The Trading Week Ahead: 15th -19th April 2019

Hi guys and good morning. It's Monday, 15th of April. Welcome to a new week. Hope everyone had a good weekend. As you can see from the picture beside me, Tiger Woods finally winning another major, winning at Augusta between The first time he won and now over 20 years since that first title that he won. And I think a lot can be taken from that. Everything that he had to go through, the extreme highs of winning the majors constantly to the extreme lows and the back pains and coming back from that to win, I think is pretty incredible and is a story in that for everyone. Worth, of course, looking at the last time he did win. I mentioned this on Friday, so you can see here on my chart on the left-hand side, Tiger Woods, when he last won his, uh, his major championship, which was the US Open in June 2008. Well, we all know what happened to markets since then, dropping 45% to the 2009 low. If the markets were to do that now, and you know what, we're near the all-time highs and people would start obviously looking to take a bit of profit there. We'll come on to some recession fears that are back in the market again ahead of earnings. If we were to drop 45%, I mean, it'd be from those all-time highs. You'd be looking down to the, the China hard landing 2015 and January 2016 double bottom, which is an incredible area of support. So maybe keep an eye on that, um, the, the Tiger Woods effect. Having a quick look at markets uh, from last week, how we do stand in US equities. Uh, another strong, strong week, breaking above 2,900 for the first time since August last year. Uh, 2,910.5 traded at the moment, just over or just under 1% depending which equity market you're looking at. The S&P, uh, a bit more to go, 30-odd points, 35 points to make a new all-time high. Uh, I would be pretty confident that we are gonna get that this week. However, and we will look at the, the data calendar shortly, it is likely to be a relatively quiet start and finish to, to this week from a data point anyway. The NASDAQ, you can see here as well, very close to its all-time high. Another one you'd be favored to, to see push on and make that. We do have some technology earnings out of significance this week which could influence price, but It seems like anything is just a mere stumbling block at the moment before we do eventually reach it. The Dow Jones, which has been lagging behind a bit due to the, the, um, the banks, but we are— the financials, we are looking to have pushed on. A good day Friday, we had some positive earnings out. If we can get above that yearly high and the S&P and NASDAQ do the same, you've got to imagine it's just a matter of time before this man here, Donald Trump, starts to tweet more positive things than maybe this tweet would suggest. Over the weekend, I'm sure you've all seen it, Donald Trump coming out and said, if the Fed had done its job properly, which it has not, the stock market would have been up to 5,000 to 10,000 additional points higher, and the GDP would have been well over 4% instead of 3%. With almost no inflation. Quantitative tightening was a killer. Should have done the exact opposite. Not surprising, of course, to see these, these comments from Trump. Um, we have become well accustomed to that, and you can see the, the reaction really since the Fed became overly dovish early January has, has been one directional. So, uh, then the next, the next central bank meeting. Just bringing up this, uh, this chart from investing.com which has listed all the central bank meetings. Uh, pretty useful as a, as a guide to when the important dates are. And you can see beginning of May, so not too long away until the Federal Reserve have their, their next meeting. And of course now there's a press conference at every one, effectively making everyone a live meeting. But this one will be important to see how they offer, you know, that, that forward guidance. We had the, the minutes from the, the last meeting on Wednesday evening last week. If anything, the reaction was slightly hawkish, although limited as well, and any moves were subsequently reversed pretty much straight away. So May 1st will be, be one to, to keep an eye on there. Also this week, I mentioned we have the, the earnings coming out. Well, they've been coming out for last week or so, but it's about to start to get a bit more interesting. You'll notice down on Friday, no earnings at all. Easter Friday or Good Friday in, in a few days' time, so the market will be closed for that. However, today, especially if you're looking at the Dow Jones, for Citi and Goldman Sachs will be worth having a look and focusing on that. Just, well, before the, the cash market open, uh, US time, 8:30, 2:30 UK time. Big, big ones to keep an eye on tomorrow with Netflix, uh, could offer some further direction for the NASDAQ. And you've got to imagine, if we just go back to that NASDAQ, if, if those Netflix earnings do come out a lot better than expected, those last few points, uh, will, will take little time at all. And just from a percentage-wise, I mentioned the S&P just over the 1% where we're trading right now, the NASDAQ just under 1%. So not— it won't take these markets too long really to, to get to that, that point, uh, and the current earnings may be the sort of the last driver it needs to, to sort of take things going forward. However, um, speaking of earnings, I'm just gonna switch back to, uh, an article I was reading this morning on the FT. Wall Street braces, braces for US earnings recession. So the Q2 earnings in the build-up to June are expected to see, uh, profits shrinking. Now whether you want to believe this or not, it is probably worth just sort of keeping an eye on here. If we, you know, from a technical point of view, do break those all-time highs and struggle to really push on, then you're going to get that, that negative sentiment, sentiment, that cart can start to swift round. People then start looking at the RSI divergence, and then the sentiment can start to, to build up negatively again. I mean, my personal bias is that isn't going to happen. I do think we, we get a further push in, in stocks, and S&P does get to 3,000. The NASDAQ can, can push on and get to 8,000, and the Dow Jones, whether we could get the I don't think we get $30,000, but, uh, definitely up to sort of $27,000, $28,000, I don't see being too much of an issue. However, on, on this article, just goes on to talk about those shrinking profits for the second quarter setting up the prospect for an earnings recession in the US. So two negative quarters leading to that recession. We have of course had recession fears all through the back end of last year. We have a look at those stocks just to reignite that, that, uh, that selling pressure all through to the back end. Those recession fears, uh, faded and we recovered to the upside. So it's not everyone that is looking for this, just a couple of, um, research houses. But yeah, in the US and globally, the business cycle is maturing. This is late cycle activity, which is characterized by growth moderating, credit tightening, and earnings slow. In the next phase in the contraction is contraction or recession. This isn't the first time obviously people have started talking about this, throwing the, the R word around. However, for now it, uh, it does seem that stocks, uh, are destined for all-time highs, and I think that will really continue for the near-term future. If earnings were significantly worse and then Q2 you know, match that, then yeah, you know, you might see a further, further run down to the downside. But for now, it does seem that the market is placed to the upside. Also worth having a look at the, the oil chart from, from last week. We talked about during the briefing in the strategy report at the beginning of last week, so 7 days ago, about how important this whole area was around $65, the the previous lows from June, uh, 2018 and August where we had really good support before that breakdown in October last year. That along with the, the previous low, the 23rd of October, as a good resistance zone. We didn't quite make it up to $65 on the futures, but for now it's, it's held well and we are starting to perhaps see an area people have taken profit. Um, can oil price go high? I think, you know, this is a stumbling block where it rightly should find a bit of resistance. I mean, if we look at just stocks, which are of course incredibly correlated with oil price at the moment, each resistance point, if you like, we have had that stumbling point before it then eventually breaks through. And I, I do believe this is what's going to be happening with oil here. I think a good place to medium-term, longer-term to have taken some profit, if not all. Uh, if we were to get through that, then sure, we can look to push higher. And just having a look at the, uh, the article again in, in the FT, just talking about can the oil rally keep on running. And here they're talking more about Brent, but of course that correlation is incredibly positive. Um, we are in a situation now where the, uh, well, actually The OPEC meeting, which was scheduled for this week, has now been postponed to June. I'll come on to that in a moment. But the oil rally, if you like, from that low that we've had, and on crude WTI, we are up at 50% from that low, just 20% away from the high that we had last year. But that rally very much ignited by the cuts Saudi Arabia. We've also had the US sanctions, which is actually the reason— well, one of the reasons OPEC had been given for the cancelled meeting. They want to see the impact that the US sanctions have had on Venezuela and Iran. That in turn has led to obviously the supply deficit. So, you know, that has led to oil price— well, this 50% rally. But it will be interesting to see whether we start to just top out, whether OPEC start to listen to Trump, whether Saudi do as well. Because of course, if we go back to the chart, the whole Khashoggi conspiracy, you know, call it what you want, Khashoggi's death, oil's high from last year, a day apart, and Trump using that leverage going into the midterms for Saudi to, to lower oil price. Whether they want to, you know, go down that route again, because of course Donald Trump, as we know, and you've probably seen many of these charts with all his tweets, he has started just to pick up the rhetoric on, on oil price being too high. And whether Saudi will start to listen, we've already had the, the two fingers from OPEC a couple of times, but with that meeting now being pushed back to June, the reasons as I mentioned cited for, for that, um, with that they want to assess the impact of those sanctions, the US sanctions of Iran and Venezuela. With the US now the, uh, the top producer of, of oil, uh, in the world, the supply deficit that has been talked about is looked to potentially be sort of mended, if you like, as they're in the second half of the year. The US are looking to open up new pipelines as well, so that could well cancel that out. So all things considered, I think, yes, short-term top before we do get another, another look higher. And I don't see any major reason why we can't necessarily get a test to $70. I know that's only $7 away and oil can do that in a week, but I think short-term top and then we get a further push to around $70. But with no OPEC meeting this week, it might be a relatively quiet one. Having a look at the, uh, the highlights from a calendar point of view, if you were to only choose 3 days to trade, well, Monday and Friday definitely would not be those. Monday, today, very quiet. Uh, the only data point of note is the US Empire State Manufacturing, which comes out in, in the back end of the European session, early on in the US. We also have a 2-day Japan and US trade talks, which in Washington this week will be worth just keeping an ear out for. If we can get any developments from that, the market will of course be interested. But Japan is entering a golden week where they're going to have, um, a, a big holiday, market holiday, which we'll come on to in a moment, where volatility may be rather thin. So any reaction from that could be slightly limited. But having a look at the, uh, the calendar here, you can see Tuesday, Wednesday, and Thursday a lot more meaty in terms of the, uh, the, the data highlights. I'm gonna have to cancel that OPEC meeting as I was just reading today about the cancellation of that. We have Bank of Carney, Bank of England, uh, Carney speaking Wednesday. Thursday looks quite interesting from a US perspective. We have retail sales out and the Fed manufacturing composite and services PMIs, which will of course be, be pretty interesting as the European and, and UK numbers are also out that day. So Thursday for me looks, looks the better. Wednesday also a good one, but with Good Friday, uh, on Friday, the least shocking headline you'll hear today. Um, it will be a quiet end to the week. And of course, Monday being Easter Monday, uh, people will be taking a long weekend, long break. And it might well be that from Thursday afternoon the markets look to quieten down a touch, uh, as well. Overnight as well, well, back end of, of last, last week, we saw Chinese stocks just uh, slowed down in the momentum a bit. Thursday saw a lot of the weekly gains, um, taken off. Profit taking really has been potentially, uh, give the reason for this. A lot of stocks, while below some of their sort of average valuations, we had some that were above. So Yeah, you're having analysts put the, the sort of the Chinese stall in stocks down to this. Interestingly, this morning though, we've seen Asian stocks push higher. So when I was reading this, I was thinking, well, I generally do think this is a bit of a momentary blip. However, if you have the whole idea of trade talks are still going to be the main, main driver for stocks in the US, and China. Interestingly, with the— I'm sure everyone saw it— the, the black hole, which is the picture that got released last week, Chinese stocks, telescope stocks, outperformed massively last week. So yeah, it's, uh, it's an interesting, interesting market out there. But short-term pause last week only to push higher into this one. Um, as we just have a quick summary of, of overnight, you can see that the headline there, stocks advances, profits, China data ease worries. But the focus is, is now going to be on, on this week, and, and earnings will be that confirmation that things are all bright and rosy. If they aren't, maybe we just get that final all-time high push and things start to drift a bit lower. However, across the board, you've got, um, central banks which are incredibly dovish at the moment, so I just— even if earnings were only slightly worse, I do still see that as a bit of a positive, uh, to be honest, going, going forward. Um, also on Friday morning we had the Chinese data out, so the trade balance was a lot, uh, better than expected, uh, which also, uh, we had the sort of the, the, the borrowing cost as well, lending data showing signs of improvement. And of course, China's second biggest economy in the world. So investors, uh, seen that as a positive. That has led with some positive trade talks from over the weekend. Sentiment is good. Now we look to towards earnings and, and can we, uh, push on from that. Those earnings, just to reiterate, uh, the main part of those Tuesday, Wednesday, and Thursday. It does get quite interesting again, uh, in the back end of next week. But if there we had positive earnings out this week, stock markets to continue to push higher. Central banks, you've got to imagine, are still going to be dovish. And in the build-up to those central bank meetings, uh, for the Federal Reserve on May 1st and Bank of England May 2nd, uh, it's probably likely to be a case where it's going to take a dovish impetus from any speak that does, uh, come out. With Japan and the US in trade talks, also worth noting the The 10-day break. So why Japan's 10-day break has markets worried. You can see the sentiment from these headlines over, over the weekend are kind of a bit worried about stocks. However, if you read the headlines December, January, that this is nothing new. But what is this Golden Week and why is there more holidays than usual? The more holidays actually going back to for the first time since World War II. So the 10-day stretch that wipes out 6 trading sessions. So just before we, we go through this, really worth just casting our minds back to the, the first main trading day of January, and we had the flash crash in the yen. So here you can see it highlighted against the, the US dollar. So the yen against the dollar, but you look at the yen against any of the other pairs and that thin liquidity led to such a huge reaction, uh, and that's going to be very apparent, or could be very apparent, uh, in this, this, uh, stretch where the 6 trading sessions are not going to be in use. So what is Golden Week? Japan is one of the most generous countries when it comes to national holidays. Amplify in the UK, take note of this. Golden Week traditionally consists of 4 late April, uh, May, and you've got the list of the days there. And it's just a time where the bank holiday is going to be rife, but you've also got Um, the Emperor's accession with the day before of and after the succession designated as holidays too. So the market volatility is going to be very thin for, for Japan. You've got a list of the breakdown there of those days. So the problem here that analysts and researchers are talking about is that there will be major events, and we mentioned the, uh, the Federal Reserve have got— FOMC have got their their rate decision, which is going to be a day where there's no yen traded. So traders, investors won't be able to exit their positions. Brokers have obviously given full warning of this, but with that thin liquidity, you might just see, especially in yen-related markets, some incredibly volatile moves as the markets become very thin. Has there been trouble before? The currency market's so-called witching hour between the close in New York and the open in Tokyo has been notorious in recent years for rapid swings due to thin liquidity, a problem that we saw at the beginning of January, the 3rd of January as well. So yeah, I would be keeping an eye on that as the, the yen becomes very, uh, illiquid in the early hours of the morning, even more so with this, this 10-day holiday looking to start soon as well. Quick look at that weekly calendar before we just touch upon Brexit, let me bring up the calendar here. It's gonna be a very quiet day today. Brexit comments, I would say, are gonna be pretty limited. We're on the, this sort of break, if you like, to the 23rd. Yes, there's still gonna be little catch-ups between May and Corbyn, and as they look to come together on some sort of compromise between the two parties. Overnight, over the weekend, May coming under more fire from Tories being called to get the deal over the line and then resign. It's been a quiet weekend for Brexit, it really has, and I'm sure everyone listening here is absolutely buzzing with that. It's not going to be a case we're going to talk Brexit for a long period of time. It's, it's just going to be about in the next few days or even weeks where can we get anything from May and Corbyn? And then we go back to this sort of timeline. This is an old one, so I'm just going to focus on the, the left-hand side here. Uh, can a compromise be reached between Labour and the government? If yes, then that deal would pass. The UK has to then negotiate that deal with the EU. So it's not even like the EU are going to agree with that. And if we remember back to last week when Theresa May was in Brussels and EU came out and granted this extension to Halloween, October 31st. They were saying how the deal that they've given to May cannot be amended anyway. So how they will take any positive developments from Corbyn and May remains to be seen. If it was to be rejected, the process does remain unclear. So focus for Brexit will be on Corbyn and May for the next couple of days and and, and how we go from there, uh, will, will drive price. Just having a look at the, uh, the pound, uh, from last week, you see it's still very much contained within this, this lower bound of that range. The support going back from what was a high in February to 22nd March, uh, end of March and beginning of April, is such a key technical level. 130 on the futures, just below that. If we were to get a breakthrough there then the doors could open. We are, you can see, getting drifted from, from the high that we had of the, the, the year of the— on 13th of March. And from this daily chart, has your technical patterns. Look at that, price still has a bit more room to perhaps get squeezed, uh, but we could get a further push higher. Interestingly, the dollar just coming under a bit of pressure again this morning. Uh, it did have a weak Friday. Euro enjoyed that, and you can see while we're not too far from the, the low of the year, we have started to recover just a touch, uh, and now we're coming closer to 114. Quick look over the, the markets, uh, as a whole. We obviously got the open in the DAX, or the open in the DAX, uh, not too long ago at all. Let's have a look how that first 14 minutes started. Quiet. And that is going to be the story of the day, uh, in a very quiet data front. If anything, Tuesday, Wednesday— well, not if anything, it will— Tuesday, Wednesday, Thursday are going to provide the, the best opportunities. Uh, Tuesday, Wednesday, Thursday, sorry, and Friday, Monday, uh, coming up are going to be very quiet. So yeah, from a market opportunity perspective, I wouldn't be looking to get too aggressive, not risking too much. Stocks, I would be looking for opportunities to buy, but wary of earnings and any developments in trade talks, not just with China but Japan also as well. Any questions, as usual, please do let me know. Uh, we'll be producing the, the weekly strategy report, uh, around midday today. Uh, so even if it's no questions, uh, to this, to that, please do let me know. But I hope you all have a good week ahead of you. And good luck.