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

Okay, very good morning to everyone. Monday, 15th of July. Hope everyone had a good weekend, certainly better than Roger Federer. Oh, so close but so far. But not going to dwell on that, going to get ready for the trading week ahead. And as per usual, a bit of an overview for the main highlights of the next 5 trading days, not just a review of the news. and a look at the charts this morning. So before I get into that, let's just have a look at how things reside this morning across asset class. And you can see equities right out the gate this morning, um, fairly aggressively. You can see the DAX, just as I've literally turned the mic on, the DAX— if I put this on a minute chart, you know, such a fast-moving instrument when certainly the, the cash market gets underway. You can see from 8 AM just zoomed higher here. Taking out some technical levels of the, the previous range highs. Now just testing up at around some of the higher levels that we've seen towards last week. It comes with overall US futures similarly at their highs, and this is one of the things I want to explain in the briefing. It does come as Chinese GDP has hit a 27-year low. You would think logically, well, that's not good. Surely, and one world's largest emerging market starts producing growth numbers that have been the worst in 3 decades. But this again is kind of reflection of like with the, with the US and the Federal Reserve. Worse it gets, the more the authorities, whether that being the government or the central bank, throw at the issue, and the more powerful the stimulative measure comes, whether monetary or fiscal, to help prop things up. And Certainly that might explain a little bit of what we've had. I mean, I'll show you some charts about how China performed overnight, and it rallied, uh, not the opposite of what you might normally think. So yeah, a little bit of a pickup in the equity index futures. Obviously, from a, from an equity point of view for the States, this is record territory and does of course come as we head into the earnings season, of which we are looking at a profit recession from the US companies. But again, we'll, we'll dig into that in a bit more detail in a, in a moment. FX markets pretty quiet actually, not too much going on at all, and that's reflected in the major pairs. Both EURUSD cable broadly flat, as is the DXY. Gold as well, not too interesting at this point, trading around its pivot, maybe a support level. Technically, I can see how that would work out from, from prior price action from the end of last week. Um, but with the equity move, uh, fixed income futures, T-notes down about 7 ticks. Bonds though on the opposite side of things, a little bit of a divergence between the two this morning. But look, let's get straight into the news. I'll leave the charts for, for Sam to discuss. But this is the week as an overview, and as you can see, I had highlighted and bold underlined was Chinese data GDP, industrial production, retail sales, and fixed asset investment— some of the major data to get the week under the way, underway. And so let's just have a quick look at things. And as you can see here, that was the headline which a lot of people are talking about this morning: China's second quarter GDP growth slows to a 27-year low. But as per that former line, more stimulus is expected. And I was looking at a couple of numbers this morning when I was on the train on the way in to work. And in terms of the tax cuts that the Chinese government have done since we've had this escalation in trade war over the last kind of 18 months, it works out at roughly about $300 billion. And the government has performed about $300 billion in other fiscal unplanned measures to help propel the economy or mitigate the downturn. And the People's Bank of China have cut the reserve requirement ratio 6 times since the beginning of 2018. And just given the nature of this economic kind of growth slowdown in China, we can imagine that more of that type of action is to come. Not only though that, there were a couple of other highlights. The retail sales, the industrial production out of China were in fact actually better than expected. And so it might go some ways to explain why we're having a bit of a, a more positive read-through because of the net consequence of what this type of growth data does mean for the policy reactions. I mean, this is just having a look at the annual percentage change quarterly of Chinese GDP growth. As you can see, in terms of the real rate, you know, just moving down to around these levels, which would be below the trough of the financial crisis in itself, going back to then, that 27-year statistic. How did China perform overnight though? Well, originally dipped, and although this is slightly dated now because it's a fixed graphic, but we dipped and look, we've recovered so sharply, so quickly. If you remember, there was a briefing I was doing, I think it was Thursday or Friday, and we were looking at, um, non-farm payrolls, and we were looking at the S&P 500 dip rally. We had a similar situation towards the second half of last week in, in US equities— dip and then rally. And it's a similar type of thing we're getting here. So very much, I feel, a reflection that the market, at least for the moment, is more focused on the, the following effects of policy rather than it is that the real effect of the actual what the data signifying in itself at that point. Um, Back to the calendar though, Chinese data out the way, um, it is earnings season. So as you can see here, you've got US earnings firms reporting today. Citi, if we go to Tuesday, you can see at the bottom here you've got JP Morgan, Wells Fargo, Goldman Sachs. You've also got Johnson Johnson. Then you get some other interesting companies like IBM, Netflix reporting on Wednesday. The latter obviously forms part of the so-called FAANG stocks, those that are quite highly sensitive to, to market confidence. So that would be particularly interesting. Thursday you get tech giant Microsoft. You also get the German heavyweight SAP reporting pre-market open on Thursday morning. And so yeah, earnings season not the busiest. It really does start to pick up pace really next week. But we get the first of the banks. And regardless of Citi being the biggest, the smallest, or anything like that, remember, it's the first of its sector to report, and so therefore tends to have slightly more focus for the market. And so net reaction could be that however well Citi have done, irrespective of the fact that other banks will have slightly different, you know, product mixes, revenue mix, and so on, it kind of translates. The market will see see that as then how well that industry or that sector is performing. So Citi will be quite interesting later, the other banks to follow Tuesday. Um, with that being said, with earnings season, while we're on the topic, um, earnings season is expected to project a 2.8% earnings drop. This is what Q2 earnings growth year-on-year percentage is set to look like by expectation. And for overall S&P 500, um, to be negative. Defensives, utilities, healthcare probably outperforming. And so typical kind of rotation, if you like, would be out of cyclicals. And also not just technology getting hit, but materials, given this global growth slowdown story and the effects of the ongoing trade war. Looking at technology in particular, I did mention Microsoft reporting this week. So quarterly earnings per share growth for technology stocks in the S&P 500— well, actually, we're looking at an earnings recession here. So back-to-back quarters of negative growth in terms of their earnings per share. So certainly it's quite an interesting era, obviously, that we're in at the moment, because just looking at the charts this morning US equities across the board at record high territories despite the fact that we're in a back-to-back quarters of earnings recession. So it's going to be quite interesting certainly going further forward as we get, I think, into the next 6 months, 12 months, 18 months. You know, if we start to get consecutive quarters, it's like, well, how much more can the likes of the Fed continue to prop up the market. And this leads us in then to the next interesting discussion point, which is the Fed and how many times they're going to be cutting. Because as we know, we've discussed here in the briefing many times, um, they've only got a limited amount of room for maneuver with rates currently residing at 2.25 to 2.5%, very different from prior occasions that we've had in the previous economic downturns over the last 10 and 20 years. Now if we go back to the calendar, there are quite a lot of Fed speakers this week. Today you've got Fed's Williams, tomorrow you get Fed's Evans and Bostic, Wednesday you've got the Fed's Beige Book, which is basically their— the 12 regional districts of the US, or comprised of the, the way the US is managed, all come together and they report a localized update on the specific regions. So good insight into the health of the the US economy in on that level. You then get Bostic and Williams speak again on Thursday. Now you've got Rosengren and Bullard speaking on Friday. So just like the end of last week post-Powell when we had a number of Fed speakers, there's more coming. And I feel that is to some extent trying to manage expectations then of the likelihood or not of a 50 basis point rate cut, because you remember they've got only till basically this weekend and Monday and Tuesday next week before they go into the blackout period. So I think they're going to want to be as clear as possible, and hopefully we'll get clarification of whether or not basically this number, 23.5%, for 50 basis points— either it's got to go up or down. And we're going to be looking to these speeches as to ascertain whether or not markets need to reposition theirself for a credible 50 basis point threat or not. And I think, and I've said this before, I think it's going to be not the case. I think the Fed will not cut 50. I think they will cut 25, not just because of the limited ammunition that they have with rates being so low at the moment, but this is the, this is the crib sheet for the Fed's hawks and doves kind of the way in which they lean from a policy perspective. So in this Bloomberg graphic, you've got a couple things: Board of Governors, the voting regional presidents, the alternative voters who switch in every 12-month basis on a calendar year, and then the current non-voters. So again, from the top explanation here, it's the voting members which are going to of course carry the most sway, given that they have the opportunity to actually put their hand up and vote for the direction of policy in, in the actual meetings taking place at the moment. The other thing, of course, though, is the— this plus or minus figure. Now, the more heavily minus, down to -2, the dovish the member. The more positive the figure, the more hawkish. Now, one of the interesting ones, and someone who's speaking on Friday and someone who spoke last week, is James Bullard. He is a voting member of the FOMC and he's a -2. Now the interesting thing, and one thing that I think supports the reasoning why the Fed will not, at least at this point, go 50 basis points, is that James Bullard has said only a few days ago that he thinks 25 basis points cut would be adequate, not 50. And if the most dovish member of the Fed is not committing to 50 but 25, I think then that's very telling. If he's only there, I'd say others are nowhere near, given how outlyingly dovish he is to getting down to that aggressiveness of a rate cut. So yeah, this is a good crib sheet. Um, it's on my— I did tweet it at the weekend, so if you need it as a refresher. And remember, every time one of these guys speaks, you should know well in advance on your calendar what are they speaking on, are they a voter, non-voter, and what is their policy stance. It's the absolute 101 of trying to interpret these speeches as they come out. Okay, other things to have a look at from a, from an oil perspective. I did briefly want to touch upon this. WTI crude this morning is trading absolutely flat 60.21 to the cent, absolutely unchanged. Um, but this is what Bloomberg is saying: oil trades in the 60s on storm disruptions, glut concerns linger. A couple of interesting points here I wanted to point out on the, the oil side. So at the weekend, we know we had, um, this Storm Barry make landfall, hitting around the Louisiana area. I've About 73% of crude output was halted on Sunday as some producers though on the offshore facilities are preparing to return workers back to platforms now that that storm has made landfall and moving inward. So, you know, I guess geographically if you want to see, so a lot of the offshore facilities are placed here. So this would have been, if you remember, last Wednesday and Thursday when the storm was coming inbound and picking up pace. But now Barry's moved more inland, it means that these facilities' weather patterns are returning back to some degree of normality and business can return as per usual. So that, that storm has now passed, and I don't see that really being a factor now to move market prices going forward, not unless something new was to develop in the Atlantic, of which there are no signs of at the moment. So that would have been a positive catalyst to help lift prices, but that's now passed. And if you look overnight, one of the things that we've seen was Chinese GDP, obviously now looking at the demand part of the dynamics of driving oil and growth potential in China slowing down. But as we've discussed, the various stimulative measures that now are likely to be kind of increased on behalf of the, the Chinese government and Central Bank, which might help to turn that around. But still, it's kind of a— that's a lagged effect, you would say. And at the moment, Chinese growth is slowing. Also, I know if you remember, 9:00 a.m. on Friday last week, we had the International Energy Agency, the IEA, and they said that production cuts by OPEC and its allies failed to prevent the return of a surplus in the first half of 2019, as supply exceeded demand at a rate of of 900,000 barrels a day. So again, another very interesting factor here is that the market is, you know, somewhat oversupplied, but it's almost being counteracted by this idea that you've got this recent weather system, but more importantly, you've got these ongoing tensions in the Persian Gulf as well, which are keeping prices supported. So there's a lot of indecision, I feel, at the moment in the crude market. You've got this this balancing act between this global growth story, which is one of fragility at the moment, and certainly coming into what's likely to be quite a downbeat earnings season, are all kind of negative contributing factors. However, you've got this obviously constant supply shock risk coming out of particularly, as I said, the Gulf region. So what this has led to is quite an interesting statistic, and I think this is quite interesting if you're trading oil medium term, is that hedge funds haven't been this indifferent to crude in 6 years. What I mean by this is that the, the CFTC put out, um, the speculative future positioning in the market. They put that out every week, and a lot of hedge fund managers will look at this as to give them a better sense and idea of the market's leaning, whether there's more long or short positions in the market. But the problem is, if you combine the bets on WTI crude rising or falling, those bets have reached their lowest now since March of 2013. And I think that's quite telling. So I think from a fundamental perspective, you've got this kind of equilibrium, if you like, of positives and negatives, which does I think mean that you could start to see an area of consolidation in crude oil until something starts to, to, to move ahead. Either the growth concerns start to accelerate and that starts to then dampen the demand even further, or we get more tension in between Iran and the US and Saudi and so on. Okay, otherwise, final parts on the calendar I'd suggest to be aware of are from the UK. You've got UK CPI coming out Wednesday, retail sales on Thursday. And then from the US, it's not just about, of course, monitoring Fed speakers. US data is equally now important as well as to ascertain this, this idea of how aggressive the Fed might be going forward. US retail sales on Tuesday, industrial manufacturing production also Tuesday. and you get the University of Michigan prelim figure on Friday as well. So quite a few things there to, to get your teeth into. Okay, so that, that's really it from me. I'll let Sam jump on and talk about the charts from a more technical perspective. So with that, I'll wish you all a great week ahead, and I'll catch up with you in the chat room on, on Trading Live. Thanks very much.

Thanks, Anthony. Hope everyone had a good weekend. See the cricket yesterday, I'm sure there'll be a couple sore heads this morning. Fantastic for English cricket, final was absolutely incredible. Commiserations to New Zealand, so anyone following us from that part of the world, commiserations. Just having a look here at equities, as I mentioned early on, the DAX was pushing, and that in turn helped the S&P push higher here. And taking it longer term, that trend channel that was, was so good, uh, last year, beginning of last year to the mid part September, October, before that breakdown eventually in December, you can see, uh, if that was to get hit today, that looks to come in around 3,100, so about 8 or so points away from where the third test of this top end of the trend channel would come in. So definitely have that marked up, uh, on the charts. You can see not too far away, and if the last two reactions from a technical point of view are anything like that, it would be a great place to take some profit short term. So have that, uh, marked up for sure. Let me just move the lower point of that trend channel just above the camera so you can see that there, uh, obviously back from February last year. And then even more medium term, potentially Tennessee, if that wasn't to hold, you've got all kind of trend lines just in the mix around that area, uh, that could come in. Of course, above there, still a way to go, but 3050 may well be a longer term target before we start to potentially slow down a bit. Looking more intraday here at the S&P, and we've put the pivots on just for a bit of a guide. You can see last few days Um, we've had decent pushes above the all-time highs to then come back and retest the pivot, acting pretty good, uh, as well as, you know, arguably the, the previous high. And similar for on Friday, we saw, uh, late into the session, uh, just before 4 o'clock, just before that European close, the previous high on Thursday acting as a level of support. So keeping an eye on, on that if we were to push on. At the moment it's enjoying a push higher. You can see not far away from that trend channel coming in just above the R2. So I still would definitely look to, to have that on. To the downside, uh, we've had good support this morning. Uh, if I just draw— oh, it's on a 15-minute— draw up here, here around 3017. So there's a bit of a line in the sand, you could, you could say, maybe looking to potentially get short below that. We've only got the two tests on this trend line, so maybe see how that reacts as well, and, and that could lead to a push lower. But at the moment, sentiment seems firmly to the upside, although will be interesting to see what happens around 30, 30, uh, and around those kind of levels. The NASDAQ pretty similar this morning and pushing higher, uh, as is the Dow Jones really extending, uh, of course making that new all-time high, uh, you know, last week, the last of the, the 3 main ones to, to do so. I'm going to look over at the currencies today. The euro just spiking above that high that we had good resistance from Friday evening to this morning. So keeping a close watch if we were to, to drift back down to that level as well. You can see really nice trend line from Friday's low to today's low squeezing in price action as well before that push higher to the upside. Obviously the main key point to have marked up on the R1 is the high that we had back from Thursday, uh, as well. So as we drift higher, or if we continue to drift higher, this drops— the trend line would continue to do so as well as a bit of a line in the sand. That could well be it, along with the previous highs that we've had for the last 8 or so hours. That's a pretty key point there as well. If we were to extend our legs and push higher than, uh, the level seen from last week— I'm just putting this onto a 4-hourly chart— you can just see the importance of all of that point. So these were previous lows before we did push lower on the 5th, uh, 10 days ago. So above that 13 50 would be an area as well to keep an eye on. So maybe you can see here it's quite a tight zone, so quite a lot of resistance up there even if we were to push on. Moving over to the pound here, I'm just going to put this on a 60-minute time frame, and you can see relatively quiet start to the morning, unlike the euro which obviously just did push higher there to the upside. You can see what was, you know, really key resistance, you know, the breakdown before again on the 5th where we had some, you know, a fair bit of dollar strength. That's somewhere I would keep an eye on. I know we had a brief go at testing above it on Friday evening and we're looking to come back and test that this morning, albeit just falling short. That's going to be a really key area if the dollar is to continue any weakness that we saw last week. In terms of moves lower, obviously the pivot has acted quite well. Be keeping an eye on this trend line that would mark up by the time it comes down or potentially comes down to that trend line and pivot as well. A breakthrough there and you'd be looking down to sort of 87 where we had some support from last week as well. Some quite key levels that have held as well to the downside, you can see the lows that we had on the afternoon of the 10th, and then the 11th and the 12th, all marking up around the S1. So quite a bit of support below, uh, in what's pretty much a flat morning so far for the pound, despite a tiny bit of dollar weakness that we've had in the markets. I'm going to quickly look over the other currencies that we, we really focus on here. Aussie dollar has been on a great run, hasn't it, since that, uh, multi— well, the test of the the, the yearly low. We had a brief pullback before pushing higher, uh, last couple of days, helps with some dollar weakness. And you can see if we were to continue to push higher than this area, where the high from, uh, what's that, the 4th, would be the main kind of target to have marked up. Similar to the S&P in that those previous highs of the days of acting as support, uh, for opportunities to get long. So even shorter term, just having a look and dropping it down to 15-minute how we react around any of these previous highs. So this is Friday's high here, uh, obviously we could argue we broke through that trend as well. So even if that wasn't to work, you could argue along from around that trend line is also not a bad trade to have a look at. However, for these kind of markets, if the trend to the upside was to break aggressively, you're not going to want to get in too aggressively on that. So Aussie dollar pushing higher thanks to, you know, the move this morning, and it sustained a, you know, relatively decent start to the week. Having a look over at the yen pivot, acted really well, uh, today as initial support. And similar to the dollar pair or some of the dollar pairs in that we are, you know, pretty flat really here. I mean, the push lower that we've seen this morning, um, over the last sort of 15 minutes or so. Let me just check. Yeah, it might be helped by the fact that equities did push on. But just seeing in, in Europe anyway, the Euro Stoxx is just coming off a touch from those highs. The DAX perhaps looking to start following that suit, uh, as well. To the upside, you can see price on the, the previous low, uh, of Friday and then this morning is held as resistance. That's a decent line in the sand where the sellers should be in control of that. And then to the downside, you keeping an eye on this trend line from the lows and that pivot, as that could obviously be really handy in containing price before, you know, a breakdown to that pivot as well. So I think it could be down to buyers in control above here, sellers in control below there as well. Having a quick look over the DAX here, as you can see, just, you know, coming off a touch, the Eurostoxx. So I'll just switch over before coming back to the DAX. You can see already pushed back to, uh, that R1, having found resistance from levels on the 11th. So keeping an eye on the, on the DAX. You have quite a few previous highs that we have, uh, broken through, which could attract buyers. But you can really see strong push above this trend this morning. I'm not saying we're going to get a full reversal to there, but maybe going in too aggressively on these highs might just be a bit of a bigger risk. Have a look at gold and oil to, to wrap things up. You can see gold relatively flat for the day, just up a couple of dollars. Friday was pretty range-bound before the back end of the session as we broke on. Having a look at this, obviously, for— from the upside, uh, still fair way away. Probably worth having on one of these kind of trend lines to the brief resistance we've had for now. 14.17, a bit of a breakdown this morning. That's somewhere I would have marked up, really between the pivot and that. I wouldn't be too interested in getting involved. Having a look to see if we've got anything from the downside. Not amazing, looks relatively choppy for, for gold, and that's kind of in tune with the price action that we've had here. I'm just dragging this to the last few weeks. You can see no real direction in this big midterm range where you've got the double top, you've got multiple tests of this, this low as well. Not necessarily waiting for either of those to come in, but you might start to get a clearer reaction from that. You could argue we are getting squeezed in as well, just from both directions over the last few days, going back to the 9th, certainly from the top and the bottom. So maybe patience, at least on the Monday anyway, waiting for breaks of that before really looking to get in. Having a look over at oil Here you can see, if I just put this on a longer-term chart, we, we have found some really key resistance here. Definitely at a point where people would have looked to have taken profit for more medium term. You can see support initially on the 13th and 7th of May before the breakdown we had on the 23rd, which signaled a decent push down to almost 50— well, yeah, but just below $51. Decent rally back and the first real test of that area as you'd expect on Thursday, offering a really strong level of resistance. If that was to go at any point to this week, then you'd be looking back at previous highs, you know, 61, 64, and then key breakdown points from anywhere above 62. Uh, last few days on the sessions anyway, you can see we have been trending lower. So to get that bullish feeling back, well, I mean, there's a couple of trend lines. You can see maybe a break above that would be, uh, would be half interesting. Uh, the low of the week— so for the day, I should say— so far was also quite a key level that we had back on Wednesday— Friday, Thursday, Wednesday— as well, and that previous high. So keeping a close eye on those two points, the low and that trend line around the pivot, which isn't necessarily the most respected one, but just as a guide It might be that you finally would get another push if we were to get above that point. Pivot looks key as well, as you had some resistance late there on Friday. We're just holding up, however, on the previous sort of resistance point from the Asian session. As usual, any questions, please do let us know. The strategy report will be, will be out before midday, so even if there's any questions regarding that, please feel feel free to do so. But I hope you all have a good, good trading day. Just quick look over that calendar just to reiterate, likely to be relatively quiet on the, on the data front into the afternoon, and things look a little bit more interesting Tuesday, Wednesday, Thursday as well. So just plan the day and week accordingly. I hope you have a great one as well.