The Trading Week Ahead: 11th-15th March 2019

Okay, very good morning, Monday 11th of March. Hope everyone had a good weekend. Usual kind of plan then, we're going to look at the articles of interest from the weekend and this morning, and then I'll talk about some kind of fundamental views and risk events for the week ahead, and then Sam will jump on and he'll look at the charts more specifically. So I'll talk about the news, quite a few things to get through, and then I'll just leave all the charts to to Sam. But starting with the broader kind of setup of how things are looking at the moment, the Dixie is basically flat. We had a little gap lower, you can see in the pound, the reopening of trade. Electronic here, top center chart, did dip slightly initial trade overnight in the Asia-Pacific region, finding some support at around the, the S1 before now resigning at the 130 handle. So Pretty much a gap close or fill, and we've just, you know, despite the dip that we had, it has recovered. We'll look at the reasons why that happened and probably why the market has come back to, to sit relatively flat. Big week ahead, of course, for, for the direction future Brexit decisions that need to be made. Otherwise, elsewhere, equity index futures quite interesting. The Dow is significantly underperforming and and we'll look at the reasons why in a second. And elsewhere, we've had oil— well, let's have a look. Oil is trading at the moment— just switch over my charts one second. So I've had a little, little pop higher, up positive about $0.70. Gold relatively flat, still sub-$1,300 handle for the moment. So getting straight into things, let's look at some charts and headlines from the weekend. And firstly, I think before we get into the usual kind of calendar and events is, well, how did last week finish? And US stocks closed lower through Friday on the jobs data, of course, that we saw. Even though there was a 0.1% beat on the wage component, there's a very much a shock on the headline change in non-farm payrolls, uh, being down at 20K. And that came after what really was a string of negative data that we had had, whether it was US trade balance, whether it was Chinese trade balance, whether it was German factory orders. Just globally, you know, things have been continuing to surprise very much to the downside. And as you can see here then, the percentage change on the week after pretty much only one negative week since the year has begun, it was by far the clearest downside move that we've seen since the, you know, extreme sell-off that we had at the end of last year. That coming as well with a little bit of pressure to see off the week in Asian equities after they were looking overbought on several kind of more technical-based indicators as well. On that basis then, this is something you've probably heard us talk about before. This is the Citigroup Economic Surprise Index, uh, and the most interesting one I think of course is that of the US where, you know, conditions have radically changed, uh, and of course then providing this further evidence for Jerome Powell who actually featured in a television interview at the weekend and basically said that they're going to pause. So non-farm payrolls definitely giving further, um, kind of cement to that belief, if you like, that that's going to be the most prudent course of action. And of course, the Fed projections get updated on the 20th of March going forward. Um, otherwise, we've had a couple of data points out this morning and kind of fits a similar narrative where German industrial production, following what has been a string of weak German data has come out, and that was weaker than expected. Uh, dropped unexpectedly 0.8% month-to-month for January. Expectations were for a +0.5% reading. So again, we were looking for a reading up here, and it's come down at 0.8. Now, 0.8 is not— that's negative, particularly shocking, but again, it just further feeds into that idea. And hence, that's why I think European assets have largely brushed this data aside, uh, in that respect. That hasn't though detracted from the point that Germany, uh, obviously the main economy that we'd be watching for, uh, kind of sensitivity to the eurozone's economic prospects, and the German government have come out in German press and effectively they've revised down their growth outlook for Germany the country again This is the second revision in less than 2 months that the German government has had to come out and basically make the admission that, yeah, things are slowing down much more faster than we thought. So hence the reason why, you know, Mario Draghi— was he right then in order to kind of bring forward not so much a surprise in terms of the mechanisms he was using, but faster timing than expected, possibly to go with that kind of dovish forward guidance with the commitment to the Teltros and so on and so forth. The divergence in the US equity markets is coming on the back of this story. So another kind of tragic event for a Boeing 737 MAX aircraft, the second of which has crashed in, in 5 months. From a markets perspective, Boeing is the largest company by quite a quite a margin. The Dow Jones Industrial Average index, so the Dow, is down about 170, whereas the NASDAQ and S&P are holding on to slight gains at the moment. So big underperformance there from a market index weighting percentage. Boeing accounts for just over 11%, I think it's 11.3%, so hence the reason why you're seeing that at the moment for the Dow. I'll leave it for Sam to have a look at Uh, it's currently testing around its S1 level. Probably the, the level to watch will be the low that we had on Friday. Uh, that's, you know, could well be in sight once the cash markets get underway and Boeing really sees that reaction as a single stock. In pre-market, Boeing shares are down by about 10%. As I said, they account for just over 11% of the entire Dow Index. Going on to the calendar then, what have we got for the, for the week ahead? Well, actually for today, what's going to be particularly interesting is you've got in the US afternoon US retail sales. Now one thing to be absolutely crystal clear of, if you weren't aware of it, US clocks actually changed at the weekend. Ours of course don't change, I think it's for another 2 weeks. So that means that all US data is going to come out 1 hour earlier than normal. So US retail sales at 1:30 will be 12:30. The open of the New York Stock Exchange will be an hour earlier, 1:30 instead of 2:30. So do be absolutely aware of that, because particularly if you're just, you know, new to trading or markets, it can catch you off guard if you, if you're not aware of it. and that's going to be in play, I think, for the next 2 weeks or so. So all US data an hour— and corresponding market opens an hour earlier than normal. Um, US retail sales though, let's have a look. I did have— let me see if I've got the right graphic. Uh, here we go. So this is the US retail sales control group that we saw from the last previous report, if you remember. It was shockingly bad, and this was kind of the initial catalyst for the string of weakening US data that we've had of late. And the control group is a subcomponent of the Retail Sales report. Not only was the overall report bad, but the control group is what's used as part of the specific data that corresponds then to how the Federal Reserve and hence bank models calculate US GDP. as a contributing factor. And the control group was essentially the worst since 9/11. So you got to go back the best part of near 20 years the last time retail sales was, was that bad. So obviously the question marks are, was that just a one-off? Uh, has it been weakening? And if so, to what degree? Is there any consistency, uh, to this situation? Uh, it's going to be quite important. Because again, even though we're getting used to downside surprises, that does mean by default an upside surprise will probably have a much bigger impact as the markets are kind of now in a negative, uh, kind of expectation, if you like. But this of course could be quite interesting for then and the further follow-through as to what we believe that the Fed could say when that March 20th meeting comes around. Moving On to the rest of the week, I mean, from today's session we're going to talk about Brexit because the build-up has already begun. So we'll get into a lot of the articles that came out in a second. But otherwise, for Tuesday, leaving Brexit aside for a second, you've got US CPI. It's probably the data highlight of that day. You do have some UK data as well. You can see you've got UK GDP, industrial manufacturing, production, but Obviously that's going to largely take a back seat to the, the Brexit shenanigans that will be going on. The US CPI report and US retail sales report, probably the two major US data points to come both today and tomorrow. Going through Wednesday, you get US durable goods. Again, Brexit aside, you also get the UK Spring Statement. So this is where it's been pretty well telegraphed that Philip Hammond is going to use a bit of a windfall to throw the way of what's being termed in the press as a bit of a Brexit bribe in order to throw the way of Brexiteer Tory MPs in order to back Theresa May. So the spring statement, autumn budget, these types of things don't typically from the fiscal side produce too much of a market reaction. If you're a single stock trader trading specific FTSE companies, can often be a little bit interesting if there's any changes on, you know, stamp duty or tax on alcohol and things like that. Corresponding individual niche companies could be impacted, but from a broader pound perspective, it's probably not going to be a big deal, quite frankly, particularly in the context of the decisions on Brexit this week. Thursday You then get an update on China fixed asset investment, retail sales, industrial production— probably the most important data point— and unemployment rates. So that's all coming out on Thursday by the time we come in in the morning. And obviously from a China-US trade talk, this is another consideration for the week. Although things seemingly, uh, have found a bit of a hiatus at the moment in the progression of these talks, they still remain relatively positive. We have averted so far complete breakdown, and so for the moment it's just a matter of just keeping half an ear open if there is any potential, uh, read across. And then Friday, Eurozone CPI, again, just in the context of those ECB downgrading of inflation and growth targets, has probably taken a little sting out of the, um, the ability for that to move the market. But that's probably one of the key releases of that day. You've also got the Bank of Japan interest rate decision, although granted not expecting any fireworks. And then you've got that IEA monthly oil report. I believe the OPEC monthly report is also coming out for any crude traders this week, and so that's also another consideration just to get an update on compliance to the cuts and overall production demand forecasting for the, for the foreseeable future. Okay, let's delve a little bit into some of the Brexit headlines then. This of course is what's coming up this week, and this is the deadline for Theresa May to put a new kind of meaningful vote, if you like, back to Parliament for them to make a decision then. And as we're going to see in the press, it's looking increasingly unlikely that her deal is going to get through. I think about a week ago we were talking about this idea that had she played it quite well in the fact that she'd kind of leveraged Brexiteers into threatening that, look, you face the risk of having no Brexit at all unless you back me. And then, as I said, that windfall from the fiscal side that Hammond was going to throw kind of in the northeast region, typically a leave area, to try and sweeten them up, if you like, to in order to back her deal as well. but the Sunday Times at the weekend— not sure if anyone read that— but apparently, according to the insiders in Westminster, she could suffer an even bigger defeat than the one that she had on the 15th of January of this year when she lost by 230, which was the worst on record in any government standing in Parliament. So it's looking very unlikely that her deal is going to get accepted. Saw a couple of tweets about half an hour ago saying basically she's not at this point planning on heading back to Brussels because they're in deadlock at this point in time. So I think, I think this right-hand side of this, this diagram, if you like, or, or tree, is, is pretty much irrelevant. Which means then we go to the left-hand side, which is the deal— her deal gets rejected. Or there is a possibility, of course, that she could ask for a further delay to have more more time, then I think that that's been and gone now as probably not a main opportunity. So then we start going through the other scenarios. The dotted line here, likely votes in Parliament, alternatives including a second referendum, staying in the customs union. But then this idea of do they vote on no deal, i.e., do they keep that option on the table, which is the kind of weaponizing the deadline against Europe up as a key threat. But is there enough cross-party support in order to eliminate that, as some more of the kind of Remain-focused, um, MPs have been suggesting? If that's rejected, then it's about the extension. And this, of course, is all coming up to that March 21st, 22nd summit deadline, which would be coming up. I did post this earlier. This is the, an article on Bloomberg that kind of runs through You know, this is kind of the lowest case probability. Does she pull it off? Do they extend and go soft? Does she get one more try in that sense? Do they call the whole thing off, or postponing the cliff edge, i.e., kicking the can down the road for a little bit longer, and this whole situation just comes up again in a few weeks and months' time? Now, this is kind of a roundup, if you like, of the headlines that I found yesterday. So Again, the first two we've kind of covered, and the third, which was the Sunday Times one that May could lose by a huge margin, which kind of has put to bed the idea that her meaningful vote would likely pass. The other one was Brexiteers could move to depose May within weeks if she allows Parliament to extend Article 50. So now it's kind of gone back to this kind of face-off where I think it was led by Dominic Raab. Who's being shortlisted as one of the potential replacements if that were to happen, that basically if she goes into the period of extending Article 50, then they're going to look to oust her again. Uh, ways and means of how they go about that, I'll leave for, for another time. The other final thing was this, which is kind of adding a little bit of increased tension to the situation. And also does heighten potentially the fact that the prospect of a no deal, I feel, does need to start to be priced in a little bit more than possibly where we had been even just a week ago, is that the EU are said to be proposing to prepare to demand a multi-billion pound increase on the divorce payment from Britain in return for a Brexit delay. So now they're kind of talking about, okay, if you want that to be the case, well, that's €39 billion or so that we had initially agreed about 18 months ago as the divorce fee, well, that's got to go up, which obviously is going to be, you know, incredibly difficult for May to sell. So she's kind of been forced back into a bit of a hard place here. She's under pressure potentially to be pushed aside again. She's under pressure that it's going to be— it's going to cost her much more if she does an extension. So there's a lot still of large uncertainties here, and one of which at this point is the fact that we're getting so close now to the actual deadline and still no deal has not been removed. And obviously we can find out whether that's the case or not on Wednesday. This is a No Deal Brexit probabilities. I just thought I'd share it. I did tweet it earlier this morning. A couple of larger banks, so includes Goldman's, Deutsche, BNP, for example. So this, the black box here, signals what they previously assigned and what they currently assign as the probability of a No Deal. So you can see actually banks are much more confident that no deal is going to be averted, I mean, your, your average there is probably assigning a probability of about 15%, 12.5%, whereas the bookmaker implied probability is much higher than that. That's looking, you would say, more like 25%, 30%. And again, when it comes to understanding the political kind of feelings here more often than not. I mean, the banks haven't been great at this, of course, in judging political sentiment. The bookies obviously almost double that of probabilities of which they've priced in. A lot of talk obviously about the idea that there's a large majority of people calling now for a hard Brexit. From a public point of view, seemingly growing sentiment about this idea that, you know, what's happening in Westminster quite frankly is an absolute joke. And the fact that lack of ability to deliver what was a democratic vote has made people even more, even people on the fence, in frustration that let's just get this done. But the point being here is I was to give my own opinion, what the public feel and what some of the likely outcome could be, I think is quite different things here. Because ultimately the decision on what happens this week, which is very important for the overall direction of sterling and UK assets, is in the hands of Parliament, not the public in that sense. And it's not just that Theresa May, I feel, will want to do the best interest of the public for her own popularity. But the other parties and other MPs do not have that responsibility, and so therefore do not have to kind of vote in that way or direction. So actually, I think I would agree probably more siding with the banks. I still think a no deal is a relatively low, for me, 10% probability. But as we go forward in the coming weeks, depending as well if it's left on the table on Wednesday, which is a possibility, then the pound's got to come lower to price in that. The as a potential outcome. This was one thing as well that you might have seen this morning if you're reading the FT. The Bank of England has told some UK lenders to triple their holdings of easy-to-sell assets in the run-up to Brexit in order to cope with the market meltdown forecast if the UK crashes out of the EU without a deal later this month. What this is basically talking about is lenders holding enough liquid assets to withstand severe stress, some up to a period of 100 days rather than the normal 30-day kind of contingency planning. Now, the central bank has already announced the launch of weekly auctions to ensure banks do not run out of cash in the event of a no-deal Brexit, as well as activating a special swap line with the ECB. So anyone who did trade through the initial financial crisis These are all pretty familiar mechanisms that have been used before in order to mitigate any potential credit squeeze or crunch in the interbank lending market, to avert that. What this is basically aimed for is, is banks more involved with investment banking and wealth management, so probably banks like Barclays and RBS, they're much more under greater scrutiny from the PRA, which is one of the regulatory bodies of the Bank of England, than say more deposit-led banks like Lloyds or Nationwide, for example. So none of this is particularly new, but such is timing, you know, you've got to read between the lines a little bit here. This article is basically saying that, you know, there's going to be a real bad situation economically, and so that real worst-case measures are needing to be put into place already ahead of time. And obviously MPs are going to use this as real evidence as to why that we should be voting to eliminate no deal. So it's a little bit political bias, I would say, on the timing of this coming out. Obviously the Remainers will be very pleased about this type of story because ultimately this kind of you know, swap lines, liquidity, weekly auctions is, is actually part of a normal process of contingency planning. So, but it's just something to be aware of. I guess to end this point, what I'd say with the pound is you might get some jumpy price movement because in the next 48 hours— and by that what I mean is that probably what the likelihood will be is that there's going to be a lot of deal-making going on, so as a consequence there'll be a lot of rumors, quite a few tweets, you might see the pound jumping up around and spiking in reaction. All I would say is if you are going to entertain a trade of that nature, you want to be pretty proactive in getting that trade in and out in a fairly quick fashion. You wouldn't want to be sitting in a trade for any longer period of time than, than is necessary than to hit your targets and get out in order to stay out of the, the kind of risk of headline noise. Ultimately, what's going to happen is come Wednesday evening, once we start to see these amendment votes again, then Wednesday night through Thursday in the second half of this week could be much more influential for an overall bigger directional push of possibly multiple points for cable. So with that in mind, and as a consideration, you might be better served than just waiting for the second half of the week if you're looking for that more trend to materialize. The other thing as well is that for Monday and Tuesday, don't forget, obviously you're trading cable, you've got to be aware of the dynamics of the dollar, and you've got US retail sales today, so You've got US CPI on Tuesday. So I'd probably be looking for the dollar to drive things with occasional flash of sterling volatility on rumors. And then the second half of the week, the sterling kind of narrative really pushes things. And that's how I'd be kind of planning things. Final headlines, then I'll hand you over to Sam. This is Trump. So this is a delayed, basically, speech that he's going to be issuing later today. And basically he unveils his budget plans where he's going to be asking Congress for $8.6 billion to help pay for his wall, his border wall. Again, this is to me absolute classic Trump. He's obviously— I mean, don't forget, the Democrats have only at this point, after the record government shutdown, the Democrats agreed to $1.375 billion after he requested just over $5 billion, and now he's going to go to $8.6 billion. So again, I just think this is just typical Trump negotiation. Obviously, when he stands up there giving this national address and talking about the budget, he puts out there $8.6 billion, and obviously that really strongly fits his political kind of objectives. $8.6 billion will not materialize But that's beside the point because everyone who voted for him is very happy with the approach that he's taking. It's then his ability to blame Congress that it's their fault that they're not getting the funding. So he kind of removes himself and net-net he comes out of it on top and he probably gets more funding on, upon what's been delivered so far at just over $1 billion. So again, usual kind of tactics I would say from him. I wouldn't be looking for any real reaction when this does come out later, not unless there's anything radically new on, on the kind of other fiscal spending programs of that nature. And that's it. So that's all from me. As I said, I'll hand you back to Sam, let him talk you over the charts. He's going to be writing the weekly strategy report as well, which will go out later this morning. But I wish you a good week ahead, and I'll see you in the chat room. Thanks very much.

Hi guys, good morning. Hope everyone had a, a good weekend. We'll take a quick look over the Dow to start things. As obviously the Boeing news is going to weigh on things early trading, and that's continued, uh, oh, just over the last 15 minutes or so. And yeah, I would say like Ant mentioned, that key level is going to be Friday's low and I'll just draw a line up with that. You can see also going back to the 11th of Feb where we had the high, and it respected well on Friday, is exactly the same kind of looking area of support from Friday that we had in the S&P. So you can see if I draw a line there, goes to the low— uh, the high that we had on the 11th. So quite a key level on Friday, and you've got to imagine it's going to be a part point of interest for this morning, uh, or afternoon should we continue to get through. Bit of support perhaps before that where we found a double bottom from 3 and 5:30 PM UK time. So those would be levels of interest that I'd be keeping an eye on. But should we continue lower, you might get a follow-through elsewhere, and that low from Friday and the high from the 11th is, is obviously a key one to keep, uh, an eye out for the DAX, uh, still up for the day, obviously with the hours now extended, uh, for electronic trade. But that low, uh, and the pivot, obviously quite a key point. We've had some decent price action around here as well, so one to bear in mind over the sort of the coming sort of minutes or so, having finally broken through a decent level of support, uh, just following the, uh, the cash open. as well. Having a look elsewhere at some of the, the pairs, obviously with the pound, I'm, you know, not really too sure about where this market is going to go ahead of the important votes and whatnot. So yeah, might be one just to sort of stay out until we get some more clarity on that, uh, on that level. The handles are obviously going to be quite key and quite important, um, from a technical point of view. We did close above the, uh, the low of the, the 22nd, which was the high of the 13th, but obviously we're coming gap lower. We, we broke through that, and while we have sort of jumped back, uh, for the day, we're still, uh, obviously down from where we, we gapped higher. But that's an important point of resistance, the highs that we had back on Friday. So maybe a mini range is starting to come into play, uh, between, well, 1.30 and 2023. The euro, quite interesting. We talked about this, uh, the back end of last week, about how following ECB rate decisions every now and again, more often than not, you do eventually get that full reversal. Friday, it was helped by a weaker, or much weaker, obviously, jobs number. And we, you know, we have continued again to push higher day. So I think looking for the short, looking for a bit of dollar strength to, to come back into this market, or euro weakness. Probably worth getting a trend line on, which hasn't actually been respected all too well today. But should we get down and start testing that and the, the sort of low of the morning, that might be the indication that we look to start to go lower. For now though, a slow grind higher might well be expected. The Canadian dollar same sort of thing we talked about when following a rate decision or a data release, you can get that full reversal. And we almost got it on Friday. Obviously, the fact the Canadian numbers were better, but still worth keeping an eye on that whole level just above today's R1 should we continue to, to push on. I think it's definitely one to focus on. Gold on Friday, much like oil, has had some decent moves on the last day of the week, and 1300 offered some pretty good resistance on the futures market. And having broken out that mini range that we've been in, um, for quite some time— a few of the markets have been in a similar one, the yen, um, as well last week, uh, well, going back to sort of really the beginning of the month— but having broken through that, worth keeping an eye on the 1300 should we eventually get back up to test that area. However, those lows are getting, uh, those highs, I should say, are getting lower this morning. And the pivot is a pretty important level. If we just take a trend line probably from the low of the, the 7th, it looks like it's going to match up around that area of the pivot as well. So price is getting squeezed in. I'd almost let this be a guide for, for sentiment for the day, um, to the upside. Obviously a break of that targeting those highs in 1300. Break of the, the pivot you know, I'll be looking for a breakdown towards sort of 1292.5 would be what I'd be looking at. Oil, the classic go down and then full reversal. And you can see where it finds sort of resistance initially on the, the high we had, uh, on the 8th, on Friday. We have continued to break through that, but what stops it in its tracks, you could argue the R1 was an area people were looking at, but also What a great test of this trend line that's now been formed from the sort of the last 3 highs that we had going back from the 5th, the 7th, and obviously today on the Monday. Really key ones now to keep an eye on. If we were to get a push above that, that could be the opportunity to get a long in. But again, like I said, with gold, we're kind of still stuck in a bit of a range, albeit choppy, and having a decent breakthrough on Friday, but that reversal obviously was quite strong. Another market that did have that reversal, just going back to US equities, you had a bit of, uh, strength into the close, and that is still, like Ant said, just trying to hold its gains while the Dow Jones pushes on, um, having broken out of that area of support. Uh, we talked in the briefing that we might now get a bit of a, well, a further break, breakthrough to sort of around 26,000. 26.85, found a bit of support understandably on the 11th, so worth keeping an eye on, on these sort of key levels. 27, uh, 61, it was on the old contract, but now we've rolled over. 27.67, the pre— the low that we had on the 7th before that breakdown, and the high on the 13th. So that as a zone is, is pretty important. I think if you wanted to, to get long in this market, you want a significant close above this, and then any trend lines that come in But for now, it looks like a pretty good resistance as sentiment has started to turn. Although, as Donald Trump said, when there's a deal announced, the markets are going to spike big, big time, which of course is what it's all about for Donald Trump. Just having a quick look at the overview. Yeah, that DAX still holding. The, the trend line in oil is one I keep an eye on. The, the pivot obviously for gold and that trend line from those highs in 1300. The Dow Jones obviously is going to be under a bit of pressure considering the drop in Boeing, but for now not weighing too badly on the other US equity markets. As I mentioned, I'll be doing the, the weekly strat, so any questions, well, before then, obviously please do get them in the chat or in response to the weekly strat as well. So I'll be on the mic once that is, is completed, and we'll run through that. But if I don't speak to you, hope you all have a great trading day and week ahead of you.