The Fed Will Cut But By How Much?

Okay, very good morning. It is Friday, 16th of August. Hope you are well. Before I get into the actual briefing, happy birthday to Jose Stubbs in Orlando, Florida. Top man and former Amplify Trader. I've got a lot of time for Jose, so happy birthday and enjoy your weekend, mate. Getting into what we're going to discuss then for the briefing, we've got a couple of articles really focused on the Fed and what are they going to do, because in a week's time exactly to the day, there's the semiannual testimony in Jackson Hole from Fed Chair Powell, which is one of the biggest platforms outside of the regular 8 meetings that the Fed holds where the Fed chair gets to kind of vocalize latest thinking on the likes of interest rate expectations going forward, the health of the economy and so on. So that's quite a— well, it is a big deal for markets, particularly at the juncture we're at when it's this idea of is there a looming recession on the horizon and do we subsequently need more action than just the one rate cut being delivered? So far. So we'll get into that in a second. Let's just have a quick— before I go on to the headlines— review of the charts. And fairly quiet open, to be honest. There's not really a great deal of major, I'd say, market-moving headlines for me to report to you. Very much so just a continuation of the, the general sentiment. We had a firmer close on Wall Street. It's been a real quite volatile week actually, but paring back some of the, the hefty losses that were seen in recent sessions, of course, on that day when the Dow fell some 800 points. Other assets have similarly stabilized. Cable continues to kind of claw back some of its recent losses. Just looking at the center top here with the dollar flat this morning, but obviously had some firm retail sales yesterday and some firm data out of the US as well. Let's not forget retail sales Empire and Philly Fed all coming in slightly stronger than expected. So not quite a runaway kind of end of the world scenario that perhaps some of the financial media would have you believe with the inversion of the yield curve that was happening once again earlier this week. That kind of talk has kind of abated, at least for the moment. So I'd say all things being equal, it's a fairly tepid open and really awaiting the US session because there is really absolutely nothing scheduled for this morning of any type of significance. Um, obvious things still in play, of course, any updates on the trade side of things. This, of course, was the latest that we heard yesterday, which was talking about that China is preparing tariff response as Trump sees a Xi call very soon. Uh, nothing really new here from what we were reporting yesterday. But China as well being very sensitive to making sure that the US doesn't poke its nose into the Hong Kong situation that's obviously unfolding at the moment. I believe those protests are now into their, their third month. So other than that then, rather than look at the charts, I'll leave that to Sam upon how he views the technical setup for the day. Let's run through the headlines, and this is obviously the main one. Powell expected to seek another cut despite strong spending. And this is a reference point, of course, to, to yesterday. But you would have known that as we have been seeing recently in the US is that given the fact that we've had relatively benign inflationary conditions, but wages have been picking up and unemployment remains particularly low in the US, consumers have been continuing to spend and had ability to do so. that's been the one kind of sweet spot, if you like, for the US economy, where otherwise on some of the other more productivity, kind of manufacturing activity-based measures have been slowing, mimicking this global slowdown. So it's kind of been a little bit of an isolated thing here, the, the strength of the consumer. And it does bring about a couple of interesting things. So cycling through a couple of different graphics, this is the Citi Economic surprise index for the United States of America. Now, this is something we, we look at from time to time, and essentially it looks at the— so with every piece of economic data of any significance, you have a median expectation, and this is basically an index that derives then, well, how far did it deviate from the mean, whether it's a positive, a beat, or a miss. And what we've been seeing is that, you know, comparative to where we were about 2 months ago when economic data was surprising to the downside, we're now starting to see the reverse. And I guess yesterday was quite an example of that. The kind of 3 major headline pieces of data all exceeded expectations. So, you know, in a world where, um, I guess market psychology generally is in quite a fragile state, particularly with this emphasis on the indicators coming out of the fixed income market at the moment, This will alleviate, I would think, some of that tension that had been brewing throughout the week for sure. But that doesn't mean that the market's really shifted completely. It's just, as I said, it's managed to just calm some and alleviate some of those fears. The, the fact is the market is still very confident that the Fed are going to cut at the next meeting on the 18th of September. The market is 100 price for that event to unfold. The idea here is whether they go 25 or 50. So it feels like we're in a bit of a rerun of the last Fed meeting when, if you remember, this got all the way up to 50/50. Before then, the Fed basically came out and said we're not going to do 50 in a lesser explicit way, and that bumped it to about 75/25 on the day of the decision. So we're kind of back in that same realm at the moment. Again, obviously I don't know what the future holds between now and September, but my expectation as of right now, August 16th, is that the Fed will cut 25, not 50. So again, the fact that they didn't go big the first time, I see little reason both in their strategy in terms of the increments of cuts and also in terms of the actual economic data and the trade situation. I don't think warrants a 50 cut. Is my personal view at this point. This is the longer term perspective though, and this is looking at what markets expect. So going into 2020, and where will Fed funds be in that point? So here you've got the blue line, which is the, the Fed funds rate, the effective rate. So you can see that was the rate cut, so taking rates down to where they reside at the moment. But the pink line, you can see, has just been decreasing really ever since we had that crash in markets at the end of last year. So going to the beginning of the year, it just continued to decrease. And market expectations are by the time we get into 2020, at the end of that year, you know, rates are going to be tracking at around 1%. So you're looking about 100 basis points worth of cuts still priced into the market at this point in time. An interesting article I read last night suggested that actually Jerome Powell apparently has spoken to his other Federal Reserve colleagues and said, "I do not want you making any public appearances." The reason why is because he doesn't want any increased conflict between the government and the central bank. I.e., we've obviously had Trump being, even this week, as has been his pattern, highly critical of the fact that any market downside is obviously accountable to the Fed as far as Trump is concerned. Irrespective of that kind of call from Powell on his colleagues, maybe Kashkari didn't get the memo. He said basically he's leaning toward further rate cuts. And if I just jump down to the bottom of the article to give you the comment, he said, I am leaning towards the camp of yes, we need to give more stimulus to the economy, more more support, we need to continue the expansion and not allow a recession to hit us. Now, very important point here, or two. For one, Kashkari is a very well-known dove. He's like the uber-dove, if you like. So this is absolutely unsurprising to hear this type of rhetoric from him specifically. And then two, he is a non-voting member in 2019. So he doesn't get a vote. So despite his views, I think— I don't— I wouldn't expect that to really shake up the market too much. The point being is all of this is leading up to next Friday. The Jackson Hole Symposium is going to be very important for markets, and it will be the main thing I'm sure that I'll be talking about when I deliver the week ahead briefing on Monday morning. So I think between now and then, the markets have really got to wait, and then you'll hear from Powell, and he will give the definitive latest assessment of what he thinks is the, the correct and prudent course of action. Um, final few points for me to make, uh, as I said from the calendar this morning, there is literally nothing coming out, um, of significance for UK European markets. So I definitely think again a US-centric session From a US data point, you've got housing starts, building permits, and then you've got University of Michigan. This is the preliminary reading for August, so typically the more market-moving, if, if at all, of the two readings, the other being the final reading. So this today is expected at 97.2, and really that would be no shock at all. That would be a matching of a print back to April of 2019. You know, if you look at the data set of Michigan on a 10-year level, you know, 97.2 would be right up here. So it's still a very high reading in context of the last 10 years or so. So as we saw yesterday, I don't think the consumer sentiment is being a particular crucial factor for policy thinking. And as such, I wouldn't really be looking for much reaction on the back of that. The other things I'll be looking for more so is just generally key technical levels in equity markets, particularly downside, given some of the big runs that we've had earlier in the week. And I'll be looking out for any further updates, of course, on the trade side as well. Not that there's anything scheduled, but of course Twitter and so on. The final question I wanted to ask, and I would like if you are watching this, um, in Trading Live, so put your your answer in the chat. If you're watching this on YouTube delayed, then I'd like you to comment below on the video. But this is a graphic of Deutsche Bank shares, and I was just having a look at them because Deutsche yesterday got down to €5.88. You can see here from a technical perspective, just very loosely, their shares have been responding to around €6 back in June, and then they bounced back up to north of 7. But now we've broken that previous area of support from about 2 months ago. If I start putting Deutsche on a year-to-date chart, you know, perhaps you can see that the relevance of that June support a little more. And then if we start looking at a 5-year chart, you can just see how hammered Deutsche shares have been. If you look at it, you know, even longer term on a max, I mean, they were north of €100 back in 2007, pre-financial crisis. And again, to reiterate, they're trading below €6. The question I would like to know is, at what level would you buy Deutsche Bank shares? And obviously there could well be the idea that maybe you wouldn't want to touch them at all, but the common consensus would be that given it's such a systemically important financial institution to the working of not Germany, but the global financial system, given how intrinsic Deutsche is into lending into nearly every bank of every continent in the world. The common belief is that they're too big to fail. Now, if you were going to buy Deutsche shares, at what level is my question, would you want to get in? So we've just breached 6. We're at these all-time lows for the stock. Leave a comment on the video. I'd like to know what your thoughts are. Okay, that is it from me for today, so let me hand you over to Sam. I'm gonna wish you a fantastic weekend. Keep an eye on my Twitter account the weekend. I will distribute the usual calendar main events for the week ahead on Sunday. Thanks very much, guys.

Yeah, it'll be interesting to see what you guys will think about Deutsche Bank incredibly, uh, down where it is now from even this, well, 5 or so years ago. Um, having a quick look over the euro to start with, we had those, those comments out from the ECB yesterday which have sort of shocked markets a touch. And, and the euro finally has to be said, it was, it was hovering in that range, wasn't it, 112 to, uh, 112.50 for, for quite some time, getting the break last couple of days and decent enough moves to the downside here. We have another one of those and suddenly we're near the lows of the month, lows of the year again. So worth keeping an eye. Literally where we're trading now, you can see now just making, albeit very briefly, a new low for the day. You could argue that's a bit of a trend line. So worth seeing what happens, you know. Can we get that close below here? Still a fair bit of time on the 15-minute for that to happen. Euro pound as well, low of the day as we speak. So euro just unwinding some of perhaps the strength that we've seen over the last few, few days or so. And the dollar is starting the day against some of the pairs, uh, on the, on the front foot. The Aussie and Kiwi just over the last 30 minutes or so have been drifting down. And the Kiwi actually just catching my eye here, just coming to those lower points that we've got just around the S1 today. But also you can see just this whole area, this, you know, this zone of importance really following the, uh, the interest rate decision back on the, the 7th. We've just been squeezed in around here. While there's not necessarily the best trend line in the world or area of support that looks so clean, the break of that, you've got to imagine there's a decent enough push to the downside As Ant mentioned, that pound has been trying, uh, over the last— well, since yesterday morning really, trying to just grind, grind higher. We did get a break of, of that, uh, range that we've been in for, for a while. Um, so similar to the euro, we're talking about how it's stuck in this range, perhaps waiting for the break either way is the way to go. It just so happened it was, was to the upside. And you can see we really, we pushed quite significantly higher back to the highs that we had back on the 9th. Just looking at this market now, it'd be worth just having a look to see, can we get any of these, these kind of trends on here? While we did get that breakthrough yesterday, we never got the close above, and we're just testing that now. And I have this marked up on my charts as well, so I just wanted to see what happens here. As well for, for this market going into, you know, the end of the week will be important. Can we get back above yesterday's high but also this trend line? And we could perhaps see, you know, a decent enough push, you know, positive headlines over the weekend, and suddenly we've now seen the worst of the 120 for a while. Just putting it back onto that weekly chart, I know we talked about this really from a couple of weeks ago, just the importance of this trendline break. Now obviously we are quite far away from that, you know, this would be around 124 still, give or take. But certainly in that, uh, let's bring in that 120 here. Certainly in the medium term, if we can get any push up to there, that's going to be a real key level for sure that I would be focusing on. And also you can see it will come in back in the 2007 17 March lows by the time it could get up there. It's a really key level that I'd be focusing on. Still kind of in no man's land really. If we were to get the opportunity to have broken to the downside, you've got to imagine 120 would have come quite quickly. But at the moment, I think the pound to the upside does make a bit of sense. Certainly, uh, the euro pound— bring this in now— uh, you can see just the last few days having turned a corner after being under pressure for, well, just so long, so long. You can see that move there. S&P, I want to bring this into picture now as well. And we, this time yesterday, we were talking about the importance— and I'll just remove today's trading— the importance of that pivot and that low and the, uh, the previous low before we broke through. We're talking about how it's a, almost a 7-point zone, and we came up there around 1 o'clock and it— the buyers just couldn't take over and we drifted back down. But as you can see, we're coming back into that level now. It's massively, massively important where we close the day and the week for, for this market. Can we get back above there, or is that going to be the key resistance point and we start to drift lower to, to the downside? So really key, really key. You want a line in the sand, that's it there. To the downside, you can see where we, we tried a couple of times yesterday to get below, uh, 22, which was the low we had back on the 7th, and we just couldn't get that close below. Really key level, as you can see. Those are your, your points that I would have marked up today. And that calendar, as Anthony was mentioning, is, is pretty quiet, uh, in the morning. So, you know, keeping an eye on this into the afternoon will be will be certainly one to, to have an eye on. Quick look at gold. We saw obviously some dollar strength against the euro yesterday, and the dollar strengthened elsewhere, but not really enough to, to move gold around. And I was speaking to some of the traders about, you know, if we can get— where I had a trend line on, where was it, from these highs here I was like, if we can get above that, uh, yeah, I was saying this around 4 o'clock. So if we can get above this, there could be the opportunity to get long. You can see it did go higher, but we haven't really confirmed that break above. While you would have obviously, you know, got a nice trade there, uh, $11 or so, we have come back, we found support again with— but we are now the other side of it. So certainly shorter term, if you are looking to, to get long gold, you would want us to get back above there and pre— and the previous low of the day, which coming in around 1527. To the downside, a lot of support, a lot of support can be found, uh, just below where we're trading in the S1. You can see all these wicks here, incredible zone, uh, around 1520 where we finished the week, along with the previous highs of, yes, of Wednesday morning would be important as well. So we're still massively elevated here. You could argue there's a couple of trend lines about to come into play as well. Let's have a quick look to see. There you go, look, another break of that. So gold certainly in the morning looking bearish until we were to get to around this level, 1517, uh, you know, bullish above the previous low, and then suddenly we are looking towards those highs. But just worth, you know, being a bit patient here as the dollar just trying to perhaps strengthen a touch. And, uh, we'll have a quick look over at dollar-yen, which we haven't focused on too much recently. Uh, but that's another market which is worth having a look at today, just getting squeezed from both directions. Um, so certainly maybe more into the afternoon worth having a look what's going on here. And again, where we finish the week for, for this market will be pretty important. But you can see over the last couple of weeks, or the month should we say, uh, we are still relatively choppy. There seems to be a lot more, um, you know, in these big down days for equities the, the yen side hasn't exactly strengthened massively. So for this market here, the dollar still wants a bit of it, which I found quite interesting. Um, so yeah, worth having a look at that into the afternoon. Quick look over at the DAX because obviously we were talking about that level yesterday in equities in the US, just of how important that is, and the NASDAQ is at that level now, and Uh, you know, while the Dow Jones is yet just trying to break through it as well, I'll be keeping an eye what the DAX does, which got up to there early morning but never really came back since. Obviously that euro comment helped push the DAX higher. So, you know, if we were to get another push towards this R1, yesterday's high, previous low of the 13th, uh, US equities may get the, the run from that to go earlier than the afternoon. So keeping a close watch on what the DAX does, uh, around the R1, yesterday's high, should it get there. Have a quick look over at oil to, to wrap it up for the morning and obviously the briefing. You can see its R1 has been the level of interest today, along with yesterday's high and some resistance we had back on Wednesday. Good line in the sand for the bulls and bears to, to have a go at protecting that, if you're of the, the idea that we have to or we are going to come lower. That's a pretty important point. And we're now looking to come into this new range, if you like. And I'm just going to drag that a bit higher, where certainly other than the push that we had on Tuesday and then the reaction to the downside which canceled it, you could argue between $53.50 and $55.50, we're now in this, uh, $2 range where, you know, price is pretty contained other than those two days. So the downside where we had on the 12th, which is also previous high on the 9th, and we just can't quite get confirmed above there. So from an intraday perspective, but also looking more for next week, I'll be interested to see what happens if we can get above 5550. And for me, that would be a pretty positive finish on the week. And even going back to the last few trading days from Monday, you can see that 5550 of importance. and the downside as well. So really important $2 zone to keep an eye on for me this week. Worth keeping an eye on what the DAX does as equities in the US also approach those higher levels. Pound, I think it'd be important— can we get above that trend line that I had on to finish the week? Dollar-yen, worth keeping an eye on in the afternoon. Gold, just a touch bearish this morning until we get to 1517 perhaps. And the euro not looking too strong at all. Uh, just, um, another shout out to Stunner Stubbs. Hope you're well. Happy birthday. Hope you're enjoying your holidays. I hope everyone else has a great weekend, and I'll catch you next week.