you know, change their decision on one piece of data like that, not with the obvious political stresses at the moment. The US, though, is where I would say the focus of the day is going to be. Before I go into the data, you've obviously had Donald Trump Anthony Cheung, the guy just doesn't sleep. I think he just lives through Twitter at the moment. He was commenting about China a couple of hours ago, talking, um, good things were stated on a call he had with China the other day. He's talking about the tariffs. He has though started to bring in a little conversation about Hong Kong, which I think could be particularly interesting to monitor because the Chinese will have I feel zero tolerance to Trump saying anything about Hong Kong. Trump knows this, and I think he— Trump will know that as well. If he says the wrong thing, oversteps the mark on that very sensitive issue, then it could jeopardize the trade talks that are ongoing, which, as we've seen, he now has become— you know, he's kind of flipped it. And after being very aggressive, now he's seemingly being a little bit more polite. Positive. He, in his final tweet before he went to bed, he basically closed it saying, personal meeting, question mark, aimed at President Xi. So, um, we'll see if there's any response that comes, obviously not from China directly, but from, uh, the kind of proxy of that state media journalist that we follow. Looking at the US data, um, few things then. We got retail sales Um, that is expected at 0.3%, basically just tracking very consistent from where we have been over the previous 3 readings. We've also got though not just US retail sales, uh, all coming out at the same time. You've got that and then New York Empire State Manufacturing, and then you've also got Philadelphia Fed Manufacturing Index. as well as a few other numbers as well, and then followed later by industrial production. So collectively, I think this could be quite an interesting, um, kind of slew of data to give us the latest insight as to really, is this fair pricing? This being the federal funds futures. And at the moment, uh, everyone is expecting 100% pricing in for a rate cut at this point for mid- September. The idea being, how aggressive do they get at this point? 25 basis points is the majority view with a 76.5% probability. Okay, I'm going to leave it at that. I think I've spoken enough. Let's get, um, Sam on and see what he's got to say about the charts from a technical perspective. Thanks very much, guys, and have a good day.

Hi guys, hope we're doing well. We'll start off with the S&P, just seeing the DAX and Eurostoxx just gradually push higher, and that could in turn help bring stocks up to what is that key level today, the line in the sand if you like. I can see Ant's got it marked up here, that low from yesterday. You got the pivot there, you've got the breakdown from yesterday. Around where we're trading, 2866.5. It's pretty important for, for the day ahead, I would say. Obviously, if you're looking at that area as a point to get back in for us to drift down, uh, you've got more than one reason to do so. So therefore, on the flip side, if it was to, to break through, um, you know, I guess you could argue it's a bit of a zone as well with 73, but above that, then we can really start pushing pushing higher. To the downside, no harm in sort of waiting as well to see what happens should we break this trend that we're just starting to form across the board. And this is obviously on S&P, but it's— it looks very similar on, say, the— on, uh, on the Dow Jones and the NASDAQ with those previous lows around the pivot points, which will be obviously vital, uh, to, to keep an eye on there. But you can see here just starting to trend higher. Got the trend line in, got the key level around the pivot. Let's have a quick flick over to, uh, the Dow Jones. And you can see, if I just make this onto a 60-minute, that pivot point coming in just, uh, before that low that we had on Thursday, Tuesday. So similar across those markets and a similar trend line obviously from those lows just created now. So for stops, that's what I would be focusing on. However, obviously right now it's keeping an eye on what the DAX does. As we 23 minutes into that open, it's just starting to push back up. On the same side, you've got the pivot has already been tested on the DAX with those previous lows. And the first real test of it, you saw a really decent push to the downside, you know, massively important level in the DAX, not just because of those Tuesday low and the breakdown yesterday play in the pivot today, but there's also the low of the 6th, the 7th, uh, in the morning and afternoon. So big levels to keep an eye on could really dictate play, uh, or trade I should say, for the remainder of the European session. Speaking of Europe, let's have a quick look over at the euro. I really, uh, it's a couple of ideas here that I, I like the look of. I, I think if we can get back up to that range that had broken so let's call it the 112 handle, just before 111.92, those previous lows that we broke through yesterday. But finally, I guess you could say, uh, that would be something that I'd be looking at as a good area or a potential point to get short. We're also just starting to see us drift down, um, got a key Asian session low that's about to get tested again. But just putting this back onto the 60-minute because you've quite a key, uh, level of support just below where we're trading, uh, as well at 1.1151. So breaks of these points here, 65, uh, relatively, uh, decent moves yesterday's low and the low that we had back on the 5th afternoon could come into play. But I would like to see us drift higher for a better place to get short for the euro. And the pound, which threatened overnight to break a trend. Uh, just so happened that the volume just really wasn't there. And you can see this is that trend line that I had marked up yesterday, uh, and then the breakthroughs coming when there was just no volume for it to really happen. So we'd be taking that off now and just marking up the, the next levels of support. And you can see if we were to get back down to those lows just how congested it would be. And now we're getting back above that pivot. You've got some interesting resistance at 2094, which you'd imagine would, would offer a bit of a hurdle. But then we would really be getting to the top end of that range, which I know people will certainly be keeping an eye on around 121.15, the highs from the previous day, the breakdown that we had after breaking through the low the 8th as well. So quite a key mini range, if you like, here for the pound. And if we just move to the left-hand side, it was the similar kind of price action that we saw from the beginning of August, the first few trading days. We're just starting to have a smaller one in there now, uh, still obviously marking up that 120 handle, uh, just being aware that if we were to get a, you know, bigger move to the downside, uh, you just got to be aware just of the significance of that being that that multi-year low. Quick look over, um, to gold. You can see just with a, a touch of equity strength over the last 15-20 minutes, we have seen gold just drift down a bit. Key level to the downside, you can see already been, I guess you could argue, tested yesterday afternoon's low, the afternoon low from the 13th as well, around 1517.5 on the on the futures. Are we starting to get a bit of a trend as well? Let's have a quick look just from those areas of support worth having on, um, as well. Interestingly, we— yes, we did, uh, reverse the whole move in gold, but not much more, which is why I'm sort of on the fence of equities. Are we going to have a down day or an up day? I just kind of want to see what's going to happen should we get to those pivot points. With gold as well, you can see now we're pretty much bang in the middle of the last 2 days' range. So, you know, whether you would want to say, okay, well, I'm interested if we get up to 1535, that double top, maybe looking for a break for that, or see what happens if we get to these trend lines and that key level of support that we've had over the last couple of days on different, different areas. I think it's probably wiser than say getting involved, say, right now at the pivot, for example. But yeah, certainly with gold, the overall trend is to the upside. I think that will more often— more likely than not continue. And just waiting for that better opportunity to get long. Nothing wrong with just sort of saying with these markets you want the continuation rather than the reverse back to get long because you're you're also getting the technical break of, say, a key double top. I think that later on, if— should we get the volume in— is, is a good trade up to that multi-year, of course, yearly high as well. Quick look at oil yesterday. You can see a decent day to the downside, finding support on, uh, an area, not necessarily a level exactly, but along with $54 handle was previous day's low and at a point where we've had decent support before. We are like equities just reversing a touch, but how important this area is, not just the pivot but last night's, uh, at around half 7, the high from there, really, really key. And that's somewhere I would, you know, have marked up as again your line in the sand. Above there, yes, we can look to drift higher and you're, you're looking to maybe get towards 5585. 55, where we can see we broke down just after midday. If that was to hold, and then suddenly you're looking at these trend lines from this morning which have been so well respected, that might be where you say, okay, well, now we are looking to drift down lower, targeting 54.69 and 54.5. So for a lot of these markets, there's, you know, key points just where we're trading now, and it would be a case of you have your bias or you want to wait to see, and absolutely nothing wrong with that, especially with the ways equities have traded last two days where you've had a big up day, a big down day. Well, what's gonna, gonna happen next? And identifying these key levels is fine, or looking for the continuation, like with oil to the downside on the break of that, or gold with a break of that double top, is, is not a bad, bad ploy to have a look at. Quick look over to see, and that's how the DAX has gone over in the last 5 minutes. I'm been talking. It's just come off a bit. That pivot still remains absolutely key. Just putting this on to lower timeframe. The trendline which is there in US stocks, not really there for European equities. You can see we've had a— we never really had that third test of it. So I'd speak focusing on maybe the low of the day is where, if that was to break, the US on those trendlines may well come in in. As usual, any questions, uh, do let us know. And if you are getting your A-level results today, good luck, um, with those, of course, and enjoy tonight. And any questions, as I mentioned, please do let us know.