In this August 19, 2020 morning briefing, the presenter delivers a rapid‑fire market overview and preview of the day’s key events. He notes a modest rally in sterling and a marginal rise in EUR/USD as the U.S. dollar stays weak, citing a 10% drop in the Bloomberg Dollar Index since March. U.S. equity futures (Nasdaq and S&P) are flirting with record‑high levels, a pattern the host attributes to continued ultra‑accommodative monetary policy – emergency rate cuts, open‑ended QE and global liquidity injections, including recent large‑scale liquidity support from China. The commentary then shifts to currency dynamics: the euro has broken a long‑term trend line, with the potential to test 1.20‑1.25 if the dollar remains soft, while the pound has broken a critical 1.32 handle amid stronger‑than‑expected UK CPI (1% headline, 1.8% core). Brexit negotiations are described as stalled, with no progress expected this week, prompting a short‑pound bias. A major geopolitical update follows: no new high‑level US‑China trade talks are scheduled. The host critiques President Trump’s rhetoric about postponing talks, noting that China continues to import U.S. goods and that flight frequencies between the two countries have actually doubled. He also highlights a White House warning to U.S. colleges to divest from Chinese equities due to delisting risk, framing it as political pressure. On the domestic front, the presenter outlines the stalemate in U.S. fiscal‑stimulus talks, citing Pelosi’s willingness to trim Democratic proposals to reach a bipartisan deal, but emphasizing that the strong equity market and improving COVID‑19 data reduce urgency for new stimulus. Oil market commentary notes a crude draw of 4.264 million barrels (double consensus) and a sharp rise in gasoline inventories, while OPEC‑wide compliance remains high (95‑97%). The upcoming Joint Ministerial Monitoring Committee (JMMC) meeting and participation of Russian Energy Minister Alexander Novak are mentioned. Finally, the host lists the day’s economic calendar – UK CPI, Eurozone and Canadian CPI releases, U.S. DOE inventory data, and several bond auctions (UK gilt, German Bund, U.S. 20‑year). He promotes a live, interactive FOMC‑minutes stream later that evening and signs off. Overall, the briefing blends market data, policy analysis, and geopolitical updates to set expectations for the trading day and the upcoming FOMC minutes.
Chapters
Very good morning to you. It is Wednesday, 19th of August. I hope you're doing well. Just a quick reminder, don't forget to subscribe to the YouTube channel, hit the bell icon, and turn on notifications because we're going to be covering the FOMC minutes live from 6:30 London time, myself and the team, this evening. So if you want to join us, and it's going to be interactive, you can ask questions and so on, we'd absolutely love to have you with us. But let's just look at the markets this morning, get straight into some of the main headlines and what to expect from the, the session ahead. And already we've had a bit of a break higher in sterling currency. You can see up here, we'll get these up in a bit more detail in a moment, but a continuation of the push that we had yesterday in cable. And also EURUSD trading marginally higher, of course, coming as the dollar continues to remain fairly suppressed at the moment. We're down— well, it's actually flat at the moment as far as the Dixie is concerned, but still within close proximity of yesterday's lows and certainly holding that weakening trend that has seen the Bloomberg Dollar Index at least down about 10% from where we were trading in March when the pandemic really started. Otherwise, elsewhere, the other talking point of last night, of course, was US equity indices. And that's because in terms of the NASDAQ, I just have a quick look here, the NASDAQ back up to record high territory. So now carving out a nice area of kind of support at 11,283, which was that previous rejection at the end of last— what, 2 weeks ago now, on the Thursday and Friday. And then we've seen it rejected on the 13th and then also on Monday before the break that came then yesterday. And we've just accelerated up beyond that point now. Likewise then, in terms of the cash market all-time highs, the futures market, the S&P just flirting with that level which was seen prior to the, the kind of shakeout when the epidemic at the time really started to take hold. And 3397.5 We're just around there in the futures market in the S&P as well at the moment. But very telling sign, I guess, on this chart. This is one I've referred to, of course, in all the briefings over recent weeks. And, you know, the annotations on here are the most probably important things as to why we are where we are. And underlying a lot of that is when we're right at the base of this big correction in markets globally on the pricing in of the severity of the economic implications of the pandemic. Was the Fed conducting emergency rate cut, launching QE, then going further and just a few weeks later open-ended QE purchases, large-scale and multiple liquidity measures that were put in place. And this led to here. I mean, this isn't just the US and the Fed, but this is looking at the S&P 500 and tracking that of just generally global liquidity in the system. Because much like the Fed, all the other central banks have had to follow suit in order to ensure that, you know, the, the system can function under stress and that consumers and corporates can continue to access credit at a fairly cheap rate, like what we've been seeing exactly in China this week, in fact, with them inputting serious and consistently large amounts of liquidity in the system so that commercial banks continue to function, and they really are what greases the wheels of the economy functioning in a, in a correct and smooth, orderly fashion. So the other things, of course, that we've had with this whole equity rise— not to go over it too much, we've covered it plenty of times before— but the main focal point was the US COVID situation. That's continued to kind of, I guess, drop down the hierarchy of real pressing macro themes as generally New case numbers have remained relatively contained, particularly in those key Sunbelt regions. Some of the recent US economic data has been good, but not good enough to then detract from the point of moving the needle for the Fed. So you've kind of got this situation of the economy performing perhaps even now a little bit better than anticipated, but still with ultra-accommodation from the central banks, which is only going to help the equity markets at this point. In the FX space. Then let's just have a look yesterday, and remember the briefing on Monday when we were looking ahead for the week, we were talking about these really— it's kind of the make-or-break week for the US dollar. And certainly yesterday was very important because now we have broken through that long-term trend line we've been observing for quite a while in the euro. I mean, that 2018 summer high, we've broken there, and then that also goes all the way back to that longer 12-year trend line that we've been watching. So now you would say the, the prospect is we might get a push up, up until 1.20. Sure, we're only about 55 pips away from there at the moment, but then I guess the question is where do we go beyond that point? And I would say one thing to be clear is although early on in this acceleration— remember, within about a month we've gone from a 1.13 handle up to almost a 1.20 when we talk about EURUSD— it's been a phenomenal move in the, in the currency. But one of the key things here, yes, early on was overdelivery in the likes of national government responses like in Germany in their fiscal stimulus, obviously European unity to some degree in this further integration with a European-wide recovery fund. But nearly all of the move right now is being dollar-led, and consequently then it's not just a euro narrative. And as the euro goes up, an interesting thing to keep an eye on will be, and I think it's contingent of we've got to get well through 120 up to 125 for this to materialize. But that is the ECB coming out and starting to kind of sound ever increasingly more dovish in order to just tame the acceleration in this currency pair. Typically, this has happened before in many episodes where particularly 140— those who were trading around 2013-14 will remember what we call jawboning, which is the central bank basically trying to talk down the currency because for countries like Germany, which are heavily dependent on a lower currency being more favorable for exports and how competitive that they can be. And generally speaking, then, when we start to see sharp appreciation euro currency, it can lead to then kind of verbal intervention in that way. I'd say really that's not going to become a real thing until we get north of 1.25, got to break through that 17, 2018 high for that really to become a more tangible risk for the euro. For now, it's being dictated by the dollar is how I would interpret these moves. And likewise then for sterling currency, of course, for sterling, you know, the GDP contraction was heavy that we saw last week. You've got Brexit unresolved, you've got the end of furlough coming up in October. And here we are just racing higher in the British pound and actually then breaking above a really critical point we've been watching for a while at that 1.32 handle, which was what was capping really the majority of price action both pre- and post-pandemic. Now we've broken above there. You can see almost like the, uh, that coordinated break across these currency pairs exacerbating some of the further dollar weakness and then just pushing up cable, uh, what is towards the 2nd of January, it would be the high, which is basically a 1.3393 handle here in the futures, 1.3293. So we're trading around 45 pips away from there at the moment. On the intraday, we had a little bit of a price action movement on the back of some data. We did have this morning UK CPI come out, and it was actually stronger than expected, 1% versus the expected 0.6%, the core number 1.8% against 1.3%. The ONS said clothing, rising prices at the petrol pump, and furniture and household goods made large upward contributions to the change, but the move in itself has been relatively short-lived. Again, we are expecting some fluctuation in the likes of CPI as we go through the coming months. Some talk about the risk then of deflationary territory. But I mean, this data would be in contrast to that at this point in time. But I think overall, as I said, the more lasting narrative I think is the one to watch about the dollar rather than sterling so much. On the sterling front, of course, the other political thing we need to be mindful of is we do have Brexit, that looming political, um, story, or broken record it almost seems, because EU and UK negotiators are going to be meeting again, um, and the latest in the FT last night was that Brussels has rejected UK's opening demands for continued wide-ranging access to the EU for British truckers. This just another element then of what has been sticking points on fishery rights and state subsidies. And so the expectation for the outcome of these talks happening this week is Basically zero. So don't be thinking that, right, I just, you know, that's the main reason I want to just get short the pound because Brexit talks are not going to progress. No one's expecting Brexit talks to progress. Time is a magical thing when it comes to negotiation, and although a deal does need to be really made in coming weeks. Really, late September, October is the deadline if they really want to get it ratified for year-end. Otherwise, at the risk of this kind of more messy, disorderly type of Brexit situation, um, that just means then that really, I think, compromise of any type of nature will not happen yet. So for the moment, as I said, I would continue to look at these major currency pairs and your view about the dollar rather than the individual fundamentals behind the euro and sterling so much. All right, well, let's have a quick run through some of the headlines. Um, quick look at this, and this is an update on the US-China side of things. And of course comes after— let me just transition my screen— this comes after we had that delayed meeting. So the update is, according to Reuters, there's no new high-level trade talks now have been scheduled between the US and China. The two sides remain in touch though about implementing Phase 1 of the trade deal, according to the White House Chief of Staff Mark Meadows. So exactly what we were kind of alluding to in the briefing, I think on Monday, which is I don't really think there's a need for them to meet. You know, interestingly, to add to that point before I explain further, Trump said last night, quote, I postponed the the talks with China. You want to know why? I don't want to deal with them now, Trump said. And where was he when he made that comment? He was at a briefing in regarding to the construction of the border wall with Mexico. He then said, what China did to the world was not even thinkable. They could have stopped this virus, is what Trump said. So Remember what we were looking at on Monday, underlying all of the, the kind of bluster, if you like, in this type of rhetoric from Trump is the fact that over recent weeks China have substantially accelerated their purchasing of US goods in a variety of different ways— soft agricultural, energy products, and everything in between. The idea here then is that they are now, you know, moving toward trying to fulfill this objective. So for Trump then, underlying this, he has got Chinese actively importing US goods. And also I saw yesterday that the US and China have actually updated— I think there was 4 flights that used to happen previously before yesterday between US and China. They've actually doubled that to 8 now. That doesn't really sound like to me an administration who's really locking down on China. In that sense. So for me, what Trump is saying, obviously the context is, in terms of the framing, is just perfect, right? He's talking at a conference about the construction of a border wall, so you can really hit home the point about immigration, about, you know, the Mexican issue, about then China and the virus and how I delayed these talks. It's all just political framing and creating a narrative that would be beneficial for him in his political agenda at this point in time. No more, no less, I would say from that. The one thing though that you have got that probably is worth keeping half an eye on though is that the US has warned some US colleges to divest China stocks on delisting risk. The move could hit billions of dollars invested in Chinese stocks. So I know this might sound surprising, but when it comes to US stocks, there's an incredible amount of money actually. These universities in the States are big, big business. And one of the things here that they talk about is endowment funds, for example, and how they invest in equities in general, but part of that would include Chinese equities. And what this article is basically talking about is that foreign equities make up about 14% of college endowments, and we're talking billions of dollars here. And Trump kind of putting out the warning that they should be looking to unwind that. And obviously there's a risk of a lot of these Chinese firms being delisted in America. So again, another way of which trying to put the pressure on China, I guess, to remain committed to what they have been doing over recent weeks. But again, on a surface level, it's certainly then, as far as being a US-based citizen, it would appear then that Trump has really, you know, got the, got the, his pedal to the metal in terms of putting the pressure on, which is ultimately a really important thing for him if he's going to come out victorious in this election later on this year. On the US political side, the other thing is No, we remain at this impasse at the moment with are they not or are they going to provide further stimulus. And probably one of the biggest barriers for them having struck a deal over the last 2 weeks has been the fact that coronavirus is dropping in the US, economic data now has been faring better than expected more recently, and the stock markets are record all-time highs. That's the worst type of setting for people to feel pressure in order to compromise and cut a deal. As long as everything is holding up and appearing fine on the surface, it lessens the need for any type of immediate response. It allows you, as a negotiating stance, to wait, you know, in that respect, and then just play this out. And so I would not expect really anything forthcoming of this anytime soon. Interestingly though, House Speaker Nancy Pelosi did say last night that suggested Democrats would be willing to make more cuts to their stimulus proposal to seal a deal with Republicans, speed up the COVID-19 relief, and then come back after November elections with additional agenda items. So one of the important things here is I don't think either will want to buckle but at the same time they can't appear to the public to be not willing to cut a deal of some sort because that deal does carry benefit for tens of millions of Americans who are at risk of unemployment, eviction, and all these types of things, you know. So the Trump executive order is just one element and one area to support in that way that he did, what, 2 weeks ago. It really is contingent that more stimulus is forthcoming. And, you know, neither party here is going to want to look too passive, at risk then that they're not really helping the public in this kind of troubled situation that is the, the post-pandemic kind of era, or during this pandemic, I should say. Elsewhere, oil markets, uh, the headline run on Reuters this morning: slips as demand fears outweigh strong US stocks draw. What they're talking about here is we had a crude drawdown that was almost double consensus, 4.264 million. Albeit, do note the gasoline figure surged the most since April, just short of 5 million. And not too much in the way of any lasting reaction to that. What they're referring to on the demand side is certainly that, um, will the economic story recovery in America be somewhat called into jeopardy and subsequently demand by the lack of forthcoming stimulus in the US, and also this ongoing tit-for-tat kind of slow escalation that we've seen in US-China trade war. But I would say offsetting that has been the fact that China have been quite active in, in looking to buy energy products in the US. So at the moment, I'd say we're a bit of an even situation, looking for the next definitive kind of break in some kind of news to push us in either way. And one thing to remind you, you do have the JMMC meeting today, so the Joint Ministerial Monitoring Committee, and compliance with cuts according to Reuters sources on Monday is that they currently— OPEC-wide compliance is around 95 to 97% in July, which would be, as I've said before, particularly high. Any lack of compliance starts to jeopardize then the potential longevity or effectiveness of the deal. So it's worth keeping an eye out for any comments that do come out, if at all any, later on today. Russian Energy Minister Alexander Novak, which of course is a key player given the size of production that Russia represents, he's going to be joining the video meeting. This comes despite him having confirmed case of coronavirus at the moment. All right, quick look at the calendar. What have we got? As I said, UK CPI came out earlier this morning, was stronger than expected, but no real lasting impacts on the back of that. It's really about what does that look like going forward. There's multiple different forces or risks facing UK economy going forward. That's just one. So It's not quite the silver bullet, if you like. And then going further forward into later, 10 o'clock, we've got Eurozone CPI, but this is a final reading. You've then got the Canadian reading for inflation as well this afternoon. US-wise, it's pretty quiet. You've got the DOE energy inventory numbers, of course, following off in the APIs. And then you've got the minutes coming at 7 PM London, so 1 in Chicago. 2 in New York. So with the minutes, again, I'll be on with the team later. Um, feel free to join us. All you got to do is subscribe to the channel, uh, and then you'll get an alert as soon as we go live. But we're going to go live half an hour before the event to give you a good thorough preview of what we're anticipating, what we're looking for. Um, finally, speaker-wise, Barkin late in the day, non-voting member, following on from the likes of Home Depot and Walmart. Target is coming out today. For those interested. And then from a supply perspective, you've got a gilt auction in the UK, a longer-dated Bund auction, and a $25 billion in a 20-year bond auction coming out of the US as their issuance just continues in earnest at the moment. Yeah, that's, that's it. I'm not going to go any further, and hopefully I will see you online later for the FOMC. And I wish you a good day ahead. Thanks very much.
