The Trading Week Ahead: 13th-17th May 2019

All right, good morning. It's Monday, 13th of May. I hope everyone is well and had an enjoyable weekend. Going to do the usual look ahead for the week. Certainly a few things to talk about, predominantly the trade war, undoubtedly still right at the center of market focus at the moment and likely to remain the case throughout the entirety of the week. So that's kind of the main story to update you on. What's the current status there? Is there any other talks and things we need to look out for going forward? Otherwise, gonna have a quick touch upon some Brexit-related issues, a little touch on Italy as well as Iran and Saudi Arabia as well for those who are looking at WTI crude futures. But first off, before I get into this kind of calendar to the side of me and identify some of the highlights and how the kind of what the landscape is for the week ahead, let's just take a look at the overall sentiment for the charts this morning. And it's, it's relatively quiet. And stocks in Asia did fall overnight. And this is a bit of a response to the breakdown in talks, of course, and kind of renewed hostility that we've had between US and China, albeit trying to be calm on the surface. Donald Trump, as we'll look at his Twitter account shortly, certainly must have slightly sore fingertips this morning because his frequency of tweeting certainly has ramped up on not just the issue of trade talks with China but on pretty much everything else as well. So a little bit negative overnight in Asia. US equity futures then also, as you can see here in the center chart, the Nasdaq future slight gap down, albeit then sideways overnight in Asia. Very much the same case for the S&P 500. Both of those two index futures below their pivot point. The DAX then following suit at the open of Eurex trade as well overnight and gapping down and just basically going sideways for the moment. A little bit of yen strength, but again, these were all kind of the initial opening moves. If you're actually looking at the Bund future, it's already closed the gap from the gap up that it had earlier. Gold not really responding too much in a kind of flight-to-quality way, and the currency markets are pretty much unmoved. But T-notes still remain up about 3 ticks. So I've kind of classified this as mild risk-off trade, but the fact is that nothing else has really developed other than just the market's kind of reaction effect at the open to what happened really at the end of last week. Couple things then. Let's just talk about the trade side of things before we look at the actual calendar of events, because undoubtedly the dominant factor for this week will be the ongoing trade talks. And at the moment, there's no date scheduled for the resumption of bilateral talks, so we are pretty much playing this by ear. And of course, I guess Trump's Twitter account is going to be the main source of potential market volatility going forward in the coming sessions, but This is kind of the headlines of where we stand at the moment. The gulf has widened now between US and China trade talks as trust has been eroded. The deadlock over existing tariffs said to provoke a Chinese turn. Details of US tariffs on $300 billion in trade due on Monday. Now, on that latter point, of course, this is the, the kind of infographic, if you like, of, of where things stand at the moment. Yeah, I'm just looking at the chat room, 5 minutes into the briefing and I'm already getting Bitcoin in the chat room. I knew, I knew it was coming. Thank you, Steve. I'm gonna leave Sam to comment on that chart. I do understand, was it broken 7,000? But I'll leave Sam to comment. But going back to the trade war impact, and this is one thing I wanted to have a look at, and this was looking at the, the kind of escalation of tariffs, but importantly, looking on the right-hand side. I think this is a graphic that Bloomberg had put together from their analysis, and it was identifying the percentage point impact on the right, so defined by the size of the circle, the impact on year-on-year GDP in China. And as you can see, tariffs that were initiated last summer, a $50 billion, 25% level, would have a 0.2 percentage point impact. And the point being here now is that this kind of temporary freeze that was put on ice, if you like, of this reset of what we had on Friday, which was the extra 200 billion, 10% resetting up to the higher rate of 25%, now puts then this impact at just shy of a percentage point for Chinese growth. And one of the things we're looking out for, and as this headline article would suggest, and this potentially is going to be a potential pivot point for market movement as soon as today, is that details of US tariffs on $300 billion in trade— that's a new $300 billion, uh, that would be this bottom then section, which would have obviously ramifications to the tune calculated to about 1.5% on Chinese growth. So this being then, if tariffs apply to essentially all Chinese exports to the US, so You know, certainly a couple things to definitely have a lookout for going forward. Donald Trump, obviously you recognize this page, I'm sure, very well. This is Mr. Trump's Twitter account. I was just looking at the frequency of his tweets, and it's, you know, I was just scanning through, and I do this pretty much by practice every morning. He's talking about obviously Democrats in the run-up to elections. He's talking about Obama, of course. He's talking about the FBI. He's talking about Sleepy Joe Biden. He's literally covering everything here, and he's gone— yeah, he's really ramping it up. And definitely you're gonna expect this to be the case as we go forward into the, the real run-up to the 2020 election campaign. But Trump weighed in further on on the state of these trade negotiations with China at the weekend, saying that the US was right where we want to be, and that would be wise for China to act now to complete this trade deal. To give you a bit of an idea of timing, as I said, no bilateral talks have been communicated to be taking place now at this point. There's no telephone calls or anything of that nature. The trade or top economic advisor Larry Kudlow had said at the weekend that Trump would meet President Xi during the G20 meeting in late June. So that's the next kind of formal date now that we have in the diary. So it has been kind of delayed somewhat by a number of weeks. What have China said? Well, this, you know, apart from the US confirming then this kind of next phase of the tariffs, confirming that that's going to go ahead, which I don't think is particularly that much new information because they have said this before, the big thing of course is China's retaliation. In what kind and to what size an impact could that have? China's state media at the weekend blamed the US for a lack of progress in trade talks while emphasizing China's economic resilience. So maybe not buckling quite as quickly as perhaps Trump might have, might have thought. One of the things Sam and I were just talking about here was— and to facilitate this conversation, it probably helps if I get a chart of the S&P 500 up— we're both kind of thinking that, you know, obviously you've had this really quite spectacular recovery from what was the, um, you know, that 2018 low, which was a dramatic sell-off that we had in Q4. We've come all the way back up to all-time highs. Now, we know that the trade war and the outcome of this is kind of pivotal to the longer-term direction of this equity market in the US. But one of the things here is that, you know, Trump has to somewhat manage the direction and strength of this US stock market in order to definitely help support his validity for his policies and for then the popularity and prospects of him getting reappointed for a second term. So that being said, you know, me and Sam were kind of thinking about, well, you know, is he doing this purely because he wants to delay this, because he wants to kind of put off the more kind of positive effect that it would ultimately have getting this deal done, and he doesn't want to get it done too soon because if the equity market starts rallying to all-time highs and pushing higher, 3,000 it's almost a healthy thing for a correction to take place, and he definitely doesn't want that to be happening when it comes time when everyone's going to be talking about the economy and the stock market as per then whether or not Trump's fiscal plans have been effective or not. So is this part of all just a bigger, grander plan, or am I just reading too much into this and giving, you know, too much credit to this this guy. But is he tactfully, is what we're saying, looking to disrupt this? And obviously he will be fully aware of the fact that, as we've got identified here on the S&P with these green rectangles, these are key areas of support. And you can see how that middle one really held up nicely at that 2821 in the futures, which was that, you know, you can see here the, the triple test, if you like, of the Q4 sell-off that we had, the initial resistance in the beginning of March before we broke through that, and then that scaling down trend line are two kind of key areas that I would say, as long as the market remains above here, perhaps Trump has enough support, if you like, that with this kind of dovish Fed stance to kind of drag this out, dig his heels in as long as possible before then you get this relief rally that commences. And perhaps that doesn't even come until, uh, well into the second half of the year, uh, so he gets maximum kind of political bang for his buck, uh, in that respect. So maybe just a thought or two on that. All right, well, let's just whip through the other news headlines and then we'll— I'll hand you over to Sam. So updates on Brexit. This definitely has kind of moved down the pecking order just given the fact that obviously that, that new deadline now for Brexit, if you like, is October 31st. But Theresa May is promising to reopen Brexit talks with the European Union this week to try and breathe life back into the negotiations with the Labour Party. So the PM's office said on Sunday the government will explore with the EU this week how to rewrite the online— or outline, excuse me— political agreement on on future customs ties. A meeting is scheduled today involving Labour officials and the senior government negotiating team. A couple of headlines from the weekend's press. The Times newspaper reported that on Monday, cabinet ministers including Work and Secretary— Pension Secretary Amber Rudd and Business Secretary Greg Clark are preparing to call on Theresa May to abandon Labour talks. They want her to move to Plan B options in Parliament. Meanwhile, Labour, of course, dealing with its own divisions. Party's chief Brexit spokesperson Keir Starmer has said cross-party Brexit deal unlikely to get through Parliament without a second referendum attachment. But of course, this is what's coming against resistance from Jeremy Corbyn, who is trying to avoid alienating Labour supporters in constituencies that have voted to leave the EU. Now Starmer has said that, you know, you should forget that because ultimately we're already losing popularity. Now one of the things of course that came out at the weekend is opinion polls into the European elections, the MEPs that are going to take place in what, 10 days' time or so. And this is what it looks like, and it's an absolute landslide for Nigel Farage. Brexit Party is storming ahead in the European Parliament voting intention from a variety of different polls that we had at the weekend. The Brexit Party at 34%, but look where the Conservatives are, and this absolutely summarises the reason why Theresa May was so kind of resolute at trying to get some kind of deal done in order to not take the, or participate in these European elections. So the Conservatives here in these polls have been absolutely decimated. You can see here even the Greens are outperforming at 11%. The Greens obviously big backers, ardent backers of being part of the EU. Lib Dems likewise on the second referendum issue. But Labour as well, just absolutely struggling to a similar degree. So that being said then, it's just kind of easy pickings for Farage, who I'm sure you would have seen was on the Andrew Marr kind of show, kind of absolutely taking a leaf out of Trump's book, really amping, ramping up the kind of rhetoric. And this time it's not about kind of anti-immigration, it's all about democracy now and how there's been an injustice being carried out by the ongoing government and so on. So Yeah, how is this impacting the pound this morning? Well, is this a surprise? No, not really. I mean, we kind of knew this was the state of play. So how's the pound reacted this morning? No reaction at all. And I think that's absolutely to be expected with this kind of Brexit talk and where we're going from here. Well, here's the kind of schedule, if you like. This is the updated timeline So you've got the European parliamentary elections taking place on the 23rd, 26th of May. Then you have— this is kind of the next big date really. It's not so much this May date, given the opinion polls we've just looked at. We already really know the outcome of that. It's the 20th to the 21st of June, which will be quite key because this is the European Council meeting, Brexit to be reviewed. And then this is the key, 2nd July. So these kind of two dates here. 2nd of July is when new MEPs take their seats in European Parliament, and that's the one that's been mooted as saying that that's when they're not going to take their seats. So if there is kind of any Tory-Labour deal to be done, this is why the pound's so unresponsive at the moment, is because really the hump, if you like, of the next real meaningful deadline isn't going to come for the next 6, 7 weeks or so. So it's totally dropped off the kind of the hierarchy, if you like, particularly when it's such a dominant macro force like the trade negotiation. Okay, other subjects. Italy, I just wanted to bring to your attention, uh, this is just a quick look at the yields in Italy. What we're looking at here are two things. The orange line is the Italian 10-year yield. The Spanish one is the purple one, and you can see there's been a divergence here. You've had obviously elections with the Socialist Party having a surprisingly large amount of seats in Parliament from the recent Spanish elections, and they look to now formulate a kind of cohesive government, but that's going to be kind of a drawn-out process. But it's Italy— so not only has Spanish yields been dropping, but the Italian yields have been slowly creeping north. Now, a couple things have been happening here. Tensions have flared with the ruling coalition after a corruption scandal recently that has threatened to break up the existing coalition. Uh, the European Commission have been continuing to repeat their warnings about Italian finances could be deteriorating further, and this all comes ahead of conversations to be had about Italian deficit targets when the Eurogroup and, uh, Ecofin meeting that's going to take place on Thursday and Friday respectively this week. So something I just wanted to mention just as a footnote, I definitely will be keeping an eye. Italy is one of those things where it tends to really come into focus and there's this kind of potential effect for it to add to some contagion fears around the political scene in Europe. It kind of drifts away but then comes back and And we're kind of coming— it's coming to the boil again on the Italian issue. Okay, a few other things then. Uh, finally, on the energy front, I just wanted to mention two things. One is this: a senior Iranian Revolutionary Guard commander has said on Sunday that the US military presence in the Gulf— remember last week the US military has sent forces including an aircraft carrier and B-52 bombers into the Middle East. Well, the Iranian Revolutionary Guard commander has said at the weekend that that presence in the Gulf used, used to be a serious threat is now representing a target for them. So continued tension rising amid the US sanctions that are being put into place. And the other thing that this has created then separately that is also raised a few concerns is this story in the FT. Saudi Arabia said two tankers came under attack near the UAE on Sunday, shortly after the UAE said four of its vessels had been sabotaged amid the rising tensions in the Gulf. So this is slightly separate. So if you think about it, you've got this unfolding in Saudi Arabia and near the UAE You've got the situation with the tensions of the Iranian Revolutionary Guard. You've got the civil situation developing in Libya. So despite the kind of demand ramification that the trade war going sour between the US and China could have, the negative implications for oil, the fundamentals from the supply shocks are still ever-present. And that's why probably you might start to get a bit of a breakdown in the correlation, if you like. Instead of traditionally all being focused on the trade war and equities and oil being very much in sync, what you might get if, let's say, there was retaliation from China and the US start ramping up the, the rhetoric, then equities might fall but oil might remain relatively supported to some degree because of these other factors at play. All right, quick wrap-up then of the other things on the calendar. And then I'll, uh, let Sam go through a couple of technical levels. So today's pretty quiet, nothing really too much of interest. So hence the reason why markets were kind of trading the fallout of the update on the trade side. Otherwise, Tuesday gets a bit more interesting from an energy perspective. If you are a crude trader, you've got two, um, important reports coming out, one on Tuesday, which is the monthly OPEC report, and then you get the report from the IEA coming on Wednesday. Alongside that, obviously, the infantry update is coming on the Tuesday night and the Wednesday session. On Tuesday though, other— well, Tuesday and throughout the week, one thing that I do want you to be aware of is you do have a lot of Fed speakers coming out throughout this week. Fed's George and Daly on Tuesday, you've got, uh, Quarles speaking on Wednesday, You've got Friday, I think, then Thursday. There's a few more. So this, this is just throughout the week, number of Fed officials to be on the lookout for. Wednesday, this is probably the most busy day in terms of scheduled economic data and a real focus on the US and China. You've got US retail sales, Empire State manufacturing, industrial manufacturing, production so all kind of key indicators for the health of the US economy. And then likewise, overnight you have the Chinese industrial production, retail sales, fixed asset investment. So Wednesday is the kind of main data day, so to speak. Now you've also got German GDP, uh, Thursday you've got those meetings, as I said, Thursday, Friday you've got the Eurogroup, and then you've got the finance minister meetings happening towards the end of the week. And you've then got a as well. Walmart earnings, so one of the world's biggest retailers. I think they're about 2.7% of the index weighting of Dow Jones. They'll be reporting pre-market on Thursday. FTSE traders, you got Vodafone as well this week. And anyone looking at the tech names, you got Alibaba also to wrap up the kind of reporting season. Okay, that is it for me. Let me hand you over to Sam then, and he can talk you through a few more of the charts. We'll have a weekly strategy sent out to you later on this morning. Otherwise, have yourself a good session ahead and a good week. Thanks very much.

Hi guys, hope everyone is doing well and had a good weekend, enjoying the, the football yesterday. Congratulations to Man City. Unlucky Liverpool yet again. Just having a quick look here, obviously gone through 8 o'clock where the volume is gonna— where it starts to pick up for the DAX. And just seeing that come to its session lows there, worth keeping an eye on. As we saw a couple of times, once we do get a break of any morning low on, on the 8 o'clock, you can get a bit of a rundown. And that's just broken through its S1. However, the round number 12,000 and Friday afternoon's low just offering a bit of support for the time being. Just on the, on the stock side, yeah, I do think Trump knows what he's doing here and doesn't necessarily want to time this, this run just yet to make all-time highs. Having a look at the couple of currencies here, euro starting to potentially get slightly interesting this morning, having just dropped drifted a bit lower. The dollar not doing too much, but just keeping an eye on this trend line here. We broke through it, uh, um, well, sort of just after midday on, on Thursday, and we've come back to test it again this morning. Quite a lot of support just below that, you can see from Friday afternoon as well, but worth keeping an eye on that. A breakdown of that, uh, wouldn't be too surprising to see S1, uh, to come into play, certainly on the, on the futures. Having broken out, we had a bit of dollar weakness on that Thursday, and the euro did push higher. You can see if we were to have any dollar strength at all throughout the day, this trend line again would be worth having on, which if it was to come in today would come in around 1.1240 or a bit below on the future. So worth keeping an eye on that. The range is pretty small this morning. However, this trend line could be your line in the sand going forward for the morning ahead. Having a look at the, the pound, I'll just bring that into picture here. Had this trend line drawn up. Let me just move the camera out the way. Starting on the, the low of the 25th to 26th, and then that coming into a level we saw Thursday low as well. So to the downside, similar to the euro really, if they were to start to pick up to the downside, keep an eye on these trend lines and you might then, if they were to break, get a further push lower. However, we are also— if I just bring in this rectangle— in a bit of a range over the last— well, going back to the 7th here, so Tuesday, you can see quite contained and choppy really. Looking at gold, I drew this trend line on this morning which had, had been on all week from last week. You can see going from the, the 3rd, 6th, 7th, you name it. And then just— well, how long ago was that? 10 minutes ago, hitting that level again. So really key trend line for gold to have on, uh, respected 1, 2, 3, 4, 5, 6, and 7th time today on that hourly candle. So keeping a close eye on that. Should we get a break of that, uh, the targeting really, the, the previous lows of each of the touches on the trend line. To the upside, that 1290 area that we keep talking about, this acting so well as a level of resistance. Going back to January, the— we saw how key that level was, but every time we come up since then, uh, well, after the breakthrough of course on the 16th, we have struggled to keep above it. So important level, not just intraday uh, for this trend line, but also medium term, a break and close below that, uh, people will be eyeing up back down towards— I guess you could say if I just move this above the camera— around 1273, 1274. But good reaction from that trend line, uh, another intraday level to keep an eye on. 1285.6 in the futures was some support Friday before resistance early morning, and of course 1290, uh, the big level to, uh, the upside there. Having a look at oil, similar, uh, to a couple of these dollar pairs in that you have a, an interesting trend line going on from those lows. And starting on the, the back end of being the beginning, I should say, of last week Tuesday, uh, you can see we've had that 1, 2, 3 test. It's, it's still quite squeezed in oil, and I've said it last couple of briefings about you know, medium-term opportunities. I'd prefer to sort of wait to see what goes on here. You can see the— just going back the last few days, the, the range is, is pretty small. If we call $61 the top and then sort of $62.50, $1.50 range for oil, uh, going back just, you know, 1, 2, 3, 4, and now the 5th trading day, it's pretty small. Not much going on there. I would say best to to wait medium term anyway for it to break out, uh, of that. Having a look at stocks just to finish up, the DAX finding support on that level. The NASDAQ is albeit in a choppy enough trend channel, but you can see going back from, uh, last week it has respected it fairly well. The couple of times it's tried to break out, we had a really strong finish on Friday only to gap lower over the weekend, um, and you can see where we're sort of stuck within that now and in the middle of it. So I'd still have that on starting at the, the high of the evening of the 6th to the, the low of the 6th, and that has been trending down quite nicely. The S&P, we, we've seen similar, certainly on the downside. If you're looking for targets, if this is to continue, worth having the, the trend on those lows where that marks up could be of interest. And then to the upside, it might be that potentially later on positive sentiment comes in, or tweets from the Don, and we can get back above this trend channel. But that's something I would look to have on for all US equities for now. Any questions, as usual, please do let us know. As I mentioned, we will be putting in the, the strategy report online around midday, but If I don't speak to you in the morning, hope you all have a good session ahead and good week as well.