The beginning of the end for Theresa May

All right, good morning, Friday 17th of May. Hope you're doing well. A quick overview what we're going to cover in the briefing. We've got to talk about Brexit. We haven't done so really very much at all this week, but certainly some developments, as you can see from the headlines here breaking on Bloomberg, that we've had. From overnight, so I can get you up to speed on things on that regard. Also, we're going to have a look at a few things to do with China, Italy, oil, and Japan. So that's kind of what's on the, the agenda. But just having a look at the charts this morning, and equities remain relatively quiet. We are slight negative in the futures space, but it comes after a pretty decent recovery that we've had over the last few days. I think we've had 3 consecutive days of positive closes now on Wall Street. So after hitting that initial low that we had right at the beginning of the week in response to the breakdown in the trade negotiations, equities kind of continue to kind of claw that loss back and some. Otherwise, elsewhere, the pound obviously is drawing a bit of attention just more broadly, just given, as we'll get into, some of the latest developments about the fate of Theresa May. and then the new race for Tory leadership and where that might take then the Brexit process. And just having a look here at Cable on a, on a daily continuation, I know Sam's going to go through this in obviously a lot more detail from a technical perspective, but coming down to some real key, uh, interesting support points. You've got this level here, uh, back on, yeah, Valentine's Day, I think that was one of when one of the votes on the withdrawal bill initially was going through. If I remember correctly. But if you go back in time, you can see that that level, quite a significant one on many different occasions actually. And so definitely within test or range of testing today. I guess this kind of in the intraday is looking at really this 128 handle, which we hit and we bounced off of in the Asia-Pacific session. So potential for a bit of added downside, I guess, from a technical point of view, with the fundamentals stacking up in a relative negative way. So again, as I said, I'll let Sam kind of look at some potential targets if that was to materialize. Otherwise, gold, uh, slight positive but relatively flat, finding what looks like here what Sam had marked up, a little bit of support on a, on a trend line. Bond markets slightly higher. Italy again, bit of a focal point which we can discuss. Salvini making some comments trying to align himself to being the European solution or equivalent to Donald Trump. And obviously this tends to make investors a little bit nervous about then the potential friction and confrontation this could create. Obviously, being a politician, it's all about timing, and his comments coming right in the midst of the European gatherings that are happening at the moment in Eurogroup, and the finance minister meeting is happening today. Otherwise, WTI crude flat, but I I think crude's had its biggest weekly gain since April. So a little bit of a, again, similar situation, I guess, to the equity recovery from the early bout of selling in the beginning of the week. We managed to sit just around the pivot at the moment, having fallen just back below the $63 handle. So that's kind of where we are at the moment. I'd say sentiment overall is relatively neutral. I guess the market kind of looking for its next cue, if you like, of what could come next. I think cable could be an interesting one today if we do breach some of those important technical levels. One thing that we have just had, it just came out about 15 minutes ago, was a source saying the People's Bank of China would not let the yuan go above 7 against the dollar. Now if you actually look on the charts, I know this is the DAX here, it's very small, but if I just put it onto a minute, you can see there's a tiny little blip there that occurred when that headline came out. Now, one of the things here, of course, is that we've, we've known this before. Remember looking at that Yuan chart yesterday against the dollar, where whenever it gets close to 7, that's kind of the, the line of which investors start to get very nervous about the depreciation of their you know, the value of their assets they might hold that is denominated in yuan. And so therefore it can lead, if breached upon there, further capital outflows. If that was then to breach 7, if that's then the understanding, well then the human behavior would take fold and 7 might quickly become 7.5, 8, which would exacerbate the situation. So as a net then repercussion of this, the central bank already get ahead of it and say we'll protect that level. And so as long as they protect that level, then that should be one of the main mechanisms for helping stabilize any further rout in the Chinese markets. And so as a consequence, it plays out as a positive force for kind of global markets from a sentiment point of view, and a positive one from equity point of view. So you had a little spike here in the DAX, but as you can see, we've come back pretty much to the tick of where we were. And that's probably largely down to the fact that you get that initial knee-jerk response. Perhaps there are some kind of algos jumping on the move that kind of sees it spike. The DAX, obviously, we know can be a volatile character. But overall, this isn't really a new thing or a new approach. We have had this type of warning or commitment from China many times before. But let's get down into the headlines then. Let's have a discussion of where we are on this Brexit situation. Because it has been a bit of a headwind for sterling for sure as we've gone through this week. And it seems as if Theresa May's coming slowly to an end, one step closer to that happening. But, you know, talking to Sam this morning, we definitely don't feel it is an absolute slam dunk that she's going to leave in what is looking like potentially in about a month's time after what's looking most likely, her withdrawal bill fails again. So let me get up to speed. She was meeting with rank-and-file members of Parliament in her Conservative Party. So basically, this is when you get the committee, 1922, and they all have been very anti her dealings with Jeremy Corbyn. But just the fact that she softened the stance and it's not delivering of Brexit as they had envisaged. So under the terms then, post those conversations last night, May will try one last time to get the Brexit deal approved in a vote in Parliament at the beginning of June. After that, regardless of the outcome, she'll meet again with Brady, who's kind of the chairman then of negotiations on that side, with the PM to then chart her departure. So it's again, as I said, it's one more kind of move in the direction of her eventual stepping aside and a new Conservative leader coming forward. However, it's not an absolute date— yes, this happens, I go. You know, what if she passes the withdrawal bill? As unlikely as that might seem right now, I think it highly strange that she would then want to step aside at that point. Maybe she could assert some pressure again. We've seen her, of course, so many times looking like her back's against the wall, but You know, nobody puts Theresa in the corner, to quote a phrase. But yeah, we shall see how that plays out. One thing though that this definitely means— well, before I get to that about the potential replacements, is this one: Talks between the Tories and Labour set to close with no deal. So obviously these two characters here have been in discussions now for a number of weeks. I mean, we're coming up to what, 2 months or so now? But basically no progress at all being made. Corbyn kind of almost at loggerheads with his own party about the way forward, so therefore not being able to make any real agreement with Theresa May. And so what's happening then is the BBC are saying they've learned that talks between the two parties are about to close without an agreement. Theresa May, Jeremy Corbyn will now move to a second phase aimed at agreeing on a process for parliamentary votes designed to find a consensus. Remember, the parliamentary votes that we've had so far after voting down Theresa May's deal— basically, Parliament in itself is so fractured that they themselves haven't been able to find a better solution to this. This is kind of the point of where we're at with all the different political wants and views that we have at the moment. So again, this just means more stalemate in my view, which ultimately cannot last forever, but obviously the deadline October 31st is some time away. What that does mean though is everyone has started putting their, their kind of hat in the ring as to whether or not and who is going to run. This chap, of course, you'll recognize, it's Donald— excuse me, it's not Donald Trump, it's Boris Johnson, of course. But Boris Johnson is the front-runner. I was just having a look on Oddschecker this morning, and you've got Boris quite a clear favorite actually. And he made comments yesterday. Now, I was having a chat with our head of trading, Piers, what, 2 days ago, and we were kind of discussing about how this might play out. And we were both a little bit skeptical about whether or not Boris is going to want this at this particular juncture where we find ourselves. And whether or not timing obviously is everything when it comes to politics. But comments he made yesterday made it pretty clear that, you know, he, you know, he's going to run, he's going to win. And it's hard to see if he does fully commit to that. I mean, that definitely— he is the favorite quite clearly, as you can see from the bookies' odds at the moment. Dominic Raab, the former Brexit secretary very different character to Boris. I think— am I right thinking he's a qualified lawyer? He's very much a man behind the scenes before he came to the forefront when he was that Brexit Secretary after David Davis steps aside. Then it's Jeremy Corbyn, of course. Does he get his way and we go down the general election route? Not that I think that that would create any type of— in that situation, if it happened tomorrow, I don't think Labour would have a good showing at all, really. And I think that's kind of been seen on that local level in the recent elections that we saw with the loss of council seats. But then Michael Gove, Jeremy Hunt, he was making some quite bullish noises the other day. And look, our man Nige comes in down here. What was Nigel beginning of the week, Sam, when you last looked?

25.

He was at 25 at the beginning of the week, so his odds have come down to 20. Um, interesting thing here of course is, uh, and one thing I did want to briefly touch upon in a second was, you know, let's move off this Brexit topic because fine to finish this chapter, if you like, about who takes over and whether or not it is Boris The point being here is a Conservative leadership challenge takes a number of weeks, and the more people there are in the race, the longer the process will take. It basically goes through like elimination rounds, and the Tory Party members then vote for each member, and it slims this, this process down to then the, the eventual victor. Now Last night when I looked, there is 17 Conservative members who've said they're gonna run. 17! I think when we originally had— when Theresa May fell into the role, I think there was maybe 5. So what this means then is that obviously we have to make some kind of headway about what we're doing with Brexit by October. This process is probably going to take the best part of— Theresa May, if she does step aside, it's probably not going to happen until, um, June. If that happens in June, this process is probably going to happen in July and August. And then what, we're in September, then October, we've— it's the deadline again. So, you know, I've always kind of thought that this October deadline is going to be another movable goalpost The next probably logical one I'd probably say is March of 2020, but all the meanwhile, obviously Brexit's getting delayed, and this creates even more divide on both ends of the political spectrum. Those who want to remain in Europe, well, this is kind of showcasing the fact that they're unable to make a better foot forward and the fatigue on the situation. But then the others who are saying, well, You know, it'll be interesting to see if Boris does become PM, does he— his bark have any bite on his ability to threaten with no deal? I guess time will tell. The more he follows that route though, the more negative the implications become, of course, and we'd have to price that in for the pound over the coming, I guess, September— August, September time, if he was at that point to become Prime Minister. Talking of European politics, we did briefly have a mention for Italy this week. I was looking at BTPs this morning and they have kind of come back a little bit, what, in regards to some of the movement we were seeing earlier in the week. But Salvini has told Italians he can be their very own Donald Trump. So we kind of know what what he's intonating there. And then this led me to the idea that, you know, come— what is it— next Friday. Next Friday is the commencement, obviously, of the European parliamentary elections. And this goes through various different process, but because you've got to go through different nations, so the voting happens over a number of days. So Next Friday you have the UK and Netherlands, then you have Ireland and the Czech Republic on the Saturday. You have other countries then, and then you have the bulk on the 26th of May, which is when you have France, Germany, Austria, Belgium, Spain, and everyone else. But the UK is one of the first, of course. Now, one of the things that's likely to be most evident in the European parliamentary elections is what I'm showing you here. The issue of populism— they call it an issue, again, depends on your political view, I guess— but populism support has definitely risen. And this chart goes back all the way to the 1960s, in fact. And so we're looking up to here, the dotted line is the financial crisis. You know, when we look back in history, I guess if you were going to study politics and economics, you know, because they are so interlinked, then the financial crisis was really the trigger effect for populism, undoubtedly. Now, given the austerity measures having to need to be imparted on behalf of governments in order for economies to quite frankly survive at that point, well, obviously then this being— given the state of which banks were operating and the risks that were taken that was to the disbenefit of the normal citizen, then obviously there's been massive ramifications on this for the established kind of governments in these nations. And hence then it's a natural progression as people struggle that populism would rise. And so, you know, it is expected to be higher than it's ever been. These results should reflect that. But one thing I want to make clear is that, you know, even though Nigel Farage and his Brexit Party should absolutely clean up as far as the UK vote is concerned. There are similar things also, of course, happening, Italy being one. The two leaders, so Salvini and Di Maio, who is the League and the Five Star leaders, they will not run under the same political party for the European election. And obviously this is going to shed further light on their political differences. Salvini has obviously made his ambitions quite clear. So you've got Salvini's European Alliance, you've got the Five Star and their alliance, and you've got the Brexit Party, which is Nigel Farage's party. Now the point being here is that it might feel like, wow, this is going to be a massive tradable event, right? European parliamentary elections is going to have this huge populist government. What does that mean for Brexit? What does that mean for Europe overall? But the point being here is that overall, when you start looking at the the mathematics of this and the estimated, um, from the polls what their representation will be in Parliament, it's probably going to increase to the highest level ever for populist parties, but nowhere near being able to have kind of a controlling vote, which is mostly operated on a simple majority basis. So yes, it will create lots of headlines. No, in summary, I don't think it's going to be particularly a huge market-moving affair because this does not translate when it comes to the parliamentary composition enough for them to have any type of clout. Um, yeah, these are the—

I'm—

what I'm going to do here, rather than go through all of this now because it's quite a big conversation, I'm going to put together some slides later today and I'll give you a short briefing specifically on breaking down the European parliamentary elections, who the parties are, you know, who's likely to come out on top, who are the, these, these populist parties. The point being is with populist parties is that they— you might think, well, that all forms one clustered political view, but within populism there is quite right-leaning populism and quite left-leaning populism. So even if they were popular, the point being is they can't agree anyway, because someone like Nigel Farage is never going to go with someone like Salvini. And they— I think they— Nigel has made that quite clear anyway because of their different political ambitions and objectives. But we'll get to that later. Gonna round things off then, uh, final few things to be aware of. Obviously the trade war still, although, you know, has quietened down some degree, that PBOC comment about protection of 7 against the dollar is key. But this was where China's head is at at the moment, and China's state media signaled a lack of interest in resuming trade talks with the US under the current threat to escalate tariffs, while the government said stimulus will be stepped up to basically help support the economy. And again, this is an important factor for intraday, for medium-term trading, because it means then the risk factor of a really aggressive correction in equity markets is probably lesser probability of that occurring if China continued to have this type of reassurance. Now remember, China have a pretty monumental war chest that it can open up, and this isn't to go to war with the US This is to protect their own economy if push comes to shove. And so even if tariffs are put on every product imported from China by the US, you know, it's then a kind of, a kind of game of whether or not China has the, the appetite or the pocket to continue to, to, you know, fight that and help support their economy. One of the ways in which they're doing this, which I read last night, was you know, these smaller, medium-sized businesses which would typically struggle the most with lending conditions in this stressed environment for credit. Well, the Chinese government directly gives them liquidity themselves. So this is, you know, ways and means in which they go about doing this. So talks are on hold for the moment until the G20 next month. I think, uh, that's the timeline, without any new moves that show the US is sincere it's meaningless for us to talk, is what Chinese officials were saying. Last night, China's government said it will work to counteract the effects of more US tariffs, keep the economy in a, quote, reasonable range. The National Development and Reform Commission, the NDRC, is studying the impact of tariffs and will roll out responsive measures as and when is necessary. So yeah, as long as that happens, this should help stabilize what felt very negative at the beginning of the week. Quick look at other things. Oil, obviously, just given literally what I've just said, oil's managed to bounce back a little despite the kind of infantry situations that we've had materialize this week. So pretty decent percentage gain overall. We know this situation has been largely buoyed not only on the— on what I've been saying about China, but also about the disruptions that we've been seeing, the tensions brewing between now Saudi and Iran, what's been happening in Iraq, Libya, Nigeria. These are all contributing factors. And then in Japan, Kuroda has said the BOJ may keep rates well— or low— well over a year, dismissing debt monetization. So I thought I'd point that out, but quite frankly, this is nothing really new from the BOJ. This is what they had said before, that they would maintain ultra-low rates for a further period of well over a year. Looking at the calendar today, what do we have? Um, it is a fairly quiet morning. You have eurozone CPI, but let's not forget that this is final readings of CPI. You then have Michigan sentiment. This is the preliminary reading for May. There's no major 1:30s coming out of the States. So it is pretty quiet today actually from a calendar perspective. Moody's reviewing UK sovereign rating. Again, it's more about— there's no sovereign change expected here, it's just about what is the update given the political uncertainties. But given the status quo that we're in at the moment, there's nothing really— I don't think that from a rating agency point of view that's necessary to update. The point being is you can't make any conclusions till you see how these, these talks play out, uh, and the Brexit situation as well as the leadership for the Tory party. Speakers though, quite a few things. Clarida, Williams, Williams, Clarida. So there you go, they're, they're dotted throughout the two back to back to back, uh, from 3:00, 4:15, 5:15, 6:40. And so these two are voting members on the FOMC. One a hawk, one neutral. Possibly worth keeping an eye on. All right, that is it from me. Let me hand you over to Sam. I wish you a good weekend and I'll see you in the chat room. Thanks very much, guys.

Thanks, Ant. Um, I am about 80% recovered, so hopefully we'll get through this Uh, okay, we'll start off with, with pound. As obviously Brexit's starting to come back into the front again, and, and pound as we speak right on, uh, on the low, 128 as well. Uh, I was looking, uh, just now longer sort of term squeezing the chart down, uh, with one of these, these trend lines that did break yesterday. I mean, pretty much all support or potential support has, has been going, uh, recently and The, the technicals of course are worth keeping an eye on, more so for profit targets it seems at the moment. Uh, if I just see if I can get that in, starting on one of these levels from— let me just get the trend line on there. You can see breaking through really good support a couple of times starting on the 11th. I know it looks quite small probably on your chart now, to the low that we had back on the 25th. Found good support on the 15th, which, uh, we know a couple of days ago was that longer-term level from back in, uh, February as well. But that obviously broke through yesterday and since then has continued lower. So if we were to have a bit of a push higher, keep an eye on that trend line. Probably by the time pound would get up there, likely to be around the pivot and also previous low of the day— so of yesterday, I should say. So quite a key level to keep an eye on. However, the pound is continuing to push lower. And also, if we just have a quick look at, at euro pound as well, just on a longer term chart, that higher level, you can see just how many days in a row we've had to the upside here. Uh, 1, 2, 3, 4, 5, 6, 7, 8, 9 yesterday, looking like a 10th today. Above the top end of the, the range that we've been in. Uh, so yeah, one to keep an eye on. The pound under pressure. I guess the next questions are going to be, if it is Boris, what does that mean? Is it a buying opportunity? Is it, you know, a further push lower? All questions, I guess, to, to be answered. But with the, with the pound where we, we closed the week, it's, it's not looking too good, especially now we're confirming that break below the, uh, the, the Valentine's Day low. Next key level, certainly on the daily chart. I mean, could easily get that today the way this market's been going, is the first meaningful vote back on the 15th of Jan. If that goes— if that went today, well, suddenly you're looking at 2019 lows coming in in the next couple of weeks. Worst case scenario, uh, of course. Having a look at the, the euro, uh, we had a trendline break as well. I'll just bring this in. This is obviously without the pivot. So can you see the top end of that trend line? So starts on there on the 26th. I'm just going to put it back below the, uh, the camera, but you can see that lining up with the, the low point we had on the 3rd. We broke through that yesterday. So certainly on an intraday point of view, I wouldn't be getting too excited about this push higher that we've had this morning until at least that went and the pivot went. And quite a key level to the upside, 112 25 on the futures anyway, the low before we had that breakdown in the afternoon. So a fair bit of resistance for this market to get through if it was to continue lower. Uh, well, we know that lower the third is, uh, you know, fairly achievable for this, uh, move perhaps today. However, squeezing it down, looking over the last couple of weeks, maybe we're just in a bit of a range and it still needs to come a bit lower. Not the most volatile market at all. Uh, for, for now. Aussie dollar was looking this morning at quite a nice trend channel. Uh, it's just loading up here, you have to trust me. Okay, here it goes. Um, yeah, if we look, they click on a 15-minute chart and just squeeze it in, you can see while the ranges haven't necessarily been that big here either, just putting on this trend channel to both the upside and downside. You can see fairly well respected. So again, if you're looking for more of a medium-term Aussie long, you want it above that trend channel. Of course, that would still be, uh, you know, 20 or so ticks above from where we're trading. So it'd be a decent push higher. If this market is to continue lower, well, maybe a good opportunity could be to use that as an area of resistance or, or continue the short if that was to, to break as well. Gold, I know quite a few of the, the traders got in or had some of the action on the, on the short that we had yesterday. Those levels did finally break, uh, and they broke with some conviction. That high that we had back on the, the 8th, the 1290 historical level, went as well. Uh, what had been such a good trend line, uh, over the last couple of weeks as well did look like we were going to get a a break of that. And we'll first just draw that one on. You can see how well that was respected going back the 6th, the 7th, and the days after. But also this one just below. So it was a key level to be aware of. And that third test on what was the, the trend line starting on the 2nd and the 3rd, that held gold up quite nicely. So if you're looking for a continuation lower, those trend lines would have to go. But then it could get to to be quite interesting. You can use these lows from the beginning of the month as a potential target before maybe a further push down to 1273. However, it's held quite well, and where we close the week will be obviously key. The pivot, 1290. Today we've had good price action there every single time we've come to it. So you want your interesting level for, you know, bullish if we close above, bearish below. Well, you've got it there at 1290, and I think that could be be a, uh, you know, one to, one to focus on for sure. Uh, if you want, uh, that real sort of bearish signal, then I would say that trend line, these trend lines to, to break would be that. Uh, equities, we broke those trend channels all yesterday and it did continue higher. Those gaps were filled. Uh, all those, those resistance points from Friday's close last week have acted as good resistance, uh, so far. So we've just started to, to drift off those, um, the previous highs of, of yesterday acting as a bit of support here on the S&P as we speak. Similar for the NASDAQ, although, um, you know, just had a brief blip below. And like same here with the Dow, however, they are holding quite well. So I'd still look to have those on and obviously focusing on what the DAX is doing. If the DAX was, say, to break through its previous high of yesterday, which came in on that R1 gap fill high of Friday last week, and the pivot to the downside, well, you might get, uh, your US stocks also doing the same. But it does feel like we've turned a bit of a, bit of a corner. Uh, oil has helped. Oil has helped that. I know the, the euro trade tariffs 6-month delay has helped be the main driver, but oil pushing to the top end of that range has also helped things for equities. However, we have found resistance on the top of that around $63.35, and really going back to May, it's, uh, you know, what's this, a $3 range give or take, you know, it's a few cents either way, uh, and we're just at the top of that now. So can we push through that to close the week? That'll be key, not just for oil but for equities, and maybe going push above Friday's high from last week. If this holds, then you might get a bit of a drift down. You're starting to perhaps get a bit of a trend line forming from the lows from overnight Wednesday to Thursday's lows would also match up currently along with a bit of support from the 16th. So if that was to break through, well, you might get that opportunity, uh, to get short here, uh, for oil. One to, to keep an eye on. Just to wrap up, I'm sure there's a couple people that are still interested in Bitcoin, and you may have seen on the, on Twitter or the newswires late last night or early this morning at 3— let's call it 3:55. So in, well, 3:55, 5, 10, 15, give or take 15, 20 minutes We just had a casual 18.19% move, uh, only to rebound 17-18% as well. So pretty crazy price action there for Bitcoin. Um, where this market goes, well, I mean, I'm sure there'll be people that will fight the corner and have a view, and that's absolutely fine. But look at that. Just going back here, this is now a daily chart. The reactions we've seen after that push down late November to, you know, a 20% move lower to an 18% recovery all today. Well, it's like a penny stock, I, I guess. Uh, pretty, pretty wild price action, uh, there for Bitcoin. That's one to focus on if you are trading it, I guess, just to, to be careful. It does seem to be going back to that, uh, that phase it had, uh, where you're getting multiple percent moves each day. The pound continuing lower here. The dollar just a tad weaker actually overall. So really this pound sentiment continuing to weigh on things. Euro, those trend lines just above the pivot trend channel for the Aussie dollar. Keep an eye on the DAX for US equities early morning and those highs from yesterday. Oil with the, the range that is in gold with those trend lines and 1290, uh, the key levels. I hope you all have a, a good trading day. If I don't speak to you, a good weekend, uh, as well. Seems like the good weather has left us behind, unfortunately, but I hope you all have a good couple of days ahead.